Uncertainty surrounding Brazil’s new farm credit package is worrying executives from the world’s largest agricultural machine makers since a delay on the definition of the program could hurt their sales.
Despite a relatively positive outlook for the Brazilian agricultural sector—as the country harvests its second largest soybean crop and a record corn crop—directors for John Deere , Case IH and AGCO Corp are anxious about new financing rules as Brazil’s new administration vows to cut public funding to the private sector.
Brazil’s government has for years subsidized interest rates on loans for farmers, due to a history of high interests in the country. The federal government pays banks the difference between the conditions it sets for farmers in the annual farm credit package and those of the market.
Economy Minister Paulo Guedes, the main policy maker of President Jair Bolsonaro, advocates for a gradual increase on private financing for the agricultural sector.
“I think this liberal vision is important for the country. But we need a period of transition, of accommodation,” Rodrigo Bonato, Brazil sales director for John Deere, said at the Agrishow, Latin America’s largest farm equipment exposition.
“This lack of information regarding the new plan causes anxiety among farmers, it disturbs their decision making,” he said, adding that this is time of year when Brazilian farmers typically plan for their next crops.
Brazil’s official credit line for agricultural machines, for example, has annual interests of 7.5% and 7 years for repayment. A private line at a commercial bank would normally costs 11%, with repayment in 5 years.
“Interests are critical when a farmer calculates return on investments such as buying a large machine. A line with 11% is still too high, and I believe the government understands this structural difficulty,” said Christian Gonzalez, vice-president South America for Case IH, the agricultural machine arm of CNH Industrial.