Using Agricultural Bonds For Pre - and Post-Harvest Finance in Brazil

DRAFT – FOR COMMENTS ONLY
Using agricultural bonds for pre- and post-harvest finance in Brazil
Contents
Introduction
1. The inception of Brazil’s agricultural bonds
2. The basic forms of CPRs
3. Using CPRs in structured trade finance
4. The legal and regulatory status of CPRs
5. Experiences with CPR defaults
6. Building on CPRs – the alphabet soup
7. Pre-harvest financing instruments building on CPRs
8. Post-harvest instruments
9. Bank processes and procedures
10. The growth of CPRs and related financial instruments
11. The secondary market
12. Union National Agro+ - not all agricultural bonds are equally safe
13. Registries
14. CPR insurance
15. The support system for a vibrant market in CPRs and related products
Conclusion
References
Exchange rates (interbank rates on last trading day of each year), R$ 1 in US$
1996 0.962 2011 0.532

1997 0.896 2012 0.488
1998 0.878 2013 0.423
1999 0.552 2014 0.372
2000 0.512 2015 0.256
2001 0.416
2002 0.282
2003 0.344
2004 0.376
2005 0.429
2006 0.466
2007 0.564
2008 0.424
2009 0.572
2010 0.599
1
Source: www.oanda.com
2
Abbreviations
ADEP Abu Dhabi Equity Partners

ANDIMA Associação Brasileira das Entidades do Mercado Financeiro
BBM Bolsa Brasileira de Mercadorias
BM&F Bolsa Mercadorias e Futuros
CCR Cédula de Crédito Rural (Rural Credit Certificate)
CDA Certificado de depósito agropecuário (Agricultural Deposit Certificates)
CETIP Central de Custódia e Liquidação de Títulos (Settlement and Custody
Chamber)
CDCA Certificado de direitos creditórios do agronegócio (Certificates of
Agribusiness Credit Rights)
CMN Conselho Monetário Nacional (National Monetary Council)
CM-G Certificado mercadoria com emissão garantida
CONAB Companhia Nacional de Abastecimento (National Food Supply Company)
CPR Cédula de produto rural (Rural Product Note, or Crop Receipt)
CPR-F Cédula de produto rural de liquidação financeira
CRA Certificado de recebíveis do agronegócio (Agribusiness Receivables
Certificates)
CRH Cédula Rural Hipotecária (Rural Mortgage Note)
CRP Cédula Rural Pignoratícia (Rural Pledge Note)
CRPH Cédula Rural Pignoratíca e Hipotecária (Rural Pledge and Mortgage Note)
CSRA Companhia securitizadora de recebíveis do agronegócio
CVM Comissão de Valores Mobiliários (Capital Markets Commission)
DR Duplicata Rural (Rural Trade Confirmation Receipts)
EPA Export prepayment agreement
FIDC Fundo de investimentos em direitos creditórios (Credit Right Investment
Fund)
I-Agro Sistema de Registro de Informações do Agronegócio
LCA Letra de crédito do agronegócio
MAPA Ministério da Agricultura, Pecuária e Abastecimento
NCA Nota comercial do agronegócio (Agrinote)
NCR Nota de crédito rural (Rural Credit Note)
PRONAF Programe Nacional de Fortalecimento da Agricultura Familial
R$ Brazilian Real
RTA Registro de Títulos do Agronegócio (the BM&F Registry for Agribusiness
Notes)
SPV Special Purpose Vehicle
SNCR Sistema Nacional de Crédito Rural (National System for Rural Credits)
SRTA Sistema de Registro de Títulos do Agronegócio
UNCITRAL United Nations Commission on International Trade Law
WA Warrant agropecuário (Agribusiness Warrant)
3
Introduction
Farmers in developing countries are starved of the finance they need to invest, to escape
poverty traps, supply rapidly growing urban markets, and build resilience to climate change.
The financing needs of small and medium-sized agribusinesses are no less. A broad range of
new financing instruments and approaches needs to be introduced to start meeting these
needs. In many countries, the capital market instruments for agri-finance with which Brazil
has a long history may well fill a useful niche in the financing range. The purpose of this
paper is to set out the Brazilian experience, for others to be inspired by and learn from.
The best-known of Brazil’s agri-finance instruments is the Rural Product Note, or CPR in its
Portuguese abbreviation (conveniently, this can also be short for Crop Receipts, which is an
acceptable alternative name for Rural Product Notes). CPRs are based on promissory notes, a
Chinese invention that was brought to Europe by Marco Polo, from which it then was spread
around the world. That is to say, over many centuries and across many different jurisdictions
promissory notes have proven to work. CPRs in turn have been the base for building a series
of other instruments. While no country has gone as far as Brazil in turning promissory notes
into key instruments for agricultural finance, they have been adopted by micro-financing
institutions worldwide to make their lending safer from legal intervention. At the least, this
suggests that many countries have the core conditions for promissory notes in place to
introduce Brazil-inspired agrifinance instruments, if they wish so.
The paper starts with a discussion of the context for agri-finance within which CPRs were
developed. For most of the 20 th century, the Government of Brazil had taken it upon itself to
ensure its agricultural sector had all the funds that it needed, at subsidized interest rates. But
after its 1980s crisis it found itself increasingly unable to carry this burden, in an environment
where agriculture continued growing fast. It sensibly decided to concentrate its own resources
of financing smaller producers (commonly called family farmers in Brazil), which meant that
it had to find ways to encourage the private sector (banks and others) to start voluntarily
financing farmers. Large farmers would probably be able to open lines of credit with national
and international banks, but the problem was what to do with the many medium-sized farmers
(who, in Brazil, can still owe hundreds or even a few thousand hectares). Having already
experience with promissory note in agri-finance (but in a supporting role), and some
experience with innovative capital market instruments in the real estate financing market
(where reforms had started a few years earlier), the elements were in place for a new
inspiration: the CPR.
CPRs were thus developed in a very specific context, and this shapes to this day the way that
they are being used. In another context, CPRs may be given a different shape. For example, in
countries that cannot afford to maintain a large, subsidized credit programme for small
producers (in Brazil, official funds still account for 40% of agrifinance), CPRs may well
target not only medium-sized but also smaller farmers (as long as they are able to produce for
the market).
CPRs exist in two main forms (one closer to a prepaid forward delivery contract, the other
closer to a collateralized loan), and are used in a number of different modalities – to
strengthen value chains (by making it easier for input providers to supply inputs on credit, and
for cooperatives and processors to fund their value-adding activities), to create a mechanism
for banks to raise cheap funding which they can onlend to the agricultural sector, and for
investors to get a direct way for lending towards agriculture’s working capital needs. They are
4
even being used as a tool in certain government procurement operations. This is discussed in
the paper’s second chapter.
Chapter 3 discusses how CPRs can be used in structured trade finance (also called value chain
finance). Structured finance is a technique for banks to mitigate their lending risks, so that
they can finance borrowers who otherwise would be (near) unbankable (at least, at the rates
that such borrowers can afford). Local banks in many countries have experience in structured
finance, suggesting that they will be able to make good use of CPR-like instruments should
these be created in their countries
The fourth chapter discusses the legal foundations of CPRs and associated instruments. These
mostly derive from the strong legal standing of promissory notes. So while there have been
defaults – chapter 5 discusses the experience –, lenders, when their loans are backed by
CPRs, are very well placed for recovering their loans rapidly. There have also been frauds,
including a large one by a bank – suggesting that regulatory oversight is critical.
As already noted, CPRs have been the basis for the creation of a number of additional
instruments (almost ten years later), discussed in chapters 6, 7 and 8. Where CPRs were
primarily tools for producers (with good use made by input providers to increase their sales),
these other instruments make borrowing easier for processors and traders, and make it easier
for banks to refinance agricultural loans. These new instruments not only complemented
CPRs, but also stimulated the growth of CPRs. One of these instruments, which permits
banks to refinance their agricultural lending operations on the private capital market (selling
bundles of promissory notes to large private investors) has become a major funding tool for
banks, with some US$ 50 billion of open positions at the end of 2015.
Chapter 9 discusses bank processes and procedures when using CPRs. Chapter 10 describes
the growth in the market for CPRs and related instruments. CPRs are still only being used by
a small minority of Brazilian farmers – in 2008, at most 0.23 per cent of Brazilian farmers
used negotiable CPRs, and another 3.5% non-negotiable CPRs. But in absolute numbers –
more than US$ 10 billion in CPRs, equivalent to a third of the total financing needs of the
agricultural sector – they played a significant role.
Chapter 11 is about the still-developing secondary market in CPRs and related instruments.
Having a liquid market where one can easily re-finance or sell investments makes it more
attractive to invest. Nevertheless, while placing funds in agricultural promissory notes can be
attractive for non-agricultural sector investments, it is not without risk, as a case study in
chapter 12 illustrates.
Chapter 13, 14 and 15 discuss registries, insurance and the broader support system for a
vibrant market in CPRs and related products. CPRs do not exist in a vacuum: there are
supporting institutions (such as registries) and risk management companies (monitoring
firms); there is a well-functioning legal environment; and Brazil has supporting policies.
Chapter 15 highlights which parts of this supporting system is critical, and needs to be
replicated (at least as far is its functionalities are concerned) if one wants to successfully
transplant a CPR-like system to other countries. A final section concludes.
5
1. The inception of Brazil’s agricultural bonds
Brazil introduced the concept of enhancing an agricultural loan by adding an “unconditional

