Determinants of contractual arrangements in agricultural credit transactions

Abstract

Because of a reduction in the supply of subsidized agricultural credit in Brazil, the economic agents in the agro-industrial systems organized themselves to tie in credit and their buying and selling transactions with farmers. Different types of agreements appeared, characterized by different finance structures. In this study, the authors aimed at verifying the causal relation between the type of financing used by soy producers in Brazil and their possible determinants. Two arrangements were chosen for analysis: getting bank loans and getting loans tied to transactions with agro-industrial chain agents. The explanatory variables used were property size, guarantees provided and reputation, measured in terms of how long the relationship had existed for. As foreseen in the theory, results showed that property size is one of the determinants of credit transactions between farmers and agro-industrial chain agents. However, the relation with government banks and the guarantees did not turn out to be relevant elements for the analysis of the determinants in the choice of contractual arrangements for soy financing with agents of the agro-industrial system.