After a year of declines in Brazil’s rural insurance market and coverage—triggered by a nearly 50% cut in federal subsidies—insurers are lobbying Congress to overturn President Luiz Inácio Lula da Silva’s veto of a provision in the Budget Guidelines Law (LDO) that would have protected funding for the policy in 2026.

In 2025, the initial budget for the Rural Insurance Premium Subsidy Program (PSR) was R$1.06 billion, but it was slashed by 47% to R$565.5 million. As a result, the insured area fell to 3.2 million hectares—the third-worst result since the series began in 2007—and less than half the 7 million hectares covered with federal subsidies a year earlier. About 42,000 farmers were served, and the insured value of production totaled just R$17.7 billion, far below the 2021 peak of R$66.4 billion.

To “protect” the funds and ensure full execution of announced resources, Congress approved an amendment to the 2026 LDO that shielded the PSR budget from cuts, freezes, and contingencies. The provision, however, was vetoed by the president.

The government argued that “expanding the list of discretionary expenditures exempt from contingencies would reduce flexibility and autonomy for agencies in managing their own budgets” and would “make it harder to comply with fiscal rules.”

Tight margins

Glaucio Toyama, head of the Rural Insurance Committee at the National Federation of General Insurance Companies (Fenseg), said the veto could worsen the “deterioration” of PSR planning at a time when Brazil’s agricultural output is growing but financial protection in the countryside is shrinking.

“Removing budget protection brings back uncertainty and undermines planning for insurers, farmers, and reinsurers, making it harder to offer products with costs compatible with tight margins in the field,” he said. This year, the Annual Budget Law (LOA), still awaiting enactment, allocates R$1.01 billion to the PSR.

Market unpredictability has increased over the past five years, Toyama noted, compounded by falling farm profitability. Even as extreme weather events become more frequent, farmers’ margins are compressed, limiting their ability to afford insurance premiums.

From January to October 2025, insurers’ rural insurance premiums fell 9.3% to R$11.1 billion, while claims payments declined 3.9% to R$3.6 billion. For Toyama, the figures signal a weakening of the product and a direct impact on farm income and financial stability, exposing a vicious cycle for the sector and the government: crop losses force emergency debt renegotiations, increasing budget pressure and leading to further cuts to programs such as the PSR.

Vulnerable chain

For Rodrigo Motroni, vice president of Newe Seguros, the veto heightens vulnerability across the entire chain. “Rural insurance provides security for farmers, stabilizes credit, reduces systemic losses, and contributes to food security and Brazil’s competitiveness. This is not just an insurance industry issue, but a public policy one,” he said. In 2025, the insurer sold more than 1,700 subsidized policies totaling over R$500 million in insured value.

The National Confederation of Insurers (CNseg) sees a paradox: while planted area has expanded to about 97 million hectares, only around 3% currently has rural insurance coverage. There is a “structural mismatch between productivity and risk mitigation,” the group said.

Budget protection for the PSR had already been included in the LDO and vetoed in previous years, including 2025. Pedro Lupion, head of the Congressional Farm Caucus (FPA), called the veto “concerning” for the productive sector and criticized the government’s move.

Asked to comment, the Ministry of Agriculture said there are no pending budget obligations and that the plan for 2026 is to execute the full R$1.01 billion allocation. The projection is to serve 82,000 farmers, subsidize up to 130,000 policies, cover 7 million hectares, and insure R$48 billion in production.

Lawmakers can override the presidential veto in a joint session of Congress, requiring an absolute majority: 257 votes in the Lower House and 41 in the Senate, counted separately.

“Restoring PSR funding and strengthening rural insurance is a basic condition to ensure income, credit, and continuity of production. The 2026 agenda necessarily includes overturning the presidential veto in Congress,” Toyama said.

Source - https://valorinternational.globo.com