promise to pay” (a promissory note) in its legislation in 1957. 1 It became central to the rural
credit system in the mid-1960s, when the country adopted a number of comprehensive
measures on agricultural finance, including:
- In 1964, a law that created the National System for Rural Credits (SNCR). 2 The law set out
which banks and cooperatives would be financing agriculture, and a mechanism to
determine each year the amount of finance necessary for the agricultural campaign (from
July to June).
- in 1965, a law that institutionalized rural credits, notably by obliging all banks in the
country to allocate 25 per cent of their demand deposits to the agricultural sector, mostly
to be lent at a fixed, low interest rate (the many banks that still do not meet the target have
to deposit the funding shortfall with the Central Bank at zero interest rate, or as 60+-day
“interbank deposits for rural credit” with the Banco do Brasil). 3 This obligations remains
in place; the mandatory lending percentage was increased from 28% to 34% in June 2012.
- In 1966, a decree that gave the Central Bank the authority (through its National Monetary
Council, CMN) to regulate the SNCR.4
- In 1967, a decree/law that codified specialized financial instruments for agricultural

finance that were to become the main instruments of official lending to agriculture. 5 The
decree distinguished two instruments: the Cédula de Crédito Rural (CCR, Rural Credit
Certificate6) and the Duplicata Rural (DR, Rural Trade Note). Both aimed to support
already-existing lines of credit by public banks to producers or corporates, or by
cooperatives to their members.7 Contrary to traditional agricultural loans, force majeure
cannot be invoked as a legitimate reason to default on payment obligations. Furthermore,
these notes could be easily transferred through endorsement. As a result, loans could
become safer and more liquid (rather important in Brazil’s high-inflation economy), and
thus, cheaper than was the case with normal bank loans.
1
Law 3.253 of 27 August 1957.
2
Law 4.595 of 31 December 1964.
3
Law 4.828 of 5 November 1965.
4
Decree 58.380 of 10 May 1966.
5
Decree Law 167/67 of 14 February 1967.
6
The CCR is a promissory note issued by a lender to the benefit of a debtor, payable at sight or at a
certain future date. It comprises four sub-categories of more specific instruments (see Cardilio, 2011):
- The Cédula Rural Pignoratícia (CRP), which incorporates a pledge as a guarantee for the payment
obligation. Any type of asset can be pledged.
- The Cédula Rural Hipotecária (CRH), which incorporates a mortgage (over urban or rural land or
properties) as a guarantee for the payment obligation.
- The Cédula Rural Pignoratíca e Hipotecária (CRPH), which contains both a pledge and a mortage
- The Nota de Crédito Rural (NCR), which is promise of future payment, without including any
security as guarantee for the payment obligations. This is used by those accessing government
funding for which no collateral is required, such as the National Programme for Strengthening
Family Farming (Programa Nacional de Fortalecimento da Agricultura Familiar, Pronaf) which
targets small family farms.
7
De Lima Ramos, 2015.
6
Under the SNCR, the federal government provides financial resources to banks for on-lending
to agriculture (in return, banks provide promissory notes – Cédula de Crédito Bancário,
CCB). In addition, banks have to meet the requirements for mandatory lending to the
agricultural sector.8 In both cases, agri-loans are at subsidized interest rates (which until the
1990s, given Brazil’s high inflation rates were often negative in real terms). Three
commercial banks controlled by the federal government have since the beginning been at the
core of the SNCR system: Banco do Brasil (the largest), Banco da Amazônia and Banco do
Nordeste do Brasil. Other banks, including privately-owned ones, later joined the system.
The SNCR provided the bulk of agricultural finance until the early 1990s – in 1985, it
provided as much as 96% of agricultural lending in the country. But with the State reducing
its involvement in agricultural finance (following Brazil’s financial crisis of the mid-1980s)
and marketing (abolishing its minimum price guarantees) while at the same time, fixed
deposits (the source of banks’ mandatory lending) fell and the agricultural sector continued
growing, it became necessary for exporters and processors to find new ways to fund farmers,
with funds not coming from or directed by the government.
Chart 1
Agricultural finance in Brazil, 1969-2012 (in million R$, 2012 values)
180,000,000,000
160,000,000,000
140,000,000,000
120,000,000,000
100,000,000,000
80,000,000,000
60,000,000,000
40,000,000,000
20,000,000,000
0
69
71
73
19 5
77
79
19 1
83
85
87
89
19 1
93
95
19 7
99
01
03
20 5
07
09
11
7
0
19
19
19
19
20
20
19
19
19
19
19
19
19
19
20
20
20
Source: Based on Banco Central, Anuário Estatístico do Crédito Rural, 2012, Table 3.
8
In 1990, mandatory lending accounted for 43% of all official agricultural loans (Gasques, 1995); in
2006, for 46%; in 2014, for 36%. (Ademiro Vian, Seminário Financiamento ao Agronegócio, Plano
Safra 2015/16, Febraban, 30/7/15).
7
The loans given under the SNCR rely on Cédula de Crédito Rural (CCR). CCRs are issued by
the stakeholders in the SNCR system (banks, credit societies, cooperatives); on issuance of
the CCRs, these institutions obtain finance, which is to be reimbursed after the end of the
harvest. Only financial institutions authorized by the Central Bank are allowed to issue CCRs.
The private sector therefore could not use them, and in the late 1980s and early 1990s,
developed new financing mechanisms, in particular
- barter transactions (inputs and services against a promise of future delivery of goods; this
was used in the sugar sector in Brazil’s Southeast, and the soya sector in the Central-West
part of the country)
- prepaid forward contracts (knows as “green soya” contracts). 9 Prepaid forward contracts
were not a new idea (in the 19 th century, Brazil’s coffee producers were financed in this
manner by the country’s exporters), and it became the instrument of choice for significant
private sector funding of agriculture. The instrument was successful in permitting soya
production in the country to expand.
- Certiﬁcados de Mercadoria com Emissão Garantida (CM-G), introduced by the São Paulo
Grain Exchange in 1994. There were two versions: certificates issued against stock already
present in a warehouse, and certificates issued against future harvest (this specified the
quantity and quality of the produce to be delivered, and the warehouse into which it would
be delivered). They were publicly-traded contracts, liquidated through physical delivery of
the produce. Each CM-G had to be accompanied by a bank guarantee, valid for its full life,
as well as by various insurances. In the first half of 1995 – the first year the product really
took off – US$ 5.42 billion of CM-Gs were traded, for a wide range of crops as well as
livestock, fertilizers and wood.10 At the end, however, they were displaced by CPRs.
These contracts carried high transaction costs for farmers (the agri-businesses that provided
the finance built in risk premiums of over 20 per cent) and were difficult to enforce; also, the
same commodities could easily be used for several loans. The Banco do Brasil had been
studying alternatives, and its proposed new instrument, the Cédula de Produto Rural (CPR,
literally “rural product note”, but it can also stand for crop receipt) was written into law in
1994.11 It provided a considerable improvement in the regulatory framework for private
sector-led agricultural finance. CPRs are promissory notes (bonds) that can only be issued by
farmers and farmers’ associations, including cooperatives, in which they promise the delivery
of an agreed amount of crops (including in semi-processed form, such as ethanol) or cattle.
The CPRs are (generally) issued in conjunction with loan agreements, but are legally
independent from them. The loans are generally for the time until harvest of the crop, plus 20
days; or 360 days in the case of the financing of animals or milk. 12 CPRs thus created a new
form of collateral, which was essential to attract new sources of agricultural finance as much
of the traditional collateral of farmers (land, real estate) was already tied up in loans under the
SNCR system.
9
Instituto de Economía Agrícola, Financiamento da Produção Agrícola: expansão do mercado de
derivativos, Análises de Indicadores do Agronegócio, v.7, n. 9, setembro 2012.
10
Ribeiro, 1995.
11
Law 8.929 of 22 August 1994.
12
Banco do Brasil, http://www.bb.com.br/portalbb/page100,107,2917,9,1,1,2.bb
8
While CPRs overcame many of the disadvantages of the earlier mechanisms, for larger
farmers they were not necessarily cheaper. Thus, barter and “green soya” financings
continued to be used, at least until 2003 when, in an environment of rapidly increasing world
market prices for soya, farmers massively defaulted on their “green soya” obligations
(hundreds of court actions followed, some with results in favour of the farmers, others in
favour of the buyers).13
Brazil’s CPR market still has much room for growth. Probably less than 5% of Brazilian
farmers receive finance backed by CPRs – in 2012, one observer noted that “the CPR is much
discussed, but little used”, and “commercial banks [i.e., banks that are not owned by the
federal or state government] have a quasi-symbolic presence in the circulation of these titles,
pushing them to a marginal market”. 14 Nevertheless, the CPR concept has over the years been
refined, and now there are not only different forms of CPRs, but they also have become the
underlying for a vibrant financial market in a whole range of instruments. Since its inception,
many tens of billions of R$ 15 have been traded in these instruments, and CPRs have become
an important, albeit not-dominant financing tool for mid-sized and large producers (the
obligatory lending program referred to above remains their principal means of finance).
13
Decisions in favour of the farmers were generally based on the idea that there had been unpredictable
changes in the market and execution of the contract would inflict undue hardships on the farmer –
thus, there was a force majeure that permitted farmers to renege on their contractual negotiations.
This factor is explicitly excluded as a reason to default on a CPR. There were, in this period, also
defaults on CPRs (but relatively few), where in most cases the CPR buyer won the court case –
except when the CPR was not “real”, in particular if it was signed long before the crop was even
planted, or if on signature of the CPR no payment was made (in cash or kind) by the buyer. (Terra,
2002) The latter became again an issue in 2009. In 2008, many farmers had signed physical CPRs
just to secure their future sale, at what looked like a good price; they did not receive any pre-payment
at the time of the signature. When, in the 20098/2009 food price crisis, prices increased strongly,
many fartmers wished to default on their obligations, and took to the courts to argue that CPRs are
invalid if no payment is made at the time of signature. This argument was ultimately struck down
comprehensively in Brazil’s senior court.
14
Frederico Vasconcelos, A CPR como solução do financiamento, Trivial Jurídico, 28/7/2012. A
recente overview paper on Financing for Small and Medium Rural Producers (Conselho Empresarial
Brasileiro para o Desenvolvimento Sustentável, Financiamento para pequenos e médios produtores
rurais, December 2014) does not mention CPRs at all.
15
CPRs and instruments that build on them cannot yet be issued in hard currency, even though in many
cases, the crops financed through them are meant for the international market, with export prices that
are determined by global markets. As of early 2016, the possibility of permitting US$-denominated
issuance of CPRs and related instruments for export crops, or in R$ but with interest rates indexed to
exchange rates, was being discussed in Brazil.
9
Example of a printed version of a physical CPR
CPR – Rural Product Note

