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Public policies and the financingof coffee production in Brazil

International Coffee Organization - ICO

London, 21 September 2010

The Coffee Agroindustrial Systemin Brazil - Overview

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• Number of establishments:287,000 in 1,850 municipalities;

‘Cafés do Brasil’

, , p ;

• 42 cooperatives, of which 30 are solely for coffee (33% of production);

• Roasters: 1,336;

• Soluble coffee industries: 9;

• Brands: 3,000;

• Exporting companies: 220.

Brazilian coffee growing and its social significance in absorbing rural labour

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Distribution of Arabica and Robusta coffees in Brazil

Brazil: establishments with more than 50 Arabica and Robusta coffee trees as at 31.12.2006.

Prod.

Total (%) Total (%) Total (%) Average

220 554 76.89 751 670 37.13 13,829,304 35.15 18.40

18 306 6.38 276 099 13.64 5,109,256 12.99 18.51

9 813 3.42 322 856 15.95 6,793,175 17.27 21.04

2 781 0.97 206 170 10.19 4,736,613 12.04 22.97

1 656 0.58 352 408 17.41 8,877,584 22.56 25.19

HectaresNº of establishments Area planted (ha) Production

0 a 10

10 a 20

20 a 50

50 a 100

> 100

33 733 11.76 114 969 5.68 0 0.00

286 843 100.00 2 024 172 100.00 39,345,932 100.00

Undeclared

Total

Coffee: Changes in volume of Brazilian crop(Conab, 2010)

18.9

34.027.2

31.1 31.3

48.5

28.8

39.232.9

42.536.1

45.939.4

47.3

0.0

10.0

20.030.0

40.0

50.0

60.0

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Brazil: Changes in area planted to coffee

(in million hectares)

2.8

2.92.9

3.1

2.7

2.5

2.3

2.1

1.9 1.92.0

2.22.3

2.2 2.2 2.2 2.2 2.2 2.2

1.9

2.4

2.4

1.7

1.9

2.1

2.3

2.5

2.7

1.5

Area - in million hectaresSource: Conab, 2009

Coffee: Annual changes in volume of Brazilian exports and export earnings

30.0

35.0

4.0

4.5

5.0

0.0

5.0

10.0

15.0

20.0

25.0

volu

me

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

earn

ing

s

Source: Mdic, 2009

Volume in millions of 60-kg bags Earnings - in billion US$

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Rural Credit. Amount of credit granted – in billion US$(Bacen, 2010)

44.13

4045

50

16.0919.78

22.2725.44

32.07

1015

2025

3035

40

-5

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2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

LEADING BRAZILIAN AGRICULTURAL PRODUCTSGROSS VALUE OF PRODUCTION

(APRIL 2010 PRICES)

Pork3.23%

Beans1.81% Rice

2.99%

Coffee5.35%

f

Others17.56%

5.35%Poultry8.91%

Milk7.87%

Maize6.13%

Beef17.35%

Source: CNA

Sugar cane11.6%

Soybean17.54%

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Share of coffee in Brazilian crop production – 2010(in thousand tonnes)

Others*816

Wheat5,369

Rice11,320

Beans3,305

Coffee2,793

Maize54,797

Soybean68,674

Source: LSPA/IBGE, Sept/2010Preparation: AGE/MAPA

Percentage share of coffee in Brazilian crop production - 2010(in %)

Others*1%

Wheat4%

Rice8%

Beans

Coffee2%

Maize37%

Soybean

46%

2%

Source: LSPA/IBGE, Sept/2010Preparation: AGE/MAPA/

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Cafés do Brasil – Sources of production financing

Main CR sources:

Compulsory resources RO financial institutions must invest 25%Compulsory resources – RO – financial institutions must invest 25%of demand deposits in rural credit operations;

Rural Savings – 65% of the value of rural savings deposits must bekept in investment by financial institutions;

Official Credit Operations – OOC – resources supervised by the MF;Free Resources – owned by the financial institutions, invested atmarket rates.

Coffee Economy Defence Fund (Funcafé)

Financing of coffee growing in Brazil – legal investment possibilities:

• establishment of regulatory stocks;

• coffee growing rationalization and assistance;

technological research studies and analyses of Brazilian coffee growing;• technological research, studies and analyses of Brazilian coffee growing;

• international technical and financial cooperation;

• assimilation of new cultivation and coffee processing techniques in small

and medium coffee farms;

• promotion of cooperativism in coffee growing;

• support for development of roasting and grinding and soluble coffeepp p g g g

industries;

• promotion and advertising in internal and external markets.

