Brazil’s Best Counsel 2022 - Chapter Opening: Agribusiness

Posted Monday, December 13th 2021
Brazil’s Best Counsel 2022 - Chapter Opening: Agribusiness

Brazilian agribusiness opens up to international investment

Since its creation in 1965, the National Rural Credit System (SNCR) has been the main instrument of Brazilian agricultural policy. The Agricultural Financing Balance for the 2020/21 crop recently released by the Ministry of Agriculture, Livestock and Supply (MAPA) shows that between July 2020 and March 2021, rural credit contracts amounted to R$169.4 billion, a 22% increase over the same period compared to the previous harvest. The survey also shows that of this amount, R$90.8 billion was earmarked for funding (an increase of 18%), R$53.4 billion for investment (an increase of 43%), R$15.5 billion for marketing (a decline of 3%) and R$9.77 billion for industrialization (an increase of 7%).

These absolute numbers are impressive, but the truth is that this subsidized credit is not enough to meet the needs of Brazilian farmers. Thus, historically, farmers without their own resources to finance their crops and without access to the SNCR have always depended on bank loans and direct investments by supply industries (via barter contracts) and trading companies (via advances to farmers or anticipated purchase of crops).

In the search for financing alternatives, agribusiness credit bonds were created and regulated, such as the Rural Product Certificate (CPR), established by Law 8929 of 1994, the Agricultural Deposit Certificate (CDA) and the Agricultural Warrant (WA), and the Agribusiness Credit Rights Certificate (CDCA), established by Law 11,076 in 2004.

These bonds generated new opportunities to promote the activity of farmers, as they could be traded directly or used as collateral for new contracts.

On 14 March 2021, Law nº 14.130 was published, establishing the new Investment Funds in Agro-industrial Production Chains (FIAGRO)

To make these bonds attractive and liquid, financial products backed by them were created, namely the Agribusiness Letter of Credit (LCA) and the Agribusiness Receivables Certificate (CRA).

The structure of the bonds and the resulting financial instruments, however, was based on the physical availability of the agricultural products, which limited their issuance. Nevertheless, it gained much acceptance and use in the grain market, especially soy and corn, and in the cotton and sugar market as well.

Despite the success of the bonds and the CRA (which reached R$15.7 billion in 2020, according to Uqbar), there is still a strong concentration of supply and access to credit in the agribusiness chain, whether due to costs or to the complexity of structuring financial operations.

With the intention of further reducing the dependence of Brazilian producers on the SNCR on the one hand and promoting greater access to credit on the other, attracting more and new investors, the Brazilian Ministry of Agriculture and the Brazilian Ministry of Economy (ME) issued Law 13.986, known as the Agri Law, in 2020. The main changes brought by this novel law, for the purposes of this article, were the expansion of the list of possible issuers of the CPRs as well as the broader definition of rural products, expressly including those obtained in agricultural and livestock activities , from planted forests and from fisheries and aquaculture, in their by-products and residues of economic value, including when submitted to processing or the first industrialization, as well as the possibility that certificates of agribusiness, such as CRAs and CDCAs, are issued in foreign currency and registered abroad, ensuring exchange parity.

FIAGRO brings together all the necessary characteristics to become one of the main agribusiness fundraising instruments

On top of all that effort from the MAPA and the ME, on 14 March 2021, Law nº 14.130 was published, establishing the new Investment Funds in Agro-industrial Production Chains (FIAGRO).

Although based upon the successful model of Real Estate Investment Funds (FIIs) provided for in Law No. 8.668/1993, FIAGRO has a broader use, allowing investments not to be limited to rural properties, but to also include other assets related to the agribusiness economic chain.

