Introduction
On April 7, 2020, Law 13,986 (“Agribusiness Law”) was published, as a result of the conversion of Provisional Presidential Decree 897, of October 1, 2019 (“Provisional Presidential Decree”), which brought several improvements and amelioration to concepts and securities already established in private financing for agribusiness in Brazil, as well as the creation of others, always aiming to bring the financial and capital markets closer to one of the most representative sectors of the Brazilian economy.
The improvements brought by the Agribusiness Law were several, but in this study we will restrict ourselves to analyzing the changes brought about in the regulation of the Rural Product Certificate.
Rural Product Certificate
Created by Law No. 8,929, of August 22, 1994 (“RPC Law”), the Rural Product Certificate is a negotiable instrument representing the promise of delivery of rural products provided for in it (“RPC”).
This instrument is the most important one when it comes to private financing for agribusiness. In most financial structures, from financing to the producer, as well as to other participants in the agribusiness chain, RPC plays a leading role. Precisely for this reason, RPC is an instrument widely accepted by rural producers, easily understood and accepted by them, as well as widespread in the financial and capital markets, in view of its wide use over these more than two decades of existence. We can say that RPC is for agribusiness, what a bank credit certificate is for financial institutions.
Despite all its importance, this instrument still lacked the necessary improvements and clarifications for its full use by agribusiness financiers. In this line, the Agribusiness Law played a major role in reforming the RPC Law, with more modern provisions and consistent with what happens in Brazilian fields, as we can see below.
Main Changes
After making brief comments about RPC, emphasizing its applicability in Brazilian agribusiness, as well as its enormous scope in private financing structures, it is important to focus on the changes and improvements brought to this title by the Agribusiness Law.
As we will see below, the Agribusiness Law came to standardize several controversial points of the RPC, which over the years of its application have been extensively debated in Brazilian courts and which have raised many questions.
This standardization comes to put an end to several discussions that generated enormous legal uncertainty, which, of course, was reflected in higher cost of fundraising by rural producers and definition of legal and financial structures that are not suitable for the exercise of the activity of these producers.
Thus, below are the main and most relevant points addressed by the Agribusiness Law in relation to RPC:
(a) Extension of the concept of Rural Product
As stated above, RPC is an instrument representing the delivery of rural products. Although it seems to be a very simple concept, understanding what may or may not be considered a rural product has always been one of the biggest issues when it came to RPC.
On one side of this confrontation we had those who defended the restricted application of this concept, that is, that rural product was only that directly extracted from agricultural activity, that is, in natura, therefore not accepting any type of processing or industrialization, even if minor. On the other hand, we had a broader understanding of this concept, where it was argued that simple or rudimentary processing or industrialization would not disqualify it as an agricultural product. It is important to note that this second aspect was adopted by the Brazilian Securities and Exchange Commission when issuing Instruction 600, on August 1, 2018, which regulated the issuance of Agribusiness Receivables Certificate (CRA), and also faced the concept of rural product for these purposes.
For years this debate was fought with plausible arguments from both sides. To end this dispute, the Agribusiness Law included in the RPC Law the definition of rural product, and opted for the broader approach, considering, for this purpose, that rural products are those obtained in the activities: (i) agricultural, cattle raising, planted forest and fishing and aquaculture, their derivatives, by-products and residues of economic value, including when submitted to processing or the first industrialization; and (ii) related to the conservation of native forests and the respective biomes and the management of native forests within the scope of the public forest concession program, or obtained in other forest activities that may be defined by the Executive Branch as environmentally sustainable.
The inclusion of this definition is emblematic, by considering as a rural product, in addition to those in natura, also its derivatives, by-products and residues of economic value, including when submitted to processing or the first industrialization, in addition to those resulting from fishing and aquaculture. Thus, we can consider several new products that could be included in a RPC, such as sugarcane bagasse, sugar, alcohol, soybean meal and oil, ginned cotton, among others, that until recently, were not considered for this purpose by several participants in this market.
If the adoption of the above concept was not enough, the Agribusiness Law also included in the definition of rural products those resulting from the conservation and management of native forests and forestry activities, which brings a very important market for Brazilian agricultural activity to the scope of RPC.
Lastly, the Agribusiness Law, in relation to this specific topic, delegated to the Executive Branch the possibility (and not the obligation) to regulate the provisions above, including the indication of rural products subject to RPC issuance.