Diamond series 08/10 Quantity: 8,700,000 bags of 60 kg
[Indication of the paper series of which this CPR No. 012014/A
CPR form is part – in this case, it is the 8th Maturity: 30/10/2014
form out of the 10 printed in the “diamond
series”]
Issuer: Moacir Vieira de Almeida (rural Beneficiary: Primavera Importação e
producer) Exportação de Cereais Ltd.
CPF: [identity number for physical persons, issued by the CNPJ/MF: [identity number for legal persons,
Ministry of Agriculture, and used among others as issued by the Ministry of Agriculture]
reference number by the country’s credit bureaus] Address:
IEPR: [“Inscrição Estadual do Produtor”, Rural Rural
Producer Registration Number, obligatory for all farmers,
managed by state-level electronic registries)
Address:
On the thirtieth (30th) day of the month of October 2014, against relinquishing of this CPR, the issuer
commits himself to deliver, to the holder of this CPR, and conform to the relevant clauses in Laws ….,
….. and …, the following:
Product: Soyabeans, in grains and in their natural state, conform the international CONCEX standard,
as established through analysis by SGS [Societé Générale de Surveillance, an international inspection
company]
Quantity: 8,700,000 (eight million seven hundred thousand) bags of soya
Equivalent weight: equal to 522,000,000 kilos, or 522,000 metric tones
Commercial value: will be FOB (Free on Board), that is, free and clear aboard ship
Product characteristics: will always be conform the analysis of SGS, the responsible organization for
qualitative and quantitative analysis of this type of export products
Place of origin of product: States of Tocantins and Goiás, Brazil
Total area cultivated in the “Primavera project”: 174,000 hectares
Productivity: 1st year, 2,800 kg/ha; following years 3,000 kg/ha
Delivery conditions: The delivery of the product will be in grains, FOB, at the following dates and
place:
a) Delivery period: between the months of May and October
b) Delivery location: FOB, Itaqui Port, State of Maranhão
Special conditions: The above-described product will be recognized as delivered to the purchaser,
which will give full discharge of this CPR, on receipt of shipping documents either through a bank, or
through courier. The product will always will be accompanied by a report of SGS, stating its quantity,
quality and specifications according to their chemical analysis, following international standards, and
with a variation of quantity of no more than 5%.
Costs: Transport costs, handling, storage, grading and related costs will entirely be borne by the
issuer.
Taxes: If expressed in national currency, to be borne by issuer
Garanties: Delivery against this CPR will be guaranteed by a pledge over the harvest
Insurance: Any form of insurance will always be to the charge of the buyer
Special obligations: Any legal person which is an assignor of this CPR is obliged to the following:
i) Agree with the delivery of the product as specified above
ii) During the life of this CPR, not to damage or dispose of in any manner to third parties the
products associated with this CPR
Fine for breach: In case of any breach of the terms of this CPR for whatsoever reason, from the final
10
date of delivery onwards, the seller/assignor will pay a fine of 2% on the principal value of this CPR,
and in addition annual interest arrears of 6% (which can be paid in cash or through extra deliveries of
the products specified in this CPR.
Monitoring: the seller will permit the buyer of the CPR free access to the goods, with the purpose of
finalizing the transport and storage arrangements for the goods.
Additional points: This CPR can be ratified, in whole or in parts, by mutual agreement.
Forum: The agreed-upon venue for deciding on any doubts or disputes related to this CPR is the
place of residence of the issuer, that is to say, the county of Porto Nacional, TO, Brazil.
Silvanópolis, 2 May 2006 [NAME AND SIGNATURE OF THE SELLER/ISSUER]
Source: translated from a form provided in O que é a cedula de produto rural e quem pode emiti-la?
Como utiliza-la?, December 2012, http://gestaoeconsultoria.blogspot.nl/2012/12/cpr-o-que-e-cedula-
de-produto-rural-e.html
Example of this same (physical) CPR, registered in the CETIP electronic registry
Time / Date Name of Registry Agent Registry code

10:53 14JUN07 São Paulo Corretora BR40180 BRZSPCV00007
CPR – RURAL PRODUCT NOTE
Issuer: Moacir Vieira de Almeida

CETIP Number: SAPC 06000648 to SAPC 06000658 [numbers of the CPRs in the registry]
Delivery period: From 10/30/2007 to 10/30/2016
Product: Soyabeans
Quantity: 5,185,200 metric tons
Price per ton: US$ 220.00
Total price: US$ 1.140.744.000.00
Characteristics: Pattern SGS [quality description]
Land and field location: States of Tocantins and Goiás, Brazil
Place of delivery: Itaqui Port, State of Maranhão
Origin: Product from Brazil
City, county Porto Nacional, Tocantins
Custody agent São Paulo Corretora de Valores
Irrevocable, transferable and negotiable commodity deposit issued by custody institution in favour of
Primavera Importação e Exportação de Cereais Ltd.
Confirmation of this certificate can be obtained through an authorized Banking Officer by calling
[details of contact person at Registry Agent]
Source: http://gestaoeconsultoria.blogspot.nl/2012/12/cpr-o-que-e-cedula-de-produto-rural-e.html
11
Overview of a Financial CPR (note that the CPR-F on which this is based – see Gaia Agro 2, 2014 –
is 27 pages long, so the example below only summarizes salient features)
CPR-F - Financial Rural Product Note

Number: Product: Sugar cane, as per clause 2.1
Nominal value: R$ 140,755,236.27
Final Maturity: 15 December 2021
Issuer: Raizen Energia S.A. Beneficiary: Agrícola Ponta Alta Ltda.
CPPJ/MF: [identity number for legal persons) CNPJ/MF:
With its headquarters in the city of São Paulo, State With its headquarters in the city of Barra
of São Paulo, with as address …. Bonita, State of São Paulo, with as address ….
Henceforth to be known as Creditor
Razen Energia S.A. hereby issues this CPR-F in favour of Agricola Ponta Ltda., committing itself to
financially liquidate this CPR-F in the national currency according to the terms stipulated below, and
according to Law No. 8.929 or 22 August 1994, and conforming to any other dispositions in force.
1. Definitions and terms (7-page list of definitions)

