The agribusiness sector plays a fundamental role in the country's economy, contributing significantly to GDP (Gross Domestic Product) and Brazilian exports. According to data from the Brazilian Institute of Geography and Statistics (IBGE) for 2022, the sector represented around 25% of the national GDP, encompassing both agricultural production and agroindustry, which was responsible for more than 20% of formal jobs in the country and represented approximately 46% of all exports.
But then, what explains the increase in defaults among rural producers? The situation is creating a complex scenario for workers in agribusiness, given the significant influence exerted by several extrinsic factors on prices in the sector. The war between Russia and Ukraine has had a direct impact on the values of some commodities and, consequently, on the costs of animal feed.
Furthermore, the armed conflict also impacted the price of oil internationally, triggering a kind of "cascading effect" on costs in other areas of the agricultural segment.
The lack of fertilizers from Russia on the global market resulted in an increase in input prices and precipitated a race by countries in search of new suppliers. The imminent risk of fertilizer shortages, or continued high prices, still looms as a frightening reality for planning future harvests.
Furthermore, the domestic scenario in the agricultural sector has been challenging. The high interest rate has made it difficult for rural producers to access credit, which has hampered the financing of their operations and the drop in the price of grains, such as soybeans and corn, has also reduced margins and hindered producers to plan their harvests.
In addition, the agricultural sector has also been affected by a series of other factors, such as drought, pests and diseases. These factors have harmed agricultural production and increased production costs, which has put pressure on rural producers' profits.
Given these global and domestic scenarios, the Rural Producer Default Indicator, measured by the institution Serasa Experian, every 3 months, revealed, in March 2023, the figure of 27,4% of the aforementioned rural producers, highlighting in “red” their names in Brazilian territory.
The photographic image submitted for analysis showed a fluctuation of 0,4 percentage points in relation to the last survey, carried out in November 2022. In relation to the State of Espírito Santo, positioned in fifth place among those with the smallest contingent of indebted farmers, the proportion reaches 24,9%.
Roraima, Amapá and Amazonas are in the top 3 on the list, with 50,3%, 48,0% and 47,5%, respectively, of indebted rural producers in the aforementioned states in northern Brazil.
Default by rural producers can have a significant impact on suppliers of agricultural machinery and inputs. When farmers face financial difficulties and are unable to meet their payment obligations, it directly impacts the agricultural supply chain.
Firstly, default reduces the ability of producers to acquire agricultural machinery and equipment necessary for their operations. This could lead to a drop in demand for agricultural machinery, negatively affecting manufacturers and dealers in this sector. Fewer sales result in lower revenue and potentially financial hardship for agricultural machinery suppliers.
Furthermore, default also affects suppliers of agricultural inputs, such as fertilizers, seeds and pesticides. Rural producers may have difficulty honoring their payment commitments for these inputs, which can lead to delays or even non-payment, negatively affecting input suppliers, who may face a decrease in demand and a reduction in sales.
Ultimately, the default of rural producers can generate the aforementioned “cascading effect” in the agricultural supply chain, with companies in the sector experiencing a decrease in sales, financial difficulties and even business closures, if they are unable to deal with the financial impacts of default.
Faced with this scenario of default, it is essential to seek solutions that avoid business closures and promote the financial recovery of affected companies. In this context, the institution of judicial recovery appears as a viable possibility for suppliers of agricultural machinery and inputs facing financial difficulties.
Judicial recovery processing is a legal tool available to companies, including suppliers of agricultural machinery and inputs, that face financial difficulties and seek to reorganize their activities in order to avoid bankruptcy. In the context of default by rural producers, judicial recovery can be an alternative for both producers and suppliers who are suffering from the financial impacts mentioned above.
This measure can help the supplier to reevaluate its cost structure, seek operational efficiency and adopt restructuring measures that allow it to overcome the crisis caused by default, thus allowing the company to continue operating, avoiding bankruptcy, preserving jobs and maintaining its commercial activities.
*Per Filipe Denki, Laura Finholdt Lopes e Felipe José Silveira, Lara Martins Lawyers
Receive the latest agriculture news by email
