May 4, 2016 / 4:15 PM / 4 years ago

Brazil raises credit to farmers, but at higher interest rates

BRASILIA, May 4 (Reuters) - Brazil on Wednesday raised credit to farmers by 8 percent to 202 billion reais ($57 billion) this year, but also hiked interest rates on many of those subsidized loans to be in line with the country’s benchmark rate.

The government unveiled in Brasilia its agriculture financing plan that gives producers access to up to 168 billion reais to pay for planting, stocking and commercialization, up from 149 billion reais last year.

But interest rates on 115 billion reais worth of those loans jumped from 8.75 percent a year on average in 2015 to between 9.5 to 11.25 percent. Market rates will be applied to remaining 53 billion reais.

The loans are disbursed by private and state-controlled banks, but the Brazilian government pays the difference from market interest rates to those set for the crop plan. The government estimates a total cost of 6.2 billion reais this year to subsidize the rates, from 5.2 billion last year.

There will be an extra 34 billion reais in loans available for several types of farming investments, such as irrigation and machinery, 10 percent less than the amount earmarked in 2015. Rates on those resources also went up to 8.5-9.5 percent from 7.5-8.75 percent last year.

“Food security is strategic. Brazil needs this kind of support”, said President Dilma Rousseff, in probably one of her last appearances as the country’s leader as the Senate is poised to suspend her on May 11 for allegedly breaking fiscal laws.

Producers usually use most of the money made available with subsidized interest rates, since normal credit in private banks could cost much more.

Brazil’s benchmark Selic rate is currently at 14.25 percent, up from 11 percent in May last year.

Agriculture Minister Katia Abreu said the government decided to increase credit for planting and harvesting and reduce funds for investments because of the crippling recession.

“Since we are going through an economic crisis, we believe producers would hold on to some investments this year, but certainly they will maintain planting levels,” said Abreu.

Brazil was expected to harvest a record grains crop of 202 million tonnes in 2015/16, according to the government’s statistic agency Conab, but excessive dryness could cut that amount.

($1 = 3.54 reais)

Additional reporting and writing by Marcelo Teixeira, in Sao Paulo; Editing by Marguerita Choy

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