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Interview of the Month: Luís Carlos Guedes Pinto

Large rural producers do not need subsidized credit

In the universe of Brazilian agriculture, there is nothing that professor Luis Carlos Guedes Pinto (photo), 76, does not discuss. Graduated in agronomic engineering, professor of Unicamp, and former Minister of Agriculture in Lula government, between July, 2006 and March, 2007, one of the great virtues of the Brazilian scholar is having lived in the academy as well as in Brasília’s offices. Occupations that led him to deeply know Brazil.

In the interview, where he puts himself as an outlier, for having been minister of Agriculture without being land owner, Guedes explains why the country still needs land reform. For him, also, the large producers shall waive the credits subsidized by the government.

In the assessment of the former minister, the strong power of the land owners of the country today also prevents that reforms in the sector occur, such as a higher inspection on ITR, the Rural Property Tax. In the accounts of the former Minister, the city of Campinas collect much more of IPTU than Brazil with its rural tax. The interview with professor Guedes occurred in his house, in Campinas.

Instituto Escolhas – In your opinion, does Brazil still need a land policy?

Guedes – I would say that the policy exists, but it needs to be applied. As it occurs a lot in Brazil, the legislation is available, but in practice the mechanisms are not implemented. It is the case of the Rural Property Tax, ITR. Although it is an instrument of agricultural policy and not agrarian, the legislation of such tax is not meeting its purposes. As every tax, ITR has a fiscal dimension, a dimension of collection, but it also has the purpose of working as a stimulation to the production and, especially, to the rational use of land. That is, land has to be productive and explored together with the preservation of the natural resources. Additionally, the legislation related to the rural work also needs to be observed. But, in Brazilian case, ITR does not minimally meet such purposes. Now, agrarian policy is made expropriating land. It is land reform. In some areas, especially in Northeast, the implementation of land redistribution programs makes sense. The Land Statute, which is of November 30, 1964, is 54 years old and virtually was not applied. The land concentration index in Brazil continues the same. You fund the land reform placing it as priority within the budget. Land is not the more expensive supply. What is expensive in the land reform are the investments.

Instituto Escolhas – Why ITR does not serve neither the fiscal side nor the side of stimulating the production?

Guedes – I will show it does not serve, and then analyze the reasons. Because essentially it is a political problem. The value collected with the Rural Land Tax in Brazil is absolutely negligible. It represents half of the thousandth part of the Brazilian tax collection. It is 0.06% of the federal collection. In comparison, in the United States, the number is 5%. In Canada too. In Uruguay, it is 6%. In Chile, 4.5%. Brazil has a tax structure extremely regressive. It pays more and gains less. ITR does not comply with its function because it is negligible. It does not change in anything the producer’s orientation in terms of agricultural policy. Let’s analyze such situation under two points of view. First, in a more historical and global context. The so-called Brazilian rural oligarchy, the Brazilian rural owners have a very strong power. It makes that the policies related thereto, in terms of taxation, for example, are always extremely attenuated. I will give an example that also serves to tell the history of ITR. The governor of São Paulo in 1960 was Carvalho Pinto. He was very competent and efficient, but a very conservative person. He was a rural owner too. Pinto de Arruda Sampaio, still young, less than 30 years old, made in Carvalho Pinto’s government an action plant for agriculture that included a bill to use ITR as instrument of agricultural policy. A few people know, but ITR was a state tax. It was created in 1891, in the first Constitution. The plan in São Paulo, after studies that were carried out, was to change in the rates of ITR and, with that, start to make some agrarian revision projects. State would expropirate farms.

Instituto Escolhas – All in the State scope?

Guedes – In the 1960’s, everything was at State level (ITR became to be federal from 1964). The farms that were not being used would be expropriated and small lots would be distributed to the small agriculturalists. The study shows that out of approximately 250 thousand rural real estate properties registered in São Paulo, 2% would have to pay a higher tax. For 8% of the real estate properties, it would be indifferent. For the remaining 90%, ITR would go down. But there was a huge reaction. Even though, the project was approved and the state started to transform farms into smaller lots. Here it was made, next to Campinas, the neighborhood Revisão Agrária (Land Revision), which still exists today, and another in Jaú. In 1962, Auro Soares de Moura Andrade was president of the Federal Senate. He was extremely connected to the interests of the rural owners of São Paulo. There was a project stopped in Senate to transfer ITR to the cities. In a few days, he quickly gathered the bench, approved the project, and liquidated the land experience of São Paulo that was proposing a fairer rural taxation under the social point of view. The idea was also use the resources of ITR in programs of distribution of land to the landless farmers. It is a concrete example of the power of the oligarchy of the large rural owners in Brazil.

Instituto Escolhas – In the case of the taxation, ITR complies with its role?

