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Rural Credit Advances Make Way to Additional In-Field Sustainability

In recent days, important advances have been announced in the Brazilian rural credit, which may accelerate the adaptation to the Forest Code and the adoption of low carbon technologies in agriculture. The changes have already been incorporated in the Rural Credit Manual and are effective for all financial institutions since July 6, 2020.

One of the incentives to the Forest Code is the Brazilian Central Bank Rule N. 4824, which on June 18 set out the increased defrayal credit limit by up to 10% for producers who submit the validated Rural Environmental Register (CAR).

When the CAR registration became mandatory for granting credit (Rule N. 4663, valid as of 01/01/2019, except for some producer profiles, and Resolution 4828, valid as of 07/01/2020, without exceptions), there was a great incentive to register rural properties. For this reason, when requiring the CAR validated for the extension of the credit limit, an incentive to state agendas to advance this important stage of validation of registrations is created, so that we take another step forward in the implementation of the Forest Code. It is also a sign of alignment between the allocation of public resources and the interests of society.

Still in line with the Forest Code, whose article 41 encourages environmental adequacy and the adoption of good agricultural practices, the 2020/2021 Safra Plan, announced on June 17, brought relevant changes and encouragement.

Even in a pandemic scenario, there was an increase of 20% in the resources allocated to the ABC Program, the main support line for low carbon agriculture and for the adoption of good practices in the field. The reduced interest rate (Rule N. 4827) is another indication of this Program’s differentiation, whose rates are second only to Pronaf (National Agriculture Support Program), aimed at small producers.

In addition, ABC Ambiental now also allows to finance the acquisition of Environmental Reserve Quotas (CRA) (Rules N. 4824 and 4827) to offset Legal Reserve areas. This measure can be one of the main bases for a market for Payments for Environmental Services in Brazil, encouraging preservation by owners with of forest surpluses and paying for this great contribution to society.

Such advances in rural credit are the result of a long history of dialogue between the Ministries of Economy and Agriculture with society as they heard suggestions on how to improve these tools. The Brazilian Coalition on Climate, Forest and Agriculture recognizes and congratulates the teams and leaders of these ministries for the changes, which had contributions from the movement’s network, composed of 200+ representatives of agribusiness, civil society, financial sector and academia.

There are still major challenges for rural credit to continue moving towards sustainability. Financial institutions need to recognize the importance of the Forest Code in their risk assessment even more. This recognition can encourage the large-scale adoption of more sustainable agricultural practices, in order to contribute to the mitigation and adaptation to climate changes and to reduce the risk of investments. In addition, enabling technical assistance and rural extension to producers can boost investment credit taking.

It is important to remember, however, that nearly 70% of the total agribusiness credit in 2019 was contributed by the private sector and by capital from the rural producers themselves. The engagement and concern of private investors with the climate, forestry and agriculture agenda is key and has been growing.

For this reason, public and private credit policies need continuous improvement to ensure that all financing in Brazil complies with environmental legislation and induces sustainable land use. In this sense, rural properties that have illegal deforestation after 2008 should not access funds provided by the Safra Plan. The Brazilian Coalition will continue to be available to the government and society in order to improve these tools and gather the necessary efforts for their implementation.

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