Plano Safra 2019–20: a boost to the agricultural sector

A sligtly historical take on Brazil’s recently announced boost-package

Conventional brazilian economic history portrays a country which throughout the greater length of its existence was umbilically dependent on the primary sector, that is: the share of the economy which “extracts or harvests products from the earth (…) it includes the production of raw material and basic foods. Activities associated with the primary sector include agriculture (both subsistence and commercial), mining, forestry, farming, grazing, hunting and gathering, fishing, and quarrying. The packaging and processing of the raw material associated with this sector is also considered to be part of this sector”. [1]

Amongst the slew of contemporary thinkers whose works underpin such an angle of historical view is Celso Furtado (1920–2004). His widely renowned Formação econômica do Brasil, first published over five decades back, set the tone on the debate. More recently, Jorge Caldeira is, on the other hand, another thinker whose most recent ouvrage has put forth a counter argument to the long-held view. Caldeira’s História da riqueza do Brasil draws heavily on econometrics and statistics, thereby making room for a finer reading of Brazil’s distant economic roots:

“Thus, the first consequence of understanding the numbers discovered is to relinquish, in its entirity, the intepretations drew on conventional wisdom” [2]

History wonks, nonethless, need not be blown away by the excerpt above since Caldeira’s findings do not part in essence from what has been known about the dynamics of the brazilian economy , namely — that for most of its history the primary sector played a vital role. On his own words:

“Despite being coinless economies — a fact that has led traditional scholars to suppose an economy incapable of accumulating wealth — , it’s been found that they were economies perfectly capable of producing surplusses and trading them with others, not to mention the existence of mechanisms aimed at managing the wealth accumulated and the wealth that was produced” [3]

Therefore, the recently announced Plano Safra 2019–20 comes as no surprise. It’s a government-financed stimulus to a sector of the Brazilian economy which, despite its reduced share in the country’s gross domestic product (GDP), has helped Brazil weather the storm through the dire years of the country’s most recent recession.

The Plano boasts a staggering R$ 225.3 billion (that’s roughly over US$ 58,3 billion) to be strategically loaned out through agricultural credit operations to producers ranging from familiy farming to mediam-sized and large-sized ones.

Let’s talk economics. The Plano Safra can be strictly defined, economically, as a monetary stimulus. An economy’s monetary toolkit is comprised of (i) open market operations; (ii) discount rate; and (iii) reserve requirements. A fourth tool that’s widely administered by a country’s central bank as it follows through with its monetary policy is the manipulation of a benchmark interest rate (in Brazil, that’s the taxa selic). Those are all a topic for an upcoming text on monetary policy. What the reader ought to take away here is that whichever tool or any combination thereof that’s drawn upon by the central bankers (Brazil’s Central Bank has limited independence, very limited) is done so in an attempt to exerce some control on the country’s money supply (that is, the total sum of money in circulation in the economy) and thereby its price.

Being government-financed , or subsidized, means that the loan takers eligible for the Plano Safra can draw on that line of credit at a lower interest rate than they would otherwise find elsewhere in the market (through regular commercial banks). Interest paid on any loan is its price. The Plano Safra’s interest rates should range from 3 up to 10,5%, depending on producer’s size. That is a particullarly good deal — even when the intermediaries’ share is factored in — since producers of agricultural goods and services often need to run up triple-digit debts which are mostly spread out over the years. Therefore, the lower the cost of those investments (i.e the interest rate paid on them), the better.

What that amounts to? Well, on the supply side of things, paying lower interest rates means reduced imput costs in the production of the agricultural sector. The ripple effects of that should be (i) higher competitiveness of the Brazilian agricultural produce in foreign markets, because retail prices will be lower; (ii) potentially increased sales of that output, because, again, retail prices will have been lowered; (iii) higher output, which, in turn, means increasing supply and consequently contributing to lower prices. That can be the scenario if the agricultural produce of Brazil’s main competitors is lower, because if everybody produces a lot of any goods, the goodie and oldie supply and demand kicks in and drains away profits.

Last but not least, what does the generous Plano Safra mean for the demand side of things? It’s great news for any supplier of the agricultural sector as a whole: from fertilizer producers to packging and machinery parts replacement. For one thing, Brazil’s economy is still riddled with the towering shadows of the recent recession: GDP growth has been repeatedly downwardly revised; consumer and investment sentiments are low; the economy as a whole is still running on idle capacity; and the redtape-ridden, protracted political scenario only worsens the outlook and puts off the market. The Plano, ultimately, comes as a new lease of life to one of the Brazilian economy’s historically and economically relevant sectors.

[1] a textbook definition of “primary secotor” as borrowed from:

[2] A free translation from J. Caldeira’s História da riqueza do Brasil, p.13: assim, a primeira consequência de se entender os números descobertos estabelecidos é a de abandonar por completo as interpretações baseadas no conhecimento clássico | embora sejam economias sem moeda — fato que levou os estudiosos tradicionais a supor uma economia incapaz de acumular riqueza — , descobriu-se que são economias perfeitamente capazes de produzir excedentes e trocá-los com outras formações, além de terem mecanismos próprios para a administração dos bens acumulados, da riqueza que produzem.

An International Relations degree holder; a language, history and economics aficionado; and a soon-to-be Economist who sees writing a thought-untangling act.

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