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August 4, 2022 Atualizado em July 27, 2022

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Agricultural credit: everything you need to know

Agricultural credit is a form of financing for agricultural enterprise transactions, which includes loans, bills of exchange, notes, and bank acceptances. It has specific characteristics according to the farmers’ needs, guided by the production stages, such as planting, harvesting, and commercializing.

This resource can be strategic for the farmer to finance their operational expenses, invest in machinery, or even expand their business by buying real estate and plots of land.

Are you interested? We have prepared this post to present the main agricultural credit lines, through public and private institutions. You will understand what can be financed, who can join these programs, and what the payment terms are. This may be the right way for your business to grow. So, stay with us and enjoy your reading!

Understand the importance of agricultural credit

Rural credit is a type of financing that helps associations, cooperatives, and farmers to increase their operations, bank and reduce costs in agriculture and cattle-raising, make investments, and optimize their commercialization processes for agricultural products.

The importance of agricultural credit in Brazil is in the very relevance of this sector in the country. Its participation in the national GDP was between 23% and 24% in 2017, and was it responsible for pulling the index up, since the other sectors had a negative contribution:

agricultural sector: growth of 14.5%;
services sector: reduction of 0.2%;
industry sector: reduction of 0.9%.

Given this scenario, the granting of credit becomes a priority for the sector’s growth, which includes actions to simplify and reduce the bureaucracy imposed by the rules that guide the farmer’s ability to obtain credit. In addition, government measures seek to guarantee credit with lower interest rates, since the country ends up profiting in terms of the generation of jobs and economic growth.

Still in Brazil, the Federal Government has directed more resources each year to rural credit, most of them to cover operating expenses in farming and ranching activities. Just to give you an idea, from 1996 to 2016, there was an increase of R$ 180 billion in investments in rural credit. This allows more farmers to benefit from it. In relation to 2017, the amount grew by a further 48% in 2018.

The latest data from the Ministry of Agriculture, Livestock and Supply on Agribusiness Financing in the 2018/19 Crop Year indicate that the contracted amounts increased by 45% — from which 35% comes only from funds to cover the operational cost. Most (47%) of the credit acquired is for agricultural activities — compared to 38% for livestock. And what does this mean in practice for the farmer? Keep reading!

Lower interest rates

According to the type of credit chosen by the entrepreneur, interest rates can be much lower than those practiced in the market, ranging from 0.2% to 10.5% per year. In addition, it is possible to arrange other advantages, such as exemptions or reductions in the costs of the financial services.

More accessible payment terms

Depending on the type of funding involved in contracting, the terms vary. But, normally, they are between one and two years. In some cases, it can reach ten years. These are sufficient terms to obtain a return on the investment and cover the financing.

Appropriate modalities for each activity

There are financing options for different purposes. This ensures that the conditions for releasing the resources will be adequate for the activities they are intended. For example, agricultural credit can be released to cover operating expenses or rural investments.

There are also specific programs for some segments. Funcafé, for example, was developed for coffee growers to have the necessary funds for all production activities, from planting to selling the product. Thus, the producer can, for example, choose a good coffee harvester and optimize this stage of production.

Values consistent with specific needs

Despite the existing limitations on loan amounts, agricultural credit meets the needs of most producers, especially small and medium-sized ones. Thus, it is very appropriate for new entrepreneurs or those wishing to expand their business. The funds provided are based on the entrepreneur’s production potential, payment capacity, and the economic viability of the marketed product.

Chance to expand the business

All these advantages allow the farmer to increase production capacity, improve the quality of all processes, mechanize the operations, and, as a result, improve their income and quality of life, as well as that of their employees and family.

Below, we will talk about the main lines of credit available today for the farmer! Check it out!

The main agricultural credit lines in Brazil

Agricultural credit is granted by public and private institutions to individuals and companies. The credit line options for investments and funding of agribusiness expansion are funded by the National Bank for Economic and Social Development (BNDES) and the Constitutional Financing Funds of the Midwest (FCO), North (FNO), and Northeast (FNE).

Let’s take a look at the main projects available for farmers to invest in their properties!

Moderagro

Moderagro (Agriculture Modernization and Natural Resources Conservation Program) is another BNDES project that allows farmers to finance actions to recover soils, defend animals, acquire and manage the application of agricultural correctives, and build facilities to store agricultural machinery and implements, as well as to store inputs.

Thus, this modality can be used to finance up to 100% of the projects dedicated to the modernization and expansion of agribusiness. The entrepreneur will have a term of up to ten years to repay the loan. It determines cap amounts for the financing:

individual: R$880 thousand per user;
collective: R$ 2.64 million per client, within the individual limit defined in the previous item;
purchase of animals: R$ 400 thousand per client.

Pronaf

Pronaf is the acronym for Programa Nacional de Fortalecimento da Agricultura Familiar (National Program for the Development of Family Farming). Created by the Federal Government in 1995, its objective is to supply the specific needs of small farmers who rely basically on family labor. Here, the producer’s day-to-day items such as pesticides, vaccines, seeds, and feed are financed.

