Brazil Subsidizes Farmers to Control Inflation

Pig in Brazil Luiz Inácio Lula da Silva, the president of Brazil, launched this July 2, in Curitiba, capital of the southern Brazilian state of Paraná, the 2008/2009 Agricultural and Livestock Plan (PAP), which contemplates the liberation of 78 billion Brazilian reais (US$ 48.6 billion) for the financing and trade of the next crop in the country.

With this expansion of the credit and other incentive measures to agricultural activity, the government wants to make use of the global food crisis and, simultaneously, to reduce agricultural products' inflationary pressures. The Crop Plan should generate for the next crop an increase of at least 6% in national production of grain, which this year should reach 144 million tons.

According to economist Eugênio Stephanello, who is also a technician in the National Food Supply Company (Conab), the government believes that the food offer shock, associated to the continued process of higher benchmark interest rates, should bring inflation in to the center of the 4.5% target for next year.

"The new crop begins in September and, until then, resources for cultivation and trade will not be lacking," guaranteed Stephanello.

The 78 billion reais of the new Crop Plan represent an increase of 9 billion reais (US$ 5.6 billion) over the previous plan. Of this total, the president of Brazil should tell the one thousand plus farmers to participate in the plan's launching ceremony, to take place on the campus of Positivo University, that the funds turned to the so-called "business farming", including equalization of interest on rural loans, should reach 65 billion reais (US$ 40.5 billion). That is, 7 billion reais (US$ 4.4 billion) more than in 2007.

Family farming should receive R$ 13 billion (US$ 8.1 billion), which represents an increase of 2 billion reais (US$ 1.3 billion) over the volume of funds turned to the sector in the previous crop. Yesterday, in Curitiba, on commenting the new Harvest Plan to be announced today, the Agricultural Policy secretary at the Ministry of Agriculture, Edí­lson Guimarães, guaranteed that interest for financing and agricultural investment should remain the same.

"With the higher inflation, the maintenance of interest rates represents a true reduction in cost for producers," he said. The secretary also added that the so-called 4% flat rate, charged on funds made available by the Moderfrota, should be extinguished.

According to Guimarães, the measure should represent a 1.5% to 1.7% reduction in the cost of financing for producers. The Moderfrota is an investment program for the purchase of machinery and agricultural equipment. With the Harvest Plan, the government estimates that the cropland should grow 5% in the next harvest, boosted by the funds available and by good commodity prices.

"High global consumption is an opportunity for Brazil. I would say that the agricultural sector's problems are outside it, caused by increases in the cost of fertilizers – the country imports 90% of the total it consumes – and infrastructure deficiencies, in ports, highways and railways," stated Edilson Guimarães.

According to him, the government's objective with the Harvest Plan is to reduce production costs, to recover degraded areas, stimulate rural insurance and recover the minimal stocks of foods.

Among the measures of the new plan is the increase in the minimum price guaranteed by the government, mainly for agricultural products that are part of the staple diet in the country. This measure is considered "highly positive" by agricultural leaderships. This is due to the fact that currently minimum prices for most of the agricultural products are below production costs.

The measures include a set of instruments like credit and technical assistance to stimulate the increase of production of foods around the country. The federal program Trator Popular (Low-Cost Tractor), with lines of credit for farmers to finance the purchase of equipment, is also part of the plan.

On evaluating the funds for the Harvest Plan, the president of the Brazilian Rural Society (SRB), Cesário Ramalho da Silva, said that they represent 10% more than that made available in the last crop.

In his understanding, this shows the Brazilian government's desire of expanding agricultural production while adopting managerial measures to control inflation, without creating artificial effects, as was the case in Argentina.

Anba

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