May 05, 2016

Brazil's 2016/17 Harvest Plan has Higher Interest Rates

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian President, Dilma Rousseff, and the Brazilian Minister of Agriculture, Katia Abreu, announced earlier this week the 2016/17 Agriculture and Livestock Plan, which is commonly referred to the 2016/17 Harvest Plan. This is the yearly "farm program" in Brazil that consists mainly of subsidized interest rates for production loans and investment loans.

The government announced an 8% increased level of funding for the various programs, but with much higher interest rates than last year. The total funding for the 2016/17 Harvest Plan was put at R$ 202.8 billion, up 8% compared to the R$ 187.7 billion in 2015/16. The big difference though is in the interest rates. Last year's plan had interest rates of 7.75% to 8.75% depending on the type of loan and the individual. The 2016/17 Harvest Plan has interest rates of 8.5% to 12% with much of the credit available at market rates, which are much higher.

The type of loans in the 2016/17 Harvest Plan are divided into two parts. The first part is for production loans for the planting and marketing of the 2016/17 crops and the second part is for investment loans for such things as equipment purchases. For production loans, there is R$ 115.8 billion available with subsidized interest rates and R$ 53 billion available at market interest rates, which can surpass 20% depending on an individual's financial situation. For investment loans, there is R$ 4 billion available at subsidized interest rates and R$ 30 billion available at market interest rates.

Brazilian farm organizations criticized the plan immediately after it was released and they declared that the plan was "dead on arrival." They based much of their criticism on the fact that President Rousseff and her Minister of Agriculture may not be in power as soon as next week.

The Brazilian Senate is scheduled to vote next week on whether to impeach the president for financial irregularities. A simple majority vote is needed to proceed with an impeachment trial. If the Senate votes for impeachment, the President will be relieved of her duties while the trial is conducted. The Brazilian Vice President, Michel Temer, would assume the presidency temporarily pending the outcome of the trial. The Brazilian Constitution allows for 180 days to conduct the trial, but most observers feel the trial would be resolved quicker than 180 days.

The president previously announced R$ 30 billion program of low interest loans for small family farmers. The interest rates on these loans is only 2.5% and it is widely seen as an attempt by the president to curry favor with her supporters prior to the vote next week.

Agricultural groups are also very skeptical of the government's commitment to fully fund the 2016/17 Harvest Plan in light of soaring deficits and plunging tax revenues. The Brazilian GDP is expected to shrink 4% in 2016 for the second year in a row and it is not expected to return to growth for another one or years.