Brazil's Credit Freeze Deepens as Banks Slash Lending to Farmers

July 11, 2016 12:51 PM
brazil currency 1

Brazil’s deepening economic turmoil is now engulfing farmers.

Banks slashed credit to farmers by 9.1 percent in inflation-adjusted terms for the crop year that started this month, Brazil’s agriculture ministry said July 1. That’s the first contraction since at least the 2002-2003 crop season.

The pullback comes as Latin America’s biggest economy suffers its longest recession in more than a century. Brazil -- the world’s largest exporter of soybeans, beef, coffee, sugar and orange juice -- depends on the agriculture industry for about 20 percent of its gross domestic product and 40 percent of its exports. The retreat by banks is prompting companies such as Plymouth-based fertilizer producer Mosaic Co. to provide financing of their own.

“As credit gets tighter, suppliers of agricultural inputs have been forced to finance their clients,” said Daniel Magalhaes, an associate at RB Capital in Sao Paulo.

That funding typically takes the form of barter trading: Suppliers provide fertilizers and chemicals to farmers ahead of the planting season and receive part of the harvest as payment months later.

Those suppliers often fund these kinds of transactions by issuing certificates of agricultural receivables, or CRAs. The certificates, which are sold to retail investors through securitization companies, are backed by the crops farmers deliver as payment.

Mosaic plans to raise as much as 300 million reais ($91 million) by selling CRAs, said two people with direct knowledge of the matter who asked not to be identified because the information is private.

RB Capital’s Magalhaes estimates that as much as 1.5 billion reais of new CRAs are in the works, most of which will be issued by companies seeking to provide financing to farmers. Sales of the certificates have already reached 5.4 billion reais this year, exceeding 2015’s total.

In March, Monheim-based chemicals makers Bayer CropScience AG raised 107 million reais by selling CRAs.

“With banks retreating, we need to find alternatives,” said Paulo Soares, a manager at Bayer. “Barter trading strengthens in periods of uncertainty and tight credit.”

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