Mapa meets with companies to discuss adjustments to the legal framework and expand private financing for agriculture

Representatives from the Ministry of Agriculture, Livestock and Supply (Mapa) and a group of capital market specialists focused on agribusiness met to discuss adjustments to decrees that regulate private financing for agriculture. The idea is to expand the scope of the Rural Product Certificate (CPR) for the agricultural product marketing sector and further expand the negotiated balance of bonds linked to the sector. The meeting took place at the Federal Superintendency of Agriculture in São Paulo (SFA-SP), on September 30th.

According to José Angelo Mazzillo, deputy secretary of Agricultural Policy at Mapa, the volume traded in CPR until August 2020 was R$17 billion. “Two years later, in August 2022, this balance rose to R$178 billion,” said Mazzillo, who coordinated the meeting.

What happened to this explosion in the negotiations of agricultural bonds? According to the secretary, it was precisely the first update to the legislation that regulates them. The CPR was established by Law 8.929, of 1994, and there was a major remodeling with Law 13.986, of April 2020. In July 2021, another remodeling of this legislation occurred, with Law 14.421. “We are making the CPR a very attractive security, both for the creditor and the borrower. Both want a well-designed financial market, which is why we 'close the circuit' between those who need money and those who want to invest in agriculture,” explained Mazzillo.

The expectation, according to the secretary, is that the volume of resources negotiated via CPR will soon reach R$200 billion and reach the trillion mark within five to ten years. Brazilian agribusiness currently generates more than R$2,5 trillion, which corresponds to just over a quarter of the country's GDP, which is approximately R$9 trillion.

“In recent years, we have been boosting private agricultural finances to make agriculture more robust in terms of resources and financing. The Safra Plan is an important piece, but our agriculture is growing like a rocket”, reinforced Mazzillo. This growth justifies the need to expand the supply of working capital and investment capital, a work that Mapa has been developing.

Adequacy of the legal framework is one of the strategies adopted. In recent years, CPR expanded from within the gate to agribusiness, then to industry, the input sector, machines and implements and, more recently, to storage equipment. The idea is to cover the entire agribusiness chain.

Players

The participation of market players in updating the legal framework is strategic. “As the law is to boost the market, we need to involve as many players as we can in the conversations. Both on the part of those who issue the CPR and need the money, and on the part of those who are going to buy the CPR and make investments,” said Mazzillo.

When a client goes to the bank and intends to invest in agriculture, they find receivables “packaged” in sophisticated capital market instruments, such as the CRA, the Fiagro, the LCA (Agribusiness Letter of Credit), one of the best known. Individuals can purchase shares of these products.

Structuring and securitizing companies that structure operations between city investors and rural producers participated in the meeting, as well as banks, agricultural cooperatives, credit unions and law firms. “The structurers and securitizers are companies that develop the model to calculate the rural producer’s credit risk and, therefore, offer this service to the creditor”, explained the secretary. These companies take into account the possibility of default by the rural producer to establish the interest rate appropriate to this risk.

Profitability

Is investing in CPR a good deal? According to Mazzilo, profitability is calculated by the CDI, which, in general, expresses the variation in the Selic rate defined by the Central Bank. “Profitability is normally measured by the CDI plus a fixed value, which can vary from 4%, 5%, and can reach up to 10% per year, depending on the type of risk, the type of operation.” The most common thing is to find these structured instruments on the market with a CDI rate plus interest of 6% to 8% per year.

Mazzillo said he believes that, with the legal changes underway, Brazil could have one of the best credit markets for agribusiness in the world. “If we manage to implement these changes, it will be difficult to have a better agribusiness credit market than the Brazilian one,” he said.

CPR Green

Updating decrees involves specific improvements, especially in the regulation of the CPR for sustainability purposes. Mazzillo explains that the Rural Product Certificate can be used to finance conventional activities or sustainable activities, in this case, regulated in Decree 10.828, of 2021. “Decree and law have to go together, they have to talk. Since Law 14.421 significantly changed the CPRs, allowing the expansion of their use, we have to update the decree.”

One of the points to be changed is related to the nomenclature. In the case of CPR Verde, there is a nomenclature used internationally that foreign investors are accustomed to and large Brazilian investors are beginning to understand. “We have to make this explicit in the decree so that everyone speaks the same language. When we say CPR like that, everyone must understand what that CPR means.”

Today, when talking about Green CPR, investors associate it with environmental, socio-environmental issues, conservation, environmental service provision, sustainable production, which can lead to conceptual confusion. “The term Green CPR is used interchangeably for all modalities of sustainable title. The international market is already doing this and the national market is starting to operate with a specific nomenclature. We want to bring this nomenclature to the CPR and, in this way, favor the operations of this title in Brazil.”