Brazil Rural Finance Policy Note

This policy note (PN) provides an analysis of the rural finance system in Brazil. The PN aims to inform policymaking on agriculture finance policies at a relevant time for the reform agenda. Its main objective is to provide recommendations on potential reform areas for agriculture finance, in order to: (a) enhance the targeting of public resources; (b) reduce the distortions caused by agricultural finance policies to the financial sector; and (c) crowd- in private sector financing for agriculture. A separate analytical piece is being conducted on decoupling agricultural production and deforestation, analyzing how credit impacts the rural economy, land use, and deforestation, complementing the current scope of this PN. The note is structured as follows: section one gives introduction. Section two gives a description of the structure of agriculture sector in Brazil highlighting the geographic and farm-size heterogeneities, as well as the challenges stemming from climate change. Section three discusses the sector’s access to finance and focuses on how regional and farm heterogeneities affect differences in access to credit. Section four, focuses on public policies aimed at supporting rural finance. Section five outlines, based on the previous analyses, policy recommendations for reforming agricultural finance.