The agricultural sector is no longer a complete stranger to the capital market. Financing the sector via financial instruments, such as investment funds in agro-industrial chains (Fiagros) and agribusiness receivables certificates (CRA), . But it is far from being enough to reduce dependence on resources subsidized by the government and live up to the size of the segment, responsible for around a quarter of the Brazilian Gross Domestic Product (GDP).
Capital market securities meet less than 20% of agricultural credit demand, he highlights Octaciano Netorecognized as one of the greatest experts in the sector at Faria Lima. “We have less than 1 million investors, in Brazil, investing in classic agricultural securities in the capital market”, he states, comparing the number with the number of investors in real estate funds – more than double. “The construction industry accounts for 8% of GDP, a third of agriculture”, he explains.
Former secretary of agriculture of Espírito Santo during one of the terms of Paulo Hartung’s government, Octaciano spent the last two years as director of agribusiness at Suno, in . He recently left to launch his own consultancy, Avrawith the aim of bringing smaller companies, still very far from the capital market, onto the investor’s radar.
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Lack of options on the market
“There is an important challenge of lack of assets”, says the executive. This, in fact, would have been the reason why so many Fiagros suffered due to the financial problems of Agrogalaxy (), which recently went into judicial recovery. “There was a lot of funds with this stock and that happens because there are few assets.” Meanwhile, according to Octaciano, there are healthy and profitable operations that do not pass through Faria Lima. And these are what Avra wants to take to the table of bond issuers.
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“There are businesspeople, rural producers, who do not have audited results or even report balance sheets, because they operate as individuals. But they work with spectacular margins”, says the executive. “In agriculture, risk analysis cannot be based solely on governance or an audited balance sheet. I’m not saying it’s not relevant, but it’s an insufficient anchor to analyze the sector. I need to look at the operation.”
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Union of forces
To get Avra on its feet, Octaciano teamed up with Amanda Coura, who also served as Suno’s director. SP Ventures, manager of venture capital specialized in agribusiness, she also joined the consultancy as a minority partner. And in an unprecedented way, investing money from its own cash flow, instead of contributing via funds, as it usually does with its investments. At Avra, SP Ventures is a co-founder.
“We are not going to work on the business, but we enter as shareholders, supporting from scratch”, explains Francisco Jardim, founding partner of SP Ventures. The manager, who has some fintechs of agriculture in its portfolio, assesses that the agricultural credit market is undergoing a digitalization process. This, together with what it calls “regulatory improvements”, creates institutional investor appetite for the sector.
According to a survey by Serasa Experian, 426 rural producers filed requests for judicial recovery between January and September this year. Another 299 companies in the sector followed the same path. Although the numbers have grown significantly compared to previous years, Octaciano considers them to be very insignificant.
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“This amounts to less than 2% of Brazilian credit and is within the default pattern that banks are used to operating. […] There is no structural problem in agriculture. What is there is ignorance”, concludes Octaciano.
