South America Calling

Brazil's farm sector was positively surprised by the 20% jump in funds offered in government farm credit for the upcoming 2015-16 season.

Brasilia has a budget of $187.7 billion ($59.2 billion) to finance crop operating and marketing costs as well as farm investments, up from R$156.1 billion last year, President Dilma Rousseff announced.

With public finances a mess, the government's finance team has been slashing ministry budgets in a desperate attempt to maintain Brazil's investment grade status. As a result, most had expected the official farm credit budget to stay the same at best but probably decline.

"It was certainly more than expected... This volume will allow us to have an excellent season," said Joao Martins, president of the Brazilian Agriculture Confederation.

While the availability of commercial bank credit to farmers has increased in recent years, small and medium-sized farmers still rely heavily on subsidized government credit.

Official operating credit for commercial farmers will be offered at 8.75% per annum in 2015-16. That's well below the base rate of 13.25% and commercial rates that start at 25% and go through the roof.

The official credit rate did rise sharply from 6.5% last year, but given how tight the government finances are at present and the rate at which interest rates have risen over the past year, the announcement certainly represents a success for Katia Abreu, the new agriculture minister who was previously a prominent farm leader at the head of CNA.

The limit for operating credit per producer was raised from R$1.1 million ($352,000) to R$1.2 million, while the limit for marketing credit was bumped from R$2.2 million to R$2.4 million.

Some analysts were forecasting that Brazilian soybean area would fall in 2015-16 due to the lack of credit. The extra official credit will go some way to offset the issue with commercial banks restricting credit lines next season.

(AG)

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