Agro accelerates income in the Midwest and attracts Faria Lima – 04/24/2023 – Market

Agribusiness accelerated the growth of the country’s Midwest economy, with the commodities boom driven in recent years by factors such as the exchange rate and price, which made the eyes of investment managers increasingly turn to the region.

Banks opened new branches, doubled their teams to serve large investors, began prospecting new clients and offering solutions for governance and property succession. The objective is clear: to attract the sector to Faria Lima, in São Paulo, and vice versa.

The region is home to 16 of the 20 richest municipalities in Brazilian agribusiness. Ten of them are in Mato Grosso, including the leader, Sorriso. Mato Grosso do Sul and Goiás have three each.

Among the 100 richest cities in agro, 35 are from Mato Grosso, 13 from Mato Grosso do Sul and 10 from Goiás. They contributed to the region reaching BRL 27.8 billion in income in 2022, or 25.6% more than in 2012, according to data from LCA Consultoria.

This growth phenomenon, which had already been registered since the 1980s, has been accelerated in the last three years due to the favorable exchange rate and the price of commodities in the international market, in the opinion of the chief economist of MB Associados, Sergio Vale.

It is no wonder that agricultural fairs have seen their revenues explode recently. While Tecnoshow Comigo, in Rio Verde (GO), sold R$ 11.1 billion at the end of March, Agrishow, in Ribeirão Preto, plans to sell at least a similar amount in machines between May 1st and 5th. In both cases, fueled by the expansion of crops and sales in the Midwest.

Banco Santander, for example, predicts that the expansion of the volume of its business in the Midwest will reach 30% this year, with a team of 85 people focused on serving the segment.

This year, the bank increased the number of investment advisors for the AAA project in the Midwest by 144% –for clients with more than R$300,000 invested– and, in Goiás alone, opened ten branches in 2022 and mapped another 15 cities with potential.

Itaú Unibanco, since 2021, has 88 professionals to meet the demand of investors in the region, advising 18,000 customers in the regions of Campo Grande, Cuiabá, Goiânia and Brasília, in addition to other locations with high demand for agro.

The sixth edition of Raio-X do Investidor Brasileiro, a Datafolha survey carried out for Anbima (Brazilian Association of Financial and Capital Market Entities), offers another indicator that there is more money available in the region. The total number of people who declared investing in the financial system rose from 33% in 2021 to 43% last year.

It is the same index of the Southeast, which also grew – it had 36% in the previous year. The margin of error in the Midwest is five percentage points and, in the Southeast, two. This does not mean that the regions have the same total number of investors, nor the same amount invested, since the Southeast has close to 88 million inhabitants, compared to less than 17 million in the Midwest.

For the association, the data shows people’s willingness to invest after the negative effects caused by the pandemic.

“The sector’s income has practically doubled in recent years. [do agro] in terms of real mass of income grew double digits in 2021 and 2022 due to these price and exchange rate impacts”, said the chief economist at MB.

The outstanding growth of agriculture in recent years and the still relatively small participation of the capital market with rural producers led the investment group Suno to launch, this month, registrations for a program called Elite Agro, which will gather around 30 entrepreneurs to build a bridge with the financial market concentrated in Faria Lima.

About half of the registrations so far come from entrepreneurs and producers in the Midwest, which is natural given the region’s performance in the sector, says Octaviano Neto, the group’s agro director.

According to him, face-to-face and online meetings are planned both to introduce concepts on the structuring of financial products with agribusiness entrepreneurs and to present Faria Lima’s fund managers with potential businesses that are out of their radar, but with great potential for growth.

“We are going to take Faria Lima to the countryside”, says Neto, who held the position of Secretary of Agriculture of Espírito Santo between 2015 and 2018.

The focus of the group is agro business with small and medium-sized revenues, between R$ 20 million and R$ 300 million per year. “In the case of large companies in the sector, the banks already know and serve them”, he says.

The agro consulting manager at Itaú BBA, Guilherme Bellotti Melo, said that the region’s growth dynamics can be seen by the municipalities’ GDP. “In São Paulo, during this period [desde 2014], GDP per capita increased by 50%, while in Sinop it increased by 170%. It’s very reflective of this industry, which is super competitive,” he said.

Also seeking to bring the field closer to Faria Lima, asset manager Julius Baer hired executive Cristiano Câmara to start prospecting for clients in the Midwest.

The focus is on wealthy families, with at least R$ 25 million in assets, who seek not only to diversify their investments, but also to advise on aspects such as retirement and succession planning.

“We hire people to work in regions that show economic growth and relevance”, says Fernando Vallada, CEO of Julius Baer in Brazil. The manager already had a representative in Porto Alegre, and as of this year, in addition to the Midwest, executives were hired for Paraná, North and Northeast.

