April 1, 2011

Popular Financing Program in Brazil Extended Until End of 2011

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian government announced the extension of a very popular subsidized financing program for the purchase of agricultural machinery until the end of 2011. The program is called the Sustained Investment Program (PSI) and it is administered through the Southern Regional Development Bank (BRDE) for agricultural producers in Mato Grosso do Sul, Parana, Santa Catarina, and Rio Grande do Sul. Similar programs are offered to producers in other regions of Brazil as well. The program offers very low interest rates and generous repayment terms.

The program was started in 2010 as a way to help both equipment manufactures and farmers to recover from the worldwide financial crisis. It was originally scheduled to end in December of 2010, but the program was so popular that it was extended until March 31, 2011. Once again, due to the popularity of the program, its life has been extended again until December 31, 2011.

The interest rates for the equipment purchases vary depending on the size of the farming operations. For micro, small and medium size producers, the interest rate varies from 5.5% to 6.5% per year. For large operations with more than R$ 90 million gross income per year, the interest rate is 8.7%. Regardless of which interest rate a producer qualifies for, this is by far the cheapest type of loans available in Brazil. If a producer obtained a loan from the private sector, the interest rate would be 20% or higher.

Another big advantage of the program is the generous repayment terms. Burrowers can have up to ten years to repay the loan with a grace period of up to two years before the first payment is due. For small and medium producers, the loan can be for up to 90% of the purchase price. The one stipulation is that the loan must be for the purchase of new agricultural equipment manufactured in Brazil.

Just in the state of Parana alone, the program loaned out R$ 205 million in 2010 including R$ 75 million for small and medium size producers. Bank officials expressed confidence that they have enough available funds to meet the anticipated high demand in 2011.