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March 25, 2016

Brazilian Farmers Look for Alternative Financing

As traditional financing from banks becomes harder to find in Brazil, farmers are searching for alternatives. The percent of financing from banks and grain companies for the 2015/16 crops in Brazil declined compared to the 2014/15 crop while financing from personal resources and cooperatives increased in 2015/16.

According to a study conducted by the Federation of Industries in the State of Sao Paulo (Fiesp) and the Organization of Brazilian Cooperatives (OCB), which was reported in the Gazeta do Povo, the percent of the total financing for the 2015/16 crops that came from banks declined from 51% for the 2014/15 crop to 42% for the 2015/16 crop. The percentage financed by grain companies also declined from 3% to 2% for the same period. In contrast, the financing from personal funds increased from 35% in 2014/15 to 41% in 2015/16. The funding from cooperatives also increased from 8% of the total to 10% of the total.

One of the reasons for the declining percentage of financing from banks was the delay in liberating funds from the Brazilian government in 2015. Most Brazilian farmers purchase their needed inputs for the next crop during the March-April-May period. This is before the new Harvest Plan takes effect in Brazil, which is July 1st. To make up the difference, the Brazilian government usually releases what is called "pre-cost" credit in February or March so farmers can start the purchase of their inputs. In 2015, those funds were not released until May, which forced farmers to look for alternative sources of financing.

For the 2016/17 growing season, Brazilian farmers are very concerned about the increasing cost of production due to a devalued Brazilian currency which make imported items such as fertilizers and agricultural chemicals more expensive. The Mato Grosso Institute of Agricultural Economics (Imea) has already forecasted that the cost of producing the 2016/17 soybean crop will increase 12% compared to the last growing season. It remains to be seen if there will be a comparable increase in available credit and what the interest rates will be for the production loans.