In that sense, FIAGRO also allows investments in:

a) shares of other companies which explore activities that are part of the agro-industrial production chain;

b) investments in financial assets, credit bonds and securities issued by individuals or legal entities that are part of that economic chain;

c) credit rights and securitization bonds issued backed by agribusiness credit rights, including agribusiness receivables certificates and quotas of credit rights investment funds and non-standard credit rights investment funds that apply more than 50% of their equity to said credit rights;

d) real estate credit rights relating to rural properties and securitization bonds issued backed by these credit rights, including agribusiness receivables certificates and quotas of credit rights investment funds and non-standard credit rights investment funds that apply more than 50% of its equity in said credit rights; 

e) and shares of other investment funds that, in turn, invest more than 50% of their equity in these same assets mentioned before.

In terms of regulation under the Brazilian Securities Exchange Commission (CVM), there is no novelty in relation to FIAGRO compared to other well-established modalities of investment funds. In fact, it was the Regulator’s option to establish, in CVM Resolution 39 of 13 July 2021, the application of the existing normative structure - CVM Instruction 472 relating to FIIs; CVM Instruction 356 relating to Receivables Investment Funds (FIDC); and the CVM Instruction 578, relating to Participation Investment Funds (FIP) – as a rule for the registration and operation of FIAGRO, depending on the assets in its portfolio.

With the regulation of FIAGRO by CVM, agribusiness gained a great incentive for integration into the capital markets with its own investment fundraising vehicles, especially for acquisition or lease of farms, through a Fiagro Real Estate (which may include forestry funds); securitization of receivables, through Fiagro Credit Rights; and contributions to companies dedicated to the sector, including agritechs, through Fiagro Participation.

In short, FIAGRO brings together all the necessary characteristics to become one of the main agribusiness fundraising instruments.

For Brazilian farmers, this may be a new and interesting source of funds for their activities, while for resellers, distributors and other activities related to agribusiness, FIAGRO is an option to monetize their receivables and collaterals and ensure liquidity and cash flow other than through the traditional securitization of the credits in a CRA, which is more dependent on larger structures.

For investors, FIAGRO is an attractive option to take part in the growing results of Brazilian agribusiness and its endurable success, and it must be noted that Brazilian legislators have also guaranteed tax benefits for investors in FIAGRO to make it more attractable to the market. For instance, there is exemption from income tax on the income distributed by FIAGRO to any individual investor, provided that the fund has more than 50 shareholders, none of which holds more than 10% of shares or is entitled to receive more than 10% of the fund’s earnings.

It is fair to reinforce that FIAGRO and Law 13,986, are the results of the efforts of the MAPA and the ME to provide farmers with more access to fundings, including access to foreigners yearning to participate in the profits of Brazilian agribusiness.

Last, but not least, on 1 October 2021, the Federal Government promulgated Federal Decree nº 10.828, regulating the issuance of CPRs related to conservation and recovery activities in native forests and their biomes. These “green CPRs”, when gathered under a FIAGRO, will give rise to a new way of granting the farmers payment for environmental services provided in the form of preservation of forest and water resources on their properties, allowing investors to comply with their ESG targets.


About the Authors:

Frederico Favacho:

Frederico is an author and professor who has been working in the agribusiness sector for over 20 years. He is a Fellow of the Chartered Institute of Arbitrators and a member of the Grain and Feed Trade Association, the Federation of Oils, Seeds & Fats Associations and the Brazilian Arbitration Committee. He has a Bachelor of Laws in Agribusiness Management and master’s degrees in the Philosophy of Law, in Transnational Commercial Practice and in Maritime and Port Law.

Phone: + 55 11 3124 3070


Domicio dos Santos Neto:

Domicio is the founding partner of Santos Neto Advogados and, with over 26 years of experience, has an outstanding track records in agribusiness and financing mandates. He is a speaker at many Brazilian and international conferences and author of several published articles on agribusiness, banking and finance law. He holds master’s degrees in tax law and commercial law and is a former member of the Commission on Foreign Trade and International Relations of the São Paulo chapter of the Brazilian Bar Association.

Phone: +55 11 3124-3071