Agricultural Policy Monitoring and Evaluation 2020

5. Brazil

Support to agriculture

Reflecting its position as a competitive exporter, Brazil provides relatively low levels of support and protection to agriculture. Producer support as a share of gross farm receipts fell from 7.6% to 1.7% between 2000-02 and 2017-19. Domestic prices are currently aligned with international markets and there is very little market price support (MPS). Most of support to producers is provided through input payments, in particular concessional credit and, to lesser extent, crop insurance. Concessional credit is available for farm marketing and working capital but also for investment fixed capital. Since 2008 all support based on input use is conditional to environmental criteria and on farming practices.

Support to general services (GSSE), mainly on research, development and innovation, represented 37% of the Total support Estimate (TSE), but has fallen since 2000‑02 as a percentage of agricultural gross value added. As a percentage of GDP, the TSE has also declined from 0.7% in 2000‑02 to 0.3% in 2017‑19.

Main policy changes

The Agriculture and Livestock Plan 2019/20 increased the maximum resources for rural credit by 8.6% compared to the plan 2018/19. Preferential interest rates remained constant for several credit lines after several years of reductions. The Law 13986 of 7 April 2020 makes legal changes to facilitate new sources of collateral for rural credit, allow credit co-operatives and other private financial institutions to receive resources from the National Treasury to cover the difference between market rates and those applied to certain rural credit operations. Up to now, only federal official banks were allowed to receive resources from the National Treasury for that purpose.

The maximum budgetary resources for insurance subsidies for 2020 have been more than doubled compared to 2019 levels to BRL 1 billion (USD 253 million) in an attempt to increase the number of insured hectares.

Under the Agriculture and Livestock Plan 2019/20, the maximum resources for marketing programmes allocated to public purchases and deficiency payments have been reduced by 28% compared to the 2018/19 plan to BRL 1.85 billion (USD 468 million). However, the regionally-set minimum prices have increased in nominal terms by 7% with higher increases in some crops such as soybean (15%) and wheat (12%).

In June 2019, the European Union and Mercosur (Argentina, Brazil, Paraguay and Uruguay) reached a free trade agreement. The agreement, which remains to be ratified, includes several provisions for increasing market access of Mercosur agricultural products – including beef, poultry, pork, sugar, ethanol and cheese – into the European Union.

Assessment and recommendations

• Agricultural credit at preferential interest rates represents an important share of agricultural support. A reform of the concessional credit system could consider a gradual downsizing of concessional loans for working capital to commercial farms. Given the reduction in the overall market interest rate in Brazil, access to credit by rural borrowers could be further facilitated through the simplification of regulations and procedures for accessing commercial credit. Agricultural credit support could be further oriented to on-farm investments that explicitly fund innovative and advanced farm management and environmental practices. The provisional measure on rural credit introduced in 2019 aims to facilitate a transition to a more liberalised rural credit market with multiple credit providers further targeting credit support to small and medium farmers. However, this measure does not modify the main structure of the National Rural Credit System (NRCS) and maintains the quotas system of compulsory resources established by the Central bank.

• It is essential to continue strengthening the information base for insurance products while using public funds efficiently, monitoring the impacts of insurance subsidies and ensuring they are not crowding out market solutions.

• Insurance and credit support is conditional on environmental criteria and zoning rules that encourage environmental improvements. Specific long-term sustainability and environmental outcomes should be assessed in order to improve the policy design of the environmental conditionality and to inform the strategies for climate change mitigation and adaptation.

• Brazil has no agricultural sector specific mitigation targets in its Nationally Determined Contributions (NDCs) but its National Policy on Climate Change sets an emission reduction target for agriculture of 5-6% by 2020. As part of the NDC, a small share of total preferential credit is available to modernise sustainable production systems and mitigate emissions through the Low Carbon Emission Agriculture (ABC) programme. An assessment of the performance of the ABC programme and the application of the Forest Law and deforestation programs should be envisaged to improve policy design and strengthen the contribution of agriculture, forestry and land use (AFOLU) to Brazil’s climate change mitigation efforts.

• Access to export markets is crucial for Brazilian agriculture. The agreement between Mercosur and the European Union should open new opportunities for Brazilian exports. In this respect, efforts should continue to improve animal health and traceability, while good environmental performance may also facilitate market access.

