Brazil’s latest Agricultural Census presents a very interesting picture of financing in Brazilian agribusiness in recent years, allowing a critical reading of access to financial resources and offering important conclusions and lessons regarding the obstacles between production and credit.
One of the tables in the census shows a challenging scenario: only 15.5% of producers accessed financing credits in 2017. This may indicate that many relied on their own resources or on financing that wasn’t aimed directly at agribusiness, so they didn’t get benefits, incentives or even more targeted programs that take into account the peculiarities of agricultural production, such as: bad weather, commodity price variations, etc.
It cannot be said that the failure of the remaining 84.5% of producers to obtain financing was a voluntary choice. In other words, it’s not possible to say that they had their own resources to capitalize the business and didn’t take out financing to avoid interest and financial charges. According to the Census itself, 47.1% of the funds taken out were for costing, indicating that farming is a costly activity, requiring loans to be taken out for this purpose.
The combination of these two pieces of data results in the characterization of an agricultural activity with effective undercapitalization and, consequently, a productive inefficiency that can be achieved quickly. The sector’s macro figures seem to disprove this claim, but what they end up showing is just another facet of the disparity between the number of existing producers and the number of those accessing credit.
Several causes could be pointed to as factors in this discrepancy. Some are of economic origin and are based on the very unviability of the product to be financed, others stem from a lack of sufficient and suitable guarantees, and others are of a legal-regulatory nature, which is the topic addressed in this text.
Also according to the study, most of the financing comes from government and bank resources. These two forms presuppose that the granting of credit is formalized through certain specific bureaucratic requirements, such as tax compliance and the formal structuring of the company.
If we consider the data from the Census itself, which indicates that more than 90% of agricultural producers are individuals, it is clear that rural producers’ lack of business structuring is the first obstacle to obtaining financing.
Brazilian law does not allow for the creation of a social structure that is simpler and more suited to the reality of farming, especially for producers who have always operated as individuals. In addition, the tax benefits granted to the sector tend to be temporary and do not encourage conversion from an individual to a legal entity.
It is worth noting that the adaptation of traditional corporate types has already taken place in other segments, such as the Sociedade Anônima do Futebol, a corporate figure created to regulate the peculiarities of the soccer economic sector.
As far as Brazilian agribusiness is concerned, as long as there is no legal form that takes into account the specificities of the sector, there will be the obstacle that traditional formats represent for rural producers.
In other words, accessing financing, considering the capital of a closed company (with no securities on the Capital Market), is usually only possible through traditional loan agreements. If there were simpler legal models for individual producers to convert into legal entities, there would also be easier access to credit.
In addition to this factor, there is the issue that traditional corporate models are beginning to be challenged by the Digital Economy with its regulatory systems and specificities that transcend the scope of a national territory. And in this new market, there is a good supply of credit, which is so vital to agribusiness.
To overcome these challenges, producers need to be structured in a legally sound way in the digital environment, with advice on negotiating in the digital sphere and using digital means of payment to seek financing for production. Of course, all of this must be done with a legal bias in Brazilian law and must be based on good legal advice that is connected to both the producer’s reality and the digital financial universe.
In other words, legal intelligence is the key to agribusiness entrepreneurs being able to comply with the formal requirements for obtaining credit available in the National Financial System in a simplified manner, while at the same time preparing to seek credit in the new Digital Economy.
Want to know more?
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