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June 4, 2015

Brazil's Harvest Plan Barely keeps pace with Inflation and Costs

The 2015/16 Agriculture and Livestock Plan (Harvest Plan) released earlier this week by President Rousseff has both positives and negatives for Brazilian farmers. The amount of credit available to farmers was increased by 20% from R$ 156 billion to R$ 187 billion, but the interest rates associated with the loans were increased significantly.

If inflation is taken into account, the amount of credit available to Brazilian farmers in 2015/16 increased by 11% compared to the 15% increase between 2013/14 and 2014/15. The amount of credit offered at market interest rates increased 130% while the amount offered at subsidized rates increased only 7.5%. As a result, 64% of the credit in the 2015/16 Harvest Plan will be offered with subsidized interest rates compared to 80% in the 2014/15 Harvest Plan.

The amount of credit offered at market interest rates increased from R$ 23 billion to R$ 53 billion or an increase of 130%. With the prime rate in Brazil (Selic) approaching 14%, the interest rates charged by banks for agricultural loans is expected to be in the range of 17% to 23% depending on each farmer's individual circumstance. The amount of credit offered with subsidized rates increased only 7.5% from R$ 87.9 billion to R$ 94.5 billion.

Combining all the interest rates from the various types of agricultural loans, Brazilian producers paid an average of 10% in interest in 2014/15 for their loans and that is expected to increase to 14% to 16% in 2015/16.

For larger producers, the interest rates on the subsidized production loans went from 6.5% in 2014/15 to 8.75% in 2015/16. For medium size producers, the interest rates on production loans went from approximately 5.5% in 2014/15 to 7.75% in 2015/16.

The increases in the amount of credit available to Brazilian farmers was touted by President Rousseff as a sign of the government's commitment to support Brazilian agriculture, but in reality, the increases barely keep pace with inflation and the increased cost of production. According to the Mato Grosso Soybean and Corn Producers Association (Aprosoja), from April 2014 to April 2015 the average cost of production in the state increased 10.4%.

Brazilian farmers realize that it could have been worse. During a time of severe budget cuts, agriculture ended up approximately holding even as far as the amount of credit that will be available for the 2015/16 growing season and the increased cost of production. Considering the interest rates that farmers will pay on those loans, they will be spending significantly more on their 2015/16 production loans compared to last year.