2. Product – quantity, price and characteristics
2.1 Product: Sugar cane, of the harvests 2014/15 and further years until 2020/21.
2.2 Quantity: 2,479,831,507 tons
2.3 Price of the product: R$ 56,76 per ton
2.4 Product characteristics: not relevant
3. Nominal value, value restatements and payment dates
3.1 The Nominal Value of this CPR-F is R$ 140,755,236.27 on the date of issuance, corresponding
to the quantity of the product as stated in clause 2.2 multiplied by the price as per clause 2.3
3.1.1 The total credit to be disbursed by the Creditor to the Issuer, as per clause 4.3 below, is R$
101,987,000.00 on the date of issuance
3.1.2 The Nominal Value of this CPR-F will be due by the Issuer to the Creditor in 7 terms, with
the values and dates set out in Annex 1 of this CPR-F.
3.1.3 While this CPR-F will be registered for negotiation with CETIP, the payments due to the
Creditor will be done outside of CETIP
3.2 The Nominal Value of the term payments as set out in Annex 1 will be adjusted to inflation,
as per the officially-published consumer price index, for the first time 15 months after the date
of issuance of this CPR-F, and then each 12 months, as per the following Formula: ……
3.3 The issuer irrevocably commits himself to make the payments, as set out in Annex 1, through
electronic transfer to the account of the Creditor, or in whatever other accounts are indicated
by those to whom the rights under this CPR-F have been transferred or ceded.
3.4 Early payment of the Nominal Value (or the remaining saldo thereof) is possible, conform to
the valuation set out in clause 3.2, of which the discounted Net Present Value to be repaid will
be calculated using an interest rate of 5.69% per year.
4. Fund disbursement
4.1 The disbursement of this CPR-F will be to the Issuer’s account
4.2 The disbursement will be the Nominal Value of this CPR-F, on the following conditions: (i)
presentation of the original of this CPR-F; (ii) payment by the Issuer of the taxes and duties
corresponding to this CPR-F; (iii) registration of the CPR-F conform clause 12.1; (iv) non-
occurrence of any of the events set out in clause 9.
4.3 The Issuer authorizes the Creditor to deduct from the payment (i) all the duly approved costs
associated with the issuance and registration of this CPR-F; (ii) reasonable expenses associated
with the issuance of the CRA associated with this CPR-F; (iii) funds necessary to constitute a
Reserve Account in the framework of the CRA.
12
4.4 This CPR-F is automatically cancelled if the above conditions are not met within 180 days of
the publication of the first announcement of its issuance.
4.5 The issuer obliges itself to exclusively use the funds of this CPR-F for its agribusiness
activities, on its own land, for the production, processing and marketing of sugar cane, ethanol
and ethanol products
4.5.1 The issuer declares that the funds from the issuance of this CPR-F are not superior to its
productive capacity, and that it will not issue any new CPRs above its productive capacity.
5. Linking of this CPR-F to Agribusiness Receivables Certificates (CRAs)
5.1 The Parties recognize that this CPR-F is lined to a CRA issuance, as per clause 8.1 below, and
conform to article 23 of Law 11.076
6. Guarantees (sets out the obligations taken on by the company that has added its aval to the CPR-
F – Raizen Combustiveis, a sister company focusing on fuel distribution).
7. Defaults (sets out the fines and penalty interest rates in cause of payment default by the Issuer)
8. Declarations
8.1 The issuer and Aval provider hereby jointly declare that:
a) the Issuer is a rural producer in the States of …
b) they are aware that this CPR-F will be endorsed by the Creditor to a Special Purpose
Vehicle, Gaia Agro Securitizadora S.A., for its issuance of CRAs
c) meeting the conditions of this CPR-F does not infringe any earlier obligations
d) they have all the necessary authorizations to enter into this CPR-F (etc.)
9. Acceleration (conditions under which the Creditor can demand early repayment of the sums due)
9.1 (Conditions for acceleration – improper use of funds, legal issues, corporate events, etc.)
9.2 Acceleration will be automatic, independent of any legal procedure, in case of conditions (a),
(f), (h)…..
10. Early payment (process for the Issuer to make early payments, in part or whole)
11. Assignment and endorsement
11.1 The Issuer cannot assign or endorse any of his obligations under this CPR-F to a third party
without previous written permission from the Creditor.
11.2 The Issuer authorizes the Creditor the assign or endorse this CPR-F, as long as the
obligations of the Issuer are not changed as a result.
12. Registration and custody
12.1 This CPR-F will be registered by (i) the Issuer, it Real Estate Registry of its headquarter city;
(ii) through Oliveira Trust S.A. (the Custodian) with CETIP
12.2 The Custodian will safeguard the original copies of the documents relevant to this CPR-F,
until their liquidation.
13. Additions and modifications (permits Issuer and Creditor to make changes to the document)
14. Taxes and duties (responsibility of Issuer)
15. Socio-economic conditions (the Issuer declares to meet national regulations on child labour etc.)
16. Excessive burden (the Issuer declares that the obligations under this CPR-F are competitive and
in line with its economic and financial capacities, and that at no time the Issuer can invoke the
“excessive burden” prevision for contracts as et out in the country’s Civil Code)
17. General conditions (among others, the Issuer recognizes that the CPR-F can be enforced extra-
juristically; commits itself to keep the Creditor informed of any material changes in its conditions;
recognizes the CPR-F as irrevocable and binding upon itself as well as its successors)
18. Forum: the country of São Paulo is the unique forum to resolve any doubts or controversies.
Issued in 4 (four) identical originals, of which 1 (one) is negotiable, and 3 (three) are not.
São Paulo, 30 September 2014 [NAMES AND SIGNATURES OF THE SELLER/ISSUER and AVALIZER]
2. The basic forms of CPRs
13
In 1994, only one form of CPR was provided for: a physical CPR, in which the farmer or a
farmers’ association commits to the delivery of a specific commodity at a specific location.
This implies that they have effectively fixed their sales price. The warehouse (or stock yard,
in the case of cattle) is mentioned, a narrow delivery window is set, and grades and quality
specifications are clear (often, discounts and premiums for varying quality specifications are
set in the CPR). Partial deliveries (prior to the maturity date) are possible (they are to be
noted on the back of the CPR), with agreement of the buyer. CPRs can be used as a hedge
instrument (ie., for farmers to lock in their future sales price, without receiving any upfront
payment for their crops/cattle), but most are used as a financing instrument.
In all, there are eight ways in which physical CPRs are used:
 Most commonly, physical CPRs are issued to input providers, rather than to buyers
(trading companies or processors). 25-30% of the input sales in Brazil are estimated
to pass through this channel.16 In Brazil, this highly successful model is often called a
barter transaction (see Figure 1). In fact, input suppliers were the main drivers of the
CPR system in its initial years, as they were anyway forced, for commercial reasons,
to provide inputs on credits and the CPRs not only made this safer, but also permitted
them easier refinancing. In this case, the producer enters into a contract with an input
supplier for the provision of a basket of goods (fertilizers, seeds, etc.) and services
(spraying and even harvesting), and pays for these services with a CPR (a physical
CPR to commits the producer to a delivery, say the next year, for a fixed price).
These transactions have benefitted all kinds of producers, from small to large, but as
price risk is an important part of input providers’ risk assessment for these deals, they
have been limited to commodities with transparent markets (soya, cotton, maize,
coffee, sugar cane, rice, wheat and fruits, as well as live cattle) 17 – the trading
companies prefer to be able to manage their price risk.
Figure 1
The “barter” transaction
5. Delivery of crops/livestock
16
Gustavo Aguiar, Entenda: operações de barter, Scot Consultoria, 18 March 2014. Other estimates are
higher. E.g., Rabobank, in 2013, estimated it at 40%. (Rabobank vê expansãde operações com base
em trocas, Portal Jornal Cana, 17 September 2013) BayerCropScience, one of the country’s leading
input suppliers, estimates that 40% of its sales are through such barter transactions; Agrex do Brasil,
another important input supplier, indicates that it accounts for 30% of its sales. (Troca de insumos por
grãos de novo em alta, focorural, 5 August 2014)
17
Viviane Taguchi, Troca eficiente no campo, Dinheiro Rural, October 2010.
14
 More recently, similar schemes have been introduced for the sale of tractors,
irrigation systems and other agricultural equipment. This follows a considerable
reduction from 2014 to 2015 in the budget of the main financing scheme for
agricultural equipment, managed by the government-owned national development
bank, BNDES, and a large increase of its interest rates. 18 Commercial banks were not
ready to fill the gap, and equipment sellers found themselves faced with falling
demand. To facilitate the sale of their products, they adapted the trilateral “barter”
structure, using CPRs, as shown above. For example, in late 2014 New Holland, a
manufacturer of agricultural machinery, started a programme through which
producers could buy equipment up to US$ 250,000 with an avalized CPR. In the
more limited number of cases where farmers need equipment loans higher than US$
250,000, they also need to provide a mortgage on their land. 19 For annual crops, CPRs
tend to be only for the next harvest, but for tree crops such as coffee, manufacturers
can accept CPRs for harvests over the next three or four years.
 Banks can acquire physical CPRs from input companies or directly by lending to
farmers, then add their aval (endorsement), and sell them to trading companies that
wish to have forward contracts but do not want to take any production or credit risks.
This is done particularly by Banco do Brasil, which has an electronic system on
which trading companies can register their interest in buying certain commodities at
certain locations.20 This particular mechanism is reported to be little-used.
 Farmers who are organized in cooperatives, with processing of their commodities