“It is a natural movement for the financial market to pay attention to productive Brazil, the Brazil that has been generating growth for many years, with agriculture and the Midwest being great exponents”, says Câmara, who will be based in Goiânia.

He said that it is still common to see holders of large fortunes in the region with illiquid investments, such as land and real estate, and that he began to perceive the search for greater sophistication, with a growing interest in new investment options in the financial market.

origin and future

The cycle of economic expansion in the Midwest is not new, but the increasing presence of Brazilian agriculture in international trade has caused the region to grow well above the national average.

Mato Grosso’s GDP between 1986 and 2023 grew 695%, while Brazil accumulated 108.7% in the period, according to calculations by MB Associados. Mato Grosso do Sul expanded 273%, Goiás, 188% and the Federal District, 170% in the same interval, all above average.

If we analyze the data from 2012 to now, agro stands out even more. Mato Grosso and Mato Grosso do Sul grew by more than 10% in the period, while Brazil had a reduction of 4.7%.

“This has been going on for a long time, it started way back in the 80s, 90s, if we analyze the expansion of this region we can see that the differentiation of the Midwest region from the rest of the country has been going on for at least 40 years, precisely because of the agricultural issue . These are states that have a very strong weight in the agribusiness chain, which drives other segments”, said Vale.

The positive impacts of agriculture, he said, allow the growth of services and industries, even if they have no direct link with agriculture, and the improvement of social indicators.

This phenomenon will continue in 2023 and in the coming years, in the assessment of the market. Santander’s economic department estimates that, while the Brazilian GDP is expected to grow by 0.8% this year, agricultural activity will expand by 7.6%, avoiding a greater economic slowdown.

Another point, says Vale, is that maize could play an even more relevant role in the national economy in the coming years. “Corn is becoming, perhaps in the next few years, what soybeans were in the recent past, from the point of view of China becoming a major buyer of this input. The United States is a major producer, but it uses a lot domestically. […] We cannot forget that the world, outside of China, is also growing. The Midwest, which is already this granary, will continue to grow even more.”

New generation of agro improves governance to increase access to capital markets

Co-responsible for EQI Asset’s agribusiness strategy, Eça Correia says that, with a second generation of agribusiness families starting to take over the businesses structured in the 1980s by their parents, it is possible to notice a greater concern with the improvement of business governance in order to facilitate raising funds via the capital market, which in recent years has come to represent an alternative to traditional financing via banks.

“The capital market was structured to receive these producers, working in debt issuance operations distributed to retail, and it is only possible to do this as long as the company has decent governance, managing to raise funds at a cheaper cost”, he says. the executive.

Of the base of approximately 75 thousand investors at EQI Asset, around 10% reside in regions whose main vocation is agribusiness, which encourages the development of operations related to the sector.

In this sense, the manager just structured, in March, a CRA (Certificate of Agribusiness Receivables) of R$ 115 million to finance the rural producer Agropecuária Bandeirantes, whose main activity is the cultivation of sugarcane, also operating in the planting of rubber trees and cereals.

The offer attracted around 3,300 individual investors, in a six-year term operation with a rate of return of CDI plus 4% per annum.

Correia also says that the manager plans to launch a Fiagro (Investment Fund in Agroindustrial Chains) between the end of the first and the beginning of the second half of the year to take advantage of the opportunities he sees in the sector. Fertilizers, rail and river terminals and storage structures are among the investments on the fund’s radar.

“As agriculture is, historically, very resilient, investors feel safer to invest in the sector, which facilitates fundraising”, says the EQI Asset executive, adding that plans are also underway to launch a CRA in May backed by the dollar, which will provide protection to rural producers who, in many cases, have an important part of their costs exposed to fluctuations in the exchange rate.

Octaciano Neto, from Suno, adds that the manager of the Suno group, Suno Asset, launched in April last year a Fiagro that totals around R$ 300 million and 40,000 shareholders.

The group’s director says that around 70% of the portfolio is concentrated in investments in the Midwest, with the contributions so far focused on the soy market. “Soy has become the Brazilian star. Almost 30% of the gross value of agro production is soy”, says Neto.

Neto also says that, given the opportunities he sees in the sector to diversify the portfolio into other crops, such as beef and dairy cattle, forestry operations and corn planting, the manager is considering promoting a new round of fundraising for the fund aimed at agribusiness.

“We will continue to look very strategically at the Midwest region, which, along with the state of São Paulo, has the greatest dynamism for our agriculture and livestock.”

Launched in October 2021, the Fiagro have been on a practically uninterrupted growing trajectory in terms of joining new interested parties, adding up to around 240,000 investors and BRL 7.6 billion in invested volume, according to March data from B3.