May 10, 2016
Brazil's 2016/17 Harvest Plan Viewed as "Timid" by Farmers
The Brazilian President, Dilma Rousseff, and the Brazilian Minister of Agriculture, Katia Abreu, announced last week the 2016/17 Agriculture and Livestock Plan, which is commonly referred to the 2016/17 Harvest Plan. This is the yearly "farm program" in Brazil that consists mainly of subsidized interest rates for production loans and investment loans.
The government announced an 8% increased level of funding for the various programs, but with much higher interest rates than last year. The total funding for the 2016/17 Harvest Plan was put at R$ 202.8 billion, up 8% compared to the R$ 187.7 billion in 2015/16. The big difference though are the interest rates. Last year's plan had interest rates of 7.75% to 8.75% depending on the type of loan and the individual. The 2016/17 Harvest Plan has interest rates of 8.5% to 12% with much of the credit being available at market interest rates, which are much higher.
The loans in the 2016/17 Harvest Plan are divided into two types. The first type is production loans for the planting and marketing of the 2016/17 crops and the second type is for investment loans for such things as equipment purchases. For production loans, there is R$ 115.8 billion available with subsidized interest rates and R$ 53 billion available at market interest rates, which can surpass 20% depending on an individual's financial situation. For investment loans, there is R$ 4 billion available at subsidized interest rates and R$ 30 billion available at market interest rates.
Here are some of the important points of the 2016/17 Harvest Plan:
- The funding for the Harvest Plan was increased slightly less than the rate of inflation.
- Funding for the program is R$ 202.8 billion with higher interest rates than last year.
- For farms with more than 500 hectares, the credit limit per individual for production loans was increased from R$ 1.2 to R$ 1.32 million. Farm organizations had requested a limit of R$ 2.4 million.
- The amount of credit for investment loans declined 11% from last year.
- The limit per individual for investment loans is R$ 430,000.
- There was an increase in credit for production loans, but a decrease in credit for investment loans.
- Farmers feel this is a very timid plan.
- Farm organizations had requested R$ 225 billion in funding for 2016/17 and lower interest rates. In the end, they received less funding than they had requested and it came with higher interest rates.
- Farmers feel that the funding for crop insurance is inadequate.
- Farmers contend that the cost of production has increased more than the increase in the available credit.
- The program takes effect on July 1, 2016.
Brazilian farm organizations criticized the plan immediately after it was released and they declared that the plan was "dead on arrival." They based much of their criticism on the fact that President Rousseff and the Minister of Agriculture may not be in power as soon as this week.
The Brazilian Senate is scheduled to vote this week on whether to impeach the president for financial irregularities. A simple majority vote is needed to proceed with an impeachment trial and a majority vote is virtually assured.
Note - But, as of this writing, the entire impeachment process in Brazil has been thrown in turmoil. Last week, the Supreme Court in Brazil removed the Speaker of the Lower House due to charges of corruption. The second in command assumed the Speaker's role and on Monday he promptly declared that the vote to send the impeachment proceeding to the Senate was flawed and that the vote in the Lower House must be annulled and a new vote taken within five days. At this point, everything in Brazil is "frozen" and it is very unclear where this process goes from here. Stay tuned!!
The president previously announced R$ 30 billion program of low interest loans for small family farmers. The interest rates on these loans is only 2.5% and it is widely seen as an attempt by the president to curry favor with her supporters prior to the impeachment vote this week.
Agricultural groups are also very skeptical of the government's commitment to fully fund the 2016/17 Harvest Plan in light of soaring deficits and plunging tax revenues. The Brazilian GDP is expected to shrink 4% in 2016 for the second year in a row and the Brazilian economy is not expected to resume growing for another one or two years.
Summary - Brazilian farmers are frustrated with the 2016/17 Harvest Plan because they view it as "more of the same." In my opinion, I thought the plan turned out to be better than I expected. Given the enormous obstacles facing the Brazilian economy, I expected draconian cuts in the farm program, but that did not occur - at least not yet.
It seems like President Dilma continues to be in a "state of denial" concerning the Brazilian economy, which I would characterize as being on "life support." She continues to promise more money for major social programs in an attempt to save her presidency, but most observers do not think it will work. If Vice President Temer assumes the presidency, he will have to make the difficult decisions that she refused to make. Therefore, I would not be surprised if the funding for the 2016/17 Harvest Plan ends up being lower than what is currently being proposed.