Chapter 4. Brazil
Support to agriculture
Brazil provides a relatively low level of support and protection to agriculture, reflecting its position as a competitive exporter. The level of producer support (PSE) was 2.7% of gross farm receipts in 2015-17, well below the OECD average. The total support estimate to agriculture (TSE) was 0.4% of GDP, and the direct support to farms (PSE) represented 50% of the total support to the sector (TSE) in the same period. Support based on output and payments based on input use are the most prominent elements of the PSE. Expenditures on agricultural knowledge and innovation systems are the main elements of the General Services Support Estimate (GSSE) and accounted for close to 90% of the total GSSE in 2015-17.
More than half of support to producers is provided through measures based on variable input, mainly concessional credit and crop insurance subsidies. Concessional credit is available for farm marketing and working capital but also for investment in fixed capital. Since 2008 all support based on input use is conditional to environmental criteria. One-third of support to producers is provided through measures that distort farm output prices, such as regional minimum guaranteed prices and deficiency payments. 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.
Main policy changes
The Agricultural and Livestock Plan 2017/18 increased the maximum budgeted allocation for rural credit by 2.5%, and banks are obliged to provide up to 20% of their deposits to finance subsidised rural credit for working capital and for agricultural products storage were significantly increased up to 20% of their deposits. However, as inflation decelerated and reference interest rates (SELIC) declined in 2017, applied market interest rates were lower than the ones fixed for the 2017/18 period and the regional minimum guaranteed prices for key crops were maintained at or below previous year levels.
A strategic plan for the eradication and prevention of Foot and Mouth Disease was launched and the Veterinary Inspection system is to be modernised, with the government recruiting 600 additional sanitary professionals.
The national biofuel policy RenovaBio passed in December 2017 responds to Brazil’s Intended Nationally Determined Contributions commitments under the Paris Agreement on Climate Change. It is designed to increase biofuel production, and establishes mandates related to biofuel certification and tradable decarbonisation credits.
Assessment and recommendations
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The prices received by agricultural producers in Brazil fell in 2017 in the context of a significant decline in inflation, and most regional minimum prices fixed by the Government did not increase. These developments highlight that, in spite of regional price support programmes, prices received by agricultural producers in Brazil are almost aligned with international markets. However, differences in support levels by commodity persist and should be removed to eliminate distortions within the agricultural sector.
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Agricultural credit at preferential interest rates is central to Brazil’s agricultural policy. The reduction of the reference interest rate SELIC makes credit more affordable and allows better targeting credit support to small producers and to innovative capital investment. While credit support is intended to address failures in financial markets, it entails default-related risks and most of the credit is concentrated on more distorting short-term borrowing for commercial farmers. A gradual downsizing of those short-term concessional loans should be considered now that market interest rates are lower, and regulations and procedures should be simplified. Agricultural credit support could be better targeted to support on-farm investments that explicitly incorporate technological innovations, advanced farm management and environmental practices.
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Expenditure on general services to agriculture constituted almost a third of total support to the agricultural sector in 2015-17, with a focus on R&D and innovation transfer. The agricultural innovation system has helped to maintain relatively high productivity growth rates in the commercial sector. Maintaining the research capacity and focus, and increasing the diffusion and adoption of innovations to a wider range of farmers, will be important, including through partnerships between the Government research agency Embrapa and other private and public actors.
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The Ministry of Agriculture’s development of on-line risk assessment tools should help to generate risk awareness and facilitate self-assessment and decision making by farmers. In order to develop more efficient insurance products and monitor the performance of subsidized insurance, it is essential to strengthen the information base of these tools and to facilitate the information sharing among different actors.
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Most support programmes in Brazil are currently conditional on environmental criteria and zoning rules, and the ABC plan provides credit to finance the implementation of sustainable practices. The effectiveness of these conditions and credit programmes to achieve 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 INDCs under the Paris Climate Agreement.
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Recent efforts to improve animal health have delivered significant results in 2017 with the OIE declaration of Brazil as free of the contagious bovine pleuropneumonia, and the recognition by the Government of Brazil of the last two states as free of foot and mouth disease with vaccination. The ongoing restructuring of the sanitary and phytosanitary inspection system should pursue further strengthening the system by improving its efficiency and professional independence, in order to restore confidence and open export markets for Brazilian agriculture.