(b) Extension of the concept of Rural Producer
As mentioned above in relation to the definition of rural product, another very sensitive point of the RPC Law was the definition of rural producer. Originally, this law only mentioned that rural producers and their associations, including cooperatives, were legitimate parties to issue RPC, without any specific definition of this term .
With the edition of the Agribusiness Law, this point was also regulated, in order to consider as a rural producer any natural or legal person, including that with a corporate purpose that includes, in a non-exclusive manner, rural production, the agricultural cooperative and the association of rural producers whose purpose is the production, marketing and industrialization of rural products, as defined in the topic above.
In addition, in line with the inclusion made in the definition of rural product, the Agribusiness Law allowed the issuance of RPC by natural or legal persons, not listed in the head of such article, provided that they explore native or planted forest or that they benefit from or promote the first industrialization of rural products, as defined in the topic above.
This concept will also bring considerable benefits to agribusiness, since a wider range of participants may use the issuance of RPC for their financing. This expansion, despite appearing to be a mere legal technicality, brings several companies into the scope of RPC issuance, such as sugar and ethanol plants, soy crushers, cotton ginners, reforestation companies, among others, which will have another way to obtain funds in the financial and capital markets.
Lastly, the Agribusiness Law, in relation to this specific topic, delegated to the Executive Branch the possibility (and not the obligation) to regulate the provisions above, including the possibility of changing the list of RPC issuers.
(c) RPC with financial settlement and Interest Rate
In addition to the general concepts brought by the Agribusiness Law, some of its provisions are specifically applicable to RPC with financial settlement, given that its settlement is made by cash payment (“Financial RPC”).
One of the most controversial points in relation to the Financial RPC has always been the possibility of using interest rates to remunerate the lender's capital cost over time. The RPC Law did not prohibit this possibility, however, it did not indicate its possibility.
It is noteworthy that in recent years, there have been several discussions that reached the judiciary, which had to issue its opinion on this topic, which has always generated insecurity in relation to the decisions rendered, in view of the possibility of divergent understandings among the judges. The biggest concern in relation to this matter was the possibility that this instrument would lose its characteristics and, consequently, lose its liquidity, which would have a very damaging impact on any legal action to collect this instrument.
Precisely due to the existence of this legal uncertainty, many market participants did not structure financial operations in this way, which meant that funds that could be directed to rural producers did not reach them.
Now, with the provision expressed in the Agribusiness Law, this issue is now considered solved, leaving no questions in relation to the possibility of indexing Financial RPC s to interest rates, which will certainly attract new investors interested in investing in agribusiness via a much safer instrument from a legal point of view.
(d) Financial RPD with exchange rate variation
The possibility of issuing Financial RPD with exchange rate variation was a long-standing claim by rural producers. This is justified, since a large part of the assets of these rural producers is also composed of receivables indexed in other currencies, since the majority of Brazilian agricultural production is traded abroad.
In addition, not only the rural producers' assets are largely composed of receivables in other currencies, but also part of their liabilities, since the purchase of inputs, such as pesticides, fertilizers and other products necessary for rural production, are dollarized, that is, even if the amount paid is in Reais, its variation follows the exchange rate variation in a very linear manner.
For the above reasons, the possibility of issuing Financial RPC with exchange rate variation is a very important advance for rural producers, since it will provide them with the management of their cash flow, becoming more consistent with their activity, making possible, even, to create the natural hedge of its obligations versus its receipts (both indexed in foreign currency), which will bring considerable financial gains to the producer, who will no longer be fully exposed to exchange rate variations.
Still in relation to this topic, the Agribusiness Law went further, in addition to allowing for the exchange rate variation for Financial RPC, it also extended this possibility to the issue of Agribusiness Credit Rights Certificate and CRA. This makes perfect sense, since the need for cash management, as discussed above, applies to all participants in the agribusiness chain, who will now be able to manage their business in a much more efficient way.
In addition, it is undeniable to recognize that the possibility of issuing these financial instruments with exchange rate variation aims to bring more foreign investors into Brazilian agribusiness. Before the issuance of the Agribusiness Law, the investor who acquired these instruments in the Brazilian market, fully assumed the risks of exchange variation and its eventual taxation, which, several times, even impacted the principal amount invested, and not only the interest to be paid, increasingly alienating foreign funds from Brazilian fields.