taking place at the cooperative level, often issue CPRs to the processors which then
package these into more sophisticated financing instruments (CDCAs, discussed
below).
 CPRs are also issued directly to trading companies. According to market estimates,
70-80% of the prefinancing provided by trading companies for goods that are to be
exported are backed by physical CPRs as guarantee for the farmers’ delivery. 21
Typically, if physical CPRs are issued to a trading company, the producer receives an
advance payment of 50 per cent of the face value of the CPR. Traders generally do
not require a bank aval on these CPRs. The trading companies in turn obtain pre-
export credit from banks, in which the banks take the CPRs as collateral.
 Farmers can furthermore issue CPRs to trading companies not as a way to get
prefinance, but merely to manage the price risk related to their future sales, as the
physical CPR fixes the price at which they will be paid on delivery. This modality
was for a long time controversial, but a senior court decision in 2010 made clear that
for a CPR to be valid, it is not essential that a payment is made before the delivery of
18
Fábio Moitinho, O barter resurge, Dinheiro Rural, October 2015.
19
New Holland usa barter para comercializar máquinas agrícolas, Globorural, 29 May 2015.
20
The electronic trading system can be found on https://www.agronegocios-
e.com.br/cpr/quantoCusta.cdr. For issuers, the cost of the system is the cost of registering the CPRs
in an official registry, plus the cost of a Banco do Brasil aval. Buyers pay a fee of 0.75% of the value
of the goods, plus various taxes and duties in the case of physical CPRs.
21
Morato, 2015.
15
the commodities covered by the CPR – payment can be given in advance, made in
instalments, or made after delivery.22
 Farmers can also issue CPRs to a bank as guarantee for a bank loan. Physical CPRs
are difficult to use in the normal manner for banks, as they ultimately have to find a
physical market buyer to take delivery of the commodities. So for banks other than
Banco do Brasil (which on-sells physical CPRs through its electronic system) the
common practice is for these CPRs to act only as a guarantee, with the bank
presenting them to demand delivery in case of non-payment of the debt. This has
been legally a somewhat controversial use of CPRs, with some market observers
(including CETIP, until April 2016 one of the two registers for CPRs – in that month,
it was bought by BM&F BOVESPA) doubting whether CPRs issued as guarantees
would be accepted as a document of title for the underlying commodities. 23 During
the 2000s, various lower courts in effect declared CPRs issued as guarantees invalid,
and only in 2010 was there a decision by a higher court that made clear that a pre-
payment was not essential for the validity of a CPR.
 CPRs are used in government market interventions. Such CPRs are not registered in
the official registry. The main use is in in the procurement operations of the National
Food Supply Corporation (CONAB), in two forms: “CPR-donation”24 (CPR-doação –
the full name is “Purchase from Family Agriculture with Simultaneous Donation”, so
called because the products bought are used in the government’s food donation
programme) and CPR-stock” (CPR-estoque). In both cases, CONAB buys
agricultural produce from small producers who are organized in associations, at a set
official minimum price (with a maximum per producer per year, for the two CPRs
together, of R$ 4,500; and a limit of 1.5 million per farmers’ organization). The first
are meant for family farmers to supply governmental and non-governmental
organisations that support food-insecure populations; the second to permit
organizations of family farmers to acquire stocks of agricultural commodities (for
price stabilisation purposes, and to permit them to add value). CPR-donation has to be
settled through physical delivery (farmers are given a year to deliver to the agreed
agencies), and CPR-stock is settled financially. 25 In the case of coffee, to protect
coffee farmers the government-managed Coffee Fund (Fundo de Defesa de Economia
Cafeeira, Funcafé) provides credit lines for the purchase of coffee CPRs. 26
22
Superior Tribunal de Justiça (STJ) – Relatora Ministra Nancy Andrighi – Recurso Especial n.º
910.537, D.J.: 25/05/2010 (discussed in Cibele Ravaele de Vasconelos, Cédula de produto rural:
validade jurídica da CPR física emitida sem adiantamento financeiro, Jus Navigandi, July 2015. This
was later reinforced by another Superior Tribunal decision ((STJ) – Relatora Ministra Nancy
Andrighi – Recurso Especial n.º 1320.167, D.J.: 2/05/2014)
. This is the case irrespective of whether the CPR itself is used as a forward contract, or if there is a
separate forward contract to which a CPR is attached as collateral.
23
Morato, 2015.
24
See Sofia Naranjo, Supportive policies secure a future for family farmers, LEISA India, June 2009.
25
CETIP, Titulo 30 – compra da agricultura familiar dom doação simultânea – CPR-doação,
CONAB/MOC, 15/8/2008; and Titulo 33 – formação de estoque pela agricultura familiar – CPR-
estoque, CONAB/MOC, 16/9/2010.
26
Funcafé has an annual budget to buy CPRs and CDCAs (issued by coffee cooperatives) through
Banco do Brasil’s trading network. The operational modalities of the credit line made available by
16
Despite this variety of uses, the link of the CPR to physical delivery made CPRs less
attractive to market actors who could not easily take delivery, or sell the CPRs forward to a
third party. To bring more financial sector players into the market, in including investment
funds that were not permitted to take physical delivery of commodities, in 2001 the
government therefore introduced two new categories of CPRs: financial CPRs, and CPRs
indexed to the futures market or another price reference system. 27 (see Figure 2)
In a financial CPR, the farmer issues a note28 with a size that is determined on the one hand by
his pre-harvest financing needs, on the other by the expected value of his future production.
The bond can be issued to a bank or other credit provider which has already promised to
finance the farmer; or it can be auctioned off to the highest bidder through the electronic
network of the commodity exchange (the latter would generally require the farmer having
received an aval/guarantee from a reputable bank or cover from an insurance company on his
CPR). The bond has to be secured through the pledge of agricultural commodities. On
expiry, the farmer pays off the bondholder. The final payment could be on the basis of
floating interest rates or fixed interest rates; the latter has become the most popular.
the Brazilian Central Bank (see Banco Central do Brasil, Resolução 2871, 3/7/2001) permits to role
these CPRs forward, as long as the producer pays back 20% of the principal, plus the interest charges,
and presents new CPRs; and in time of difficulties for the coffee sector, the government can make
extra resources available for this purpose. In 2008,for example, the government allocated an
additional a R$ 300 million facility to buy “old” CPRs, issued in 2007 and rolled forward to 2008,
which farmers had not been able to pay back because of price falls. Funcafé: R$ 300 milhões para
quitar dívidas de CPR, 5/9/2008, http://www.cafepoint.com.br.
27
Law 10.200 of 14 February 2001.
28
In practice, farmers generally issue consecutive CPRs, to cover the cash flow requirements of each
phase of their production campaign.
17
Figure 2
Basic forms of CPRs
Initial date Harvest/delivery time