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Brazil has moved from taxing the sector in the mid-1990s to a low level of Support to farmers (%PSE) of 2.7% of gross farm receipts in 2015-17, well below the OECD average (Figure 4.1). The share of potentially most distorting support was 35% of the PSE in that period, reflecting Market Price Support and deficiency payments. Since 2008, all support to variable inputs use is conditional to environmental criteria. Prices received by farmers were almost aligned with world prices in 2015-17, while they were 18 % lower in 1995-97. The expenditures for general services (GSSE) corresponded to 2.7% of the agricultural value added in 2015-17, down from 7.3% in 1995-97. Almost 90% of this expenditure was for financing the agricultural knowledge and innovation system. Total support to agriculture was 0.4% of GDP in 2015-17, below the OECD average. About half of the total support (TSE) is provided to individual farmers (PSE). The level of support to producers (PSE) in 2017 has decreased by 41%, due to declines in both MPS and budgetary payments. The decrease in MPS results from a smaller price gap as domestic prices declined more than border prices (Figure 4.2). Transfers to specific commodities (SCT) represented 63% of the support to farmers (PSE) (Figure 4.3). Most of the SCT were in the form MPS. The commodities with highest SCT transfers in 2015-17 were rice (16%), wheat (10%), cotton (5%) and maize (4).
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en
Contextual information
Brazil has a large population and is one of the world’s ten largest economies. It is an upper middle income country, with a per capita GDP over USD 15 000. Agriculture contributes a stable 5% of GDP, compared to 3% across all countries in the report. The agriculture sector absorbs a large but declining share of employment: 13.9% as compared to 26.1% in 1995. The country is one of the largest agricultural exporters with agro-food exports accounting for 38.5% of total exports, compared with 7.3% across all countries. The share of agro-food in total imports is 6.7%. Brazil is abundantly endowed with agricultural land representing more than 10% of the total land area of all countries covered in this report. A large share of this land (28%) is arable.
Brazil’s GDP recovered in 2017 after a 3% contraction in each of the previous two years. Inflation significantly declined from 9% in 2016 to 3.4% in 2017. However, the unemployment rate continued to grow to 12%, its highest level in twenty years. Agro-food exports have been very dynamic and more than quadrupled between 2002 and 2013 to more than USD 80 billion. The agro-food trade surplus was above USD 60 billion in 2016. Almost three quarters of Brazilian agro-food exports are processed products for consumption or further processing industries.
Source: OECD statistical databases.
Brazilian agricultural production has increased at an annual rate of 3.4% between 2005 and 2014, well above the global output growth of 2.4%. During the same period, Total Factor Productivity (TFP) has increased at 2.2%, outperforming the global average. This indicates that a more efficient combination of inputs has been the main driver of output growth compared to the use of additional primary or intermediate inputs that grew together at a rate of 1.2%. Agriculture accounted for 44% of GHG emissions in 2016, slightly less than in 1995, but much above the OECD area average. A large and growing share of water abstractions, 62% in 2016, goes to agriculture, but the water stress indicator of 1.0 is much lower than the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.
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Brazil |
International comparison |
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|---|---|---|---|---|
|
|
1991-2000 |
2005-2014 |
1991-2000 |
2005-2014 |
|
|
|
|
World |
|
|
TFP annual growth rate (%) |
2.37% |
2.21% |
1.60% |
1.63% |
|
|
|
OECD average |
||
|
Environmental indicators |
1995 |
2016* |
1995 |
2016* |
|
Nitrogen balance, kg/ha |
.. |
.. |
33 |
30 |
|
Phosphorus balance, kg/ha |
.. |
.. |
3.7 |
2.4 |
|
Agriculture share of total energy use (%) |
5.5 |
5.1 |
1.8 |
1.9 |
|
Agriculture share of GHG emissions (%) |
50 |
44 |
8.5 |
8.5 |
|
Share of irrigated land in AA (%) |
.. |
2.0 |
- |
- |
|
Share of agriculture in water abstractions (%) |
50 |
62 |
45 |
43 |
|
Water stress indicator |
0.6 |
1.0 |
10 |
10 |
|
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data. |
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Description of policy developments
Main policy instruments
Agricultural policy in Brazil mainly focuses on three areas: market price regulation, rural credit and crop insurance. There are also other policy measures, such as agricultural land zoning and promotion of biofuels and organic production. Agricultural policy is defined in the Agricultural and Livestock Plan administered by the Ministry of Agriculture, Livestock and Food Supply (MAPA) which focuses only on commercial agriculture. The Family Agriculture Plan supports the development of small-scale family agriculture. It is under the responsibility of the Special Secretariat for Family Agriculture and Agrarian Development (MDA) which reports directly to the Presidency.