With this change, we can imagine the inauguration of a new phase of private financing to Brazilian agribusiness, with a more active participation of foreign investors, with more abundant funds and with lower costs, given that the supply of credit, as it seems, will be expanded with the changes brought by the Agribusiness Law.
Lastly, the Agribusiness Law, in relation to this specific topic, delegated to the National Monetary Council the possibility (and not the obligation) to regulate the provisions above.
(e) Centralized Deposit and Registration of Financial RPC
Another very sensitive issue in the agribusiness market, in this case, more focused on creditors, was the fact that there was no security in relation to all RPC s issued by the same rural producer. This was due to the fact that the RPC Law determined that, for purposes of effectiveness against third parties, CPR should be registered with the Register of Deeds of the issuer's domicile, which was not always done by the rural producer, since this did not impact the validity of this title, but only its effectiveness against third parties.
Well, the existence of several RPCs without registration meant that the creditors of rural producers did not know for sure their level of indebtedness. On several occasions, creditors were surprised by an enormous amount of RPCs issued by the same rural producer, linked to rural production in the same area, which directly implied the impossibility of producing as many products as necessary to fulfill all their obligations assumed, whether physical or financial.
Once again, this insecurity involved risks to the creditor, who often moved away from financing rural producers, or when he agreed to finance, included in its price the intangible value resulting from this insecurity, which could result in the possibility of having his instrument defaulted.
In view of this gap, the Agribusiness Law innovated by making it mandatory, as of January 1, 2021, that all RPCs and their amendments, for purposes of validity and effectiveness, be registered within 10 (ten) business days as of the date of issue or amendment, in an entity authorized by the Central Bank of Brazil to exercise the activity of registration or centralized deposit of financial assets or securities; greatly facilitating obtaining this registration, considering the existence of which is proven to be useful, and quite possibly making it cheaper to obtain.
If, on the one hand, this obligation may represent an additional cost to rural producers, the Agribusiness Law itself excluded the need to register RPC at the Register of Deeds of the issuer's domicile, that is, there was an equalization of costs related to registration, however, as seen above, with a great gain related to the transparency of the transactions contracted by the rural producers.
It is important to emphasize that if the RPC is linked to any guarantee provided for in the current regulation, as it will be better analyzed in the topic below, the registration of this instrument remains necessary for the purposes of complying with the legal requirements specific to these guarantees, in other words, if the guarantee linked to the loan requires registration at a specific registry office, this must be carried out, but not because of the specific regulation of this instrument, but because of the guarantee, which would occur in the same way if the instrument chosen for financing was any other one.
In relation to this specific point, the Agribusiness Law authorized the National Monetary Council to regulate this topic, for the purpose of establishing complementary rules for the above compliance, including about the information required for registration or deposit, as well as waiving registration or the deposit of RPC, based on the criteria established there.
(f) Guarantees linked to RPC
This theme, although very important, did not generate as many questions as those listed above. The RPC Law originally provided that this instrument admitted as guarantee, mortgage, pledge and fiduciary lien, without any express mention to the other existing guarantees in our legislation, such as, for example, the fiduciary assignment, although there is the understanding that the reference expressed to fiduciary lien could, in a broader concept of fiduciary property, also encompass the guarantee of fiduciary assignment.
In view of this, there are those who interpreted this list as definitive, that is, that it did not admit new guarantees. On the other hand, there was an understanding that this was a list of examples, that is, liable to include new guarantee, as long as provided for in our legal system.
In order to regulate this point, the Agribusiness Law allowed the constitution of any of the types of guarantees provided for in the legislation, and the provisions of the rules that discipline them must be observed, except in the event of conflict. In addition, it became clear with the edition of the Agribusiness Law, that the processing or transformation of agricultural products given in fiduciary lien does not extinguish the guarantee link with said rural products, and that this link is automatically transferred to the products and by-products resulting from processing or transformation, in this case equating it with pledge, which already contained an express provision in this regard.
If the point above related to guarantees was something that did not raise many questions, two other points faced by the Agribusiness Law were of supreme importance for the topic, as we will see below.
