When it comes to sugar production, Brazil is the big, bad bully on the block.
Using at least $2.5 billion a year in subsidies and other government goodies, Brazil has staked claim to nearly half of the world’s sugar exports. And with that kind of market dominance, Brazil has an unparalleled impact on world sugar prices, which might help explain the huge price peaks and valleys in recent years.
Apparently, $2.5 billion a year isn’t enough. According to a Jan. 16 report from Reuters:
Brazil will increase a subsidized credit line available to farmers to prepare for the 2017-2018 crop by about one-fifth to 12 billion reais ($3.72 billion), President Michel Temer told Reuters on Monday.
The new crop financing will allow Brazilian producers to purchase agricultural inputs such as seeds, fertilizers and pesticides at reduced interest rates to better plan future production.
Last year, the government made 10 billion reais available to prepare for the 2016-2017 crop, which is on track to break records.
Here’s how the subsidy works.
The state-controlled Banco do Brasil offers agricultural producers preferential interest rates on operating loans. The government then makes up the difference between the low loan rate and the bank’s cost for raising the capital – in essence shielding sugar producers from inflation and helping them remain atop their perch as the world’s top producer and exporter.
And if Brazil decides to take a page out of India’s playbook, don’t be surprised if repayment of the subsidized loans is altogether forgiven, enabling it to shoot subsidy checks directly to growers grappling with Brazil’s economic downturn.