Physical CPR
Payment Buyer/ Buyer/
Farmer investor Farmer investor
Sale of a bond
committing delivery of a set amount of Ware-
crops, processed products or cattle of Delivery of crop house Delivery of
a stipulated quality at an agreed
or cattle into pre- warehouse/
delivery location. Set
discount/premium if delivery quality
agreed warehouse/ stock yard
differs from the agreed one. stock yard receipt
Financial CPR
Payment Investor/ Investor/
Farmer input cy. Farmer Payment of input cy.
Farmer issues
the CPR, at
a Financial Sale
issue value plus
CPR, based on the expected
interest
value of his future production
Market
CPR indexed to
futures market
Payment Buyer/ Buyer/
Farmer investor Farmer investor
Farmer issues Payment
an indexed of quantity multiplied by
CPR, specifying a quantity and a the reference price at the
reference price eve of settlement
Source: Based on Sousa and Pimentel, 2005.
Investors who by law were prohibited from holding contracts or bonds that could result in
physical delivery (e.g. pension funds) flocked into financial CPRs. Also, financial CPRs were
often used as a marketing tool by input or service providers. For example, a farmer may buy
fertilizers on credit through the issuance of a CPR; or a warehousing company can entice
farmers to store their goods by immediately arranging a loan against them. After their
introduction in 2001, they rapidly became the largest form of CPRs. However, since 2005
their volumes have been declining. As of 31 December 2010, the notional value of
outstanding financial CPRs was US$ 700 million (to put this into perspective, it is less than 2
per cent of total bank credit to the rural sector, and can be compared with a total US$ 3.6
billion of CPRs estimated to be outstanding in April 201029).
29
Ambina, 2010.
18
Index CPRs in principle combine the best of both worlds: for the investor, they do not give
rise to any physical delivery; and for the farmer, he has effectively managed his price risk.
The investor has taken on this price risk, but in most cases, if he wishes he can manage this on
the futures market. Nevertheless, these instruments have been used quite sparsely. Farmers
possibly prefer to handle price risk management and finance separately.
A fourth form of CPRs, export CPRs, was created by the Banco do Brasil. The can only be
bought by entities from outside of Brazil. The first one was issued by a coffee cooperative to
a Japanese buyer in October 2000. Figure 3 illustrates how these CPRs function.
Figure 3
The export CPR
Source: author
Export CPRs are physical CPRs that can only be issued by farmers or their associations for
the purpose of export to buyers who are not resident in Brazil. It can be issued at any moment
of the production cycle – from pre-planting, to when the goods are already in a warehouse.
Its terms are determined by the commercial terms of the export contract – price, quality,
delivery location and time, Incoterms. The producer issues the export CPR, and Banco do
Brasil guarantees it by aval. The buyer opens a letter of credit, against which Banco do Brasil
provides a 50 per cent pre-export finance to the producer. At the same time, the buyer
19
receives a non-negotiable copy of the Banco do Brasil export CPR, as well as an endorsable
custody certificate. The buyer endorses the custody certificate to the bank through which he
opened his letter of credit. At delivery time, the producer delivers as per contract, and after
receiving proof of delivery (shipping documents), the international bank pays as per the letter
of credit. If there is a delivery failure, the buyer firstly is protected by the Banco do Brasil
aval, and secondly, by the custody certificates which give him access to the underlying CPR
issued by the producer to Banco do Brasil and hence, to the physical commodities that were
pledged under this original CPR. Given this strong recourse in case of default, avalized
export CPRs have been readily acceptable collateral for international banks so buyers have
had no problems in obtaining finance for their payment obligations under these CPRs.
CPRs reduced financing costs for farmers: for coffee producers, for example, considerable
improvements were found as compared to the costs of informal credit (through barter
transactions in which inputs are paid through the later delivery of coffee), with an overall cost
of CPR-based financing of 24% compared to double that on the informal market. In the rice
sector, in the early 2000s, the monthly financing cost using CPRs (including the costs of a
bank aval) were 2.05%, compared to 4% per months for credits provided by rice processors
(including cooperatives), and 3.8% to 5% per month for credits from input providers. 30
However, costs are still much higher than government-supported loans, where the annual
interest rate is less than 10%.31
It is worth noting that CPRs are compatible with Islamic finance. In January 2013, the first
Shariah-compliant financing transaction in Brazil’s agriculture was done by Abu Dhabi
Equity Partners, ADEP), an investment bank registered in the Cayman islands, for a sugar and
ethanol producer. The bank expected to do a total of US$ 100 million of 3 to 6 months
transactions in the first half of 2013 (ADEP places these loans with Middle East investors). It
envisages transactions for soyabeans, sugar, ethanol, cattle, cotton and maize. These loans
are typically in the US$ 5 to 35 million range. Farmers sell their crop (or cattle) to the
investment bank at a discount (through physical CPRs that are registered with BM&F
BOVESPA – the only registry left since April 2016 when it acquired CETIP), then after
harvest act as sub-agent (“wakala”) for the bank in selling the crop. Sales are to large trading
houses, and receipts are collected through an escrow account, with the principal (the original
financing) plus an agreed profit margin going to the bank, and the remainder to the farmers.
The crop is insured against weather risk, and ADEP buys over-the-counter put contracts to
protect itself from the risk of falling prices. Control Union, an international monitoring
company, provides surveillance, and through remote cameras, permits investors to actually
see the goods in the warehouse, the cattle grazing or the trucks loading up. The first
transactions were for crops almost ready for harvesting as well as for inventories, but the
intention is to move further up the chain, to 6-12 month transactions that would serve to
finance seeds and fertilizers.32
30
Oscar Bertoglio, Clailton Ataídes de Freitas and Alvaro Luiz Machiavelli Filho, O perfil dos
produtores e as alternativas de financiamento na cultura de arroz na região de Pelotas, Universidade
Federal de Santa Maria, 2002.
31
Abdala, 2001; Duarte, 2003.
32
Hadeel al Sayegh, Brazil’s farmers reap from Adep’s financial lifeline, National Business, 29
January 2013.
20
3. Using CPRs in structured trade finance
Because of their strong legal status, CPRs can make the structuring of finance much easier.
Figure 4 gives an example. At its root, this has a standard structure. A financier prefinances
a farmer, in this case for cattle rearing; this is a working capital loan which can have a
maturity of up to one year, longer than for crops where the maximum maturity is a crop
season. Before the financier disburses the funds, the farmer has to have a contract in place
with a reputable buyer, and assign the payment under the contract to the financier.
Figure 4
Using CPRs in a structured finance transaction
Source: Junior, 2008.
The farmer uses the funds for his cattle rearing operations. The animals pledged under the
transactions are marked accordingly. 33 An inspection company monitors that indeed, funds
are used to buy feed, the health of the animals is well taken care of, etc. Once the cattle are
ready for sale, they are delivered to the buyer who pays into an escrow account that was
previously appointed by the financier. The investor is reimbursed the bond’s face value plus
the interest charges, and the remainder is remitted to the farmer. The financier runs the risk
that the value of the cattle has fallen during the life of the loan, but he will normally hedge
against this risk using futures contracts on Brazil’s exchange, BM&F.
The financier can be an investor or a bank; the heightened competition is, from the
perspective of the farmer, one of the benefits of the CPR’s bond status. For the financier, the
benefit is that the bond is legally much stronger than a simple pledge, and enforcing his rights
is relatively fast and easy.
33
The cattle have to be identified by numbered rings, with “SISBOV” numbers registered in the
Ministry of Agriculture and the vaccination control services. All of the animals’ SISBOV numbers
are specifically mentioned in the CPR.
21
4. The legal and regulatory status of CPRs
CPRs have a number of well-defined features enshrined in Brazilian law, including:

