Brazil ups rates for subsidized farm machinery loan

A program of subsidized credit for new farm equipment set to expire in March was extended through year-end with higher interest rates, Brazil's state-run development bank BNDES said late on Thursday.

But despite the increase in rates, the farm equipment industry was optimistic that sales would be record in 2011. The Brazilian government is taking steps to slow credit growth and limit public expenses to try to curb inflation.

Rates for small and medium-sized companies rose to 6.5 percent a year, and to 8.7 percent for big companies, from 5.5 percent previously for all size firms, BNDES said.

However, they are still much lower than the central bank's benchmark interest rate, currently at 11.75 percent.

Known locally as PSI, the subsidized loan program was launched in 2009 to stimulate investments in the sector during the global financial crisis. It is seen as fundamental to supporting farm machinery sales.

High commodities prices and a bumper grains crop that should improve farmers' income this year will likely contribute to push sales of tractors and harvesters.

"This year we could top 2008's (record) 8.4 billion reais in sales," Jose Carlos Pedreira de Freitas, director of the farm equipment chamber at the association for the machinery industry Abimaq.

In 2010, sales totaled 7.5 billion reais, he said.

Abimaq's numbers do not include sales of big machinery. Makers of this kind of equipment had said in February they expected a year of "excellent" sales if the PSI was extended.

More than 80 percent of the sales of equipment accounted by Abimaq were made through the program in 2010, Freitas said.

[Source: Reuters, Sao Paulo, 04Mar11]

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