Credit shortage threatens harvest and rural investments

The funds available for Rural Credit in Brazil are increasingly scarce, according to a survey conducted by the Economic Advisory Board of the Rio Grande do Sul Agriculture Federation (Farsul). There is a contraction in resources, making this the worst period in history since the Plano Real in 1995. And the Federation warns that we have not yet reached the peak of the crisis.

According to data released by Farsul, in the first quarter of the current 2025-2026 harvest period (July-August-September) alone, there was already a 23% drop in available funding compared to the previous cycle. Investments fell by 44%. This figure applies nationwide; in Rio Grande do Sul, the declines are 25% and 39%, respectively. "Therefore, there's no single difference that points to the problem here; it's a general picture. We're not experiencing a credit crisis in Rio Grande do Sul, because of everything we've been through. We're experiencing a credit crisis in Brazil, certainly the biggest in history," comments Farsul's chief economist. Antonio da Luz (in the picture).

Da Luz explains that it's normal for the Harvest Plan announcement to surpass the previous one each year. "Agriculture is growing, so the minister on duty always announces that his is the largest Harvest Plan in history. Yes, but that's always been the case, because agriculture is growing, the need for funds increases," he explains. However, the economist points out that most of these resources are not public and therefore uncontrolled. "75% of the funds don't receive a single cent of subsidy, so it's natural for them to grow. But we're living in a different time. Although the announcement was the largest Harvest Plan in history, we're seeing the greatest gap between what was announced and what was actually observed. This was already the case with the previous harvest plan. And the 2025/2026 plan isn't finished yet, but it's much worse than last year's," he warned.

The difference between what was announced and what was realized has happened frequently in previous years. "But now what we're seeing is something completely different from everything else. The drop is staggering. I'm not just seeing a difference between what was announced and what was realized. I'm seeing a drop in what was realized," says da Luz. In practice, the resources made available are lower than in the previous period. "Before, there was a difference between what was announced and what was available. The announcement was much larger than the reality, but it actually grew—not the amount announced, but it was higher. Not anymore; now there's a significant drop in the amount being released. And this is the first time we've experienced it," he adds.

For the economist, the result could directly impact the harvest numbers that are about to begin. There's the possibility of reduced technology in the fields, which could even impact the size of cultivated areas. "It's a more extreme situation, but since we've never experienced this before, we understand that all possibilities are on the table," he assesses.

default

Linked to this scenario, another point of concern is the sector's high default rate. In July 2025, the default rate was 5,14%, the highest recorded to date. "The previous record, which occurred in 2017, was just over 3%, and we're concerned because it's still rising," warns Antonio. The rate with controlled credit is at 1,86%, while market rates reached 9,35%.

Regarding default rates with free interest rates, the bad news is that the scenario is far from stabilizing or declining, but quite the opposite. "The free interest rate is correlated with the Selic rate from eight periods ago, meaning we haven't yet reached rock bottom in default rates. We'll see further increases because we're still experiencing the effects of previous interest rate hikes. There's a time lag between the Copom's decision and what's happening in the economy. Inflation and default rates all have a lagged effect. That's why the Central Bank calls this the Relevant Expectations Horizon," explains da Luz.

"A Copom decision today isn't meant to solve today's problems; it's meant to solve problems 9 to 12 months from now. So, we're still experiencing the effect of the Selic rate not remaining stable at 15%, but still rising. In other words, default rates will worsen before they improve," says the chief economist.

The path, for da Luz, begins with the Federal Government announcing feasible plans and addressing the issues of default and making credit available. "As well as the use of mitigating factors such as rural insurance and Proagro, which have suffered significant setbacks in Brazil in recent years. The crisis of confidence among producers has become very significant. It will take years to reinstate insurance," he explains.

Fiduciary Alienation

The origin of default is related to interest rates, but rising interest rates make rural credit scarcer and, consequently, the crisis more severe. "These two things go hand in hand; they feed off each other," emphasizes Antonio da Luz. "Default rates force banks to increase their security requirements. But to increase their security requirements, they encourage increased default rates, because producers don't get credit. They have nothing else to do, so they sell their produce to buy inputs and then default," he explains.

One of the consequences is the increased requirements for releasing funds. The financial system has begun using fiduciary transfer for approval and credit. "The worsening, throughout Brazil, of issues related to producers' compliance with obligations and excessive leverage has brought uncertainty to this scenario, and banks have seized the opportunity to utilize fiduciary transfer," emphasizes Farsul's Legal Director, Nestor Hein.

The lawyer reinforces the Federation's guidance to producers on the issue. "We have warned producers that they are already in a difficult situation, that they are subject to drought conditions again. Any problem may result in them not having access to resources and losing their property. So, they should always seek other means of obtaining resources. Through a mortgage, for example, or other means other than fiduciary transfer, which is a very expeditious, very quick, and very damaging method of securing assets," he emphasized.

Hein makes it clear that this is not a criticism of the financial system or the instrument. "Fiduciary alienation is not a bad thing. It's justified, for example, when buying a car—an asset you didn't have and that if you don't pay for it, you'll quickly lose. Now, for those who aren't in that situation, it's something we don't recommend. It's nothing against the banking system. But it's an activity that's done in the open, subject to the elements. Such a broad guarantee doesn't seem like a good idea to us, and we don't recommend it," he explains.