 Defining the CPR as a promissory note as a unilateral promise by an issuer (a
borrower) that he will pay a certain amount by a certain time;
 Securing the CPR against future production of the land in the event of default by the
issuer;
 Creating the basis for adding secondary collateral, third party guarantees and
insurance to enhance the CPR as a credit instrument;
 Providing for fast track execution with very limited need for court proceedings;
 Establishing priority claims for CPR holders in the event of issuer insolvency;
 Excluding as reasons for default force majeure 34;
 Defining registration requirements that provide a CPR with its legal standing;
 Making CPRs endorsable and negotiable instruments that can be traded in a
secondary market; and
 Embedding certain exemptions from tax for traded instruments.
CPRs are based on promissory notes, and from this they derive most of their strengths.
Promissory notes have many advantages over bilateral contracts, such as loans.
A promissory note is a unilateral promise by an issuer (a borrower) that he will pay a certain
amount by a certain time. Unlike a loan agreement, it is not signed by the lender. The fact that
a loan is signed by both lender and borrower means that there are certain obligations on the
lender, and with this, certain conditions under which the contract becomes unenforceable.
This is the case, for example, if the borrower can demonstrate that he did not understand
exactly what he agreed to, or that the lender made a misrepresentation during the negotiation,
or neglected to disclose important facts, or even, that the contract was unfair. Furthermore, a
contract, including a loan, can be judged unenforceable if it is too difficult or too expensive to
carry out. One of the commonly accepted grounds is that some unexpected event has occurred
outside of the borrower’s control (known as a “force majeure” event, or “act of God”, in civil
law; common law has a similar but somewhat narrower concept of “frustration”); and
34
And if there is a default due to crop failure, Brazilian law allows the creditor to impound the next
harvest.
22
performing the obligations under the contract have as a result become much more difficult or
expensive. In sum, loan agreements carry many legal risks for banks, and these risks are
partly unpredictable: on what basis will a judge decide whether meeting contract obligations
has become “too expensive” for a borrower? (Incidentally, this is one of the reasons why
many microfinance institutions, worldwide, require promissory notes from their borrowers)
With a promissory note, there are no obligations on the lender, and therefore all the above
risks are absent. In fact, a promissory note can become unenforceable only if it contains
unenforceable terms (e.g., an illegally high interest rate) or if certain documentary
requirements are not met (e.g., the note is not signed, or the original is missing, or it is too
old). This makes promissory notes, among other things, immune to force majeure challenges.
Furthermore, in general, rights under promissory notes can be easily transferred through
endorsement. The holder of a promissory note can even transfer these rights in part, for
example the principal amount to one party, and the interest to another. Such liquid
instruments are popular with financiers, and thus, an input supplier who wishes to refinance
his outstanding credits (backed by CPRs) will find that his interest costs are much lower when
he endorses the CPRs to financiers than when he takes out a normal working capital credit
line.
Moreover, in most countries, rights under promissory notes can be enforced much more easily
and rapidly than rights under loans. In Brazilian law, a distinction is made between
23
enforcement through ordinary action or through execution proceedings. In the first case, the
creditor first has to prove his case in court (the cognizance of the debt), and only after having
won (which can take years) proceed with executing the court award. This implies that if there
is only a loan agreement, even enforcement against guarantees or collateral included in the
loan contract is only possible after the court award.
With respect to the second case, certain documents, including promissory notes, are listed in
Brazil’s Code of Civil Procedure as establishing by their very nature that the debtor owes a
certain amount. So there is no need to go to court to prove the existence of the debt, and the
creditor can move at once to execution, with a demand to the debtor that he pays within 24
hours, followed rapidly, in case of lack of payment, by seizing and selling the assets of the
debtor (more particularly, those assets mentioned as collateral in the promissory note). The
act of seizing and selling still requires the collaboration of a bailiff (a court-appointed
enforcement agent) who in practice may not act immediately, but still, enforcement is a
matter of weeks, not months, as would be the case with loans.
Finally, in general (including in the case of the notes used in Brazil’s agricultural finance)
promissory notes are recognized by law as privileged credits which (unlike normal loans) fall
outside of the scope of bankruptcy proceedings – the holder of the promissory notes has
priority rights over the collateral mentioned therein.
A sound environment for the international use of promissory notes was created in the
Uniform Law for Bills of Exchange and Promissory Notes (Geneva, 7 June 1930), to which
24
Brazil had acceded in 1942. It was updated by the United Nations Commission on
International Trade Law (UNCITRAL) with the United Nations Convention on International
Bills of Exchange and International Promissory Notes, adopted by the UN General Assembly
in 1988, but which still has not come into force. As a consequence, there are differences from
country to country in the exact legal status of promissory notes and in the way that courts treat
them, so when introducing a CPR-type system into a country, the exact status of promissory
notes should be explored, and if necessary and possible, measures need to be taken to ensure
the type of privileges discussed above.
In all, CPRs have a strong legal status under Brazilian law. At essence, they are promissory
notes, given much greater certainty to buyers than traditional forward contracts would have.
Whatever happens, the CPR seller has to perform on his obligations. If he does not, the buyer
has access to a fast and efficient arbitrage system, with no dependency on the generally slow
courts. There are few requirements to produce evidence and little room to discuss the merit of
the case.35 The seller is also explicitly barred from using force majeure or “Acts of God” as an
excuse for defaulting on his obligations.
Holders of CPRs have the right to move to extrajudicial enforcement of the pledges made as
part of the CPR (i.e., they do not have to prove the existence of the debt in court, but can
immediately move to enforcement, using a court-appointed enforcement agent). Typically,
this includes the right to take possession of the goods harvested on the land identified in the
CPR; or if the harvest is not yet complete, the right to finish the growing and then harvesting
and sale of the crop (there is normally a commitment in the CPR which prevents the
defaulting issuer from selling the land in order to avoid his obligations). If the product that
was subject of the CPR cannot be found (the CPR holder/creditor can, through a bailiff, try to
find the goods in the region’s warehouses and if found, sequester them), then the holder has
the right to seize and sell the debtor’s assets for the value of the CPR, plus costs and
damages.36
This has not prevented farmers from trying to renegotiate in particular physical CPRs: when
the market price at time of delivery exceeded that agreed on in the CPR they thought it fair to
ask for a higher price, without taking into account whether the buyer had perhaps hedged
himself against price risk. But if farmers pose such demands, CPR buyers are in a strong
position to refute them.37
35
36
Massarotto de Oliveira, 2006. In the case of a default on a physical CPR, the creditor thus has to
make two claims: first, for the delivery of the goods promised in the CPR, within 48 hours; and if
these goods are not delivered (or only partially), a second claim for their value, plus costs and
damages, to be paid by the debtor within 24 hours. In the second case, there are procedures that slow
down the recovery of the funds, but in most cases, assets can be sold and liquidated within 30 days.
One law firm estimates that as a result, as much as 90 per cent of losses on defaults are recovered
(Demarest & Almeida advogados, Títulos de agronegócio, undated, www.demarest.com.br). In the
case of a financial CPR, there is only one enforcement action – for payment of a “known amount” –
in which the debtor is given 3 days to pay; if the creditor has to seize the debtor’s assets, it can take a
total of 15 days (Henrique Gomes, Sérgio (2012), Execução Forçada e Cédula de Produto Rural).
37
www.jusbrsil.com.br contains a searchable database of court judgments (with summaries on the
cases and decisions).
25
5. Experiences with CPR defaults
There have been very few defaults with CPRs, and in the default cases, recovery rates have
been high (in other words, the Loss-Given-Default has been low). CPRs provide for the
possibility of collateral or guarantees. While this is not obligatory, it has become standard.
Collateral can take the form of a pledge on the underlying crop, or on other floating assets, or
a mortgage on real estate. Guarantees can come in the form of bank avals/guarantees (Banco
do Brasil, the country’s largest bank, is the most active player in this domain), or insurance
against default (this can be difficult to obtain and expensive). 38 The buyer/financier often
engages a monitoring agency to follow the pledged crop as it approaches and then enters the
harvest phase, so it benefits from early-warning signals when a transaction starts growing
wrong.
In court cases following defaults, generally, it was found that there was no legitimate excuse
for farmers to default on their obligations (unlike the case of loan contracts). But it took time
to establish this firmly in the minds of courts, and at times cases wound their way for years
from local courts to higher ones before legal interpretations became clear.
In the first serious challenge to CPRs, a number of defaults occurred in 2005, after world
market prices for soyabeans had increased precipitously and some farmers did not want to
deliver for the prices at which they had committed in physical CPRs. The defaulting farmers
argued in court that they had the right to sell their product at market prices, and in some cases,
courts sanctioned their contract defaults. But by 2008, a higher court had decided that a
trader who had bought CPRs from a large soya producer had made a prepayment, not a loan,
and had the right to delivery of the pledged soyabeans. This made CPRs on which advances
were made safe under Brazilian law.
The last major issue to be resolved was the legal status of physical CPRs for which those
receiving the CPRs had paid no advances – in other words, these CPRs were used only as
forward contracts, not as credit instruments. For years, there were local courts in parts of
Brazil that annulled farmers’ obligations under such CPRs because drought, excessive rains or
pests had severely damaged their production. It was only in May 2011 that an unequivocal
decision of the High Court decided that these grounds had no validity, and that a farmer’s
obligations under a CPR, even those were no advances were paid, are truly unconditional.
In all, where there were defaults, it was possible for buyers of CPRs to claim their rights fast,
and obtain priority over other creditors. For example, when the issuer of a financial CPR
under which 32,918 animals had been pledged fell into bankruptcy, the injunction of the
buyer of the CPRs was granted, and 15,000 animals were seized. When a sugar company
defaulted on its obligations under an Export prepayment agreement (EPA) backed by
CDAs/WAs, the release of the product represented by the CDAs/WAs to the financier was
granted. In the case of a sugar mill that had been declared bankrupt, an investment fund that
had bought CDCAs guaranteed by CPRs under which sugarcane was pledged received a
favourable order that the sugarcane belonged to the fund. The revenue from the cane’s
38
The agricultural insurance market in Brazil is still developing. In 2005, there were less than 1,000
crop insurances in place in the whole country (for more than 5 million producers). (De Oliveira,
2007)
26
processing and sale had to be deposited on an escrow account and stayed out of the general
bankruptcy proceedings, with priority to serving the obligations to the fund. 39
While defaults on CPRs that were entered into for legitimate commercial reasons have been
low, there have also been cases that the CPR system has been abused for fraudulent purposes.
Brazil has seen two major such cases: Banco Santos and the Avestruz Master.
In the case of Banco Santos, the R$ 2 billion fraud, discovered in 2004, was by the bank. The
bank bundled CPRs into LCAs, which it then refinanced on the secondary market. The
problem was that the CPRs were fraudulent. Banco Santos used an aspect in CPR regulation,
under which CPRs can be paid at any moment in between the signature and the delivery of the
goods.40 While CPRs are normally used as a prefinancing tool, Brazilian regulations leave all
payment options open. In the case of Banco Santos, the bank convinced a number of farmer
organizations to issue CPRs that would for 99.5% be paid only on delivery of the goods, with
just a 0.5% payment on issuance. The farmers received comfort letters that they would not be
asked to actually make deliveries, and they were urged to secrecy on the deals. The sale was
to an intermediary company owned by the same people who owned Banco Santos – they paid
0.5% of the face value, and Banco Santos then bought the CPRs from them at full value.
Banco Santos then bundled these CPRs into LCAs, using the full nominal value of the CPRs
to collateralize the LCAs. When the bank defaulted on its payment obligations under the
LCAs, it was declared bankrupt. The holders of the LCA had recourse to the CPRs, but found
that this recourse had no value as the CPRs were still to be paid. Court cases discussed the
liability of the farmer organizations: did they know, at the time, that they were facilitating a
fraudulent scheme? Most of the court judgements were that, indeed, the farmers were willing
participants in a fraud, and thus liable; courts that judged otherwise felt that the 0.5% payment
could not be not sufficient to incite the farmers to engage in a fraudulent venture. 41
2004/2005 saw the case of Avestruz Master Trust, one of the largest of a number of similar
fraudulent schemes for pork and cattle. 42 Avestruz was a farm management company that
since 1998 had been issuing over-the-counter CPRs to individual investors. At the end of
2004, the company was ordered by the capital market regulator, CVM, to stop selling such
CPRs. The company publicly protested its innocence, including through a television
advertisement campaign. But it started defaulting on its cheques, and within a few days, the
police started seizing its assets and arresting its officials. Avestruz was declared bankrupt in
June 2006, and the massive nature of the fraud – a form of Ponzi scheme – became apparent.
Avestruz sold CPRs with an 18-month tenor, promising returns of 7-12% on the breeding of
ostriches in large ostrich farms. The company was supposed to have 600,000 ostriches, but in
fact only had 38,000. Foreign buyers were supposed to be lined up the buy the ostrich meat,
39
Ministry of Agriculture, Livestock and Food Supply, 2010.
40
This is not a loophole, but a deliberate feature of CPRs, meant to strengthen their position as
negotiable instruments that stand on their own. Early court cases had at times decided that CPRs were
only valid if, at issuance, a certain consideration was paid to the issuer; the courts argued in these
cases either that the CPR was essentially a credit instrument, so if nothing was paid then the CPR
was invalid; or they argued that under consumer protection laws, a contract requires a fair exchange,
so in the absence of any payment the CPR would be invalid. However, in 2010, a Higher Court of
Justice decided that the CPR law “does not impose, as an essential condition for the issuance of a
Cédula de Produto Rural, the previous payment for the acquisition of the agricultural products
represented thereby.” (quoted in De Lima Ramos, 2015).
27
but in fact there were none. Some 40,000 investors had been attracted by the Avestruz Master
offer; in all, they lost more than R$ 1 billion.
These frauds hurt the trust of retail consumers, making it difficult to build liquidity for CPRs
through the stock exchanges, which would have been the logical next step for the
development of the CPR system in Brazil.
41
See for exemple Confederação Nacional das Instituições Financeiras, BC e cooperativas gaúchas
lutam por cobrança de massa falida, Noticias, 5/2/2015.
42
In 2004, the one Ponzi scheme that was larger had collapsed: “Engorda de gado nas Fazendas
Reunidas Boi Gordo”, in which investors thought they were partners in cattle fattening, 30,000
investors lost 3.9 billion R$.
28
6. Building on CPRs – the alphabet soup43
Only farmers and their associations can issue CPRs. For others, the government introduced a
series of new pre-harvest instruments in December 2004, inspired by its experiences in the
real estate sector.44 Two post-harvest instruments were also introduced at that time. Table 1
gives an overview of the various agricultural bonds now available. As is the case for CPRs, if
they are to be traded, these instruments have to be registered in one of the two permitted
registries; they can be transferred by endorsement; rights are enforceable through arbitration
procedures; and they benefit of priority rights – the commodities mentioned in the notes
cannot be seized by third party creditors, even in the case of bankruptcy of the issuer.
Table 1
Agricultural bonds in Brazil – acronyms
Acronym Name Underlying collateral Issuers

