Brazil suspends subsidized agricultural financing; deadlock impacts next harvest

RIO DE JANEIRO, BRAZIL – The Ministry of Economy said that financial institutions operating credit lines subsidized by the National Treasury are being notified to immediately suspend new contracts for subsidized financing, at a time when there are still over R$9 (US$1.71) billion in resources to be contracted in the 2020/21 Crop Plan forecast.

Although the suspension of funds occurred as the crop year draws to a close, this affects producers who typically take out loans now to prepare for the next season’s costs, according to a specialist from the Brazilian Confederation of Agriculture and Cattle Raising (CNA), who also drew attention to the uncertainties posed by the next Crop Plan.

The suspension, which mainly affects small farmers at the end of the season that runs from July to June, was decided after the National Congress approved the Annual Budget Law (LOA) with the cancellation of funds related to PRONAF (R$1.350 billion), business funding (R$550 million), and business investment (R$600 million), totaling R$2.5 billion.

“Given that these cancellations impact the budgetary availability to make interest rate equalization payments… a letter is being sent to the financial institutions that operate the lines equalized by the Treasury determining the immediate suspension of new contracts,” the Ministry of Economy said in a statement.

A ministry official had alerted in mid-April that this would happen due to the cuts implemented in the Budget, saying that they could impact the next Crop Plan (2021/22).

The day before, Agriculture Minister Tereza Cristina appealed to legislators for the Congress to vote quickly on Budget issues, so that the Ministry may submit the new Crop Plan, Brazil’s main financing instrument, particularly for small and medium-sized farmers.

In a statement, the Ministry of Economy also said that after the approval of the PLN No. 4/2021, “and assuming the recomposition of the values of the budget actions used to pay the expenses resulting from the Crop Plan subsidies, there will be a resumption of rural financing contracts with federal subsidies.”

The Ministry also said that, of a total of R$72.9 billion in resources available for the 2020/21 Crop Plan that count on subsidies from the National Treasury, R$63.5 billion have already been contracted.

“Thus, there are still R$9.4 billion left to be contracted.”

Without an agreement on vetoes, Congress on Tuesday deferred voting on a bill that supplements this year’s budget by almost R$20 billion.

Uncertainties

According to the technical advisor of Agricultural Policy at CNA, Fernanda Schwantes, the problem of lack of resources now is for producers who would contract purchases of supplies for the next harvest.

“The institutions provide the pre-costing, which is the resource that is left over from the Crop Plan, before the new plan,” she said, noting that the budgetary situation will affect mainly small and medium farmers.

The other impact of credit suspension is on the next harvest itself.

“Without a budget, the Crop Plan is basically unviable, there is no budget for equalization of interest rates, and this is bad at a time when production costs are increasing… this lack of definition creates expectations in the market,” she said.

“We have no idea how this Farming Plan 21/22 is going to unfold. And the increase in the SELIC has an impact on financing institutions’ funding costs…,” said Fernanda, referring to the increase in the basic interest rate the day before and recalling that the Ministry of Agriculture was working with the possibility of expanding the funding resources in 21/22. “Since the budget issue has not been resolved, it is difficult to maintain expectations,” she added.

She also commented that, as it stands today, the resources for subsidizing agricultural insurance on 21/22 are also at risk. A total of R$1.3 billion was expected to be released, but only R$976 million have been approved so far.