Guedes – The rural tax in Brazil is completely negligible. It is calculated based on several indicators, but the basic reference point is the land value. Who declares the land value is the owner. There are several studies showing that the declared land value is 10, 20, 30 times lower than the real value. The outgoing tax is calculated for less. The city of Campinas pays of IPTU more than double what is paid in the whole Brazil of ITR. There is a case study, in Pará, where there is a huge underdeclaration of the value of bare land, and a huge deviation in relation to the effective use of land. When more than 80% of the land is explored, the lowest rates of ITR are paid. As it is self-declaration, in Brazil, in average, 87% of the land is explored. Almost everybody. In Pará’s example, the distortion is so great that the owner paid R$ 11 of rural tax when he should have paid R$ 142 thousand. It is an extreme example, but the value collected with ITR in Brazil could easily be, between 10 to 30 times higher than it is today, if it was simply charged based on the market land value. Additionally, with a good registry it is possible to know if 80% of land is being explored and if the preservation of the natural resources is also occurring. There is a high tax evasion. A good and strict registration would also finish another historically serious problem in Brazil, the rural property one.

Instituto Escolhas – In many cases, is it impossible to know the real owners of the land?

Guedes – We have three registrations in Brazil. In addition to the farming census of IBGE. Incra has a registration of rural real estate properties. The first was made in 14967. Federal Revenue Service also has a registration of rural real estate properties for taxation purposes. And there is CAR, the Rural Environmental Registration. So, I propose that a new and strict registration is made. It is the first thing Brazil should do. However, a study of the domain chain is not carried out either, to know the old owners of an area, how it became private, for example. Here in Campinas, I know the history well, if you carry out a study of this apartment you will reach a guy that had a house here 20 years ago. 150 years ago it was a farm. But when you go to Amazon, it is 40 to 50 years to know the origin of the property. And still today, there is invasion of public lands, indigenous lands, and preservation areas. There is also land-grabbing. There are properties with squatters, their father was there, their grandfather too. The Constitution and Land Statute, which is previous, recognize the squatter’s right. If he proves that he is working there, living, or exploring the land, you may request the recognition of that land as yours. In several areas where there are squatters, suddenly, other people send a gunman there, where there are dozens of families, to poison the water, expel the families that already live in a certain place, and with such appropriating of the land. It is the original problem.

Instituto Escolhas – Today, is the rural credit the big bottleneck of the national agricultural policy?

Guedes – In the sense of not achieving the small producers, it is a bottleneck. But such producers also need a lot of technical assistance. The small one, if you give credit, they will not even know how to use it. We have a lot of credit in Brazilian agriculture and it is even subsidized, although much less than it was in the past. The thesis I defend, and it is a subject very discussed nowadays, is that it not make sense anymore to subsidize the rural credit for business agriculture. To the family agriculture it makes full sense. The business farmer does not need subside anymore. He could fully take the credit in the financial market. I do not have any doubt. Such resources should be transferred to the rural insurance. If I paid the subside given to the credit of the business agriculture, which varied in the last few years more than R$ 5 billion, and transferred to the insurance, which receives resources at around R$ 400 million, I would multiply for more than 12 times. The insurance shall be strengthened. It is not made because the practice in Brazil, when there is a crisis, is always to negotiate and extend debts or forgive them. It is the culture between the large producers. When a problem occurs, they know that they will not have consequences, because everything is arranged.

Instituto Escolhas – Still within the instruments of agricultural policy, is the incentive to a sustainable production being considered?

Guedes – The main instrument to the extraordinary development of Brazilian agriculture, since the 1960’s was the rural credit highly subsidized. In the 1970’s, only the medium and large producer had access to the rural credit. The small rural producers passed to have access to the credit, in significant numbers, from Pronaf (Brazilian National Program of Family Agriculture), which is of 1994. And, later, in 2003, Pronaf grew a lot. It increased the rural credit for the family agriculture a lot, although the majority of the family producers does not have rural credit today. They are marginalized. Many times, nor access to family allowance they have. I say it again, as the business producer does not need subside, the government should use the resources intended thereto to special programs of credit with subside to, for example recover the areas already degraded.

Instituto Escolhas – Does the same rationale serve to the impact of the climate changes on the agriculture?

Guedes – The subsidized credit shall be used to all type of guided policies. The climate changes, it seems something unquestionable, the risks occur. To be benevolent, for benefit of doubt, let’s get prepared, because if there is doubt, although I personally do not have any, the risks are very high, even to those that have doubt. It is not only to think in the next generation, but in the thousands of generations to come. There shall be preservation policies. The problems are very serious and the recovery of the natural resources is always extremely long. Unfortunately, the society we live in, in the financial context, increasingly wants immediate results and returns. I already took part in board of public and private companies and know that people want to have return for tomorrow. The guys want th highest return as possible within a short term. Every quarter, the result shall be presented. Such thing of Brumadinho (fall of one more Vale’s dam), for example, did not occur by chance.

Luís Carlos Guedes Pinto – Agronomic Engineer, PhD in Agronomy, and Effective Professor of Agricultural Economy of the Economics Institute of the State University of Campinas (Unicamp). He was President of Companhia Nacional de Abastecimento, Vice-President of Agribusiness of Banco do Brasil, Executie Secretary, and Minister of Agriculture. He was President of the Board of Directors of Embrapa and directed the area of Rural Insurance of Mapfre.