Chapter 5. Brazil
Support to agriculture
Brazil provides a low level of support and protection to agriculture, reflecting its position as a competitive exporter. Producer support as a share of gross farm receipts fell from 5.7% to just 2.6% between 2000-02 and 2016-18. Most of the low producer support is provided through market price support and input payments, including concessional credit and crop insurance subsidies. 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. While domestic prices were below world prices in the mid-1990s, generating negative market price support (MPS), prices are now almost aligned with the international markets.
Support to general services (GSSE), mainly on research and development and innovation, represented 30% 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 fallen from 0.6% in 2000-02 to 0.4% in 2016-18.
Main policy changes
The Agricultural and Livestock Plan 2018/19 (PAP) increased by 1.4% the maximum rural credit allocation — which represents more than 95% of the plan — to BRL 191.1 billion (USD 52.3 billion); 80% of this total is provided at preferential interest rates. The reference market interest rate (SELIC) continued to decline from 7% in 2017 to 6.5% at the end of 2018 and the preferential interest rate margins have been reduced by the government. While inflation slightly increased in 2018 to 3.7%, regional minimum guaranteed prices for main crops (soybean, bean, rice, coffee, milk) increased by less than 3% in nominal terms.
In early 2019, the Ministry of Agriculture, Livestock and Food Supply (MAPA) incorporated the responsibilities for small-scale family farming, previously under the Special Secretariat for Family Farm and Agrarian Development (SEAD) that reported directly to the Presidency. Other Secretariats have also been created under MAPA on land tenure, aquaculture and fishery, forestry, irrigation, rural development and innovation.
The regulation of the national biofuel policy RenovaBio was approved in March 2018 responding to Brazil’s Intended Nationally Determined Contribution (INDC) commitments under the Paris Climate Agreement. A target was set by the National Energy Policy Council of Brazil (CNPE) to reduce emissions from fossil fuels by 10% in 2028 through an increased use of biofuels in substitution of petroleum. The biodiesel blending mandate B10 increased from 8% to 10% in March 2018 and is set to further increase by one percentage point per year from June 2019 up to 15% by 2023.
Assessment and recommendations
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Agricultural policies in Brazil provide low levels of support and protection to producers, and progress continues on improving programme effectiveness and general services to strengthen the sector’s productivity and sustainability performance.
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Despite the variety of regional price support programmes, prices received by agricultural producers in Brazil are mostly aligned with international levels. In 2018, domestic prices increased less than inflation for most commodities, while the decline in border prices in USD was attenuated by the depreciation of the BRL. Overall, differences in support levels by commodity should be removed as they create distortions within the sector and lead to suboptimal allocation of resources.
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Before any increase of funding to insurance subsidies, 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.
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Agricultural credit at preferential interest rates represents an important share of agricultural policy’s budget expenditures. The availability of funds for rural loans is incentivised by the obligation for banks to reserve a certain portion of their deposits for agricultural credit. A reform of the concessional credit system could consider a gradual downsizing of concessional loans for working capital to commercial producers. Now that market interest rates have fallen, access to credit by rural borrowers could be facilitated through the simplification of regulations and procedures. Agricultural credit support could be re-focused to support those on-farm investments that explicitly incorporate innovations, advanced farm management and environmental practices.
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Several programmes have been introduced to encourage environmental improvements. For instance, insurance and credit support is conditional to environmental criteria and zoning rules, and credit is available to modernise production systems and preserve natural resources through programmes like the ABC credit programme. Specific long-term sustainability and environmental outcomes should be assessed in order to improve their policy design and to inform the strategies to achieve Brazil’s INDC commitments.
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Access to export markets is crucial for Brazilian agriculture. In this respect, efforts continue to improve animal health. The restructuring of the sanitary and phytosanitary inspection system with a view to improve its efficiency and reliability is an important contribution to gain or re-gain foreign markets, complemented by bilateral and multilateral trade discussions.
