Rural credit provides essential financing for Brazilian agribusiness, with the amounts of credit established annually in government plans corresponding to nearly 30% of the total value of agricultural production in the country¹.

Previous analyses by researchers from Climate Policy Initiative/Pontifical Catholic University of Rio de Janeiro (CPI/PUC-Rio) have highlighted the inefficiencies of rural credit in Brazil, evaluated the credit impact, and presented pathways for improving public policies. The empirical evidence suggests that rural credit increases agricultural production and productivity. With the increase of credit supply in municipalities, less productive activities are substituted for more productive ones, through the conversion of pastures to crop land. The intensification of production reduces deforestation pressures. This evaluation of rural credit has been
disaggregated into three important dimensions: lines of credit, types of producers, and types of loans.^2,3 Results show that the effects of rural credit in increasing agricultural productivity while reducing deforestation are more relevant for small producers than for large ones.

This work aims to deepen the understanding of rural credit impact, detailing the results by Brazilian biomes: Amazon, Cerrado, Pampas, Mata Atlântica, and Caatinga._⁴ The analysis also focuses on the type of product, comparing the impact of credit on grain production to other crops.

The impact of rural credit varies across Brazil’s different biomes given the diversity of native vegetation, agricultural production, crop potential, climate, and type of soil. While increases in credit supply generate higher agricultural production in most of the biomes, the effects that credit has on land use are larger in the Amazon and the Cerrado. For those two biomes, rural
credit boosts agricultural activity while reducing pressures driving deforestation.

MAIN FINDINGS

In the Amazon, the increase in rural credit leads to an expansion of crop area and a reduction of pasture area. The net effect is a reduction of the total agricultural area, alleviating deforestation pressures. Therefore, the availability of credit results in larger areas of native forest. While credit leads to an increase in agricultural production, it also causes a decrease in crop productivity,
possibly due to an expansion in lands less suitable for cultivation or with worse technology and production infrastructure. Analysis of cattle shows an increase in head of cattle, despite the reduction of pasture area. Consequently, there is an increase in cattle productivity.

In the Cerrado, the effects of increased credit on land use are similar to those observed in the Amazon biome: more rural credit is associated with the expansion of crop area over pasture. The net effect is a reduction in agricultural area and, thereby, less deforestation pressure on native vegetation.⁵ While there is an expansion of crop production, the crop productivity remains
the same. This could indicate that farming in the Cerrado already operates with well-developed and highly productive techniques and conditions. Regarding cattle, the analysis shows a relevant increase in productivity as a response to the increase in rural credit.

In the Mata Atlântica, results show that increases in rural credit lead to a reduction in crop area and an increase in planted forests. They do not show significant effects on crop production, but there are increases in cattle and land productivity.

In the Pampas, evidence indicates that rural credit leads to an expansion in crop area, with no significant changes in pasture area. There is an increase in crop productivity and production, but no significant effects for cattle.

In the Caatinga, the increase in credit is associated with a reduction in pasture area and increases in crop and cattle productivity.

In comparison with the Amazon and the Cerrado, credit has a more limited impact on land use in the Mata Atlântica, Pampas, and Caatinga biomes. Nevertheless, in those last three biomes, rural credit is associated with increases in crop productivity.

The results also show that the effect of credit differs by the type of product. In municipalities with greater credit supply, grains have substantially larger increases in production and productivity compared to other crops. Between 2002 and 2018, grains experienced a boom and, therefore, were an attractive option for the credit resources at the municipality level.

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[1] The country’s total agricultural production in 2019 was R$ 631 billion (Ministério da Agricultura, Pecuária e Abastecimento. 2020. Available at: bit.ly/2IK3NSG) and for the 2019/20 agricultural year, the government earmarked R$ 223 billion for the rural credit. Of this amount, R$ 191 billion were actually borrowed under different credit lines (Rural Credit Data Matrix, Brazilian Central Bank).
[2] Assunção, Juliano and Priscila Souza. The Impact of Rural Credit on Brazilian Agriculture and the Environment. 2019. Available at: bit.ly/3mqCg6s.
[3] Assunção, Juliano and Priscila Souza. The Impacts of Rural Credit on Agricultural Outcomes and Land Use: an Analysis by Credit Lines, Producer Types and Credit Uses. 2020. Available at: bit.ly/3p5aIFg.
[4] Estimates of credit impact for the Pantanal biome were also made, but statistically significant results were not found, given that the econometric analysis is at the municipality level and the Pantanal only covers nine municipalities.
[5] Native vegetation is defined in this work as corresponding to the category “forests” in MapBiomas (MapBiomas v.5.0. 2020. Available at: plataforma.mapbiomas.org), which includes: natural forests (divided in forest formation, savanna formation, and mangrove) and forest plantation. Other natural formations such as flooded grassland, swamped area, grassland, salt flat, and rocky outcrop are not included in the definition of native vegetation in our analysis.