“The mechanism of barter contracts offers protection against exchange rate fluctuations, as well as against changes in commodity prices on the international market…”
Marcelo Prado is the founder of MPrado Consultoria Empresarial, consultant and speaker, graduated in agronomy from the State University of São Paulo, with a postgraduate degree in business administration from Centro Universitário do Triângulo.
AgriBrasilis – How do Barter Contracts Work?
Marcelo Prado – Barter is a mechanism for exchanging and financing agricultural inputs by farmers, with payment during the harvest through bags of soy, corn, wheat, coffee, and other products from the crops.
Barter is an exchange of agricultural inputs for grains, which often facilitates rural business planning and works as a hedging strategy because the cost of the input is already defined by a quantity of commodities.
AgriBrasilis – What are the advantages and disadvantages of the barter?
Marcelo Prado – As the barter is used as a currency of exchange and ease for farmers, and they are used to pricing their costs in bags of harvested products, there is no way to talk about disadvantages of this mechanism.
The barter mechanism offers protection against exchange rate fluctuations, as well as against changes in commodity prices on the international market. Added to this is the liquidity generated for the farmer, considering that with the barter they need to worry about refinancing working capital, and, as the operation is locked from the beginning of negotiation, it is not necessary to worry about interest rate fluctuation.
The only point of attention for the farmer is that they must check whether the basket of inputs that they will be exchanging for an “x” quantity of grains has a fair price.
AgriBrasilis – What can be negotiated through this modality?
Marcelo Prado – The most significant cases are fertilizers, seeds and pesticides, in that order. Agricultural machines and implements are also sold through barter, but their volumes are not yet as significant as in the case of inputs. The land itself is often traded in exchange for a number of bags of commodities, which are typically paid for over a period of five years.
AgriBrasilis – You consider that careful management will be decisive for the 2023/24 harvest. What should farmers prioritize? What constitutes good rural property management?
Marcelo Prado – Agriculture is a business activity like any other, it requires planning, strategy, management, financial controls, marketing, and human relations management. Therefore, the farmer needs to divide their time between operational farming activities and business activities. Farmers who adopt this practice are able to achieve high levels of efficiency and profitability.
AgriBrasilis – Legal uncertainty, high-interest rates, land invasion, economic stability… Do you agree that these are the points that most concern rural entrepreneurs nowadays? What else is of concern to the sector?
Marcelo Prado – These points have greatly concerned rural entrepreneurs and I would add that the drop in commodity prices, El Niño, management and succession are also relevant topics for the competitiveness of rural activity.
In order to minimize the problems mentioned above, it is very important that the farmer takes advantage of “windows” of opportunity in grain prices to make partial fixations, thus obtaining a good marketing average, and thus guaranteeing the profitability of the harvest.
As for El Niño, it is necessary to use cultivars that are more tolerant to excess rainfall in the central-southern regions. In central-northern regions, it is necessary to use cultivars that are more tolerant to dry spells.
Regarding management, it is essential that rural entrepreneurs understand the relevance of the topic for the success of the business and therefore invest time in professionals and “tools” that can improve the management model.
In the case of succession, it must be planned in advance so that potential successors are developed and, subsequently, the chosen successor participates in a planned and structured transition process.