By Roberta Paffaro, a Brazilian journalist, economist and specialist in agribusiness for CME Group in Brazil
Definitely 2020 was a challenging year in different parts of the world. We have faced a pandemic that no economist or market analyst could predict.
In Brazil, it wasn’t different. Our GDP may close the year in with red. We had millions of jobs lost, companies closed and declared bankruptcy and inflation is around 3.45% this year. The government is controlling the inflation through our interest rate that is 3% per year now. When Brazilian Central Bank reduces the interest rate, it is a trend that credit becomes cheaper, bringing incentives to production and consumption and stimulating economic activity.
Regarding credit lines, it should be a good sign to Brazilian farmers, right? Well it is not that simple. We have in Brazil what we call Harvest Plan (Plano Safra) that offers credit lines with lower interest rates to farmers than those set at the market. It is determined by the government and BRL 236.3 billion was allocated to the 2020/21 crop, which is distributed in 3 lines:
1) BRL 179.38 billion is destined for funding, commercialization and food industry
2) BRL 56.92 billion is for farm investments (technology/ equipment)
3) BRL 1.3 billion is for rural insurance.
The Association of Soy and Corn Producers of Mato Grosso said the reduction in Brazil interest rates needs to reflect the credit lines to producers, so they can improve productivity, invest in technology and contribute to the economy. The issue is that each bank makes their credit risk analysis before lending the money and it can be more difficult than it appears.
If we start listing the challenges of Brazilian agribusiness, I would say that credit lines may be one of them. Food production is a strategy for any country and Brazil is one of the places in the world with capacity to increase production. The United Nations (UN) by 2050 we will have 9 billion people in the world — around 20% more than now.
Brazil is heading in the right way, but it will be a journey to accomplish. We need to look closer at how the second wave of coronavirus will affect the world economy and of course, keep our eyes on China. It may affect supply and demand of grains, oilseeds, cattle, poultry, hogs and many other commodities.
Dry weather delayed the soybean planting season and may affect the productivity of the next corn crop. So please wish us rainy holidays!
This article represents only the author’s opinion, not reflecting any company opinion. Roberta Paffaro has been working in CME Group in the Brazil office for 12 years. She is co-author of the Portuguese book: “Women in Agribusiness — Inspirations to win challenges inside and outside the gate.” She speaks at agricultural events and is a columnist for Canal Rural (Rural Channel website). Follow her on LinkedIn: Roberta Paffaro and Instagram: @robertapaffaro.