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June 5, 2017

Brazil's "Harvest Plan" to be announced this Week, Draws Criticism

The Brazilian government is set to release their 2017/18 "Harvest Plan" for commercial agriculture on Wednesday, June 7th, but it is already drawing widespread criticism. Last week, the Brazilian Minister of Agriculture, Blairo Maggi, announced that the interest rates on production and equipment loans for commercial farmers in the next plan would decline by approximately 1% compared to last year and that the total amount of resources available would be about equal to last year.

This is not setting well with farm organizations and local government officials who feel that reducing interest rates only 1% is not enough to sustain growth in the most successful sector of the Brazilian economy. The "Harvest Plan" is the blueprint for Brazilian agriculture and the main component of the plan is subsidized interest rates on production loans and equipment loans.

The Secretary of Agriculture for the state of Sao Paulo, Arnaldo Jardim, reiterated last week that in light of low commodity prices and tight margins, a more aggressive approach is needed to sustain growth in the agricultural sector.

He indicated that the prime rate a year ago was 14.25% and it is now 10.25%. The prime rate is expected to fall further by the end of the year to 8-9%. Inflation a year ago was 6.5% and it is now 4.2% and it is expected to fall another 2% this year and continue declining in 2018.

He feels that the interest rates on production loans and equipment loans should at least decline in proportion to how much the prime rate has declined. By his rational, if the rate does not decline in proportion, then it is in a sense an increase in interest rates for farmers.

The Brazilian government has already announced the interest rates for the part of the Harvest Plan concerned with small family farmers called the "National Program for the Strengthening of Family Farmers (Pronaf)". The interest rate for this program will be 2.5% for the production of rice, dry beans, manioc root, milk, garlic, tomatoes, onions, potatoes, pineapple, bananas, and oranges. Most of these basic food stuff are produced by small family farmers and this program is aimed at controlling inflation and holding down costs to consumers.

The interest rate will also be 2.5% for small family farmers for investments in irrigation, storage, sustainable practices to conserve soil and water, and renewable energy.