With the goal of modernizing and professionalizing the family farmer’s activities, the program finances operations and services that may or may not be agricultural. To participate in the program, the small farmer must meet some requirements:

cultivate the land in the condition of owner, partner, leaser or concessionaire of the PNRA (National Program of Agrarian Reform);

have, at most, four fiscal modules
rely on family-based labor;
50% of the family’s income must come from the enterprise;
have obtained a gross family income of up to R$ 360 thousand in the last 12 months, not including social security benefits related to rural activity.

The Declaration of Aptitude to Pronaf (DAP) divides the users eligible for the resource into three segments:

group A: those settled by the National Agrarian Reform Program (PNRA), or beneficiaries of the National Land Credit Program (PNCF) or the National Land Credit Program (PNCF);
group B: beneficiaries who have obtained a family income of up to R$20 thousand in the last 12 months and who do not have permanent employees;
group A/C: PNRA settlers or PNCF beneficiaries that have already contracted for group A and have not yet entered into a funding contract (unless for the group A/C itself).
Pronaf has several lines of credit that meet the demands of farmers with different profiles and needs.

Let’s understand who these subprograms are for.

Pronaf Costing

This program aims to help the farmer to finance farming, processing, industrialization or commercialization activities, both of their own production and of third parties that are also part of Pronaf.

Pronaf Mais Alimentos (More Food) – Investment

The focus is on the expansion and modernization of the property’s infrastructure as to improve the enterprise’s production and services, or of local community areas.

Pronaf Agroindustry

Agroindustry is directed towards forest products, related to extractivism, handcrafts or rural tourism.

Pronaf Agroecology

This credit line is for rural entrepreneurs to invest in their organic production, including the costs of implementation and maintenance of the business.

Pronaf Eco

If your desire is to invest in projects that reduce the impact of rural labor on the environment, Pronaf Eco is the most suitable. It contributes so that the farmer can produce and live in harmony with the biome where his business is.

Pronaf Forest

This includes agroforestry projects, extraction activities that are ecologically sustainable, management of preservation areas, and recovery of degraded regions.

Pronaf Semiárido (Semi-arid)

In Brazil the semi-arid region poses some challenges for agricultural production. Because of this, this line of financing was developed — to help the producer to implement projects for coexistence with these areas, which bring difficult conditions in the dry season. Thus, the entrepreneur may have resources to build their water infrastructure or expand and modernize their facilities, whether they are related to agricultural services or not.

Pronaf Woman

This is a type of agricultural credit aimed at women farmers.

Pronaf Jovem (Youth)

It supports young rural entrepreneurs in their expansion and updating investments.

Pronaf Funding and Commercialization of Family Agribusinesses

Sub-program developed for farmers and cooperatives/associations to finance the costs of processing and industrializing their own production or that of third parties.

Pronaf Quotas-partes (Quota shares)

It serves both to integrate the quota shares of family farmers affiliated to cooperatives and to make resources available for working capital, operational expenses or investments.

Rural Micro-credit

This credit line gives support to low-income farmers to cover any expense or investment that may result in a source of income for the family. Here, beneficiaries from Group B and farmers from families that fit into Groups A and A/C can be included.

Inovagro

Inovagro was created with the goal of enabling farmers (individuals or companies) to invest in technological innovation on their properties. This way, they can increase productivity through the most advanced tools available in the market. It is even possible to implement a new agricultural business model with these resources.

Among the items that can be financed are

consultancies and technical training for the activities implemented on the property (to get sustainable agriculture tips, for example);
technical assistance for the elaboration, implementation, execution and monitoring of projects
precision agriculture equipment;
management and automation software.

BNDES funds are used to finance 100% of the amount, with a cap of R$1.3 million for each enterprise, beneficiary, and agricultural year in individual projects. For collective projects, the maximum amount rises to R$3.9 million, taking into account the individual ceiling per participant in the group.

Moderfrota

Moderfrota is the name of the Program for the Modernization of the Agricultural Tractor Fleet, Associated Implements and Combine Harvesters, which finances agricultural machinery, implements and equipment. This includes harvesters, sowing machines, sprayers, planters, and seeders.

Used items can also be financed, such as

Tractors up to eight years old;
harvesting machines up to ten years old;
self-propelled fertilizing and spraying machines, planters, and seeders up to five years old.
Although there is no ceiling for financing, there is a 90% limit on the amount financed.

PCA

The Program for the Construction and Expansion of Warehouses (PCA) is focused on investments in the construction, modernization, reform, or expansion of warehouses. The equipment used must also be accredited by BNDES. BNDES covers 100% of the investment with a payment term of up to 15 years.

Moderinfra

Moderinfra is a financing modality that promotes investments in sustainable irrigated farming, in the adoption of production structures and in environments protected against hail and in temperate climates. Thus, protection equipment and irrigation systems are included.

Pronamp

Pronamp is directed towards medium-sized farmers who want to invest in their agricultural activities. Here, we find owners, partners, and tenants who have at least 80% of their annual gross income coming from their farming activities — the total income cannot exceed R$ 2 million per year.

The maximum amount to be financed here is R$ 430,000 per crop year (also including any other type of financing from the National Rural Credit System). For collective enterprises, the ceiling is R$ 20 million, always respecting the maximum individual amount per participant.

