FINANCIAL CHALLENGES AND PROPOSALS FOR SUSTAINABLE PRODUCTION IN BRAZIL

This technical report by the Climate Policy Initiative analyzes the intersection of rural credit and environmental protection in Brazil. It argues that while Brazil has successfully modernized its agriculture and reduced deforestation, the current financial system is overly complex, dominated by public banks, and lacks sufficient risk management tools. The authors propose a phased transition to align financial incentives with the 2012 Forest Code, increase private sector participation, and shift public subsidies toward the provision of public goods and insurance instruments.

• Brazil's agricultural modernization, particularly the conversion of pasture to cropland in the Cerrado, has reduced deforestation pressure but increased the need for investment and risk management. The transition to crops makes production more susceptible to pests and climate variations compared to the more resilient nature of extensive livestock farming.
• The Brazilian rural credit system is characterized by high complexity and unpredictability, featuring over 25 overlapping programs and annual planning cycles. This design creates artificial variations in resource availability and makes the system susceptible to political interference.
• Rural credit distribution is heavily concentrated in public institutions, specifically Banco do Brasil, Banco da Amazônia, and Banco do Nordeste. The report suggests that increasing private bank participation would improve efficiency and innovation, noting that public subsidies could be distributed via private actors who bear the operational risks.
• The 2012 Forest Code establishes Legal Forest Reserves (ranging from 20% to 80% of property area) and Permanent Areas of Preservation (APP) to protect native vegetation. The report argues that rural credit should be used as an incentive for compliance, as environmental preservation constitutes a 'public good' that justifies the use of public subsidies.
• Brazil's risk management tools are underdeveloped compared to the United States. While credit funds approximately 40% of the harvest, insurance programs like the Rural Insurance Premium Subsidies Program (PSR) have limited reach, covering only 6% of the total planted area and 2.5% of national agricultural revenue as of 2017.
• The report proposes a three-tiered reform agenda: short-term expansion of credit limits for producers complying with the Forest Code; medium-term simplification of programs and extension of planning horizons to 3-5 years; and long-term development of insurance and derivatives to replace direct credit subsidies.

APA

Assunção, J., & Souza, P. (2018). FINANCIAL CHALLENGES AND PROPOSALS FOR SUSTAINABLE PRODUCTION IN BRAZIL. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2019/02/Financial-Challenges-and-Proposals-EN.pdf

Chicago

Assunção, Juliano, and Priscila Souza. FINANCIAL CHALLENGES AND PROPOSALS FOR SUSTAINABLE PRODUCTION IN BRAZIL. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2019/02/Financial-Challenges-and-Proposals-EN.pdf.

Wikipedia

{{cite report |last1=Assunção |first1=Juliano |last2=Souza |first2=Priscila |title=FINANCIAL CHALLENGES AND PROPOSALS FOR SUSTAINABLE PRODUCTION IN BRAZIL |publisher=Climate Policy Initiative |date=December 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2019/02/Financial-Challenges-and-Proposals-EN.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{assuno2018financial, author = {Assunção, Juliano and Souza, Priscila}, title = {{FINANCIAL CHALLENGES AND PROPOSALS FOR SUSTAINABLE PRODUCTION IN BRAZIL}}, institution = {Climate Policy Initiative}, year = {2018}, month = dec, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2019/02/Financial-Challenges-and-Proposals-EN.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }