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Can new lenders save Brazil’s struggling farmers?

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Brazil is an agricultural powerhouse. It’s among the leading producers of many staples and has overtaken the United States as the world’s biggest source of soybeans, forecasting a record crop of around 130m tonnes for 2020-21. But a significant part of the agricultural sector is struggling.

The vast majority of farms in Brazil, up to 80 per cent, are small scale family-run businesses. The agriculture ministry says, they produce almost 23 per cent of output. Yet, according to the climate policy initiative research group, they receive only around 14 per cent of the total credit extended to the sector.

Analysts say, high interest rates, an outdated, overcomplicated government-dominated credit system and a lack of bank branches in rural areas have led to a loans crisis for those most in need. Outlets are concentrated in cities and more developed regions with relatively few contact points in poorer, more remote areas. The private sector has stepped in to fill some of the holes.

Retail investment fund, Finapop, raises cash to support poorer producers, especially those willing to embrace organic practises. Interest for money borrowed and returns for cash invested have been estimated at between four and five per cent, a better deal all round than the rates offered by big banks. Secop, a long-standing, non-government lender and financial co-operative, works with local associations to encourage eco-friendly farming.

And other regional bank has signed up more than a million clients through a scheme, offering finance and technical support for tenant farmers. But critics claim such initiatives fall well short. The Covid pandemic has made inequality worse, pushing millions into poverty.

One research group estimates that 12 per cent of rural homes in Brazil faced extreme food insecurity towards the end of 2020. Economic instability and the threat of higher interest rates will make private lending even more challenging in a nation where record harvests do not bring prosperity for all.

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