• More than a third of total support to the agricultural sector in 2017-19 is spent on general services, with government expenditure on research, development and innovation accounting for most of these services. The agricultural innovation system has succeeded in maintaining relatively high productivity growth in the commercial sector. It is important to maintain Brazil’s significant research capacity, notably through EMBRAPA, and increase the diffusion of innovations to a wider range of smaller farmers.

Policy responses in relation to the COVID-19 outbreak

Agricultural policies

Several policy measures were approved on April 9^th by the Central Bank of Brazil (BACEN) at the request of the Ministry of Agriculture aiming at mitigating the impact of the pandemic which has aggravated farmers’ losses due to climatic adversities in the southern region (BACEN Resolutions number 4.801 and 4.802). These aim to postpone rural debt reimbursement (both on investment and working capital loans) and to provide liquidity to farmers and co-operatives, mainly small and medium farmers and in particular the producers of perishable agricultural products. Special lines of credit for family farmers have been created through PRONAF and for medium size farmers through PRONAMP. The required resources for these measures have been assured without compromising the budget for the next agricultural year.

A new emergency monthly financial assistance of BRL 600 (USD 152) for three months was granted to informal workers (without an employment contract), unemployed, individual “micro-entrepreneur” and to the poorest families. For spouses who are in support of the family, the family allowance is BRL 1 200 (USD 304) per month.

Figure 5.1. Brazil: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Support to producers (%PSE) in Brazil was 1.6% of gross farm receipts in 2017-19, down from 7.6% in 2000-02 and well below the OECD average (Figure 5.1). The share of potentially most distorting support has been significantly reduced to 11% of cumulated gross producer transfers compared to 66% in 2000-02, driven by the introduction of environmental constraints in the payments based on input use. Producer prices are aligned with world market prices with a ratio (NPC) of 1.00. The expenditure on general services (GSSE) reached 2.5% of agricultural value added in 2017-19, down from 3.6% in 2000-02. Government expenditures on agricultural innovation systems represent 92% of general services support in Brazil. Total support to agriculture (TSE), including producer support and general services, was also reduced from 0.7% to 0.3% of GDP. Producer Support Estimate (PSE) fell by almost 30% in 2019 compared with 2018, driven by both reductions in budgetary payments and price gaps (Figure 5.2). The products with the highest rates of specific commodity transfer (SCT) were wheat and cotton, both below 10% of commodity gross farm receipts (Figure 5.3).

Figure 5.2. Brazil: Drivers of the change in PSE, 2018 to 2019

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Figure 5.3. Brazil: Transfer to specific commodities (SCT), 2017-19

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Table 5.1. Brazil: Estimates of support to agriculture