The basic element of market price 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 various 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 MDA. 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 the sector and it is provided to both commercial and small-scale family farms. The National Rural Credit System (SNCR) directs credit to farmers at preferential interest rates. For commercial agriculture the SNCR system provides credit for marketing, working capital and investment. Sources of funding for this concessional credit come from “compulsory” resources, where banks are obliged to either hold a share of their sight deposits as obligatory reserves at the Central Bank at zero interest rate or to allocate the same proportion in loans to agricultural activities at below market interest rates. In addition, rural savings institutions (Poupança Rural) are obliged to hold 74% of their sight saving deposits for agricultural credit at market or, as long as the National Treasury decides to equalise the difference, preferential interest rates. Some investment credit allocations under SNCR are funded by Brazilian Development Bank and managed by MAPA. Credit for family farms falls under the auspices of PRONAF-Credit of MDA and provides only working capital and investment loans. Support is also provided to producers through debt rescheduling. Major debt rescheduling occurred during the late 1990s and early 2000s for both commercial and family producers.
Agricultural insurance is another important area for the government. Four main 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 and are administered by MAPA: the rural insurance premium programme (PSR) grants insurance premium subsidies to commercial producers who establish contracts with insurance companies listed by the government; the general agriculture insurance programme (PROAGRO) offers eligible farmers partial compensation of the bank debt on working capital loans and indemnity on loss of own resources invested in production. Most of the resources allocated by this programme are directed to the southern region and to grain crops, mainly soybeans. Small-scale family farms can benefit from the PROAGRO-Mais or family agriculture insurance (SEAF), and the crop guarantee programme (Garantía Safra, GS).
In a number of programmes, support is conditioned by environmental criteria. Agricultural zoning represents an important instrument linking agricultural support to environmental sustainability of farming activity. Respect of zoning rules is used as a condition of producers’ eligibility for concessional credit and subsidised insurance programmes. Since 2008, access to subsidised credit for agricultural production in the Amazon biome is conditional on the registration of agricultural producers and ranchers in the Rural Environmental Cadastre and the provision of information on compliance with environmental regulations, in particular land use regulations set out in the Forestry Code.
In addition, several specific programmes promote sustainable agricultural practices. These include credit for plantings on unproductive and degraded soils, credit for forest planting, and credit to modernise production systems and preserve natural resources. Such programmes are designed for both the commercial and family farm segments.
Domestic policy developments in 2017-18
The Agricultural and Livestock plan 2017/18 was announced by the Ministry of Agriculture on the 6th of June. The plan defines the maximum budgetary resources for rural credit (BRL 188.4 billion or USD 59.1 billion), marketing programmes including market interventions and deficiency payments (BRL 1.4 billion or USD 439 million), and insurance (BRL 550 million or USD 172 million).
Inflation slowed down from 8.7% in 2016 to 3.4% in 2017 and, under the 2017/18 plan, several regional minimum guaranteed prices remained constant or were reduced in nominal terms compared to 2016/17. The guaranteed price of sorghum remained constant in most of the regions, as did the price or long rice. The list of crops for which minimum guaranteed price was reduced include: cotton by 6%, cottonseeds by 3%, wheat by 4%, some varieties of beans (preto by 19% and cores by 2%) and maize in most of the North regions by 3%. The guaranteed price of maize remained unchanged in the North East regions and increased by 1% in the South and South East Regions, and in the States of Matto Grosso and Rondonia. Other minimum guaranteed prices that were increased in 2017/18 are: arabica coffee by 1%, the long-thin variety of rice by 3%, milk by 4% and cocoa by 7 or 12% depending on the region.
The National Food Supply Agency (CONAB) was authorised to intervene during 2017 with sales from public stocks and purchases of different commodities, in particular maize. The Ministries of Agriculture and Finance negotiated the implementation of an option contract for up to 3 million tonnes of maize, to be carried out by CONAB, allowing rural farmers and their cooperatives to sell maize to the government for a future date at a fixed price (AMIS, March 2017). A first auction in May covered a total of 200 000 tonnes (AMIS, June 2017). In March and April, the Ministry of Agriculture concluded freight contracts to remove, respectively, 34 000 and 250 000 tonnes of maize from public stocks to meet the demand from meat producers (AMIS, April and May 2017).
