December 22, 2010

Brazilian Government Frontloads Credit Program for Farmers

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

The Brazilian government has become much more aggressive in recent years in extending low interest loans to its farmers to cover the cost of producing their crops, commercialization their crops, and the purchase of equipment. They have also speeded up the rate in which the funds are dispersed to the farmers.

The Brazilian government develops a yearly agricultural plan that runs from July through June. During the first five months of 2010/11 Agricultural Plan (July through November), Brazilian producers have already received R$ 41.8 billion which represents 42% of the total funds allocated for the year. This represents an increase of 15% compared to the same period in 2009. The amount of funds allocated for the 2010/11 Agricultural Plan is R$ 100 billion which represents a 7.5% increase compared to the R$ 93 billion allocated for the 2009/10 plan.

The largest amount of money loaned out thus far has been for low interest production loans. Brazilian farmers have received R$ 32.1 billion to purchase inputs and plant their 2010/11 crops. These loans carry a reduced annual interest rate of 6.75%, which represents a significant savings compared to loans from non-governmental sources.

A very popular program with farmers has been one of low interest loans used for the purchase of agricultural equipment. During the first few months that this program has been in existence, farmers have borrowed R$ 2.6 billion and that total is expected to double before the program ends early next year. These loans carry an interest rate of 5.5% and up to ten years to pay off with a grace period of two years before the first payment is due. Equipment manufacturers have been very pleased with the program as well and total equipment sales for 2010 could be the highest since the mid 1970s.

According to Marcelo Guimaraes, the economic coordinator for the Minister of Agriculture, a total of R$ 8.4 billion in funds have been released on a monthly basis, which is by far the highest rate in recent years. He feels that the farmers in Brazil have been given access to enough resources to adequately fund the necessary inputs for the 2010/11 growing season.