Rural Credit Policy in Brazil: Agriculture, Environmental Protection, and Economic Development

The report analyzes the Brazilian National Rural Credit System, highlighting its complexity and fragmentation. It provides empirical evidence that rural credit, particularly when directed to small farmers, increases land and labor productivity and reduces deforestation pressures by promoting the conversion of pasture to cropland. The document advocates for the integration of the Forest Code and the ABC Program into credit eligibility to foster sustainable agriculture and suggests reducing political interference and increasing private sector participation in rural finance.

• Brazil has the potential to nearly double its total agricultural production without further deforestation by converting pasture to cropland and increasing productivity on already cleared lands.
• Rural credit is the primary agricultural policy in Brazil; for the 2020/21 agricultural year, the government earmarked approximately R$ 236 billion, representing about 37% of the country's 2019 total agricultural production.
• The rural credit system is highly fragmented and complex, with 16 funding sources and 12 programs for the 2020/21 agricultural year, which hinders producers' financial decision-making.
• Empirical evidence from 2002-2018 shows that an increase of R$ 1 million in municipal rural credit leads to a R$ 521,305 increase in crop production and a net increase of 133 hectares in forested area, while decreasing pasture area by 157 hectares.
• The positive impacts of rural credit on agricultural intensification and reduced deforestation are most pronounced for small farmers (PRONAF), whereas credit for large landowners can lead to the 'Jevons paradox,' where increased productivity drives further land expansion and deforestation.
• The distribution of rural credit is heavily concentrated in a few institutions, with Banco do Brasil alone responsible for 43% of all credit provided in 2019/20.
• The use of the 'fiscal module' to determine credit eligibility is outdated and creates artificial distortions, as the module size varies by municipality regardless of modern productivity gains.
• The ABC Program, designed to reduce GHG emissions in agriculture, has seen limited success due to bureaucracy and unattractive interest rates, though loan amounts increased from R$ 1.13 billion in 2016/17 to R$ 2.06 billion in 2019/20.
• Conditioning rural credit on environmental compliance has proven effective; for example, CMN Resolution 3,545 led to a 15% reduction in deforestation in the Amazon between 2008 and 2011.
• Recent policy moves in the 2020/21 Plano Safra include a 10% increase in working capital credit limits for producers with a validated Rural Environmental Registry (CAR), with the Central Bank signaling a potential increase to 20%.

APA

Souza, P., Herschmann, S., & Assunção, J. (2020). Rural Credit Policy in Brazil: Agriculture, Environmental Protection, and Economic Development. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2020/12/REL-Rural-Credit-Policy-in-Brazil.pdf

Chicago

Souza, Priscila, Stela Herschmann, and Juliano Assunção. Rural Credit Policy in Brazil: Agriculture, Environmental Protection, and Economic Development. Climate Policy Initiative, 2020. https://www.climatepolicyinitiative.org/wp-content/uploads/2020/12/REL-Rural-Credit-Policy-in-Brazil.pdf.

Wikipedia

{{cite report |last1=Souza |first1=Priscila |last2=Herschmann |first2=Stela |last3=Assunção |first3=Juliano |title=Rural Credit Policy in Brazil: Agriculture, Environmental Protection, and Economic Development |publisher=Climate Policy Initiative |date=December 2020 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2020/12/REL-Rural-Credit-Policy-in-Brazil.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{souza2020rural, author = {Souza, Priscila and Herschmann, Stela and Assunção, Juliano}, title = {{Rural Credit Policy in Brazil: Agriculture, Environmental Protection, and Economic Development}}, institution = {Climate Policy Initiative}, year = {2020}, month = dec, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2020/12/REL-Rural-Credit-Policy-in-Brazil.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }