Brazil hits record high in bankruptcy protection filings

2024 marked a record as the year with the most bankruptcy protection filings in Brazil, surpassing the worst year on record, which was 2016. 

Up to October last year, there had been 1,927 bankruptcy protection filings, while in 2016, 1,863 filings were recorded.

The total number is expected to exceed 2,200 bankruptcy protection filings in 2024. According to Serasa Experian, the Brazilian agency for credit analysis and information for credit decisions and business support, in the first nine months of last year, 426 individual farmers filed for protection, more than five times the total recorded in the same period of 2023. For agricultural producers operating as legal entities, requests nearly tripled, jumping from 102 in 2023 to 299 in 2024 for the period.

The data for input companies, agroindustry, and agricultural services is less encouraging. The number of bankruptcy protection filings was 227, up 36.8% compared to the same period in 2023. The agricultural input industry, especially crop protection, has historically been one of the largest credit providers for retailers, cooperatives, and farmers.

As shown by Sindiveg's Credit Panel (National Union of Plant Protection Products Industry), consolidated by Kynetec, in 2023, member companies financed around R$29 billion for the purchase of crop protection products, with 43% of sales made with payment terms exceeding 240 days.

In this scenario, Sindiveg is concerned about the damage that excessive filings could cause to the confidence and stability of the entire production chain, both before and after the farm gate. The entity understands that bankruptcy protection is an important tool for struggling producers and entrepreneurs to recover economically and resume their businesses; however, it should be one of the last options. "The sector needs to find a sustainable business model without excessive debt or high credit risks for the chain," Sindiveg said.

Despite the increase compared to 2023, Serasa Experian recorded a 40.7% decrease in agribusiness bankruptcy protection filings in the third quarter of 2024. Still, according to Serasa Experian's head of agribusiness, Marcelo Pimenta, careful analysis is necessary, considering the economic and systemic context.

"It's important to remember that the economy doesn't usually undergo drastic changes in short periods. We believe there was a bottleneck in the second quarter, which ended up inflating the number of requests and affecting the comparison with the following period. The idea is to continue monitoring the coming months to obtain more accurate conclusions," Pimenta warned.

Bankruptcy protection filings by individual producers fell 50.4%, those by legal entities saw a 23.9% decrease, and sector companies registered a 40.4% drop. The professional assesses that 2024 was a challenging year, highlighting that the crisis reflects at least two to three years of low prices for major commodities.

"There was a significant increase in costs in 2022, which created problems in renegotiations, delays, and even the non-use of crop protection products in some crops. This year, weather problems also resulted in significant losses in various productive areas. The combination of these factors meant that many producers, who previously had margins of 25%, 35%, and up to 50%, faced serious difficulties. These margins, in many cases, fell to 10%, 15%, directly impacting payment capacity," he explained.

Regarding the absolute necessity of bankruptcy protections in 2024 or whether they were used as a strategy to renegotiate debt, Pimenta commented that, according to Serasa Experian's analysis, most producers were already facing difficulties in honoring their commitments and renewing their credit. With the crisis, creditors adopted stricter criteria, releasing less credit and demanding more guarantees. Thus, producers were the first to suffer from this change and resorted to bankruptcy protection.

CURRENT SCENARIO AND PROSPECTS

Filipe Denki, partner at Lara Martins Advogados and specialist in Business Restructuring, told AgroPages that the leading causes of this increase include high interest rates in Brazil, along with other factors such as growing default rates, persistent inflation, and infrastructure problems.

According to the specialist, one of the biggest factors in last year's results was the surge in bankruptcy protection filings in agribusiness, notably among individual farmers. The lawyer shared his projections for this year with AgroPages.

"Economic prospects for 2025 indicate a scenario of moderate growth, accompanied by significant challenges. The combination of factors such as persistent inflation, the new U.S. presidency with Trump at the helm, the war in Ukraine, China's economic slowdown, geopolitical uncertainties, and each country's internal challenges shape a future full of uncertainties, but also opportunities," Denki highlighted.

The Brazilian Central Bank projected GDP (Gross Domestic Product) growth of 2.0% for 2025. Projections indicated that inflation may remain above the target set by the Central Bank, which is 3% per year. Meanwhile, the Brazilian benchmark interest rate, currently at 12.25%, could rise to 14.25% in the first quarter of 2025, with forecasts reaching 15% throughout the year.

"The fiscal imbalance [of the Brazilian government] remains a concern, with public spending growing at a faster pace than revenues. The effectiveness of the new fiscal framework will be crucial for the sustainability of public accounts," explained the partner at Lara Martins Advogados and Business Restructuring specialist to AgroPages.

Given the unpromising economic scenario, the expectation is for continued high numbers and increases in bankruptcy protection filings in Brazil, maintaining the trend observed in 2024. "Sectors such as aviation, sugar and ethanol, agribusiness, and retail are identified as the most susceptible to financial difficulties, especially due to the rising dollar, which increases costs and makes it difficult to pass on to consumers," the specialist analyzed.

The maintenance of a challenging economic environment, characterized by high interest rates and credit restrictions, suggests that the number of bankruptcy protection filings in Brazil will remain high in 2025. "Companies from various sectors will need to adopt restructuring strategies and seek alternatives, such as out-of-court restructuring, to face the predicted economic adversities," he concludes in this analysis made to AgroPages.

(Editing by Leonardo Gottems, reporter for AgroPages)