June 19, 2006

Brazil makes adjustments to farm aid package

The Brazilian government will make additional adjustments to the emergency farm aid package announced May 25, including a 24-month grace period on government financing used to purchase fertiliser and other crop input needs, the Agriculture Ministry said in a press statement this week.

South-eastern and southern soy farmers will have 55 percent of their government debts automatically rolled over for another five years, as opposed to 50 percent for four years announced in the May-25 package. No change was made to the percentage of debts allowed for extension in the centre-west, north and northeast regions. The extensions include a 12-month grace period ending Dec 30, 2007.

The new adjustments add debt extension benefits for wheat and livestock. Both will have 20 percent of their government debts automatically extended for four years. Wheat and livestock--including beef, dairy, pork and chicken--were not included in the May-25 package.

The meat segment of Brazilian agriculture has suffered slightly from embargoes by over 56 nations because of FMD reported in Mato Grosso do Sul and Parana states last year.

The government will also create a new credit line for fertilizer purchases, with subsidized interest rates as low as 3 percent per year, to a high of 8 percent. The benchmark interest rate in Brazil is 15.25 percent per year.

Farm cooperatives will also see their credit lines increased to 10 million Brazilian reals (US$4.44 million) from 5 million reals at subsidised interest rates of 7.2 percent annually.

Soy and other farmers are currently facing their worst liquidity crisis in three years. Farmers in the centre-west and south protested falling local commodity prices and heavy debt burdens throughout May, causing some soy crushing companies to run out of soybeans because farmers and cooperatives refused to sell into the market.

Farmers had asked for grace periods of up to two years on federal loans in an effort to pay down private debts owed mostly to trading companies. Over 75 percent of a Brazilian farmers' financing comes from the private sector.

Most estimates call for a 5 percent reduction in Brazil's 2006/07 soy planted area because of the financial crisis. Brazil planted roughly 22.2 million hectares of soybeans in 2005/06, 4.7 percent less than the 2004/05 crop, according to the Agriculture Ministry.

Brazil is the world's second biggest soy producer and exporter following the US.