South America Calling

Brazil Mulls Offering Ag Bonds to Expand Credit

Brazil's government is looking at ways of allowing foreign investors to lend to farmers as a means of expanding credit given the current crunch.

Agriculture Minister Katia Abreu is backing rule changes that would allow farmers to issue agricultural bonds called CRAs in dollars, an idea that has the support of the Brazilian Central Bank and the Finance Ministry.

Last year, official farm credit for the 2015-16 crop was released very late, inhibiting spending on the crop. And it has become obvious that farm credit will again be tight in 2016-17

Government banks are currently offering farmers pre-season operating credit but the guarantees and demands required are making the lines increasingly difficult to obtain. So, like last year, farmers are increasingly looking to private banks and trading companies for operating credit or resorting to barter.

CRAs are bond linked to ag transactions, typically forward sales of soybean and other crops. They have proven popular with domestic investors.

Bayer recently issued R$108 million in bonds and received from investors for R$4.1 billion, Folha de S. Paulo, a local daily, reported. However, this demand comes principally from wealthy individuals as institutional investors do not receive the income tax break offered to private citizens.

The guarantee on the bond is typically the farmers' land. However, Brazilian laws, which stop foreigners from owning large farms, could impede the success of the scheme. The Agriculture Ministry denies this represents a problem but some farm leaders disagree.

Minister Abreu has shown herself to be favorable to a loosening of restrictions on foreign investment in Brazilian land, which has been enforced since 2009 amid concerns about Chinese interest in large swathes of land.

The government has shown a willingness to relax rules to attract foreign investment in other areas. At the start of the month, the government raised the percentage of Brazilian airlines that can be owned by foreigners from 20% to 49%.

But Brazilian politics is mired in crisis, triggered by an enormous corruption crisis, making changes in legislation difficult.



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