January 24, 2011

Brazilian Government Acts to Stimulate Rubber Production

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

Rubber producers in Brazil are also benefiting from the general worldwide rise in commodity prices. Domestic rubber prices in Brazil are at ten year highs and they are expected to stay strong due to the increased domestic demand for raw rubber. During 2010, domestic rubber production in Brazil was 130,000 tons and by the year 2030, it is expected that the domestic demand for rubber in Brazil will hit one million tons. Currently, domestic production accounts for only 30% of the rubber used in Brazil and more than 80% of the rubber produced in Brazil goes into making tires. During the last four years, automobile production in Brazil has increased 27% and in 2010 alone, automobile production in Brazil increased 14%.

In order to meet the ever increasing demand for rubber, the federal government has launched a series of programs designed to stimulate rubber production with the ultimate goal of becoming self sufficient in rubber production.

The most recently introduced program to stimulate rubber production was included in the Agricultural Plan for 2010/11. The program is called the Agricultural Program for Lower Carbon (ABC) and it provides low interest loans for the planting and maintenance of permanent tree crops including rubber trees. A R$ 2 billion line of credit has been allocated to the program at an interest rate of 5.5%, which is less than half the normal interest rate.

Another program called the Commercial Planting and Recuperation of Forest, which was created in 2002, was designed to stimulate the planting and maintenance of economically viable forestry projects. This program contained a maximum loan amount of R$ 200,000 per individual producer, but that was increased in 2010/11 to R$ 300,000 per individual. These loans also have a very favorable interest rate of 6.75%.

All combined, over the last two years there has been R$ 44 million worth of loans applied toward increased rubber production. These programs are available for small producers as well as large producers.

Rubber has also been included in the guaranteed minimum price program for agricultural products that was started in 2005. The minimum price set for rubber is R$ 1.53 per kilogram of raw rubber. Rubber production in Brazil is eight times higher than it was 18 years ago and the state of Sao Paulo is the leading producer with 55% of the total followed by Mato Grosso at 14%.

In addition to stimulating the production of forestry products, these programs also help to achieve Brazil's goals of reducing greenhouse gas emissions. Approximately 70% of the greenhouse gases emitted from Brazil come from deforestation. The government has been working very hard to reduce the rate of deforestation and it is now stands at the lowest level in at least 25 years. The second and equally important part of the program is to increase the acreage of tree crops that can act to sequester some of the carbon as well. Fitting into this second part of the program is the planting of rubber trees, increased wood pulp production, and palm oil production.