PEP and Pepro contracts offer deficiency payments up to a guaranteed minimum producer price of BRL 275 (USD 86.2) per tonne (AMIS, June 2017). Contracts were auctioned for a total of 300 000 tonnes and 500 000 tonnes of maize, respectively. Auctions for a total of 170 000 tonnes of rice were launched in Rio Grande do Sul and Santa Catarina in 2017.
The resources for rural credit in the 2017/18 plan are 2.5% above the level in 2016/17. Most of the increase is intended for investment credit, which is to be 12% higher than last year. This, however, represents only 20% of all resources for rural credit while the balance is directed for marketing loans and working capital. The interest rates within government programmes for investment credit were reduced from 8.5% to 7.5% for medium-sized producers (PRONAMP), and from 9.5% to 8.5% for larger producers. The interest rates for marketing and working capital for producers and cooperatives were fixed at 8.5% and 9% respectively. The reference market interest rate (SELIC) has progressively fallen from 14% in 2016 to 7% in December 2017. The preferential interest rates remain slightly below the reference rate, but the differential between the two rates has narrowed. The compulsory resources to be reserved by the banks from their deposits for the subsidised credit have been increased from 13% to 15% for medium producers (PRONAMP), and from 10% to 20% for small producers (PRONAF). By August 2017, the volume of credit provided to farmers increased by 29% compared to the same period in the previous year.
According to a study by the Ministry of Agriculture on the execution of the insurance programmes, producers received a total of almost BRL 3 billion (USD 1.3 billion) in indemnities associated with climatic events in 2006-15.1 The amount of premium subsides effectively delivered was BRL 399 million (USD 125.1 million) in 2016, almost a third higher than in 2015, but well below the record of BRL 693 million (USD 294.4 million) in 2014. Additionally, the Ministry implemented initiatives to improve the tools available for risk management. This includes, for instance, an online tool to assess the level of climatic risks according to the different locations and agro climatic zones.2 This tool is designed to be user friendly and the information easy to interpret.
As a participant to the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change, Brazil submitted its Intended Nationally Determined Contribution (INDC) on 21 September 2016. These include a reduction by 2025 of greenhouse gas emissions by 37% compared to their level in 2005. On 27 December 2017, Brazil passed a national biofuel policy (No. 13.576/2017) called RenovaBio, to foster the implementation of the commitments under the ParisAgreement on Climate Change. The policy is designed to increase biofuel production and make energy markets more predictable by establishing mandates related to biofuel certification and tradable decarbonisation credits (AMIS, February 2018). The programme aims at encouraging energy efficiency gains in biofuels production and use, recognising that different biofuels have different capacities to contribute to the mitigation goals set at COP21. In August 2017, the first Brazilian plant to process ethanol from maize was inaugurated in the State of Mato Grosso. The number of ABC credit contracts for agricultural technologies with low carbon emissions increased by 225% in July-August 2017 compared to the same period in 2016.3 The ABC Plan is an initiative that provides low-interest loans to farmers who want to implement sustainable agriculture practices, including no-till agriculture, the restoration of degraded pasture, the planting of commercial forests, biological nitrogen fixation, treatment of animal wastes and the integration of crops, livestock and forest.
Following an audit of 600 slaughtering plants out of the 5 000 authorised by the Government,4 the Ministry of Agriculture began the modernisation of the whole Veterinary Inspection system. Tested practices in the United States and the European Union are being implemented, which will require contracting of 600 new sanitary and phytosanitary inspection professionals, including 300 veterinarians. The Service of Inspection of Animal Products (SIPOA) was also re-organised in March 2018, with the consolidation and increased autonomy of the services previously functioning as parts of the State Ministries of Agriculture.5
A public consultation to simplify the system of minimum requirements for quality control for fruits and vegetables started in August 2017, and in December Brazil joined the OECD Fruits and Vegetables Scheme. An action plan aims to fully align the system in Brazil to the recommendations of the Scheme within the next three years.