Million USD

	2000-02	2017-19	2017	2018	2019p
Total value of production (at farm gate)	35 538	158 731	168 893	153 043	154 259
of which: share of MPS commodities (%)	77.5	86.1	84.5	87.5	86.2
Total value of consumption (at farm gate)	34 573	90 264	95 553	85 974	89 266
Producer Support Estimate (PSE)	2 869	2 701	3 752	2 604	1 747
Support based on commodity output	1 013	348	524	454	66
Market Price Support1	973	284	350	443	59
Positive Market Price Support	1 179	284	350	443	59
Negative Market Price Support	-206	0	0	0	0
Payments based on output	40	64	174	11	7
Payments based on input use	1 856	2 264	3 113	2 117	1 563
Based on variable input use	825	824	1 195	784	492
with input constraints	0	824	1 195	784	492
Based on fixed capital formation	955	1 405	1 878	1 287	1 049
with input constraints	0	1 405	1 878	1 287	1 049
Based on on-farm services	76	36	39	46	21
with input constraints	0	0	0	0	0
Payments based on current A/An/R/I, production required	0	89	115	32	119
Based on Receipts / Income	0	89	115	32	119
Based on Area planted / Animal numbers	0	0	0	0	0
with input constraints	0	0	0	0	0
Payments based on non-current A/An/R/I, production required	0	0	0	0	0
Payments based on non-current A/An/R/I, production not required	0	0	0	0	0
With variable payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
With fixed payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
Payments based on non-commodity criteria	0	0	0	0	0
Based on long-term resource retirement	0	0	0	0	0
Based on a specific non-commodity output	0	0	0	0	0
Based on other non-commodity criteria	0	0	0	0	0
Miscellaneous payments	0	0	0	0	0
Percentage PSE (%)	7.6	1.6	2.2	1.7	1.1
Producer NPC (coeff.)	1.04	1.00	1.00	1.00	1.00
Producer NAC (coeff.)	1.08	1.02	1.02	1.02	1.01
General Services Support Estimate (GSSE)	1 242	2 227	2 271	2 221	2 189
Agricultural knowledge and innovation system	663	2 046	2 099	2 012	2 028
Inspection and control	51	20	21	20	17
Development and maintenance of infrastructure	471	80	59	104	77
Marketing and promotion	5	4	3	7	4
Cost of public stockholding	53	77	90	77	63
Miscellaneous	0	0	0	0	0
Percentage GSSE (% of TSE)	29.8	37.1	31.2	37.0	44.3
Consumer Support Estimate (CSE)	-1 184	933	1 012	915	870
Transfers to producers from consumers	-1 176	-141	-179	-186	-59
Other transfers from consumers	-284	-71	-65	-74	-74
Transfers to consumers from taxpayers	31	1 145	1 256	1 175	1 004
Excess feed cost	245	0	0	0	0
Percentage CSE (%)	-3.4	1.0	1.1	1.1	1.0
Consumer NPC (coeff.)	1.04	1.00	1.00	1.00	1.00
Consumer NAC (coeff.)	1.03	0.99	0.99	0.99	0.99
Total Support Estimate (TSE)	4 142	6 073	7 279	5 999	4 940
Transfers from consumers	1 460	212	244	260	133
Transfers from taxpayers	2 967	5 931	7 100	5 813	4 881
Budget revenues	-284	-71	-65	-74	-74
Percentage TSE (% of GDP)	0.7	0.3	0.4	0.3	0.3
Total Budgetary Support Estimate (TBSE)	3 169	5 789	6 930	5 556	4 881
Percentage TBSE (% of GDP)	0.6	0.3	0.3	0.3	0.3
GDP deflator (2000-02=100)	100	349	338	348	362
Exchange rate (national currency per USD)	2.37	3.60	3.19	3.65	3.94

Note: p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Brazil are: wheat, maize, rice, soybean, sugar, milk, beef and veal, pig meat, poultry, cotton, coffee.

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Contextual information

In area and population, Brazil is the largest country in Latin America, and one of the ten biggest economies of the world. It has abundant land and water resources and is a major agricultural producer and exporter. The share of agriculture in Brazil’s GDP has fallen from 5.5 % in 2000 to 4.4% in 2018, while the share in employment has halved during this period to 9.4%. These shares remain higher than in most other countries covered in this report. Agro-food exports have grown, representing 35% of total exports. Brazil accounts for 4.1% of the population of countries covered in this report, and for 8% of all agricultural land. Arable land accounts for 23% of Brazilian agricultural land.

Brazil is among the world’s leaders in the production of soybeans, poultry, beef, cotton, corn, and orange juice, being the third biggest exporter of agro-food products after the European Union and the United States. Two-thirds of the total value of agricultural production are crop products, and one-third livestock products. The main product in Brazilian exports is soybeans (grain, meal, and oil), which represent almost 50% of the agro-food exports.

Table 5.2. Brazil: Contextual indicators

	Brazil		International comparison
	2000*	2018*	2000*	2018*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	1 586	3 255	4.0%	2.9%
Population (million)	175	209	4.1%	4.1%
Land area (thousand km2)	8 358	8 358	10.2%	10.1%
Agricultural area (AA) (thousand ha)	228 324	235 919	7.6%	7.9%
			All countries¹
Population density (inhabitants/km2)	21	25	53	62
GDP per capita (USD in PPPs)	9 074	16 096	9 275	21 924
Trade as % of GDP	8	11	12.4	15.3
Agriculture in the economy			All countries¹
Agriculture in GDP (%)	5.5	4.4	3.1	3.6
Agriculture share in employment (%)	20.0	9.4	-	-
Agro-food exports (% of total exports)	23.4	35.3	6.2	7.3
Agro-food imports (% of total imports)	7.1	5.8	5.5	6.3
Characteristics of the agricultural sector			All countries¹
Crop in total agricultural production (%)	67	67	-	-
Livestock in total agricultural production (%)	33	33	-	-
Share of arable land in AA (%)	20	23	32	33

Notes: *or closest available year.