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Treasury resources: 0.55%

FUNCAFE: 2.23%

Other sources: 4.37%

Financing granted to producers and cooperativesby source of funds - 2009

Compulsory funding: 48.30%

Rural savings: 26.05%

Free resources: 4.20%

Constitutional funds 7.27%

BNDES/FINAME: 7.02%

Financing granted to producers and cooperativesby source of funds - 2010

Other sources: 3.75%

FUNCAFE: 1 74%

Compulsory funding

51.29%

Free resources: 2.22%

Constitutional funds7.66%

BNDES/FINAME: 7.82%

Treasury resources 0.19%

FUNCAFE: 1.74%

Rural savings: 25.32%

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Source: BACEN – Preparation: SPA/DEAGRI/CGAE

CottonOthers

RURAL CREDIT – Marketing arrangements (2009)by crop

8% Rice15%

Coffee13%

Sugar cane9%

Maize20%

Soybean3%

Wheat14%

Others18%

Source: BACEN – Preparation: SPA/DEAGRI/CGAE

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Coffee Economy Defence Fund (Funcafé)

Funcafé: Lines of credit. Basic conditions

• Budget 2010 – funding lines: US$1.5 billion

• Operational risks for funding institutions

• Financial charges: 6.75% p.a. (not applicable to all sources of rural credit).

Repayments to funding institutions: 4.5% p.a.

Repayments to the Fund: 2.25%

• Lines of credit and beneficiaries:

Costing, harvesting and warehousing - rural producers, producer cooperatives

Financing for coffee purchasing – FAC - roasters, processors and exporters

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Funcafé – annual amount of funding resources passed on to financial agents2001-2009

1,193,390,6521,200,000,000

1,400,000,000

301,824,141

135,496,865

280,775,600

512,900,827

809,580,822863,896,867

825,491,031

49 778 761200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

In U

S$

49,778,761

0

2001 2002 2003 2004 2005 2006 2007 2008 2009

AnoSource: MAPA/SPAE/DCAF

Funcafé – financing of coffee crop

Credit line objective:

‘To finance cultivation costs involved in coffee growing, such as fertilizers, crop protection products, labour and operation of machinery.’

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Funcafé – financing costsof coffee harvest

Objective:

‘To finance inputs used for harvesting, such as herbicides, cultural practices, transportation to drying patio, drying and labour.’

Funcafé – financing warehousing of coffee crop

Objective :

‘To provide rural producers and agricultural cooperatives with financial conditions that will enable them to warehouse their coffee during periods of low prices in the internal and external markets.’

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Funcafé – Coffee purchasing by the domestic agro-industry – FAC

• To finance purchasing of green coffee byroasters, processors and exporters.

• Objectives of this line ofcredit:

• Prices paid for coffee purchased in theseoperations, must be equal to or higher than theminimum fixed prices set by the Government.

2010 Crop - Distribution of financial resources in Funcafé credit lines

• Costing: US$182 million

• Harvesting: US$303 million

• Warehousing: US$546 million

• FAC: US$182 million

Total: US$1.2 billion

Resolution CMN nº 3.855/10

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National Programme for Strengthening Family Agriculture (PRONAF)

• Resources destined exclusively to individual or collective projects of settledagrarian reform family farmers.

• Gross annual income of family farmers should be up to US$63.4 thousand.

• Financial support for both agricultural/livestock activities and non-agricultural/livestock activities carried out through direct employmentof rural producer family labourof rural producer family labour.

• Non-agricultural and livestock activities envisaged: rural tourism, crafts,family agro-business and services compatible with the nature of ruralactivities and making the best use of family labour.

PRONAF – Annual funding amounts - in US$

(1999 - 2008)

5,882,430,6706,000,000,000

7,000,000,000

1,458,752,632

2,095,629,014

3,125,792,191

3,876,150,395

4,658,753,086

1,185,917,644931,447,874

1,184,835,662

813,523,8481,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

In U

S$

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

AnoSource: SFA/MDA

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Ministry of Agriculture, Livestock and Food SuppliesProduction and Agro-energy Secretariatg gy

Gerardo Fontelles – Executive Secretary