The research agency of the Ministry of Agriculture (Embrapa) expanded partnerships with private and public sectors in 2017. An agreement between Embrapa and the Association of Cotton Producers (Abrapa) provides BRL 18 million (USD 5.6 million) to accelerate research into cotton resistant to the bicudo, one of the most important cotton pests in Brazil.6 Embrapa and the private fund Cedro Capital created a fund to invest in adoption of technological innovations of Embrapa. Private companies and start-ups can receive up to BRL 5 million (USD 1.6 million) of capital from this fund.7 A partnership between the Ministry of Agriculture and the Institute of Technological Research (IPT) of Sao Paulo aims at bringing new agricultural technologies to the adoption phase.8
Trade policy developments in 2017-18
Brazil’s applied MFN customs tariffs for agricultural products were entirely ad valorem, with rates ranging from zero to 50% in 2016. The simple average MFN tariff applied in 2016 was 10% compared to 14.1 % for non-agricultural products. The trade-weighted average MFN tariff for agricultural products was 12.3% compared to 10.3% for non-agricultural products. More than half of agricultural imports entered with applied tariffs below 10%, corresponding to close to 57% of agricultural tariff lines (WTO, 2018).
Negotiations continued on the EU-Mercosur Free Trade Agreement (FTA) between the four Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) and the European Union. They began in 1999, but were suspended in 2004 and in May 2010. In May 2016, both blocs exchanged offers that are being negotiated. In December 2017, the Government of Brazil initiated an open consultation with Brazilian enterprises and institutions about the list of Geographical Indicators of the European Union to provide an input for the ongoing negotiations.
There have been positive developments in the animal disease status of Brazil in 2017. In May, the World Organization for Animal Health (OIE) declared Brazil free of contagious bovine pleuroneumonia (CBPP). In December, the last two Brazilian states, Amazonas and Amapá, were recognised by the government free from FMD with vaccination, though no decision by the OIE has been taken yet to recognise Brazil as a country free from FMD with vaccination. The strategic plan for eradication and prevention of the FMD approved by the Government in October foresees the end of vaccination by 2023.
In August 2017, the Brazilian Government and the Chamber of Trade (CAMEX) created a tariff rate quota for ethanol imports, allowing the entry of 600 million litres duty free, with any volume above paying a 20% tariff. The United States remains the top supplier of ethanol to Brazil. The Brazilian ethanol blending mandate remains unchanged at 27% (E27), whereas the biodiesel blending mandate increased to 8% (B8) in March 2017 (GAIN, 2017b) and then to 10% in March 2018.
A new protocol to facilitate imports of agricultural inputs was approved in October 2017.9 The new system is intended to reduce bureaucratic burden and operational costs for farmers and traders and will be implemented immediately in the port terminals of Paranaguá and Rio de Janeiro.
References
AMIS (2017 and 2018), AMIS Market Monitor, various issues, www.amis-outlook.org/amis-monitoring.
GAIN (2017a), Global Agriculture Information Network GAIN Report 2-ago-2017, USDA Foreign Agriculture Service.
GAIN (2017b), Global Agriculture Information Network GAIN Report 15-Sept 2017, USDA Foreign Agriculture Service.
Ministry of Agriculture, Livestock and Food Supply (MAPA) (2017, 2018), various news, http://www.agricultura.gov.br/noticias/.
WTO (2018), Brazil Tarif Profile, http://stat.wto.org/TariffProfile/WSDBTariffPFView.aspx?Language=E&Country=BR.
Notes
← 1. http://www.agricultura.gov.br/noticias/produtores-receberam-quase-r-3-bilhoes-em-indenizacoes-do-seguro-rural-em-10-anos.
← 2. http://www.agricultura.gov.br/noticias/mapa-disponibiliza-ferramenta-de-risco-climatico.
← 3. http://www.agricultura.gov.br/noticias/numero-de-contratos-do-plano-abc-cresce-1-318-no-bimestre-julho-agosto
← 4. http://www.agricultura.gov.br/noticias/mapa-amplia-e-moderniza-sistema-de-inspecao-veterinaria
← 5. http://www.agricultura.gov.br/noticias/dez-areas-vao-concentrar-o-servico-de-fiscalizacao-de-produtos-de-origem-animal
← 6. http://www.agricultura.gov.br/noticias/acordo-de-r-18-milhoes-permite-acelerar-pesquisa-de-algodao-resistente-ao-bicudo
← 7. https://www.embrapa.br/busca-de-noticias/-/noticia/28457239/fundo-de-investimento-aporta-ate-r-5-milhoes-para-empresas-com-tecnologia-embrapa-expandirem-atuacao
← 8. http://www.agricultura.gov.br/noticias/ipt-podera-ser-parceiro-do-ministerio-da-agricultura
← 9. http://www.agricultura.gov.br/noticias/maggi-assina-protocolo-para-agilizar-importacao-de-insumos-agropecuarios