1. Average of all countries covered in this report. EU treated as one.

Sources: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

Brazilian GDP has been growing at moderate rates below 2% since 2017. Inflation has stabilised at around 3%, but unemployment is high with rates above 10%. Agro-food exports in Brazil reached more than USD 80 billion in 2018, generating an agro-food trade surplus of more than USD 70 billion. While more than half of Brazilian agro-food exports are primary products for industry (56% including soybeans), more than 60% of the country’s imports are processed products.

Figure 5.4. Brazil: Main economic indicators, 2000 to 2019

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

Figure 5.5. Brazil: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

Between 2007 and 2016, Brazilian agricultural production increased at an annual rate of 2.6%, slightly above the world’s output growth. Increases in production were driven by an above-world average growth in Total Factor Productivity (TFP) of 2.8% per year, but also by an increased use of intermediary inputs. The use of primary factor in agricultural production fell in the same period.

Agriculture accounted for 43% of greenhouse gas (GHG) emissions and 5% of energy use in 2018, which is below the country levels in 2000 but still well above the OECD average. The larger share of the agricultural sector in the Brazilian economy and the importance of pasture-based livestock contribute to these outcomes. Even if the share of agriculture in water abstractions remained high at 62%, the water-stress indicator scores 1.0, much lower than the OECD average of 8.9. Nutrient surpluses in Brazil have increased since 2000, and the phosphorous balance is seven times the OECD average.

Figure 5.6. Brazil: Composition of agricultural output growth, 2007-16

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

Table 5.3. Brazil: Productivity and environmental indicators

	Brazil		International comparison
	1991-2000	2007-2016	1991-2000	2007-2016
			World
TFP annual growth rate (%)	1.9%	2.8%	1.6%	1.6%
			OECD average
Environmental indicators	2000*	2018*	2000*	2018*
Nitrogen balance, kg/ha	26.8	28.6	33.3	29.1
Phosphorus balance, kg/ha	11.7	16.1	3.3	2.3
Agriculture share of total energy use (%)	4.8	4.7	1.7	2.0
Agriculture share of GHG emissions (%)	46.0	43.4	8.1	8.9
Share of irrigated land in AA (%)	1.3	2.2	-	-
Share of agriculture in water abstractions (%)	50.5	61.7	46.0	49.0
Water stress indicator	0.6	1.0	9.9	8.9

Notes: * or closest available year.

Sources: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data; UNCCC (for GHG emissions).

Description of policy developments

Main policy instruments

The main instruments of agricultural policy in Brazil are price support and rural credit, implemented and developed since the 1960s; risk management programmes, including subsidised insurance programmes that were introduced in 2005; and disaster payments. Other policy instruments include agricultural land zoning to facilitate farmers’ adaptation to climate change and climate risks through environmental compliance, and promotion of biofuels. Agricultural policy is defined in the annual Agricultural and Livestock Plan (PAP) administered by the Ministry of Agriculture, Livestock and Food Supply (MAPA). Since 2019 small-scale family agriculture is also under the responsibility of MAPA.1

The basic element of price support policy consists of regionally set minimum guaranteed prices, which cover a broad range of crops and a few livestock products like cow and goat milk, and honey. To secure these minimum guaranteed prices, the government implements several price support mechanisms on the domestic market, including direct government purchases (AGF programme); premiums to commercial buyers who pay minimum prices to producers; and public and private options contracts backed by a private risk premium option. In addition to these price support programmes, producers receive reduced-interest marketing loans, which enable them to withhold the sale of a product in anticipation of a higher market price. The National Food Supply Agency (CONAB) is in charge of operating these programmes on behalf of MAPA. Several programmes offer deficiency payments calculated as the difference between the market price and the minimum (reference) price (e.g. the Rural Equity Prize programme called PEPRO, and the Product Reward Prize programme known as PEP).