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Expenditure on general services to agriculture constituted about a third of total support to the agricultural sector in 2016-18, with research and development and innovation transfer accounting for most of it. The agricultural innovation system has succeeded in maintaining relatively high productivity growth in the commercial sector. It is important to maintain the research capacity and increase the diffusion of innovations to a wider range of farmers.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
The level of support to producers (%PSE) in Brazil was 2.6% of gross farm receipts in 2016-18 (Figure 5.1), well below the OECD average. The share of potentially most distorting transfers is 55%, very similar to the share in 2000-03 when input payments were the main category of support. Nowadays input payments are provided with environmental constraints. Producer prices for most products are very much aligned with world markets and farmers receive prices that on average are 1.5% higher than border prices. The expenditure on general services (GSSE) reached 2.6% of agricultural value added, down from 3.6% in 2000-02. Almost 90% of these services are on knowledge and innovation. Total support to agriculture (TSE), including producer support and general services, was also reduced to 0.4% of GDP. The producers support estimate (PSE) of Brazil fell in 2018 by 36% compared with 2017 (Figure 5.2.), mainly driven by lower preferences in the interest subsidies of rural credit. Price gaps also diminished mainly driven by a depreciation of the exchange rate. The products with a highest share of specific commodity transfers (SCT) were rice, wheat and cotton with, respectively 18%, 9% and 7% (Figure 5.3).
Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Brazil is the largest country in the Latin American and one of the world’s largest countries in area and population, has abundant land and water and is a major agricultural producer and exporter. It was the seventh biggest economy in 2017, with a GDP around USD 3 238 billion and a per capita GDP over USD 15 000. The share of agriculture in Brazil’s GDP and employment has been falling, but remains higher than in most other countries covered in this report. Agro-food exports have grown, representing more than 37% of total exports. Brazilian agricultural land represents 10.3% of total in all countries and 29% of this is arable land.
The country is an important player in global agro-food trade, since it is the third biggest exporter after the European Union and the United States. The country is among the world’s leaders in the production of soybeans, poultry, beef, cotton, corn, and orange juice. The main product in Brazilian exports is soybean (grain, meal, and oil), which represented almost 50% of the agricultural exports’ total value in 2018.1 Besides soybean, other important exports products were meat (17.3%), sugar and ethanol (8.7%), coffee (5.8%) and cereals (5.6%).
After two years of recession on 2015-16, Brazilian GDP is growing again since 2017. In 2018 the growth rate was 1.2%, compared to the previous year, while inflation increased from 3.4% in 2017 to 3.7%. Moreover, the unemployment rate decreased from to 12.7% to 12.3% in 2018. Agro-food exports in Brazil reached more than USD 80 billion in 2017, generating an agro-food trade surplus of USD 70 billion. While almost half of Brazilian agro-food exports are primary products for industry (49%), more that 60% of the country’s imports are processed products.
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Between 2006 and 2015, Brazilian agricultural production increased at an annual rate of 3.2%, well above the world’s output growth. Increases in production in Brazil were driven by an above-average growth in Total Factor Productivity (TFP) of 1.9% per year, but also by an increased use of intermediary inputs.
Regarding agri-environmental indicators, agriculture accounted for 43% of GHG emissions and 5% of energy use in 2017, which is below the levels in 1995 but above the OECD average, mainly due to the larger share of the agricultural sector in the Brazilian economy and the importance of pasture-based livestock. Even if the share of agriculture in water abstractions remained high at 62%, the water stress indicator (1.0 in 2016 and 2017) is much lower than the OECD average. Nutrient balances in Brazil have increased since 1995 and are higher than the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
The main areas of agricultural policy in Brazil are rural credit and market price support, implemented and developed since the 1960s, and risk management (insurance subsidies) that was introduced in 2005. Other policy instruments include agricultural land zoning and promotion of biofuels. Agricultural policy is defined in the annual Agricultural and Livestock Plan administered by the Ministry of Agriculture, Livestock and Food Supply (MAPA). Until the end of 2018, the Special Secretariat for Family Farm and Agrarian Development (SEAD), which reported directly to the Presidency, was responsible for the small-scale family agriculture, through the Family Agriculture Plan 2017/20.
