The Challenge of Rural Credit for Small and Medium Producers: Opportunities and Obstacles in an Adverse Economic Scenario

With high interest rates, payment difficulties, and limited financing, the sector needs solutions that ensure more inclusive access to credit.

Image generated by Copilot: Rural Finance and Credit in Brazil

Brazilian agribusiness is one of the pillars of the national economy, but it faces increasing challenges when it comes to financing. Small and medium-sized producers deal with even greater difficulties than the big players in the sector. Rising interest rates, growing indebtedness, and limited access to modern financial instruments increase uncertainty about the viability of agricultural activity. In this article, we explore the main challenges and alternatives available to these producers who continue to drive national agribusiness.

High Interest Rates and Difficulties in Rural Credit

The increase in the Selic rate  has strongly impacted rural credit in Brazil. The Crop Plan, the main agricultural financing mechanism, faces limitations due to the increase in equalization costs. Private banks, which also offer credit, apply rates higher than the Selic, making financing even more expensive for producers who need capital for funding and investment.

Small and medium-sized farmers are the most affected by this situation, as they depend on subsidized credit and find it difficult to negotiate favorable conditions in the private sector. Without access to more accessible resources, many face liquidity problems and compromise their operations.

The Rural Producer's Certificate (CPR in portuguese): Essential Guarantee and Challenges in Default

The CPR is a credit instrument that has established itself as one of the main financing instruments for small and medium-sized producers, working as collateral for obtaining credit from cooperatives, cerealists, banks and trading companies. Its model allows the anticipation of resources with the future delivery of agricultural production, being vital to make the cash flow of these producers viable.

However, the increase in delinquency in the sector has caused changes in the way the market sees the CPR. Before, it was a robust instrument in its own right, but now it has come to be considered ancillary, requiring additional real guarantees. Thus, many producers need to offer fiduciary alienation of assets such as machinery, equipment and even portions of land, benefiting from the recent regulation that allows the fractionation of land as a guarantee of financing.

This scenario creates a dilemma for small and medium-sized producers: while the CPR is essential to make credit viable, its use has become more restrictive, making access difficult and requiring a greater equity structure to guarantee financing.

Indebtedness and Debt Renegotiation 

Another major challenge is the high indebtedness of producers. In Rio Grande do Sul, for example, farmers accumulate debts of more than US$ 12,87 billion, as a result of the combination of high interest rates, rising operating costs and climatic adversities, leading them to face adverse weather with droughts (two years in a row) and two floods in less than a year.

The government has implemented emergency measures, such as extending the maturity of agricultural financing, but this solution is only palliative. Rural credit needs a structural reformulation to meet the needs of small and medium-sized producers, ensuring that they have access to more balanced and sustainable conditions.

Private Financing Models and Their Limits

With the reduction of public resources, private alternatives gain space in the market, such as LCA (Agribusiness Letters of Credit), FIAGRO (Investment Funds) and CRA (Agribusiness Receivables Certificates). These instruments bring new possibilities to the sector, but their application mainly favors large producers, who have a greater financial structure to access these models.

On the other hand, small and medium-sized farmers resort to alternative financing, such as:

• Credit unions, which offer more affordable rates and facilitate access to financing.

• Cerealists and input companies, which provide credit linked to the purchase of inputs or the future delivery of production.

• Trading companies, which finance producers through commodity supply contracts, popularly known as barter or barter.

These options help to keep production active, but they do not always fully meet the needs of the producer, who often needs to balance deadlines and costs to avoid losses.

Government Subsidies and the Real Difference in Public Contribution

Although the government allocates resources to rural credit through the Crop Plan, the amount subsidized directly to small and medium-sized producers does not correspond to the total bill paid by the government. The effective amount of the subsidy does not exceed R$ 15 billion, representing only the difference between the Selic rate  and the percentage subsidized in credit operations conducted by banks.

The main programs benefiting from this amount include:

• Pronaf (National Program for the Strengthening of Family Agriculture): Aimed at small producers, with reduced interest rates and special financing conditions.

• Pronamp (National Program to Support Medium Rural Producers): Aimed at medium producers, offering credit for funding and investment.

• Proagro (Agricultural Activity Guarantee Program): Protects producers against climate losses and financial difficulties.

• InvestAgro (Agricultural Investment Program): Focused on long-term investments for modernization and expansion of production.

• Procap-Agro (Agricultural Cooperatives Capitalization Program): Supports agricultural cooperatives, ensuring access to credit for working capital.

In other words, although the government discloses significant figures in agricultural financing, a good part of the resources are made available by the financial system itself, with the banks being responsible for the composition of the rates and payment conditions. For small and medium-sized producers, this reality means that subsidized credit, although existing, has limited scope in view of the needs of the sector.

In addition, when comparing the total amount of subsidies with national grain production, the government's impact on Brazilian agriculture is less than 1%, making it evident that, despite the existence of the Crop Plan, small and medium-sized producers continue to face significant challenges in accessing sustainable credit, being forced to seek private alternatives or compromise assets to secure financing.

Alternatives for Brazil

1. Guarantee Funds: Create guarantee mechanisms for small and medium-sized producers, reducing risk for financial institutions and facilitating access to credit.

2. More affordable agricultural insurance: Expand programs such as Proagro and encourage private insurance to mitigate climate and financial risks.

3. Credit via cooperatives: Strengthen the role of credit unions, which offer more competitive rates and greater flexibility for producers.

4. Agribusiness bonds: Expand the use of CRA, FIAGRO and CPR, ensuring greater liquidity and access to the financial market.

5. Public-private partnerships: Create hybrid financing programs, combining public and private resources to expand the supply of credit.

International Models

• Germany: The country has the Landwirtschaftliche Rentenbank, an agricultural development bank that offers long-term credit at reduced rates.

• United States: The Farm Credit System is a network of financial cooperatives that provides affordable credit to rural producers, ensuring stability to the sector.

• European Union: The Common Agricultural Policy (CAP) subsidizes part of the costs of production and financing, ensuring predictability for farmers.

Conclusion

The rural credit scenario in Brazil requires urgent attention and reforms. Small and medium-sized producers, who are critical to the economy and domestic supply, face more complex obstacles than large farmers. The CPR remains an essential instrument, but its role as collateral has been revised due to high delinquencies, requiring additional collateral and making financing more difficult for those with less wealth.

With high interest rates, payment difficulties, and limited financing, the sector needs solutions that ensure more inclusive access to credit, allowing all segments of agribusiness to continue to grow and contribute to the country.

Alternatives such as guarantee funds, affordable agricultural insurance, credit via cooperatives, and expansion of agribusiness bonds can help reduce financial risks and offer more viable options for producers facing financing challenges. International models, such as those adopted in Germany, the United States, and the European Union, demonstrate that a robust and well-planned credit structure can ensure predictability and stability for the sector.

In this context, credit unions play an essential role in the democratization of rural financing. Today, they are one of the main sources of credit for small and medium-sized producers, offering more affordable rates, flexible conditions, and service close to the reality of the field. Strengthening these institutions can be an effective strategy to mitigate current challenges, providing greater financial inclusion and relief for farmers who face difficulties in accessing traditional credit.

It is essential that governments, the private sector, and the cooperative sector study and improve these alternatives, ensuring a more efficient and accessible rural credit system. The strengthening of rural credit is not only a financial issue, but a decisive factor for food security, global competitiveness and the continuity of sustainable growth of Brazilian agribusiness. The transformation of this model depends on collaboration between different sectors and the creation of policies that allow producers to operate more efficiently and competitively.

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