Agricultural credit is the major policy instrument for both commercial, medium and small-scale family farms designed and implemented in co-operation between the Central Bank, the Treasure (Ministry of the Economy) and the Ministry of Agriculture. Most of the rural credit is earmarked under the National Rural Credit System (SNCR) and provided at preferential interest rates with differentiated conditions for small farmers (PRONAF) and medium size farmers (PRONAMP) compared to commercial ones. The main sources of preferential rural credit are “Compulsory Resources” or lending quotas (Figure 5.7), equivalent to 30% of sight deposits in commercial banks and 60% of “Rural Saving” deposits, “Constitutional Funds” and loans from the National Bank for Economic and Social Development (BNDES). Additional sources of preferential rural credit are the Coffee Fund (FUNCAFÉ) and the Agribusiness Credit Notes called LCAs (Letras de Crédito do Agronegócio), which are fixed income securities backed by credit transactions linked to agribusiness, out of which 35% are compulsorily allocated to rural credit. Major agricultural debt rescheduling occurred during the late 1990s and early 2000s for both commercial and family producers, and since then, support is provided through debt rescheduling arrangements that are set to end by 2022.

Figure 5.7. Compulsory resources for rural credit in Brazil

Lending quotas for rural credit

Note: The percentages in the diagram define the share of each type of financial assets that has to be dedicated to rural credit or compulsory uses according to the regulations of the Central Bank of Brazil.

Source: Central Bank of Brazil (BACEM).

Brazil has other specific credit programmes, mainly the Low Carbon Agricultural Programme (ABC), to promote sustainable agricultural practices. These include credit for the crop-livestock-forest integration and agroforestry systems, the recovery of degraded areas and pasture land, the implementation of organic Agriculture and Livestock production systems, the implementation and improvement of no-till farming systems, plantings on unproductive and degraded soils, forest planting, improved production systems and the preservation of natural resources.

Three main agricultural insurance programmes provide support in the form of insurance premium subsidies or by compensating farmers for production losses due to climatic adversities: PROAGRO, Price Premium Subsidy Program (PSR) and Garantia-Safra (GS). The first one is divided into two sub-programmes: first, PROAGRO Mais (or Family Agriculture Insurance) is aimed at family farmers who use rural credit resources from PRONAF, which by law must obligatorily contract PROAGRO coverage to have access to credit. Second, PROAGRO for medium-sized farmers who are generally linked to PRONAMP are required by law to buy insurance. PROAGOR is a federal government programme that subsidises fees for contracting this instrument, and pays the indemnities through government payments that compensate for the losses and, in the case of PROAGRO Mais, pays the farmer a small income to survive until the next season.

Under the Rural Insurance Price Premium Subsidy Program (PSR), accredited insurance companies develop rural insurance products for producers of all sizes and pay damages to farmers. The federal government provides insurance premium subsidies to farmers, most of them small or medium farmers. More than 80% of the operations are concentrated in the production of soya, corn and wheat and in the states of Rio Grande do Sul and Paraná, but there are expectations of expanding the programme to other eligible activities.

Finally, small-scale family farmers in Minas Gerais and the Northeast - generally planting corn and beans on less than 5 hectares – can benefit from the Garantia-Safra (GS) Program. These regions have systematic losses in production due to drought, and farmers in a municipality receive social assistance to buy food, conditional on catastrophic loss measured through indices. It is a federal programme with financial contributions from the farmer, the municipality and the state.

In some credit programmes, support is conditioned by environmental criteria. This is the case of agricultural zoning of climatic risks (Agricultural Risk Zoning ZARC) which links agricultural support to farming practices and activities that are adapted for the environmental sustainability of each geographical zone. Compliance with zoning is required to access concessional rural credit, subsidised insurance programmes and PROAGRO. Since 2008, access to subsidised credit for agricultural production in the Amazon biome requires compliance with environmental regulations, in particular land use regulations set out in the Forestry Code. Rural environmental registration of geo-referenced information on rural property, including property perimeters, location of Permanent Preservation Areas, Legal Reserves, Restricted use Areas, and areas of agricultural production is compulsory in the whole country since 2012. Access to rural credit additionally requires compliance with the Environmental Rural Registry (CAR), a mandatory digital registration.

Biofuels production has been supported since the launch of the National Alcohol Program (Pró-Álcool) and the Plan of Production of Vegetable Oils for Energy Purposes (Pró-Óleo) in 1975. The National Programme for the Production and Use of Biodiesel (PNPB) was launched in 2004 to improve environmental performance and energy independence. In 2017, the national policy initiative RenovaBio was launched to foster the implementation of the greenhouse gas (GHG) emission reduction commitments under the Paris Agreement on Climate Change, by increasing the supply of alternatives to fossil fuels.

