Published: December 9 2008 21:19 | Last updated: December 9 2008 21:19
Emerson Spigosso, a 34-year-old farmer in Mato Grosso state, central Brazil, has no idea how to pay his debts.
“The bank came to take my combine harvesters away but they couldn’t find them,” he says. “So they executed my debt through the courts. There’s no way I can pay.”
Like many local farmers, Mr Spigosso invested in land and machinery earlier this decade, as Brazil rose to prominence as a global supplier of soya and other foods.
But drought, crop disease, a strengthening currency and awful infrastructure have eroded the advantages Mato Grosso’s farmers used to have over competitors in the US, Argentina and southern Brazil.
Now the global credit crunch has brought their difficulties to a crisis. Banks are repossessing farm machinery. Credit for fertiliser and other inputs has dried up. Soya production in the state is likely to fall by 10 per cent this year, farmers say. Next year, it could fall by two-thirds.
Until recently, Mato Grosso’s farmers had little to complain of. Between 1990 and 2004, the amount of cultivated land in the state more than quadrupled, from 1.9m to 8.6m hectares – an area bigger than Austria. Today, Mato Grosso produces 30 per cent of the soya in Brazil, or 8 per cent of total world output.
But from the 2004-2005 season, things began to go wrong. Two successive harvests were hit by drought and disease. Brazil’s currency strengthened steadily against the US dollar, eroding farmers’ earnings.
Such difficulties exposed others. Farmers in Mato Grosso are up to 2,000km from the ports of Santos and Paranaguá, and up to 1,500km from Porto Velho, an inland port on a tributary of the Amazon which itself is 1,900km from the Atlantic coast. Most crops are carried along atrocious roads on double-trailer trucks, a hugely inefficient system. According to Agroconsult, a farm consultancy, this season it will cost $106 a tonne to ship soya to port from Mato Grosso, compared with an average of $30 in the US.
As difficulties have mounted, many farmers have got deep in debt. Subsidised finance for farm machinery, for example, is provided by the BNDES, Brazil’s national development bank, channelled through high street banks and others run by manufacturers such as John Deere and Case New Holland, who shoulder the risk of non-performance.
Most loans are paid back over five years. When farmers ran into trouble in 2005, the government ruled instalments due that year could be paid in 2010. Then it said instalments due in 2006 could be paid in 2011. In 2007, it said farmers must pay 15 per cent of what they owed, and the rest in 2012. This year, it said farmers must pay 40 per cent, and the rest in 2013.
In Mato Grosso last week, the FT spoke to 26 farmers, just one of whom had made his 40 per cent payment this year, by selling land. The government has provided R$500m ($203m, €156m, £137m) in credit to help pay loans on machinery, but most cannot use it because they have no collateral.
Mr Spigosso’s situation is typical. He bought one combine harvester in 2001 for R$220,000 and another in 2003 for R$280,000. Because of accumulated interest, the debt on his two machines has grown to R$800,000, while the machines’ value has fallen to less than half that amount.
Altogether, the government has provided R$13bn in extra farm finance this year but, like the loans for machinery, few farmers in Mato Grosso can use it. Ana Laura Menegatti of MB Agro, a farm consultancy in São Paulo, says that out of R$49bn made available to finance this year’s planting before the emergency funding, just R$18.5bn was actually lent to farmers nationwide. “Banks don’t like the risk and there is too much bureaucracy, so very little finance gets to the farmers,” she says.
The situation has been aggravated this year because big trading companies such as Bunge, ADM and Cargill are lending much less to farmers than usual. Luis Carlos Guedes, head of agribusiness at Banco do Brasil, a government-controlled bank, says big traders supply about half the farm credit in Mato Grosso and have pulled back sharply because of the credit crunch.
He says the government should break the cycle of endlessly delayed payments on subsidised credit, which costs about R$4bn a year, and spend the money instead on instruments to guarantee a minimum level of income to producers. This would give banks the security they need to lend.
Edílson Guimarães, secretary for farm policy at the ministry of agriculture, says the proposal makes sense but that the government has shorter-term problems, such as the stock of outstanding debt, to deal with first.
As one farmer in Mato Grosso put it, the Banco do Brasil proposal is “our dream solution”. But while funding remains unavailable, the farmers’ predicament can only get worse.
