The Debts and Doubts for Family Farming

by Gerson Teixeira

Groups representing rural workers are negotiating measures with the government which would ease rural-credit debts owed by settled and family farmers.

These negotiations have been in ongoing since 2003, when the debts belonging to these groups began to be covered by official renegotiation instruments. These official instruments were inaugurated and made commonplace from the middle of the 1990s owing to pressure from ruralists. 

On the specific question of family farming, it seems essential to ask: why is it that the problem of high default rates of these farmers won’t go away?

Before offering an opinion on this question, it is worth taking a look at the numbers. According to the Ministry of Finance, rural debt stands at about R$149.2 billion. Around R$44 billion of this amount is considered ‘in prejudiced’ debt [in the sense that the cost of expenditures is higher than income] and ‘withheld’ [meaning that the expenditures are hidden so as not to expose the fact that they are ‘in prejudice’].  This sum is equivalent to 36% of agricultural GDP, calculated by the Center for Advanced Studies in Agricultural Economics ESALQ.

Debts of family farmers totaled R$29 billion, around 19.5% of the last recorded value. ‘In prejudice’ and ‘withheld’ debts make up about R$6.1 billion, resulting in an average debt default rate of 21% among familiar farmers. In the Northeast of Brazil, this figure is around 30%.  

Origins

The origins of this serious debt crisis in agriculture, that came to light in the early 1990s, is associated with the growing gap between the evolution of the financial costs of credit contracts and revenue, which has continued to fall owing to depreciating prices of agricultural products.

This picture is just another neoliberal legacy; a picture painted by the public debt crisis and consequent stagflation of the Brazilian economy in the 1980s, and several unsuccessful currency stabilization plans, which continued until the first half of the 1990s.

The causes of default nowadays, unlike then, are not associated with the excessive costs of financing.

As a result of pressure and negotiation carried out by the same social movements, rural credit which has been offered over the course of a few years has been low in tax and interest when compared to market values, and even compared to other agricultural sectors.

These causes result primarily from the effects of the extreme degree to which the primary base of agriculture is subordinated to increasingly concentrated groups that control middle industries and commercialization of agricultural products. In other words, the problem of solvency faced by familiar agricultors result, above all, from increasing and excessive production costs.

This process has not been counteracted by prices, even under upward trends in a number of products over recent years, whose earnings are only in part passed on to family farmers. The rest stay in the hands of corporations that market the products.

Data on inter-industry terms of exchange confirm this hypothesis. The table below shows the deterioration of terms of exchange in São Paulo in comparison with those of 1999 and 2009.

Product

Unit

Annual Average

Variation

1999

2009

Cotton /fertilizer 03-15-15

Ex  / 15kg

41.4

68.7

65.9%

Coffee/fertilizer 20-05-20

Ex  / 60kg

2.6

6.3

142.3%

Beans/fertilizer 04-14-08

Ex / 60kg

8.8

12.5

42.0%

Oranges/fertilizer 12-06-12

Ex / box 40.8  kg

129.5

157.8

21.9%

Corn/tractor

Unit / 60kg

3,195

4,044

26.6%

Source: Institute of Agricultural Economics of São Paulo

The above table shows that a substantial transfer of farmers’ direct income was displaced from financial institutions to the commercial capitals and industries connected to the sector. This does not mean however that the banks suffered losses. The Treasury went on to ensure the low cost of allocating resources through the transfer of funds for the equalization of operations with controlled resources (at subsidized rates)

 It is important that the authorities bear in mind the distinction between the factors that contribute to farmers’ inability to pay, not only to give space for demands for government measures, which are technically adequate, but also that they may reflect on the directions that should guide policy choices for the future of primary sector of family farming.

We will explore the subject briefly. First we should acknowledge the structural component of upstream economic concentration against the downstream of the primary activity agriculture, the tendency of which is to intensify.

It cannot be denied that PRONAF (National Program for the Strengthening of Familiar Agriculture) has included family farmers in its policy of rural credit. However, it is important to take note that this inclusion was made amid the dissemination of the agribusiness technology package, allowing a conservative modernization of familiar agriculture. The More Food Program (whose main performance indicator is not the increase of food production, but is instead the increase of farm machinery) was the final step in the strategy.

In this context, family farmers began to demand equipment and agrichemicals, thus contributing to an upward pressure for these products. And the more resources given by PRONAF, the more chemicals, costs and greater difficulties in capacity to pay ensue.

There remain therefore two options for family farming: 1) Take instead the productivist agricultural model and, while negotiating debt, act in a technically correct manner by demanding subsidies for the purchase of supplies and greater variation in prices for instruments already available; or 2) make efforts to escape from this maelstrom by adding to the discourse for a new agricultural model, demanding a government strategy and effective policies which would allow for an orderly agroecological transition.

In the end, all this trouble may be useful to the extent that solves some of the present doubts about the best ways forward for familiar agriculture, sovereignty and food security.

Gerson Teixeira: Ex-president of ABRA (Brazilian Association for Agrarian Reform)

Translated by: Eric H and Felipe da Silva Gonçalves