New decree facilitates foreign financing in Brazilian agriculture

. Feb 21, 2020
New decree facilitates foreign financing in Brazilian agriculture Soybean plantation. Photo: Alf Ribeiro/Shutterstock

Brazil is one of the largest agricultural producers in the world, being the third-largest exporter behind only the U.S. and the European Union. Over the past three years, the sector has grown steadily, rising from 216 millions tons of produced grains in 2017 to 240 millions tons last year. But the results could have been even better, with the agriculture industry highly dependent on public funding and subsidies from the federal government. A new decree, however, increases the possibilities of private financing and is on the cusp of approval.

</p> <p>For the next decade, the outlook for Brazilian agriculture is solid. A study by the Ministry of Agriculture estimates that Brazil will increase its grain production by 300 million tons by 2030, an increase of 27 percent. However, a decrease in production back in 2017 still hangs over the sector, having interrupted a seven-year cycle of growth.</p> <p>Among the main causes of this oscillation was the stagnation of the total money available for Brazilian agricultural production, which is heavily reliant on money from the public sector and government.</p> <p>The federal administration&#8217;s Harvest Plan is a program that makes public money available to finance crops from rural producers. BRL 187 billion was released for 2015–2016, BRL 185 billion between 2016 and 2017, BRL 190.25 billion in 2017–2018, and BRL 191 billion for the last harvest in 2018–2019.</p> <h2>The Agro Decree</h2> <p>To make farmers less exposed to this dependency and seek a solution to supplement the increasingly scarce public funds, the federal government submitted a <a href="https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra;jsessionid=C9AB151744A69005FE3722C4C887CF9A.proposicoesWebExterno1?codteor=1814634&amp;filename=MPV+897/2019">provisional decree</a> that increases the possibilities of private financing.</p> <p>Recently ratified by the House of Representatives, one example of the alterations brought in by the so-called &#8220;Agro Decree&#8221; is the permission for rural producers to obtain credit security for a fraction of their property. This model was a solution found by the government to increase the entry of foreign capital in Brazilian agriculture, as domestic laws restrict the purchase of land by foreigners.&nbsp;</p> <p>In addition to directly affecting development and competition, these rules—under the excuse of upholding sovereignty—limit foreign interest in lending money to Brazilian farmers because, in the event of default, there would be no way to assume ownership of the land.</p> <p>Antonio Carlos de Oliveira Freitas, a lawyer specialized in credit and agricultural markets, explains that the possibility of fractioning rural properties and offering a portion as collateral would solve the problem, in theory. “They made this change to make this asset viable for foreigners. Before, if the debtor did not pay, the foreign creditor would not be able to use the guarantee,” he details.</p> <p>But the decree may yet undergo alterations. There is a bill pending in the Senate that would change the rules for foreigners to buy Brazilian land. The proposal reduces the limitations on property size and requires the area to be productive and fulfill a social function, as foreseen by the <a href="https://brazilian.report/podcast/2018/10/05/podcast-brazilian-constitution/">Constitution</a>.</p> <p>Also, with regard to financing, the Agro Decree would allow revenues obtained from decarbonization credits to be exempt from income tax. This mechanism is calculated in accordance with the volume produced by biofuel farmers or importers, representing the pursuit of goals to reduce greenhouse gas emissions.

 
Brenno Grillo

Correspondent in Brasília. Journalist since 2012, is especialized in cover Law and Justice. Worked in comunication agencies untill be choosen to be an intern in O Estado de S.Paulo. Also worked in Portal Brasil and political campaigns. His last job was in ConJur, website especialized in Justice news.

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