Agriculture Ministry proposes cutting interest rates for farmers who adopt sustainable practices, but Finance Ministry considers program expensive
06/19/2023
The Ministry of Agriculture has encountered resistance in negotiations with the government’s economic team to implement the design of Plano Safra + Sustentável 2023/24 (More Sustainable Crop Plan), according to sources who participated in recent meetings in Brasília on the matter.
The proposal by the Agriculture Ministry includes a reduction of up to 3 percentage points in the final interest rate for financing, starting in July, for large farmers that adopt some sustainable practices. For medium-sized producers, the reduction would be up to 2 percentage points, or 25% of the rural credit line rate.
Despite being well received by the rest of the government, mainly for its green and sustainable character, the proposal is considered expensive, sources say. If approved, it will consume a good part of the R$18.5 billion budget that Agriculture Minister Carlos Favaro has requested from the economic team for the 2023/24 crop, when he wants to have more than R$400 billion for financing lines.
The counterproposal presented by the Ministry of Finance in a meeting last week was about R$5 billion to subsidize interest for medium and large farmers, according to two participants. In addition, R$8 billion were proposed in subsidies linked to Pronaf, a program aimed at family farmers.
Officials say that only with this program to reward sustainable practices it will be possible to offer some reduction in interest rates. Without the incentives, Crop Plan rates for corporate agriculture could remain the same this season, at 8% for medium-sized farmers and 12% for large farmers.
In addition, the program would be the practical measure of the plan to promote sustainable agriculture production publicly advocated by President Luiz Inácio Lula da Silva and Environment Minister Marina Silva.
The financial impact of the measure is still being calculated by the Ministry of Finance. A government source said the economic team had proposed a reduction of up to 1.5 percentage points.
Another difficulty in the negotiations is the regulation of these incentives and the ways of verifying good practices by producers, according to participants in the meetings. The Ministry of Agriculture defends “simple” requirements that are easy to verify.
The budget for Crop Plan subsidies is divided into several years, but the government estimates that a supplement of more than R$12 billion would be needed in 2023 to cover the requests made by the ministries. The question mark is where the funds will come from. The issue has been discussed by the Chief of Staff Office, which is measuring possible reallocations from the other ministries, another source said.
The proposal presented by the Ministry of Agriculture to encourage and reward the adoption of sustainable practices suggests that producers active in the Rural Environmental Registry (CAR), for example, receive a 5% discount on the interest rate. Those who have already had their registration analyzed, a stage where the government verifies the self-declared information of rural properties, the reduction would be 10%.
The discounts would be 0.4% and 0.8% of the current 8% interest rate in Pronamp (a program of farm loans), respectively, and 0.8% and 1.2% of the 12% interest rate for other producers.
The same logic would be applied to producers who have participated in training on the application of labor rules in the fields.
For the use of bio-inputs, the condition would be the adoption of the correct disposal of the packaging – following the reverse logistics policy – and the proof would be the invoice of purchases. The measure would apply to organic fertilizers and to rock powder and limestone that can be used in pastures for livestock.
There is also an incentive for those who promote reforestation and practices such as individual traceability for cattle farmers, the installation of photovoltaic panels for poultry farmers, and the treatment of waste to generate biogas for pig farmers. A novelty would be the creation of a line to finance the standard crop and the seasonal crop (safrinha) at the same time.
Farmers would be able to accumulate a maximum of five of these criteria, which would provide a maximum discount of 25% on the final interest rate. In Pronamp, the rate would go to 6% from 8%. For large farmers and ranchers, the rate would go to 9% from 12% in the original design of the proposal.
One criticism is that the final Pronamp rate for those who accumulate the incentives would reach the interest rates of Pronaf, of 6%. In the Crop Plan for Family Agriculture, the production of products for domestic consumption, such as rice, beans and cassava, and products of socio-biodiversity are expected to have some rate reduction.
José Carlos Vaz, a legal advisor for agribusiness, said that the government is right with the idea of sustainable rewards, but that the ideal would be to do this in the annual calculation of the economic result of the activity, through direct credit for farmers. Regarding the budgetary cost of promoting practices through farm loans, he said “the bill for Brazilian agricultural policy is always small compared to what the sector generates, but the question is the financial capacity of the National Treasury.”
Antônio da Luz, chief economist of the Agricultural Federation of Rio Grande do Sul (Farsul), said that if the government wants to reward sustainable practices, “it needs a lot of money.” “Brazilian commercial agriculture is all sustainable, especially when compared to European and U.S. production methods,” he said.
Por Rafael Walendorff — Brasília*
Source: Valor International