Agriculture Ministry wants to discuss with the government’s economic team a proposal to lower interest rates on operating loans for farmers who purchase insurance policies.
Brazil’s Agriculture Ministry is expected to propose that the government’s economic team offer lower rural credit interest rates to farmers who purchase crop insurance. The proposal would reduce interest rates by up to one percentage point on government-controlled operating loans under the 2026/27 Crop Plan.
The measure is intended to encourage farmers to insure their crops in a year expected to be affected by the El Niño climate pattern. However, it faces hurdles including limited budget resources for premium subsidies and the cost of funding additional interest rate subsidies.
The Treasury’s 2026 budget for subsidizing rural credit interest rates, including outstanding loans from previous years, exceeds R$18 billion. The Agriculture Ministry has not yet released estimates of the fiscal cost of the proposed discount for insured producers.
Under the proposal, farmers would qualify for lower financing costs if they purchase insurance policies covering the main weather-related risks affecting their region and crop. In addition, the policy would have to insure at least the full value of the operating costs financed through the loan.
A similar interest rate reduction is already available to producers with a validated Rural Environmental Registry (CAR), although the program’s reach remains limited. Eligible farmers receive a 0.5-percentage-point reduction on interest rates for government-controlled operating loans.
Market participants have also suggested other ways to encourage insurance uptake through rural credit. One proposal is to grant a repayment bonus to farmers who stay current on their loan installments and maintain crop insurance. Private-sector sources say this model would be easier for lenders to implement.
Agricultural Policy Secretary Guilherme Campos said he supports introducing the interest rate discount as early as the next crop season, though he did not provide details. He stressed that crop insurance must be handled in a “realistic” and stable manner to preserve insurers’ interest in the market and expand the area covered by insurance.
Bill 2951/2024, introduced by Senator Tereza Cristina (Progressive Party, PP, of Mato Grosso do Sul) and still under consideration in the Senate, would make federal spending on crop insurance mandatory in the budget. The government’s economic team opposes the proposal, arguing that it would reduce budget flexibility.
Campos disagrees. “Budget rigidity is when there is a mandatory allocation, such as for healthcare or education, requiring a percentage of the budget. What is being proposed here is that, once the amount for crop insurance is defined, those funds must be executed and not be subject to contingency measures, freezes, cuts, or cancellations,” he said. “If they decide there will be nothing [allocated], then there will be nothing. The government will retain the discretion to decide the amount,” he added.
The Agriculture Ministry has not ruled out making crop insurance mandatory for access to subsidized rural credit, although that would require legislative changes. The proposal faces resistance from farm groups. Bill 2951/2024 does not mandate insurance but instead provides incentives for producers who purchase policies.
The initial 2026 budget for the crop insurance premium subsidy program was R$1.01 billion. After cuts earlier this year, it was reduced to R$998 million. Following a further R$461.7 million budget freeze announced earlier this month, available funding now stands at just over R$530 million.
“The market cannot develop without predictability,” Campos said.
Source - https://valorinternational.globo.com