Domestic policy developments in 2019-20

A new government took office in January 2019. In the new government structure, the Special Secretariat for Family Farm and Agrarian Development (SEAD), which reported directly to the Presidency and was responsible for small-scale family agriculture, was incorporated into the MAPA under the Secretariat for Family Agriculture and Cooperatives (SAF). The creation of a new Secretariat for Innovation, Rural Development and Irrigation in MAPA indicates an increased focus and competencies on innovation in rural areas.

In 2019, the MAPA assumed new responsibilities, previously under other Ministries such as the Forest Services, to further ensure the sustainability of Brazilian agriculture. The MAPA published Guidelines for Sustainable Development of Brazilian Agriculture in January 2020, identifying the main sustainability challenges of Brazil’s agriculture: innovation in tropical agriculture; land governance and conformity to settle historic conflicts as in the Amazon; implementation of the Forest Code; generate income from environmental conservation activities; financial instruments for sustainable production; inclusion of medium and small farmers in the value chain; develop chains of bio-economy; and opening new markets. The MAPA developed a plan for 2020-23 that incorporates more prominently sustainability together with efficiency and competitiveness. The plan identifies priority actions in three themes: land governance and environmental compliance; innovation and sustainable production; and production inclusion.

In July 2019, the MAPA released the Agricultural and Livestock plan 2019/20 (PSA). The plan defines the maximum resources for rural credit (BRL 222.7 billion or USD 56.4 billion) with an increase of 8.6% compared to the 2018/19 plan. The compulsory share of sight deposits allocated to medium size producers (PRONAMP) increased from 15% to 25%. A resolution from the Central Bank in January 2019 changed the conditions for the allocation of 35% of resources from Agribusiness Credit Notes (LCA) to rural credit, allowing these credits to be provided at non-preferential rates. The 2019/20 plan foresees a continuation of the trend towards increasing LCA resources, which are to represent 25% of the National Rural Credit System funds and to be provided at rates freely determined by the banks. The inflation rate in Brazil fell from 10.7% in 2015 to 3.3% in 2019, while the reference interest rate SELIC also fell from 14.2% to 4.5% in the same period. After significant reductions in recent years, preferential interest rates were kept constant in several rural credit programmes at 0.5% to 4.6% for small producers (PRONAF), 6% for medium-size producers (PROMAMP) and 5.25% for the Environmental Program for Reducing Greenhouse Gases Emissions in Agriculture (ABC). Other credit conditions were changed for credits for machinery: a reduction in the repayment terms from 10 to 7 years, and an increase of the grace period from 12 to 14 months. The objectives of the Agricultural programme of the BNDES for 2019/20 are: increasing the storage capacities of the industry for meat, milk, sugar and wheat; purchasing aerial sprayers; and modernising the storage capacity of co-operatives and private firms.

The Provisional Measure PM 897/2019 on rural credit published in October 2019 aims to reduce the free market interest rates for rural credit, expanding the financial resources from the private capital market and increasing the competition among all credit institutions benefiting from support to rural credit. First, the PM facilitates the creation of collective funds (FAF) to be allowed to guarantee rural credit together with individual guarantees; and it gives more flexibility to use rural property as credit guarantee. Second, building on the recent expansion of LCA resources provided at free interest rates, the PM proposes legal changes to other financial assets to facilitate their use for rural credit. Third, the list of financial institutions eligible to interest rate subsidy paid by the Treasury is to be expanded beyond federal public banks and co-operative banks, to include credit co-operatives and other private financial institutions. These measures are already operative and it is planned to convert them into law in 2020.2

The PSA plan 2019/20 increased the resources for insurance programmes to BRL 1000 million (USD 253 million) from BRL 440 million (USD 111 million) in the previous year. In addition, adjustments were made to the percentage of subsidy granted, which was reduced from up to 70% and now ranges from 20% to 40%, and the minimum coverage level required to 65%. In line with the objectives of the new government, the goal is to more than double the number of insured hectares to 15.6 million. A new decree in June 2019 provided a regulatory framework to the Agricultural Zoning Program (ZARC) that is compulsory for farmers participating in subsidised insurance programmes.

