Brazil reporting a low total AMS for 2009/10 was no great surprise because market prices have been relatively high since 2008.  Those high prices reduce payments for crops with minimum price guarantees and the high value of the crop makes payments low as a percent of total value.  Also, Brazil has the 10 percent of value de minimis trigger compared to a 5 percent limit for developed countries.

According to reports from the U.S. Agricultural Attaches in Brazil, there are three main ongoing payment programs.  The Subsidy Auction Program (PEP) is similar to the U.S. loan deficiency payment program. The government pays the difference between the prevailing market price and the minimum price of the product.  Payments were made for edible beans, corn and wheat in 2009/10.

The Equalization Premium Paid to the Producer (PEPRO) is a premium granted to the farmer or cooperative which sells its products at public auction, where the government pays the difference between the reference value established by the government and the value of the premium.  All the cotton payments in 2009/10, $269 million, were made under this program.  Corn payments under the program were $38 million.

The Risk Premium for Private Option (PROP) is a price support program managed by CONAB, equivalent to the Commodity Credit Corporation of USDA, which is linked to the Ministry of Agriculture.  It represents the maximum amount that CONAB will pay to cooperatives and processors in order to guarantee a certain price to producers, which is above the market price.  About 15 percent of the soybeans produced in 2006 and 2007 where involved in one of the programs, but soybean producers have not received payments since then.

While direct government payments, except for cotton, were relatively small or nonexistent in 2009/10 and since then, that does not mean that farmers are just relying on market conditions.  Brazil has had a continuing problem of farmers with heavy debt loads from past years of borrowing to rapidly expand production and low incomes due to weather conditions.  Low-cost government lending and debt rescheduling shown with an AMS of $1.53 billion in 2009/10 affect every crop, including sugar and soybeans.  The Brazilian government of President Dilma Rouseff is expected to announce later this month a government credit program for 2013/14 with subsidized interest rates of 2.5 percent, down from 5.5 percent this year, and larger than this year’s program of $58 billion.

The 2009/10 total AMS subject to the amber box ceiling for Brazil is not a good indication of what the AMS could be in the future, just as the U.S. or any other country that has relatively low price and income guarantees at a time of high market prices.  Lower prices will occur, and the Brazilian government showed in 2006 and 2007 that they have the programs in place to buffer the adjustments that need to occur.  Brazil could very quickly develop AMS limit problems.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).

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