BRAZIL: Government boosts farm credit by 7.5%

Published: 06/29/2012, 1:03:43 PM

Brazil will make it easier and cheaper for its farmers to obtain loans this season, as global credit normally available to its world-leading growers of coffee, sugar and grains dries up, according to Bloomberg.

The government will expand funds allocated to farm credit by 7.5% from last year to BRL115.2 billion (US$55 billion) for investments in land, machinery, planting, harvesting and selling crops, Agriculture Minister Mendes Ribeiro said in the announcement of the annual Farm Plan on Thursday.

He also said that the base interest rate on the government subsidized loans in the package would fall to 5.5% a year from 6.75%. Brazil's benchmark Selic interest rate is now at 8.5% and falling.

The easier credit should help soybean farmers in Brazil's southern states, where drought over the past season withered crops. The sugar and ethanol sector has also been badly hit by erratic weather in the last two seasons.

But the most painful changes over the past years for Brazilian farmers have been the strong real against the dollar, the rising cost of labor, fuel and fertilizers and the closing of important European credit lines that had been a regular staple for the sector.

"The competitiveness of Brazilian farming is up to the challenge of the crisis," President Dilma Rousseff said at the announcement of the Farm Plan in Brasilia, adding that the funds for the sector will help it gain global market share.

Since late 2011, European banks, a leading source of financing for raw materials trade across the globe, have been paring back loans in order to meet capital requirements as writedowns in portfolio asset values grow.

In March, Brazil's central bank also limited foreign credit here when it implemented a 6% tax on medium-term loans offered to exporters by banks. These loans are critical for major commodity producers across the globe to finance their operations.

The cost of fertilizers, of which Brazil imports more than 80% of its needs, has more than doubled since 2008. Equally, the cost of labor has more than tripled over the past decade.

Before the real started falling in March, growers of export crops such as sugar, coffee, soybeans and increasingly corn had been hurt over the past years by the strength of the local currency against the dollar, which cut their profits.

Historically high prices for Brazil's main export crops of soybeans, sugar and coffee have helped offset some of the recent hurtles local farmers are facing, Flavio Franca Jr, president of local agricultural analysts Safras e Mercado said.

The new Farm Plan will also help in a tighter credit environment, he added.

"The government's decision to ease the limits and allow producers carry more debt is a good sign. It will not totally eliminate the sector's need to find some alternative financing but it will ease that burden," Franca said.