(Bloomberg) — A boom in Brazil’s agriculture sector sparked a rush of investments, with the $7 billion market for agribusiness funds luring people from all walks of life in the past three years.
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But with bumper crops across the globe sending prices plunging and Brazilian farmers filing for bankruptcy at alarming rates, the retail investor is paying the price.
It’s a sobering reminder of market risks to investors who have been bombarded with messages on national television promoting agriculture as hip and cool, and even music that celebrates the success of the sector. Many poured cash into newly created instruments to fund agribusiness, lured by the promise of high returns.
Now industry executives are worried the new source of revenue could soon dry up, and authorities are caught in the dilemma of how to keep credit accessible to farmers without harming investments.
“An issue that was once contained within the industry has extrapolated to the non-professional investor, to the investor who makes their investment, their savings, their retirement,” Fabiana Alves, chief executive officer of Rabobank in Brazil, said in an interview at Bloomberg New Economy at B20 in Sao Paulo last month.
It all started when financiers in Faria Lima, as Brazil’s Wall Street is known, found an innovative way to finance Brazil’s giant agriculture expansion. They created the so-called Fiagros, investment funds backed by agricultural receivables such as interest, dividends and land-lease payments.
That was a shift from the past, when the sector was mainly financed by the state. Farmers had access to subsidized credit lines offered by the government, but that wasn’t enough to fuel an industry responsible for almost a quarter of the nation’s economy.
Expanding Market
The market soon expanded to professionals such as Rabobank, and in the past three years it’s been opened to retail investors.
“We are gradually freeing the Treasury,” said Agriculture Minister Carlos Fávaro. The expansion of new mechanisms like the Fiagros allows the government to focus on financing small-size farmers instead of having to support large producers as well, he added.
Farming is already extremely popular in Brazil, with a recent survey by marketing group ABMRA showing about 68% of people in the country admire businesses in agriculture. Soap operas and music praise life in the countryside. That has lured some Gen Z heirs to take over agribusiness companies, and made it easier for investment banks and brokerage firms to sell agriculture notes and funds to everyday investors.
