For a country that is a leading exponent of agricultural trade liberalisation, Brazil certainly believes in protecting its farmers. What is remarkable is not only the scale of agricultural support but also that it mostly slips under the radar as Brazil, employing its self-designation as a developing country, can use the developing country exceptions built into the WTO to shield its agricultural support.

The amount of agricultural support
Brazil told the WTO¹ that the amount allocated to the 2008/09 Agricultural and Livestock Plan was R$65 billion (equivalent to US$38 billion). For 2007, the WTO summarised² the principal Brazilian support programmes as being:

Rural credit: R$51.2 bn (US$28.4 bn)
Financing of specific agricultural activities (e.g. purchase and maintenance of farm machinery at preferential rates): R$3.6 bn (US$2 bn)
Programmes to strengthen family farming: R$8.4 bn (US$4.7 bn)
Policy of Guaranteed Minimum Prices: R$2.1 bn ($US1.2 bn)

The major part of the support is given through the rural credit programmes as otherwise farmers would have difficulty in obtaining credit. The OECD³ estimates that rural credit alone is equivalent to one quarter of gross agricultural output.

The rural credit programmes work by granting subsidised interest rates—3% for small and family farmers—and a general agricultural credit rate of 6.75%⁴ which, in mid-2008, was about half the inter-bank rate on government bonds⁵ and compared with average lending rates⁶ of 39%.

Unlike in the EU or the US, direct commodity price support has historically played a small part in Brazil, although it is now increasing.

Loans not paid back
Because of Brazil's generally high interest rates, it is clear that without government subsidization of agricultural, credit farming would be heavily affected. But even with subsidized interest rates, there is a long history of non-repayment and eventual government debt write-offs. The OECD has summarised⁷ the 2008 debt settlement package, which the government introduced because of rising rural debt, with a fifth of loans overdue. The package involves lower interest rates on debt, discounts of up to 45% for early repayment of debt (both outstanding and coming due debt) and also extended repayment terms. This new package follows two previous debt packages in the last 15 years.

Low declared support levels
Brazil does not have high support levels in the WTO, despite the two-thirds rise in agricultural credit spending between 2003 and 2007 and the size of its current programmes, even though the WTO regards⁸ these as distorting forms of support.

Firstly, the subsidy element in credit programmes is the difference between a normal credit rate and the subsidised rate, not the whole amount of the credit. The OECD estimated that the subsidy element of the rural credit scheme was US$1.6 bn in 2005. Since then spending has risen while the subsidized credit rate has been cut, so the subsidy element will now be significantly larger. The other factor is how much of the debt will be repaid? So long as the debt is not written-off, Brazil does not have to include it in the support numbers.

The more fundamental answer, however, is that because of its self-designated status in the WTO as a developing country, Brazil is able to exclude most of its support from its AMS calculation. The point is that developing countries are allowed to ignore trade distorting agricultural support up to the value of 10%⁹ of agricultural production on de minimis grounds,¹⁰ which is what Brazil does.

Furthermore, the WTO allows developing countries to omit agricultural input and investment subsidies from their domestic support calculations¹¹. Brazil does this also, calling them development programmes.

Conclusions

• Brazil has very large agricultural support programmes
• Without this support, Brazilian agriculture would be in severe difficulties
• Yet because of the way the support is given and because of its self-designated status as a developing country, most of Brazil's support escapes WTO disciplines

About the author: Simon Harris is an England-based agricultural consultant who helps represent sugar producers in the EU.

1. WTO, Committee on Agriculture, Minutes of meeting on 12 March 2009, G/AG/R/54, para 27
2. WTO, Trade Policy Review Brazil, WT/TPR/S/212, 2 February 2009, p. 99
3. OECD, Agricultural policies in emerging economies Monitoring and evaluation 2009, p. 51
4. Cut 2 percent points in 2007/08
5. The SELIC rate
6. WTO, Trade Policy Review Brazil, WT/TPR/S/212, 2 February 2009, p. 7
7. OECD, Agricultural policies in emerging economies Monitoring and evaluation 2009, p. 53
8. WTO, Trade Policy Review Brazil, WT/TPR/S/212, 2 February 2009, p. xiv
9. As against only 5% in developed countries
10. Uruguay Round Agriculture Agreement, 1994, Article 6, para 4 (b)
11. Uruguay Round Agriculture Agreement, 1994, Article 6, para 2

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