The basic element of market 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. Given these minimum guaranteed prices, the government implements several price support mechanisms, 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 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 and, until the end of 2018, SEAD. 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 and small-scale family farms. Most of the rural credit under the National Rural Credit System (SNCR) is provided at preferential interest rates with differentiated conditions for small and medium size farmers compared to commercial ones. The main sources of preferential rural credit are “Compulsory Resources”, 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). Other sources 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.
Four main agricultural insurance programmes provide support either in the form of insurance premium subsidies or by compensating farmers for production losses due to natural disasters. Two of them target commercial farmers: the rural insurance premium programme (PSR) which grants insurance premium subsidies to commercial producers who establish contracts with insurance companies listed by the government; and the general agriculture insurance programme (PROAGRO) which offers partial compensation for bank debts on working capital loans indemnifying losses of own resources invested in production. Most of the resources from this programme are allocated to the southern region for grain crops, mainly soybeans. Small-scale family farms can also benefit from two different programmes: the PROAGRO-Mais or family agriculture insurance (SEAF); and the crop guarantee programme (Garantía Safra, GS).
In some programmes, support is conditioned by environmental criteria. Agricultural zoning of climatic risks (Agricultural Risk Zoning ZARC) is an important instrument that 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. Since January 2019, the access to rural credit additionally requires compliancy with the Environmental Rural Registry (CAR), a mandatory digital registration.
Brazil has specific credit programmes, mainly the Low Carbon Agricultural Programme (ABC), to promote sustainable agricultural practices. These include credit for 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, improve production systems and preservation of natural resources.
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 Program 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 GHG emission reduction commitments under the Paris Agreement on Climate Change, by increasing the supply of alternatives to fossil fuels.
Domestic policy developments in 2018-19
In July 2018, the Ministry of Agriculture, Livestock and Food Supply released the Agricultural and Livestock plan 2018/19 (PAP). The plan defines the maximum budgetary resources for rural credit (BRL 191.1 billion or USD 51.5 billion), support in marketing programmes (BRL 2.6 billion or USD 716 million), and insurance subsidies (BRL 600 million or USD 165 million). The main changes compared to the previous plan include the adoption of a new methodology for the setting of rural credit interest rates and the reduction of compulsory resources dedicated to rural credit: from 74% of Rural Saving deposits to 60% in November 2017, and from 34% of sight deposits in commercial banks to 30% in June 2018. The new PAP created a working capital credit line for milk production by co-operatives, as well as the possibility of using compulsory resources to finance the acquisition of cattle and buffaloes for breeding, previously financed under another medium-size producer investment programme, PRONAMP. The possibility of financing investments in “Legal Reserve” areas and “Permanent Preservation Areas” at a lower interest rate of 5.25% was introduced in the Low Carbon Agriculture Programme, in line with the Brazilian Forest Code. Other programmes that continue in the new PAP include the following: the Warehouse Construction and Expansion Programme (PCA) with BRL 2.15 billion (USD 588 million); the Program for Reducing Greenhouse Gases Emissions in Agriculture (ABC) with BRL 2.0 billion (USD 547 million); the Incentive Program for Technological Innovation in Agricultural Production (Inovagro) with BRL 1.15 billion (USD 315 million); and the National Support Program to the Medium Rural Producer (PRONAMP) with BRL 20.03 billion (USD 5.5 billion).2 Funding for ABC and Inovagro programmes decreased by 6% and 9% when compared to the 2017/2018 plan, while PCA and PRONAMP programmes increased their funding by 34% and 11%, respectively. Priority continued to be given to investments on the expansion of storage capacity, mainly grains, innovation, and sound environmental agricultural production. Small and medium size producers continued to have access to special and differentiated rural credit lines.
