June 11, 2012

Lower Interest Rates Key Part of 2012/13 Brazilian Harvest Plan

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

The Brazilian government has announced some initial details of the new Harvest Plan for the 2012/13 growing season with the entire official plan scheduled to be released at the end of June. Two of the major components of the new plan will be a reduction in interest rates and more credit available for small family farmers. The thrust of the new plan will be to help farmers in Brazil recuperate from the disastrous drought that resulted in severe losses for farmers in southern Brazil. Suggestions from over 300 entities went into the development of the new plan.

The Brazilian Minister of Agriculture, Mendes Ribeiro, announced that large producers will see their interest rate drop 0.5% from 6.75% to 6.25%. Medium and small producers will see their interest rates decline 0.25% to 6% for medium producers and 0.75% to 3.75% for small family farmers. In addition to lower interest rates for those who burrow from the Bank of Brazil, the limit for individual burrowers will be increased, old debts will be renegotiated, and new lines of credit will be made available.

The amount of credit for small family farmers will be increased from R$ 16 billion to R$ 18 billion under the new plan. Small family farmers were particularly hard hit by the drought that reduced their grain production and drove up the cost for feed for their small livestock operations. The government is trying to help these small producers by subsidizing the purchase and transportation of corn and soybean meal for their livestock. Agricultural leaders would also like to see repayment plans for these production loans to be altered so that the initial payments do not coincide with the harvest when grain prices are generally at their lowest. New emphasis will also be placed on low-carbon agriculture and environmental preservation. This is important in light of the new Forestry Code which will force landowners to reforest as much as 30 million hectares of land in Brazil especially along rivers and streams. The Forestry Code has been a major source of contention especially for small landowners who feel a disproportional amount of their land will be forced out of production by this reforestation. The Minister of Agriculture counters that no small family farmer will be forced out of business due to the new regulations, but he has not explained how that will be accomplished. Rural Extension is also a new thrust of the 2012/13 Harvest Plan. There are 4.2 million farmers in Brazil and the Extension Service feels they only have enough resources to reach 10% of the farming community. They want to increase that to 20%, but in order to do so, the budget for Rural Extension would have to be doubled from R$ 400 million to R$ 800 million, which is an unlikely prospect.

Part of the Extension Service's mandate is to help educate young people through the National Program to Assess Technical Education and Employment and they would like to see the number of students in that program double as well.

The 2012/13 Harvest Plan will continue to emphasize the need to increase the productivity of existing land as a way to relieve pressure on the clearing of new land in order to increase agricultural production. The rate of deforestation in Brazil over the last twelve months has fallen to the lowest level since records have been kept and the government is keeping up the pressure on farmers to do more with their existing land.