The Agribusiness Law regulated the possibility of constituting a fiduciary lien of present and future assets, fungible and nonfungible, consumable or not. This provision aims to exclude legal uncertainty about the assets subject to collateral transfer, including all of the above types, each of which must be regulated in accordance with the applicable legal norm. This novelty also removes an old legal discussion, which for a long time has generated insecurity in the market, which is the legal instrument to be used as a basis when constituting the guarantee of fiduciary property, if article 1,361 et seq. of the Civil Code, which deal with this guarantee on nonfungible goods and in any relationship, or business, in the civilian world, or article 66-B of Law No. 4,728, of July 14, 1965, which deals with this guarantee in the scope of the financial and capital markets (that is, only for creditors who are part of these markets and in transactions contracted in such markets) and admits its constitution on fungible goods. The aforementioned legal innovation therefore puts a stop to any possible discussion regarding contracted guarantees on fungible or nonfungible goods and the nature of their respective creditors that could be raised by debtors in the course of foreclosing on guarantees. In other words, an important point of legal security conferred by the Agribusiness Law to the market.
In addition, the Agribusiness Law expressly provided for the mandatory declaration by the RPC issuer of the essentiality of the assets granted under fiduciary guarantee, in other words, the RPC issuer must expressly declare this, under penalty of not doing so, causing the assets linked to fiduciary guarantee are not considered essential to carry out the business activities of the rural producer.
This point above is crucial when we are faced with the situation of court-supervised reorganization of the RPC issuer, since, under the terms of Law 11,101, of February 9, 2005, which regulates court-supervised reorganization and bankruptcy (“Bankruptcy Law”), determines the suspension of actions and foreclosures against the entity under reorganization for a period of 180 (one hundred and eighty) days from the granting of the reorganization processing (“Stay Period”).
It is important to highlight that even with the express indication that the creditor holding fiduciary property will not be subject to the effects of court-supervised reorganization, in the case of capital goods essential to the business activity, these cannot be sold or removed from the establishment of the rural producer issuing the RPC during the Stay Period. Added to this is the fact that the Stay Period, in several court-supervised reorganizations, extends for a period much longer than 180 (one hundred and eighty) days, which generates considerable losses to the creditor of the defaulted RPC, since it cannot use the object of your guarantee to satisfy their credit.
This is a point of real importance for creditors of rural producers, given the significant increase in requests for court-supervised reorganization in recent years, including from individual rural producers. In view of this scenario, the clear understanding of the risk that the creditor will take in the event of any court-supervised reorganization of its debtor will provide the creditor with a clearer, more complete and secure risk analysis, resulting in greater efficiency and predictability of its investment.
In view of the legal provision discussed above, if the issuer does not declare at the time of the RPC issuance the essentiality of the asset granted as guarantee, it will no longer be able to make this claim, even in the event of a future court-supervised reorganization, causing the assets subject to the guarantee not to become subject to the effects of the Stay Period, that is, the creditor may promote the withdrawal or sale of these assets at any time from the default of the obligation guaranteed by the fiduciary lien.
Conclusion
As discussed throughout this article, it is clear that the Agribusiness Law came to add important value to agribusiness legislation in Brazil, in particular by providing relevant legal certainty to the businesses it deals with. It was clear, therefore, the objective of the Agribusiness Law to attack and resolve previously controversial aspects, with the inclusion of new concepts, improvements to existing ones and the regulation of several relevant points faced by rural producers and their creditors over the past few years.
Legal uncertainty will always be one of the most relevant reasons for not developing any market anywhere in the world. That said, any and all initiatives that aim to reduce this insecurity, by drawing clearer and more objective lines around a given subject, will prove to be extremely important and quite relevant for the development of a country.
This was certainly the biggest gain brought by the Agribusiness Law in relation to RPC. Its applicability and importance to agribusiness can be seen and experienced by all participants in this activity, but its gaps have always been a limiting factor for its further development. With this new legal framework, both rural producers and creditors had their claims answered (even if some partially) and will be able to find in this law answers to questions that had not been answered until then.
The answer to market demands, as well as its greater opening to foreign investors, has the perspective of inaugurating a new era of private financing for agribusiness in Brazil. Not only for the changes brought to RPCs, but for all the changes implemented by the Agribusiness Law.
We hope that the more effective paving of this path will encourage new participants, the creation of new legal and financial structures and new products for the financing and development of Brazilian agribusiness, which even demands credit, year after year, proves to be a tireless engine for sustaining the Brazilian economy.