The new global situation after the pandemic and the war in Ukraine have resulted in greater demands not only for food, but for “traceable” food. After all, the consumer is no longer looking only for quality, but also for the provenance of the products and how they were produced (within a sustainable standard). The opportunity for Brazilian agribusiness is striking.
The rural producers who want to follow this positive trend of the domestic and international market needs to prepare themselves. And this preparation requires investment to expand and modernize their activities.
In this context, one of the noteworthy opportunities is the CRA (Certificate of Real Estate Receivables), which is the issuance of a credit security negotiable on the stock exchange, backed by agribusiness products.
It is undeniable that Agribusiness is gaining more and more space in the capital market. Given that state-subsidized credit is scarce and often possible only for the funding of the harvest, rural producers are more and more seeking alternatives to traditional bank loans.
Besides the investment funds specialized in the agribusiness sector, the more structured producers who want to raise funds from other origination, either for their expansion or modernization of their activities, can (and should) resort to the capital markets.
Due to some tax exemptions granted to CRA investors, these instruments are very attractive. And this is also good news for the rural producer, since it increases the supply of structured credit in the market.
More than 50 CRAs have already been issued in 2021, and the expectations are that this number will at least double by the end of the year. However, most of the CRAs’ backings are on agricultural products, with stock or land guarantees, which are collateral considered immobilized or easy to monitor.
The big novelty is the CRA backed by cattle, where the guarantee is over livestock. The main challenge in making this type of credit structure operational was precisely how to monitor a guarantee on cattle. Today, thanks to the technological revolutions that have occurred for the benefit of the field and the control tools that have been developed, it is possible to carry out socio-environmental monitoring of livestock. This has guaranteed the viability of the operation.
The cattle-backed CRA encompasses securities related to the production, commercialization, processing, and industrialization of bovine products.
The resources generated by acquiring this instrument should be used exclusively in livestock production, from the acquisition of inputs for the field, to animals and their feed, through operational and tax costs and modernization or purchase of machinery. In practice, the cattle breeder issues a debt security, whose guarantees can be anything from real estate, machinery and even the cattle itself, with the proper monitoring.
This debt with real guarantee will be, in turn, the backing for the CRA issue. This CRA should be securitized and distributed to its investors by a securitization company. The role of the securitization company is fundamental for the CRA issuance because it is responsible for the documentation, contracts, and investor relations.
It is also important to emphasize that the CRAs are under the “fiduciary regime” of the securitization company, i.e., the receivables are not linked to the assets of the issuer and cannot be responsible for any financial problems that the securitization company may have.
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The content of this article is merely informative and cannot be compared to a professional opinion on the subject addressed.
