Within the next few weeks, a new tool will be available in Brazil for companies in the agricultural sector to collect funds from foreign investors. It is the Commercial Note of Agribusiness (NCA), or Agrinote, a paper to be issued by companies interested and to be negotiated on the stock market.
The paper only needs its financial structure approved by the Securities and Exchange Commission (SEC) of Brazil for issuing to begin.
The Agrinote, developed by consulting company RC Consultores and by the Getúlio Vargas Foundation (FGV) under the sponsorship of the federal government, may be issued by any company connected to the sector.
They can be from large producers, to cooperatives, agro-industries, and producers of agricultural equipment and machinery, suppliers and producers of fertilizers, among others. The basic requirement is that the company be a stock company.
“The government is creating a structure to guarantee safety to the business, but it will be a privately financed system,” said the secretary of Agricultural Policy a the Ministry of Agriculture, Ivan Wedekin.
According to him, elaboration of the Agrinote took around six months and included the participation of the ministries of Agriculture and Finance, of the Central Bank and of the SEC.
The papers will be used to collect funds, mainly on the foreign market. “Funds may be collected domestically or abroad, “but the focus is on foreign collection,” stated Wedekin.
According to the president of RC Consultores, Paulo Rabello de Castro, the financing potential through the new papers is as high as US$ 7.4 billion. The papers may be settled either in the Brazilian or a foreign currency.
Companies may attract investment to finance a series of activities, such as the installation of industrial units, the expansion of the cropland, trade and exports, etc.
The papers may also be issued in series, for one year or more, and may have reserves in other papers, deposited agricultural products (in warehouses) and export contracts, among others.
The Agrinote is born as an alternative to Rural Credit, structured in 1965 and controlled by the federal government. The great differential is that Rural Credit benefits rural producers, cooperatives and agro-industries, if they organize the operation in partnership with the producer.
The Agrinote, in turn, may be used by any company connected to the sector. “The operation may be structured by investment banks, which may distribute the papers to foreign investors,” stated Wedekin.
Some companies in the livestock area have already put stocks on the foreign market as an alternative to collecting funds.
Still as an alternative to Rural Credit, President Luiz Inácio Lula da Silva sanctioned law 11,076 at the end of 2004, creating another five credit papers for agribusiness financing: the Livestock Deposit Certificate (CDA), the Agribusiness Warrant (WA), the Certificate of Rights of Agribusiness Creditors (CDCA), the Agribusiness Letters of Credit (LCA) and the Agribusiness Certificate of Receivables (CRA). These turned to the domestic market.
The first two (CDA and WA) will be guaranteed by agricultural products in warehouses. According to Wedekin, after the harvest, producers store the produce and ask the depositor to issue the paper.
He then goes to one of the three registration centres authorized by the Central Bank, either the Centre of Financial Liquidation and Custody of Securities (Cetip), the Commodities & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa), and makes the paper available for negotiation on the electronic stock exchange.
In practice, the producer sells his produce without moving it. The CDA represents the promise of delivery of the product and the WA is a bill of credit through which the producer commits part of his crop so as to get the financing. In Wedekin’s evaluation, these papers should move around US$ 9.3 billion in 2 years.
Negotiations on the finance market will be free of tributes like the Tax on the Circulation of Merchandise and Services and the Rendering of Interstate and Intermunicipal Transportation Services and Communications (ICMS) – unless the product is physically moved out of the warehouse, and of the Financial Operations Tax (IOF).
“The papers will be used to attract funds for financing and trade of agricultural production,” stated Wedekin.
The remaining papers (CDCA, LCA and RCA) will be guaranteed by agribusiness “receivables”, i.e., trade bills, promissory notes, or Rural Product Bills (CPRs) originated by operations connected to the sector (the purchase in instalments of inputs by a producer, for example).
CDCAs will be issued by agribusiness companies, LCAs by financial institutions (banks and credit cooperatives) and CRAs by security companies. The objective of these papers is to finance the turning capital of agribusiness.
One of the objectives of the government, made clear in the 2004/2005 Crop Plan, is to “further insert livestock and agribusiness into the finance and capital market, attracting new investors, using new financing, trade and insurance methods, reducing the costs and risk of these activities.”
ANBA ”“ Brazil-Arab News Agency