ABC Program

The BNDES’ ABC (Low Carbon Agriculture) program finances investments that seek to reduce the negative impact that agricultural and cattle-raising activities have on the environment. This project is divided into subprograms, according to the action to be taken:

ABC Recovery: recover degraded pastures;
ABC Organic: develop organic production systems;
ABC Direct Planting: directed towards the implementation and improvement of direct planting techniques;
ABC Integration: carries out the integration of different rural activities (crop-livestock, livestock-forest, crop-livestock-forest, etc.);
ABC Forestry: improvement in the management of commercial forests;
ABC Environmental: regularize rural properties according to legal norms;
ABC Waste Treatment: investments in infrastructure for the treatment of animal waste for composting and energy generation;
ABC Dendê (Palm Oil): specific investments for oil palm forests, especially in degraded areas;
ABC Fixation: promotion of techniques and practices for the biological fixation of nitrogen in the soil.

This type of agricultural credit seeks to adopt techniques and systems that make rural production more sustainable and productive, thus conserving natural resources. At the same time, it brings properties into line with environmental legislation and promotes the recovery of already degraded areas.

Jacto’s Consortium

The consortium of agricultural machinery is composed of a group of participants who wish to buy a common asset. Since no interest is charged, it ends up being cheaper than conventional loans and financing. The only fee involved, usually, is the administration fee, which remunerates the company that organizes the consortium.

With Jacto’s consortium, the farmer can plan for the acquisition and updating of agricultural machinery in a more sustainable way without it weighing on the working capital of their enterprise.

All these options compose a wide range of alternatives to attend producers of several profiles and needs. However, at this point, it is necessary that you clearly understand the difference between rural credit and agricultural bonds. Check it out in the next topic!

Learn the difference between rural credit and agricultural bonds

Within the financing system practiced in agribusiness, there are different ways to obtain resources. Among them, two stand out:

CCR (Rural Credit Note);
CPR (Credit Note of Rural Product).

They work in different ways. However, the objective is the same: to promote agricultural activity in the country. Take a look.

CCR (Rural Credit Note)

The CCR was created by Decree 167/67, which encompasses several rural credit titles, including the Rural Credit Note. Here, we have a rural credit security that is part of the National Rural Credit System, intermediated by financial institutions such as banks, cooperatives and credit societies.

These credit notes are negotiable titles that represent a promise of payment through a pledge or a mortgage.

CPR (Credit Note of Rural Product)

In Brazil, the CPR is regulated by Law 8.929/94. It is used to anticipate the payment for the sales of the agricultural production not yet harvested. Thus, the farmer has in hand the value of his harvest in advance and, delivering it as soon as it is ready. Since the producer is only selling his own harvest in advance, it’s like a self-financing model. Therefore, it doesn’t depend on financial institutions.

Wait for the right time to ask for agricultural credit

Agricultural credit will always work as a loan and, therefore, it is always important to be careful enough not to become indebted. So, it is important to analyze some aspects to make the best decision and discover the right time to apply for the resources.

The investments are very diversified: infrastructure, inputs, equipment, machinery, etc. They are applications that give results in the long term, from months to years. So, if you choose a funding with a shorter grace period, you should keep in mind that you may need to have resources to start repaying the amount before you see the return on investment.

Therefore, it is fundamental to select a type of financing that best suits your real needs and the production potential of your crop. Thus, the resources must be well allocated, in a way that promotes the increase of production and the improvement of operations.

Therefore, evaluate the purpose of the investment to define the most appropriate type of financing. For example, there are applications that will have a more short-term return, such as those applied during the harvest. Others, on the other hand, will have a long-term result, such as buying agricultural machinery and investing in infrastructure.

With this in mind, the cost per crop should be a very clear index as to avoid errors when calculating the investment that will be made. Another important aspect to be measured are the interest rates, as we will see below.

Be ready for different interest rates

The various lines of credit provided by public and private institutions have different interest rates, which can range from 2.5% to 8.5%. These values make a big difference in the final amount repaid. Therefore, be sure to consult and calculate in order to evaluate if the financing is advantageous for your business. Here are some examples of rates that can be consulted on the BNDES site:

Pronamp: 6% per year;
Inovagro: 6.5% p.a;
Moderagro: 8.5% p.a.;
Pronaf Custeio and Pronaf Investimento: 2.5% and 5.5% p.a.;
Pronaf Agribusiness: 4,6%;
PCA: 5.25% p.a. for warehouses with a capacity of up to 6 thousand tons and 6% for other investments;
ABC Program: between 5.25% and 6% depending on the purpose.

Without any doubt, the governmental actions in different spheres have contributed to the increase of agricultural credit in Brazil. This is the result of the recognition that the agriculture and cattle raising sector has in the national economy.

Faced with so many alternatives, it is common for the farmer to be indecisive when the time comes to request an investment. Therefore, it is essential to carefully evaluate the various options and define which one best fits your profile, your investment objectives, and your real needs.

From the agricultural credit lines provided by BNDES programs to the consortium, the farmer has a range of options that will make their business grow and increase their productivity even more.