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Corn+Soybean Digest

Disguised Ag Subsidies

Some Brazilians seem to love slipping a reference to U.S. farm subsidies into the middle of a conversation. They move on to another topic before you have a chance to inform them of the oversimplified view illustrated in a statement about whether U.S. farmers make more from government checks than they do from working the land.

It's a view that is picked up from newspaper accounts of a few U.S. producers who make millions from farm programs, but it hardly reflects reality. And neither does the simultaneous view that Brazilian farmers enjoy no subsidies at all.

The numbers are out, and according to official data, Brazilian farm income is up by 30% over last year. This growth is due, in part, to a weak local currency, which has helped soybean exports. Optimism is running high enough that Agriculture Minister Roberto Rodrigues says growth in sales of fertilizer and farm vehicles “offer an optimistic view as to the next harvest.” He went on to predict 5% growth in total planted area.

Increases in purchases of tractors, combines and planters were helped along greatly in February, with the injection of $280 million into the government's Moderfrota farm fleet modernization program. The money, which provides farmers with low interest loans for the purchase of farm equipment, was due to be used by June.

In a country with 26.5% interest rates — some of the highest in the world — reduced interest is a major incentive to buy tractors and other equipment. The interest rate for farmers with gross incomes of up to $53,000 is 9.75%. For all other producers, it's 12.75%. Farmers get six to eight years to pay off the loans, which cover up to 100% of the purchase value, depending again on gross farm income.

According to one report, nearly 85,000 of Brazil's total 500,000 tractors and combines were bought at government-subsidized interest rates through programs such as Moderfrota. According to Agriculture Minister Rodrigues, the average age of Brazil's farm fleet is 15 years, while that of the U.S. is closer to five years.

Meanwhile, the government has announced its new agricultural plan, which will likely increase planting of rice, dry beans and corn, but not do much for soybeans. According to the Brazilian Rural Society, minimum prices for these products may be pegged up to 15% higher than average production costs, after years of pegging minimums below what it takes to grow the crop. In all, the Brazilian government looks set to spend some $10 billion on interest subsidies and minimum prices in next year's farm program.

In addition, some farmers in Mato Grosso state pay lower taxes on land used for farming than they'd pay if the same land were left undeveloped.

In the new farm plan, which will shape October planting, the amount of money for financing rice, dry beans and manioc will increase by one third. The amount available for corn will rise by 60%.

Even with this year's increases, it's fair to say Brazilian ag subsidies are relatively low. But it's not fair to say they don't exist.

U.S., Brazil Establish Ag Committee

Agriculture Secretary Ann M. Veneman and Roberto Rodrigues, Brazilian Minister of Agriculture, Livestock and Food Supply, recently established a U.S.-Brazil Consultative Committee on Agriculture.

The consultative committee provides an opportunity to coordinate policy in a number of areas, including market access, food safety, research, technical assistance and standards setting.

It provides a forum for the two countries to address bilateral trade issues as they arise, develop recommendations, share ideas and better coordinate policies to benefit farmers, businesses and consumers.

USDA and Brazilian officials will meet in the fall to establish a work plan structuring future discussions in areas of mutual concern, including ongoing trade negotiations, sanitary and phytosanitary issues and technical cooperation.

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