Rural credit resources in the 2018/19 plan are 1.4% higher than in the previous plan, more than 80% of which will be available at preferential interest rates and 20% at market rates. Nominal credit interest rates were set between 5.25% and 9.5%, lower than the rates in the previous season. The interest rates for medium-sized producers under PRONAMP were reduced from 7.5% to 6.0%. In 2017/18 and 2018/19 (until February) rural credit financing investments has increased more than that for working capital, and in the crop year 2018/19 these increases were 24% and 9%, respectively. Growth rates of financing under priority investment programmes were even higher: 44% on technological production innovation (Inovagro programme) and 114% on low carbon agriculture (ABC programme). In line with the macroeconomic directions of the new government, in January 2019 a resolution from the Central Bank changed the conditions for the allocation of 35% from Agribusiness Credit Notes (LCA) to rural credit: part of these credits used to be provided at preferential rates, but all credit is now provided at market rates.
In 2017, agricultural producers (especially grains and fruits producers) have taken out more than 67 000 insurance policies, covering a production area of almost 4.9 million hectares, about 6% of total crop area. In 2018, to improve transparency in insurance programmes like the Rural Insurance Premium Grant Program (PSR), the Government released information about the annual compensation in the last 10 years and published the Triennial Rural Insurance Plan (PTSR) for 2019-21. The PTSR includes general guidelines on the implementation of the PSR in the period such as types of coverage, technical and financial criteria, percentage of insurance premium support and budget estimates. Zoning methodology (ZARC) continued to be updated for several products, allowing risk identification by shorter periods of ten days, which facilitates the adjustment of farmers’ practices.
While inflation increased from 3.4% in 2017 to 3.7%, the regional minimum guaranteed prices for main crops (soybean, bean, rice, coffee, milk) were increased by less than 3% in nominal terms in the 2018/19 plan compared to the previous one. For instance, soybean nominal prices increased by 2.4% while wheat prices decreased by 2.9%, the price for arabica coffee rose by 2.5% while Conilon coffee prices were reduced by 9.6%. Prices for paddy rice, rubber and grapes remained constant in nominal terms.
In early 2019, the Ministry of Agriculture, Livestock and Food Supply has taken over the responsibilities for small-scale family farming, and the Special Secretariat for Family Farm and Agrarian Development (SEAD) has been extinguished.3
The Ministry of Mines and Energy (MME) introduced a new regulation on the national biofuel policy, RenovaBio (decree 9308 of 15 March 2018). The National Energy Policy Council of Brazil set a target to reduce fossil fuel emissions by 10% in 2028, corresponding to a reduction of 600 million tonnes of carbon equivalent.4 To increase the use of biofuels and reduce petroleum as a source of energy, the government foresees an increase in the production of ethanol (from 30 billion litres to about 50 billion litres) and biodiesel (from 4 billion litres to 13 billion litres) by 2030. In March 2018, the Brazilian government increased the biodiesel blending mandate (known as “B10”) from 8% to 10%. In November 2018, the National Council for Energy Policies in Brazil proposed to increase the 10% biodiesel blending mandate by one percentage point per year, starting from June 2019. The increase would continue for the next five years, reaching 15% by 2023, conditional on satisfactory results in ongoing engine tests.5
Trade policy developments in 2018-19
The European Union and the countries of Mercosur (Argentina, Brazil, Paraguay and Uruguay) continue negotiating on the EU-Mercosur Free Trade Agreement (FTA) after almost 20 years. By the end of 2018, they had agreed on 12 of the 15 chapters in the agreement.6
In August 2018, the Brazilian Council of the Foreign Trade Chamber (CAMEX) approved the removal of the 9% export tax on wet blue leather and salt leather. These export taxes have been in place for 18 and 26 years, respectively.7 The tax was created aiming to add value to the leather chain, through exports of footwear. However, between 1997 and 2017, exports of Brazilian leather shoes decreased in value by 71.8%.8 This was one of the last remaining agricultural export taxes in Brazil.
