Do you know what a FIAGRO is and how it works?
Any Brazilian knows how important agribusiness is for our country’s economy. In 2021, the sector’s exports moved about US$ 120 billion. Naturally, a sector that moves such high figures needs equally high levels of investments. From the acquisition of machinery to the financing of the harvest, the acquisition or preparation of the soil for farming or breeding, everything requires considerable amounts. To cope with this need, one has to resort to credit. This credit can come from either public or private institutions.
In order to meet the market’s demands, the Brazilian Securities and Exchange Commission (CVM) regulated in 2021 the FIAGRO, which stands for ‘Fundos de Investimento nas Cadeias Produtivas da AgroindústriaI’ (Investment Funds in Agribusiness Productive Chains).
Let’s understand better how this type of financing works.
What is a FIAGRO?
The FIAGRO is a new type of investment fund, similar to real estate funds which are already listed in large numbers in the stock market with excellent fundraising results.
What is the advantage of the FIAGRO?
One of the main attractions of the FIAGRO is the existence of tax incentives benefiting to its investors, especially if they are individuals, with an income tax exemption on the profits distributed by the fund.
In return for these tax benefits, the resources originated through a FIAGRO must be used to promote activities directly related to agribusiness and/or investments in rural properties.
What financial assets back a FIAGRO?
Several assets can compose a FIAGRO, with a highlight on the Certificates of Agribusiness Receivables (CRA), which are credit titles of easy and free negotiation in the capital market.
There are three categories of FIAGRO, depending on the assets that compose them:
- Fiagro-FIDC (Credit Rights Investment Fund): backed by credit rights and lower volatility. They are regulated by CVM Instruction 356;
- Fiagro-FII (Real Estate Investment Fund): can be based on the crop and backed by commodities (indexed to the US dollar). Therefore, they have higher volatility and appreciation in the long term. They are regulated by CVM Instruction 472;
- Fiagro-FIP (Investment Fund in Participation): can be based on the crop and pegged to commodities (indexed to the dollar). Therefore, they have higher volatility and appreciation in the long term as well. They are regulated by CVM Instruction 578.
Who manages a FIAGRO?
Just like the other types of investment funds that operate in Brazil, a FIAGRO is administered by a private agent, which has its duties strictly inspected by the CVM. Even the administration is subject to administrative sanctions if poorly executed.
Each FIAGRO must have its own regulation, where the specific rules on corporate governance and criteria for the application of the fund’s resources (including ESG, for example) are to be included.
The FIAGRO fills a market need
It is becoming clearer every day that state support for the sector is insufficient of its own, given the sector’s magnitude. Thus, it is essential to seek private resources for financing purposes.
The creation of FIAGRO, with its advantages and characteristics, already makes it much easier to raise funds in a safe and easy way for the sector.
This article has a merely informative content and is not equivalent to legal or financial consultation.
