Barter trade: Guarantee for Profit

Trade in Brazil has been challenged by the impact of the economic downturn, lower commodity prices, currency devaluation, and credit crunch in recent years, leading many multinational companies to start barter trade operations to mitigate potential economic losses for themselves and for farmers. AgroPages spoke with Paulo Soares, Head of Barter at Bayer, about the company’s barter operations in Latin America.
 

Q: With what countries does Bayer have barter operations in Latin America? How large are these deals?
 

A: Barter operation is a current and traditional business practice in Brazil and Argentina. In Brazil, Bayer registered an increase of 400% in barter operations in 2015. The numbers for 2016 have not been calculated yet.
 

Q: What’s the present economic situation in Brazil, and how do you view trends on barter operation in the near future? 
 

A: In Brazil, due to political instability causing fluctuations in the dollar and the issue of constrained credit, bartering is one of the alternatives that allow farmers to get the inputs for their crops and to pay for them with their harvest. The barter operation is available to our clients with no limits. We will closely support them on this financial aspect in the future.
 

Q: How does Bayer control risk in the barter trade?
 

A: Barter trade is a secure financial solution for famers and our company. Bayer controls the defaults of the operation through the Rural Product Ballot, or Cédula de Produto Rural (CPR). The CPR is a pledge signed by the farmer as a guarantee to honor the debt. 
 

In the CPR, farmers pledge their crop as a delivery guarantee. As the exchange ratios are locked at the time of signing, the barter allows the producer to protect against price fluctuations and exchange rate differences -- from planting to harvest -- without resorting to more expensive hedging instruments in the futures market.
 

The company's distribution network sets the price chosen by Bayer for the barter. When trading is closed, the distributor prepares the CPR with the producer and sends it to Bayer, which in turn, collects on the grain receipt later (in the case of physical payments) or receives the dues for the market debt (for financial payments).