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THE BRAZILIAN AGRICULTURAL FINANCING
SYSTEM
Kyiv, 17th and 18th October , 2011
2nd UKRAINIAN GRAIN CONGRESS
Marcelo Fernandes Guimarães
Ministry of Agriculture, Livestock and Food Supply
OVERVIEW
SOUTH AMERICA
Farm area equivalent to the surface of 33
european countries
Source: John Deere
By: Ricam Cons.
Greece
Ukraine
Bosnia
Croatia
Macedonia
Iceland
Serbia & Montenegro Rep’s Norway
Finland
Switzerland
Belarus
Austria
Hungary
Romania
Holland
Lithuania
Italy
Poland
Estonia
Czech & Slovak Rep’s
France
Ireland
Belgium
Albania
Spain
Bulgaria England, Scotland and Wales
Germany
Latvia
Denmark
Sweden
AM
AC
RR AP
RO
CE
RJ
ES SP
1960´s
1970´s
1980´s
1990´s
1950´s
RN
PB
PE
AL
SE
PR
MS MG
RS
SC
GO
BA MT
PA
TO
MA
PI
BRAZILIAN FARM OCCUPATION
*September 2011
Source: Conab
Grain Production and Area – 1991 to 2011
PRODUCTION
(million ton)
HARVESTED AREA (million ha)
49,9
47,4
47,7
47,446,2
47,949,143,9
37,836,936,638,535,637,9
68,3
81,1 78,4 82,4
163,0
149,2
135,2
100,3
144,1
122,5
131,8114,7123,2
57,9
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
1
23
4
56
7
8
910
11
1213
14
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1*
milh
õe
s d
e t
on
Source: Conab / MAPA
*Forecast
Meat Production – 1994 to 2011
Pork
Poultry Beef
Main Grains Production – 2010/11
Product AREA (1,000 ha) % Grain Crop Area 1,000 Tons
SOYBEAN24.181 48% 75.324
MAIZE 13.839 28% 57.514
BEAN4.009 8% 3.787
RICE2.820 6% 13.613
WHEAT2.087 4% 5.146
COTTON1.400 3% 5.183
Source: National Company of Food Supply – Sep 2010
-50
-30
-10
10
30
50
70
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: AgroStat Brasil, a partir de dados da SECEX/MDIC
Elaboration: MAPA
TOTAL
AGRIBUSINESS
OTHERS
Brazilian Global Trade Balance
Billion US$
76,4
13,4
20,624,8
39,0
49,5
71,8
64,8
5,8 4,4 4,8 6,7
11,89,9
0
10
20
30
40
50
60
70
80
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Exports Imports Surplus
63,060,0
42,8
34,2
20,414,8
Billion US$
10
Source: AgroStat Brasil, on data from SECEX/ MDIC
Agribusiness Trade Balance
THE AGRICULTURAL
FINANCING SYSTEM
CHRONOLOGY (1)
60’s and 70’s: the highly subsidized rural credit was the main
instrument of farm policy.
80’s and first half of 90’s: worsening of inflationary process
and fiscal crises collapsed the rural credit system. Creation of
Rural Savings Account.
90’s: structural economic reforms. Deregulation and
Privatization. Less governmental intervention.
CHRONOLOGY (2)
Second half of 90’s on: economic stability...
... favors long term rural financing for investment and…
… causes an outstanding rise on demand deposits and rural
savings account turning them into the main official financing
source for agriculture.
