Agricultural machine manufacturers are working with banks in Brazil to avoid a repeat of slumping sales when public financing is expected to run out next year, the head of the local unit of U.S. tractor maker Deere & Co told Reuters on Thursday.
The Brazilian government’s moves to reduce its role in the sector disrupted one of the world’s largest markets for agriculture machinery earlier this year.
A government-sponsored financing package for farmers ran out earlier than expected, leaving a gap of credit in the sector that hit sales of tractors, combines and other equipment.
“The money was over, and we stayed 90 to 120 days with very low activity (in sales),” said Paulo Herrmann, Brazil CEO for the maker of John Deere brand machines.
Herrmann said he expects credit from the so-called Crop Plan, a government annual policy that extends subsidized financing lines, will end around March next year, a couple of months before a new package comes.
“But this time the government already said that there will be no more money, so the companies in the sector are working on alternatives along with banks,” he said.
Brazil’s right-wing government has an orthodox free-market agenda and wants to gradually reduce its role in private financing, including for agriculture. With the benchmark interest rate at an all-time low, the Economy Ministry wants farmers and machine makers to develop financing options in the private sector.
“It is a transition, so it is always difficult. You leave a comfort zone for an unknown situation,” said Herrmann.
The Deere executive said he agrees with the government move, despite the problems seen this year and possible difficulties in coming months when Crop Plan money runs out.
He said economists see a stable environment for inflation in Brazil, with a possible new reduction in the benchmark Selic rate potentially easing the transition to more private financing for agricultural equipment.
Herrmann said the outlook is positive for the new grain season, with an addition of around 1 million hectares in cultivated area in Brazil.
But he said Brazil could do a better job on communications, when it comes to fierce international criticism the country faces over environmental problems.
He said Brazilian agriculture has a lot to show in terms of sustainability, such as no-tilling planting, forest-crop integration and modern land use legislation, but it has failed to deliver the message.