December 5, 2013

Program for Grain Storage Facilities in Brazil off to Slow Start

As part of its Harvest Plan 2013/14 announced in June, the Brazilian government included a R$ 25 billion line of credit designed to stimulate the construction of grain storage facilities in Brazil. The money is to be loaned out over a five year period at the rate of 5 billion per year. Farmers and cooperatives will be able to borrow the money at an interest rate of 3.5% with a three year grace period before the first repayment and 15 years to pay off the loan.

During the 2013/14 growing season 4.5 billion is available for grain storage construction and 500 million is available for small family farmers. According to a report in the Gazeta do Povo newspaper in Curitiba, Brazil, during the first five months of the program just R$ 12 million in loans have been approved, which represents only 0.26% of the total allocated for the first year.

The program is being administered through the Banco do Brasil and bank officials defend their slow pace of loan activity saying that these are more technically involved loans than just buying a tractor for example. Bank officials have indicated that there is intense interest in the program and they feel the loan activity will be concentrated during the first half of 2014.

One of the reasons for the slow approval process is because the construction of the storage units requires an environmental license before construction can begin. Obtaining an environmental license from the state government is a slow and cumbersome process in Brazil. Once the license is secured, processing the loan at the bank could take another 30 to 90 days.

Additional storage is badly needed to accommodate the rapidly expanding grain production in Brazil which is expected to hit 200 million tons during the 2013/14 growing season. The lack of adequate on-farm storage forces farmers to move their grain during the harvest period when transportation costs are the highest. The lack of storage also places added stress on the inadequate infrastructure in Brazil leading to long delays from the fields in central Brazil to the ports in southern Brazil.

Farmers in Brazil are also hampered in the marketing activity if they are forced to sell at harvest or pay monthly storage costs at outside facilities.