- Agribusiness boom increases credit needs: new private
instruments
2004: capital market private bonds
0
20.000.000
40.000.000
60.000.000
80.000.000
100.000.000
120.000.000
140.000.000
160.000.000
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
0
20.000
40.000
60.000
80.000
100.000
120.000
140.000
160.000
Credit R$ 000 Production 000 tonsSource: Central Bank/IBGE
Market High subsidies & fraud Crisis
Constant values of 2010
R$ 000 000 tons
U$ 48 billion
U$ 82 billion
SOURCES OF OFFICIAL RURAL CREDIT (%)
1966/85 - 2010
-
34,9014,34
30,15
80,10
27,11
11,95
11,60
51,8046,77
1966-1985 1994 2000 2010
Central Bank Treasury Demand Deposits Rural Savings Others
SOURCES OF OFFICIAL RURAL CREDIT (%)
1966/85 - 2010
-
34,9014,34
30,15
80,10
27,11
11,95
11,60
51,8046,77
1966-1985 1994 2000 2010
Central Bank Treasury Demand Deposits Rural Savings Others
Less than 30% of the sector
needs
CREDIT LINES TO RURAL INVESTMENT
Tractors, combines and machines;
Equipments to irrigation and storage;
Modernization of agriculture;
Sustainable agriculture (soils, pastures, no tillage,
farming and livestock integration);
Commercial plantation of forests
Cooperatives’ productive and financial strengthening
New Financing Instruments:
Given the serious government’s budget restrictions, expand the sources of financing by encouraging new private ones enabling the continuation of farm sector growth
Develop and strengthen market-oriented instruments
Increase the share of capital markets in the financing of the agribusiness
Fonte: ANBID
PRIVATE AGRICULTURAL BONDS:
FARM PRODUCT BOND “CPR”
• Created in 1994 to easily enable farmers to sell their products in advance
• Commodity-referenced bond representing an obligation to deliver agricultural products on an agreed future date (CPR in kind) or equivalent value cash (Financial CPR)
• Can be issued by farmers, cooperatives and farmers’ associations only
• Any agriculture product can be negotiated by CPR:
- “in natural form”: paddy rice, soybeans and corn in grains, etc.
- improved: cleaned rice, cotton fibers, etc.
- processed: sugar alcohol, orange juice, etc.
Farm Product Bond - CPR TYPES:
▌ In Kind
– Payment in an agreed quantity of product
▌ Financial
– Payment in agreed amount of money
• Pre-fixed
• Post-fixed (Futures Markets’ prices or quotations from reliable farm
price information institutions)
▌ “Drawer” CPR
– Not registered in a system of registration and financial liquidation 20
Main Features/Advantages (1)
May be amended and endorsed (endorsable)
Allows for many types of collaterals: mortgage,
pledge, liens
Allows for pledge of a financial institution and “all
risks” insurance
Can be purchased by financial institutions,
investors, trading companies, input suppliers and
investment or pension funds
21
There is no acceptable condition to evade the commitment to deliver the product or payment: the ISSUER may not invoke an accident or force majeure
Once registered in a registration and settlement system it’s considered a financial asset and may be negotiated at commodities exchanges and over-the-counter.
May be covered by frustration insurance (crop insurance) or performance insurance
CPR – Main Features/Advantages (2)
23
Products related to CPR are not pledged for other debts of the issuer or of the third party provider of collateral
CPR may be issued at any phase of crop: planning, development or even post-harvest phase
Enable a better planning of activities and cash flow
Main Features/Advantages (3)
Main Uses
For anticipated sales
In exchange for inputs, enabling supply companies to cash the CPR
In selling CPR to industries whishing to ensure proper commodity supply or protection against price volatility.
As a liquid and attractive financial asset
Until 1985 the Brazilian farm financing system relied basically on
public resources: inefficiency and fraud
The fiscal serious crises led to the development of new market-
oriented financing instruments.
Since the 90’s the bulk of farm financing comes from market
sources: regularity and capital efficiency
Economic reforms, deregulation and privatization set the basis
for the recent development and were fundamental to the sector
Economic stability have favored long term financing, crucial to
capital investments and yield gains in Brazil’s agriculture
Private farm bonds have played a fundamental role as new and
efficient financing sources
SUMMARY & CONCLUSIONS
- A clear, comprehensive and reliable legal framework
- Strong, independent and efficient judicial institutions and
decisions in order not to permit circumvention to the
fulfillment of obligations
- An efficient and low cost system of registration and
settlement
- The bond itself shall not be very complex, describing
basically the main points of the negotiation
- To the extent of possible, bonds registered with the
registration system shall be exempt from taxes, especially
if purchased by individuals.
MAIN REQUIREMENTS TO DEVELOP SUCCESSFUL
MODELS OF PRIVATE FARM BONDS
THE BRAZILIAN AGRICULTURAL FINANCING
SYSTEM
Kyiv, 17th and 18th October , 2011
2nd UKRAINIAN GRAIN CONGRESS
Marcelo Fernandes Guimarães
Ministry of Agriculture, Livestock and Food Supply