Brazil requested consultations at the World Trade Organization (WTO) in October 2018 regarding restrictions on Chinese sugar imports. The requirement concerns a safeguard measure, the People’s Republic of China’s (hereafter “China”) administration of its tariff-rate quota and China’s licensing system for out-of-quota imports.9 The European Union, Thailand and Guatemala have also requested to join the consultations. In February 2019, Brazil also requested consultations with India at the WTO about domestic support measures that the country would provide to cane producers and export subsidy measures to sugar exporters;10 Australia has also joined these consultations. In 2018, Brazil initiated reviews of its long-standing anti-dumping measures on garlic imports from China and on milk from New Zealand and the European Union.
In 2018, Brazil continued to have positive developments in the management of animal diseases. After eleven years without any incidence, in May 2018, the World Organization for Animal Health (OIE) officially declared Brazil free from FMD with vaccination.11 The strategic plan for eradication and prevention of FMD aims to have the entire country recognised as free of FMD without vaccination by 2023. Until now, Santa Catarina is the only state in Brazil with this status, which it obtained in 2007.
The Brazilian government has been proactive regarding sanitary and phyto-sanitary impediments for market access. Some Brazilian products, such as pork meat, obtained access to certain markets such as South Korea and India, in recent years.12
In January 2019, the government announced a plan (Radar II Operation) to modernise and expand the logistics and transportation infrastructure on the BR-163 highway, which is the main route of transport for agricultural products, especially grains, towards seaborne international trade.13 The plan aims to ensure the road traffic during the harvest with an investment of BRL 4 million or USD 1.1 million in logistical support to be implemented in five months (from December 2018 until May 2019).14
Notes
← 1. AgroStat Brasil, http://agrostat.agricultura.gov.br.
← 2. http://www.agricultura.gov.br/assuntos/sustentabilidade/plano-agricola-e-pecuario/arquivos-pap/copy_of_PlanoAgricolaePecurio20182019.pdf.
← 3. In 2016, this Secretariat replaced the ministry created in 1999 to promote family farming support and land reform.
← 4. http://www.mme.gov.br/web/guest/pagina-inicial/outras-noticas/-/asset_publisher/32hLrOzMKwWb/content/cnpe-delibera-sobre-metas-do-renovabio-e-rodadas-de-licitacoes.
← 5. AMIS, March and November 2018, http://www.in.gov.br/materia/-/asset_publisher/Kujrw0TZC2Mb/content/id/49229059/do1-2018-11-08-despachos-do-presidente-da-republica-49228860.
← 6. https://economia.estadao.com.br/noticias/geral,as-negociacoes-mercosul-uniao-europeia,70002659725.
← 7. http://www.agricultura.gov.br/noticias/comite-executivo-da-camex-aprova-fim-do-imposto-de-exportacao-do-couro-wet-blue.
← 8. Source: AgroStat Brasil. http://agrostat.agricultura.gov.br.
← 9. https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds568_e.htm.
← 10. https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds579_e.htm.
← 11. http://www.agricultura.gov.br/noticias/ha-11-anos-sem-registro-de-aftosa-pais-e-considerado-livre-da-doenca-com-vacinacao.
← 12. http://www.agricultura.gov.br/noticias/foram-abertos-mercados-para-24-produtos-do-agro-em-mais-12-paises
← 13. http://www.agricultura.gov.br/noticias/forca-tarefa-vai-garantir-escoamento-de-graos-pela-br-163.
← 14. https://www.aviacaocivil.gov.br/o-que-e-rss/17-ultimas-noticias/8285-%E2%80%9Copera%C3%A7%C3%A3o-radar-segue-com-tranquilidade%E2%80%9D,-diz-ministro-da-infraestrutura.html.