Barter is the new alternative for crop financing in Brazil

Date:06-27-2016

The difficulties for credit release and the uncertainties of the political and economic scenario in Brazil has taken rural producers to seek alternatives for crop financing. In this scenario, the barter operation becomes popular, since it avoids high interest rates and bank bureaucracies, yet at the same time are seen by the suppliers as a way to retain customers.

“The barter system, in the case of commodities, is the exchange of inputs, seeds and equipment directly for product. The values are attributed to both and determined the quantities of each one, according to these values. The price of inputs, seeds and equipment are determined by the table of suppliers. The prices of commodities range every day according to the respective value in the future markets and need to be translated into the currency per bag in the location of the exchange in Brazil,” explains the senior analyst of the consultancy Trigo & Farinhas, Luiz Carlos Pacheco, who publishes and sends to his customers every day the “Barter Report”.

He explains that in Brazil the majority of Barter operations is triangulated, involving the rural producer, the inputs company and a trading, who has the role of final purchaser, generally aimed to export: “It is the trading who determines the price of the commodity negotiated through the pass that it can do at the international market or the coverage on future markets”.

Pacheco highlights that this modality has increased because it “does not involve bank financing and its complications in Brazil. As there are guarantees of product, direct interest rates are not charged. The prices are determined directly with the value of international exchanges without other discounts”.

However, the expert alerts some risks that the farmers need to be aware of. “The greatest is a crop shortfall, if a volume of a product in a contract either for a loss or not having enough quality will result in discounts. In these cases, after the harvest, the farmer has to offer more products (sometimes from the next crop) or negotiates the financial difference with the other part. The greatest care that the farmer has to take is the correct evaluation of the goods involved, the ones he is acquiring and the one he is supplying as a guarantee.”

The Trigo & Farinhas analyst believes that barter “came to stay because the farmer will like the modality, will get used to it and will require from companies in the future. As money is one of the most expensive product in Brazil, it will take a lot of time until financial loans can offer better conditions than the barter”.