In September 2019, the Ministry of Agriculture of Brazil authorised BRL 25.3 million (USD 5.9 million) in payments to producers affected by severe drought through the Garantia Safra Programme. The payments were available to farmers from September 2019 in the north and the north-east regions (Ordinance No. 4315).3 In October, further assistance from the same programme, amounting to BRL 442.4 million (USD 112.1 million), was announced for farmers in the states of Bahia, Pernambuco and Piauí, who have a monthly income of up to one and a half times the minimum wage and who incurred production losses of at least 50% during the 2017/18 season.4

The PSA plan also defines the resources for marketing programmes allocated to public purchases and deficiency payments and sets the regional minimum guaranteed prices and reference prices. These resources have significantly been reduced for 2019/20 to BRL 1.85 billion (USD 469 million) compared to BRL 2.6 billion (USD 711 million) in the previous year. However, the minimum prices have increased in nominal terms by 7% on average, with higher increases in some crops such as soybean (15%) and wheat (12%).

In July 2019, the Brazilian Health Regulatory Agency (Anvisa) approved a new regulatory framework for agrochemicals, updating the criteria of approval and classification of toxicity and improving the labelling requirements on danger.5 The number of pesticides registered in Brazil by Anvisa was 450 in 2018, an additional 211 pesticides were registered in the first half of 2019.6

In August 2019, Brazil's National Agency for Petroleum, Natural Gas and Biofuels (ANP) raised the minimum biodiesel blend from 10% to 11% effective from 1 September. In November, a further increase from 11% to 12% effective from 1 March 2020 was announced. Blend levels are to be increased by a further one percentage point each year, targeting a 15% mix by 2023. The maximum blending requirement remains unchanged at 15%.7

Trade policy developments in 2019-20

In June 2019 the European Union and Mercosur reached a free trade agreement involving EU Member States and the members of Mercosur (Argentina, Brazil, Paraguay and Uruguay) (Baltensperger and Dadush, 2019[1]). The agreement is pending a technical revision and translation, and the approval by the European Union and its Member States and Mercosur. On industrial goods, once in force the agreement stipulates the removal of all tariffs on EU imports from Mercosur and on 90% of imports by Mercosur from EU Member States. On agricultural goods, the European Union would remove tariffs on 82% of imports from Mercosur (including many fruits, juice and coffee), while Mercosur would remove them on 93% (including olive oil, wine and chocolate) of its imports from the European Union. Market access to the EU common market from Mercosur member countries would be increased through the expansion of the EU Tariff Rate Quotas (TRQs) for sensitive products such as beef, poultry, pork, sugar, ethanol and cheese. The agreement also foresees facilitating trade with streamlined border and sanitary and phytosanitary (SPS) procedures, mutual recognition of Geographical Indications (GIs), and a chapter on trade and sustainable development under which the two parties commit to the effective implementation of already subscribed international agreements such as the Paris Agreement.

References

[1] Baltensperger, M. and U. Dadush (2019), “The European Union-Mercosur Free Trade Agreement: Prospects and risks”, Policy Contribution, Bruegel 11, https://www.bruegel.org/wp-content/uploads/2019/09/PC-11_2019.pdf.

Notes

← 1.  Up to 2019 there was a Special Secretariat for Family Farm and Agrarian Development (SEAD) reporting directly to the Presidency.

← 2.  This type of provisional measures in Brazil can be applied before they are approved by the Parliament.

← 3.  AMIS Market Monitor No 72, October 2019.

← 4.  AMIS Market Monitor No 73, November 2019.

← 5.  http://www.agricultura.gov.br/noticias/normativo-vai-disciplinar-o-uso-de-drones-na-pulverizacao-de-defensivos-agricolas.

← 6.  http://www.agricultura.gov.br/noticias/mesmo-com-aumento-do-registro-de-defensivos-agricolas-venda-do-produto-caiu-nos-ultimos-anos and http://www.agricultura.gov.br/noticias/diario-oficial-traz-registro-de-42-defensivos-agricolas-objetivo-e-aumentar-concorrencia-e-baratear-custo-dos-produtos.

← 7.  AMIS Market Monitor No 71 and 73, September and November 2019.