Increase in credit volume boosts agribusiness production

According to research conducted by Rivool Finance, a web3 fintech, over three years, a 10% increase in the total volume of credit directly contributed to a 1.8% increase in agribusiness production. This equates to a 4.88% growth in production in response to a standard deviation in total credit, clearly demonstrating the stimulating effect of credit on the sector. The findings highlight the critical role that credit availability plays in driving agricultural production growth, underscoring the importance of financial support for the sector's sustainable development.

The analysis covered 4,618 municipalities from 2013 to 2021 and employed econometric methods, specifically using a Vector Autoregression model with panel data, to explore the relationship between credit expansion and agricultural production growth.

Rivool’s study examined different types of credit (working capital, investment, commercialization, and industrialization), noting that the increase in investment-related credit volume was responsible for approximately 0.7% of the observed agricultural production growth. The other credit types did not show statistically significant impacts.

The research is part of Rivool Finance’s Market Review and was led by Cristiano Oliveira, Head of Research at Rivool Finance and professor at the Federal University of Rio Grande. “We are witnessing a significant change in the landscape of Brazilian agribusiness. Historically, rural credit resources in Brazil largely came from the public budget, through constitutional funds, and primarily from directed resources from demand deposits and rural savings accounts. Public budget constraints and limited resources available in traditional financial institutions began to pose serious challenges to the sector’s dynamics and expansion capacity,” says Oliveira.

In response to this challenge, Brazil has implemented vital legislative changes, enacting Law 13.986/2020 and Law 14.421/2022, known as Agro 1 and Agro 2, respectively. Based on Rivool’s study, it is evident that these laws mark a turning point in the history of rural credit in the country, establishing a new paradigm in agribusiness financing. The impact of these laws has been significant, allowing the sector to continue its expansion trajectory in line with growing global demand.

These changes, combined with the ability to securitize receivables in foreign currency brought by Law 13.986/2020 and the creation of Fiagro by Law 14.130/2021, effectively opened Brazilian agribusiness to national and international capital markets. The new reality is reflected in the numbers. Since the enactment of Agro 1 in 2020, CPR volumes have more than doubled in just three years, while other assets backed by CPRs, especially financial assets, have also seen significant growth during this period.

Agribusiness represents about a quarter of Brazil's GDP, approximately R$2.6 trillion. There is still a substantial demand for resources across all stages of production, as well as for investments in areas such as storage and pasture recovery, which will allow the expansion of the agricultural frontier without the need to use native forests or woodlands. This contributes to the sustainable development of both the sector and the country.

In the short term, it is possible to envision a scenario where funds that pool resources from various investors to invest in agribusiness-related assets, whether in rural properties or sector activities, will take center stage due to their ability to attract national and international investors who are not deeply familiar with how Brazilian agribusiness works. Additionally, fintechs can help reduce the existing information asymmetries, thus making this market increasingly democratic for rural producers and investors.