Oct 11, 2010
Brazilian Farmers Still Struggling to Retire Old Debts
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Even though rains have returned to central Brazil and commodity prices are strengthening, many farmers in Mato Grosso are still trying to dig themselves out of debts they incurred years ago. In fact, there are recent reports of planters and tractors being repossessed by banks and manufactures at the very time that the farmers have started to plant their 2010/11 crops.
The problem stems back to 2003 and 2004 when the Brazilian government initiated a program of subsidized loans for the purchase of agricultural equipment. The subsidized part of the loan was in the form of reduced interest rates and no payments for the first year of the loan. The interest rate on the loans was 13.88%, which in fact was a bargain at the time when private banks were charging 20% to 22% interest for similar types of loans. There were no payments required for the first year and the loan had to be paid off within five years.
The entire program seems like a good idea at the time, but a subsequent decline in commodity prices put farmers in a hole from which they have not been able to climb out. When the loans were made, soybean prices in Mato Grosso were in the range of R$ 40 to R$ 42 per sack, but within one year, they had fallen to R$ 27 per sack and many farmers did not have enough cash flow to make even the first payment on the loans.
In seceding years, there have been numerous programs where farmers could roll over their loans, but each time they did so, they got deeper and deeper in debt with little chance of paying off the original note. Today, it has gotten to the point that even if the piece of equipment is repossessed and sold at auction, the sale only covers a small portion of the debt that has been increasing rapidly over the subsequent years.
Farm organizations have repeatedly petitioned the federal government for a solution to this problem, but none has been forthcoming.