The unequal allocation of PRONAF resources: which factors determine the intensity of the program across Brazil?

Manfred Zeller,Carolina Schiesari

doi:10.1590/1806-9479.2020.207126

Abstract

Abstract The family farming sector in Brazil is an important player in the country’s economy, especially in poor rural areas., The government has created the National Program for Strengthening Family Agriculture (PRONAF) to stimulate the development of family farming in Brazil. It a credit program that offers loans at a subsidized interest rate. Previous studies have shown that wealthier farmers and more developed regions have more access to subsidized credit. Due to this apparently unequal allocation of PRONAF resources, the study aims to analyze, through econometric regressions and interviews with specialists, the underlying determinants for the unequal credit allocation across the municipalities in Brazil. Results indicate that wealth and knowledge of farmers are significant determinants of loan size, whereas municipalities that represent a high risk have received significantly fewer resources from PRONAF per household head. Thereby, we can conclude that PRONAF’s operations are not fulfilling their pro-poor objectives of targeting poor farmers and municipalities. Progress in infrastructure and institutions to reduce risks, enhancement of farmers’ qualifications and organization, better access to markets and agroindustry, and improvements in rural extension services are found to be essential to increasing the access to PRONAF’s credit.

Highlights

The importance of rural finance in developing countries has been discussed for a long time by numerous researchers. Khandker et al (1995) say that access to credit, especially in rural areas, is essential to reducing poverty and promoting economic growth. Sharma & Zeller (1999) find that credit and savings services to poor households can increase agricultural productivity by facilitating access to inputs and technology
Research methods The topic of interest of this study is to identify which factors influence the credit intensity in the municipalities
The results indicate that PRONAF is placed in almost all municipalities in Brazil, the average of families in each municipality participating in the program is still very low, only 12.3%

Summary

Introduction

The importance of rural finance in developing countries has been discussed for a long time by numerous researchers. Khandker et al (1995) say that access to credit, especially in rural areas, is essential to reducing poverty and promoting economic growth. Sharma & Zeller (1999) find that credit and savings services to poor households can increase agricultural productivity by facilitating access to inputs and technology. The main factors that limit the access of the rural poor are the high transaction costs of reaching remote and under-developed areas; the covariant risk related to households’ income, which leads to high default rates; the lack of collateral among smallholder farmers; the dependence on natural resources and vulnerability to climate disasters; the production and market risks; and the seasonality of farm activities (Binswanger, 2006; Binswanger et al, 1993; Food and Agriculture Organization of the United Nations, 2001; Gonzalez & Rosenberg, 2006; Khandker et al, 1995; Llanto, 2005; Sharma & Zeller, 1999; Yaron, 1992; Zeller & Meyer, 2002; Zeller & Sharma, 1998)

Objectives

Methods

Results

Discussion

Conclusion