Lula must boost program to try to “overcome” Bolsonaro

On the eve of the announcement of the 2023/24 Crop Plan, scheduled for June 27, the only “certainty” of farmers is that President Lula (PT) will announce a large number, greater than the resources made available in the last year of the mandate of Jair Bolsonaro (PL), to then say that “never before in the history of this country has a government supported agro so much”.

The likely increase in resources to equalize the interest on loans to producers does not just involve a political gesture by the government in search of sympathy from the sector and the 300 votes of the agro-caucus in the Chamber. It is the short-medium term economic scenario itself that creates the conditions to increase the bet on agribusiness, which was the main driver of GDP in the first quarter, growing 21.4% over the last three months of 2022.

In practice, everything revolves around the interest rate. And even though the Central Bank has not clearly signaled a slowdown, the market sees a trend towards a downward curve from the current 13.75% per annum. In addition, with a lower dollar, contained inflation and the stock market on an upward trend, the reading is that the government will be able to equalize interest rates for more people using the same volume of money. Equalization is the difference that the Treasury pays between the rural credit rate and the market rate.

Safra Plan may yield more according to the interest rate scenario

“The calculation is simple. The government comes to the banks and tells them to raise money from savings, from that credit mix. And than you lend to producers, I pay so much [dos juros]. If the economy’s interest rate drops, as indicated, when the bank borrows this money, it will pay less. So with the same amount of equalization the government reaches more people. Or he can increase equalization and lower the interest rate to producers even further. You have to see how much the government really wants, from a political point of view, to encourage more agro or not”, says Luiz Cláudio Caffagni, financial consultant in agribusiness.

In 2021, the Union spent BRL 22 billion on financial subsidies, i.e. cheaper interest on loans, in various sectors of the economy. Of these, only R$ 6 billion went to equalize farmers’ interest. In the 2022/23 cycle, the average interest rate for the Safra Plan was 8.8%. “If you lower it to 7.5%, which is a significant drop, you will need something around R$ 6.5 billion to equalize. That is, you don’t need to allocate a lot of money to lower the rate”, highlights Caffagni.

“The government is currently in a situation where it can be more daring, yes, increase the amount of subsidies and even lower the interest rate a little. We see the DI Futuro (contract on the Exchange) falling, the Stock Exchange rising, the entire market is believing in the economy. The wind is in favor. So it’s mathematical. If I’m going to borrow a little cheaper, I can lend cheaper, ”he says.

Equalizing interest would be State policy, not favor

If he significantly raises equalized interest rates for farmers, Lula will not be doing “a favor” to agribusiness, although naturally he should try to capitalize on that.

“This is the government’s obligation, it is State policy, which helps Brazil to be competitive and to play a leading role in food production and agro-industrial production. There is no agricultural production in Brazil without the Crop Plan. Our production is among the least subsidized in the world, we need to be competitive”, says federal deputy Pedro Lupion (PP-PR), president of the Agricultural Parliamentary Front (FPA).

Lupion emphasizes that on certain “hairy” issues, such as the MST and the use of pesticides, there are many ideological disagreements that are difficult to understand with the PT government. Regarding the financing of the harvest, however, the PT governments in the past would have made positive plans. “Let’s hope they keep doing it”, he stresses.

In this next cycle, the intention of the Ministry of Agriculture is to create differentiated interest rates to reward producers who adopt sustainable practices. Minister Carlos Fávaro’s team proposes a discount of up to three percentage points on the standard rate, while the Ministry of Finance agrees to offer half of that.

“This idea of ​​the environment, of sustainability, is music to our ears, because we’ve accomplished all of that. We already have direct planting, good practices, Permanent Preservation Areas, Rural Environmental Registry, Legal Reserve. If the government manages to seek resources to further equalize interest rates for producers who adopt good practices, it will be extremely positive”, says Lupion.

Of the resources needed to finance the Brazilian grain harvest, estimated at R$ 700 billion, about one third comes from the banking system and, within that fraction, one third is contemplated with interest rates equalized by the Safra Plan. The comparison with the country’s main competitors removes any discourse of undue favoring Brazilian farmers.

European Union subsidizes agriculture 15 times more

A survey by the Center for Advanced Studies in Applied Economics (Cepea/Esalq/USP) shows that the participation of the government’s Direct Support to Rural Producers (PSE) corresponded to 1.35% of gross agricultural revenue (RBA) in the period between 2015 and 2020. In comparison, in the European Union this ratio was 19.33% in the same period; in China, 12.17%; in the United States; 11.03%; and, in Russia, 6.68%.

“In general, the budget of these economies to create subsidies is greater than ours because they have more income, they are richer. It is noteworthy that, even with a smaller coverage and operating in less favorable conditions, the producer learned to move the boat in these adverse conditions”, says Felippe Serigati, professor at the School of Economics of São Paulo at Fundação Getulio Vargas (FGV EESP).

Most Brazilian producers do not benefit directly from the Plano Safra interest rates. Many finance activities with their own resources or by doing barter operations. [troca] with input suppliers and trading companies, or even resorting to conventional bank loans.

A survey by the National Confederation of Agriculture and Livestock (CNA) two years ago showed that 38% of producers had never accessed any type of rural credit. Among the difficulties are the excess of bureaucracy, the requirement of various guarantees, the delay in releasing credit and the lack of information.

Theoretically, the Safra Plan would be necessary for what economists call “market failure”. Basically, for small and medium producers. “For them, if you are going to practice market prices that reflect the cost and risk associated with the agricultural operation, which is an open-air factory, the price of credit simply makes production unfeasible”, argues Serigati, from FGV. With dysfunctional interest rates, however, more people than the small ones need the government’s blanket.

Without interest equalization, investments are unviable

“We talked about market failure. But imagine the producer who wants to buy a machine, equipment or reform the pasture, and will pay in ten years. Ten years from now, if all goes well, or if things don’t go so wrong, interest rates won’t be operating at this level of 13.75%. Taking out credit now and stopping at that level is very bad. This simply makes the investment unfeasible. And then the government needs to act. You have to make a decision and decide who will receive which coins”, exemplifies Serigati.

The ideal, according to the analyst, would be for the private credit market to be able to meet the demands for rural financing. There was a glimpse of this in 2020, when the basic interest rate reached 2% per annum, and the real economy attracted investors.

Several private financing instruments, such as Agribusiness Receivables Certificates (CRAs), Agribusiness Letters of Credit (LCAs), Rural Product Bills (CPRs) and Investment Funds in Agroindustrial Chains (Fiagros) proved to be economically viable and competitive. The rise in interest rates, however, made investors retreat, making more producers dependent on public policies, and not just the small ones.

“We are not a jaboticaba at this point. Who has to offer credit is the banking market, it’s the financial sector. They have a more diversified portfolio. They cannot do this because operations in the agro universe are riskier and because the cost of capital in the Brazilian economy, our reference interest rate, the Selic, operates at structurally very high levels”, he concludes.

Agro still lacks strategic technical-scientific support

Since the mid-1990s, the Brazilian government has maintained initiatives to serve small-scale and family-run farmers, such as Pronaf. However, apart from the debate on funding, the country would still be far behind, compared to its competitors, in terms of development policies for general services to agriculture.

For Rodrigo Peixoto da Silva, macroeconomics researcher at Cepea, the issue is not limited to direct transfers to farmers, but involves professional training, logistical infrastructure, dissemination of knowledge, technical assistance and rural extension, research and scientific and technological development for a range of wider range of products.

“The logic to be followed tends to be to encourage competition by recognizing differences. But this path is long”, ponders the researcher.