Pre-harvest
CPR Cédula de produto rural Crops, cattle, to be Farmers, cooperatives

produced in future
LCA Letra de crédito do Loans backed by Banks
agronegócio agribusiness credit rights
CDCA Certificado de direitos CPRs Agri-businesses
creditórios do
agronegócio
CRA Certificado de recebíveis Receivables (linked to Securitization
do agronegócio CPRs and CDCAs) companies
EPA Export prepayment Commodities (agri or Commodity producers
agreement non-agri)
Post-
harvest
CDA Certificado do depósito Goods in warehouse Warehouses

agropecuário
WA Warrant agropecuário Goods in warehouse Warehouses
43
Agricultural finance in Brazil is replete with acronyms for particular instruments. Apart from the
bonds discussed here and the instruments used in government agricultural credit programs (CRPs,
CRHs etc), for example, financiers can discount Rural Promissory Notes (Notas Promissonas Rurais,
NPRs, issued by a buyer and representing a promise to purchase)) and Rural Trade Confirmation
Receipts (Duplicatas Rurais, DRs, issued by the seller). They can lend against the guaranty of
Cédulas de Crédito Rural, CCRs. Since 2005, legal entities (agribusinesses, cooperatives etc.) can
issue commercial paper called Agrinotes or NCAs (Nota Comercial do Agronegócio), which can be
traded not only in Brazil but also, internationally; while issued in R$, they can be indexed to
international prices or exchange rates. When an exporter issues commercial paper, it is called NCE
(Nota de Crédito à Exportação) – these are primarily used for cotton and sugar.
44
Law 11.076 of 30 December 2004.
29
7. Pre-harvest financing instruments building on CPRs
Building on CPRs, new instruments were introduced in 2004 that permitted processors (using
CDCAs), banks (using LCAs), exporters (using EPAs) and investment funds (using CRAs) to
finance agricultural actors through instruments such as CPRs, and refinance themselves with
third parties.
Their common characteristics are as follows:
 The issuer commits itself to pay in cash, at the maturity date, the amount specified in
the bond to the bond holder.
 CDCAs, LCAs and CRAs, have to be collateralized with CPRs, commercial
contracts, warehouse receipts (CDA and/or WA), or another formal credit rights
(promissory notes, rural mortgage notes and the like). LCAs and CRAs can also be
collateralized by CDCAs. The value of these credit right have to be superior to the
value of the CDCA to which they are linked; and once linked to a CDCA, it is not
permitted to pledge or otherwise commit these credit rights.
CDCAs
For the pre-harvest finance of agri-businesses (farmers, cooperatives, processors, traders,

agricultural equipment and input providers) the Certificates of Agribusiness Credit Rights
(CDCAs) were established. CDCAs can be issued for any kind of current or future
agriculture-related receivables, for example, by a farmer who has receivables from an
offtaker, an input provider or equipment supplier who has receivables from farmers, or an
agricultural processor that has receivables from his buyers. They can be issued to a bank or
other financier in a structured transaction, or (since 2012) they can be offered to the public as
a limited offering to qualified investors.
Figure 5 gives an example of how CDCAs backed by CPRs can be used to finance a
processor, in this case a sugar mill. The sugar mill pre-finances the farmers, using physical
CPRs through which farmers commit their future sugar production. He signs an offtake
agreement for the white (processed) sugar with a buyer. The mill then issues CDCAs, backed
by the CPRs as well as the commercial contract with the buyer. Just like CPRs, the CDCAs
contain a “collateral clause”, and under this the mill pledges the product (both sugarcane and
white sugar, in this case), he makes a fiduciary assignment of the CPRs and the commercial
contract, and he may provide further collateral such as personal guarantees, promissory notes
or a bank aval.
fter funds have been disbursed to the farmers, the mill may use an inspection agency to
monitor their performance – that is, what is the status of the sugarcane crop? As it is being
readied for harvesting, are farmers doing the necessary so that it can be delivered to the mills?
Is the cane that is harvested fully delivered to the mill? It is also possible that the investor
who buys the CDCAs employs the inspection agency, not just to monitor the farmers but also,
to monitor the performance of the mill. The investor may also use futures or options to
manage his price risk. When the white sugar is delivered, the buyer pays into an escrow
account from which the investor is reimbursed; any remaining sums are remitted to the mill.
30
Figure 5
Using CDCAs in a structured finance transaction
Source: Junior, 2008
LCAs
LCAs can be issued only by financial institutions – banks and agricultural credit
cooperatives.45 They represent credit rights over CPRs, CDCAs, CDA/WAs, and/or
commercial contracts. For example, a farmer enters into a contract with a trader. Through
one of the registries, he then issues financial CPRs for the pre-finance that he requires to the
bank, simultaneously assigning the rights under the contract. The bank pays for the CPRs,
and refinances itself by issuing LCAs. When the goods are sold, the trader pays the bank, the
bank reimburses the LCA buyers, and remits the remainder of the funds to the farmer.
LCAs are, for banks, a refinancing instrument that is superior to the main alternative, that of
issuing bank certificates of deposits, as is illustrated in the following table.
Table 2: Comparing bank certificates of deposits and LCAs
Bank certificate of deposits LCA
Obligatory deposit with the 15% None

Central Bank (8%)
Contribution to the bank Yes No
Guarantee Fund (0.025%)
Tax on Financial Operations Yes No
(IOF) (0.0041%ci per day)
Payment of income tax by the Yes No, as long as the buyer
buyer of the certificate/LCA is a physical person.
Source: Bolsa Brasileira de Mercadorias, 2012
EPAs
45
On the specifics of LCAs, see Silva and Marquez, 2005. Cooperatives play only a minor role.
31
There is a further pre-production financing tool that is not restricted to the agricultural sector,
the export prepayment agreement (EPA). Under an EPA, an investor makes a pre-payment to
an exporter for the future export of certain goods – the mechanism has been used for a wide
range of agricultural commodities, including ethanol, soybeans, poultry, frozen vegetables,
leather, paper pulp and petroleum products. The investor may be a bank (in the case of the
large deals, a bank syndicate), an investment fund, an importer, or a Special Purpose Vehicle
(SPV) registered outside of Brazil (in the latter case, the SPV issues securities backed by the
EPA). If it is a bank, then in parallel to the EPA, the exporter will sign a contract with an
importer; the contract is then assigned to the bank, alongside with other credit enhancements
such as rights on underlying commodities (e.g. CPRs) or bank guarantees.
EPAs can be established for short periods, up to 360 days, in which case they do not require
any Central Bank approval. If they are settled beyond 360 days, registration of the transaction
in the information system of the Central Bank is obligatory. Longer-term deals have been
signed with terms as much as ten years. They are typically very large (they can be in the
hundreds of millions of US$), and (in the case of the agri-sector) are used for the construction
of agri-processing plants and/or infrastructure.
CRAs
CRAs permit the creation of specialized vehicles for financing agriculture: Agribusiness
Securitization Companies, which are in the business of acquiring agribusiness receivables
(that is to say, promissory payments of cash), and securitizing them through issuing and
selling Agribusiness Receivables Certificates (CRAs) into financial and capital markets. The
main characteristics:
 A Special Purpose Vehicle (SPV, a Securitization Company set up for this specific
purpose) issues CRAs to investors.
 It pledges as collateral for the CRAs the same pledges it has received from the
farmers/agribusiness companies (that is to say, the CPRs and/or CDCAs and
collateral therein, as well as the rights under the sales contracts), and in addition
normally the hedging contracts over the products. Since 2013, the assets that underlie
a CRA can be revolving, making longer-term CRAs easier.
 The “stock” of collateral can be renewed during the life of the CRA – in other words,
the receivables can be revolving.
 The CRAs are over-collateralized (i.e., for 120 US$ of receivables, only 100 US$ of
CRAs are issued).
 The collateral used for any specific series of securities can be put under a fiduciary
regime, that is to say, it can only be used for payment under this series and not for
any other obligations of the Securitization Company.
CRAs can be privately traded, or they can be offered on the stock exchange. They can only be
issued by securities companies registered by the Capital Markets Commission (CVM). The
first CRA was issued in August 2012: Octante Securitizadora, in August 2012, with as the
underlying CDCAs issued by four distributors of Syngenta (an input supply company).
Octante bought the CDCAs at a discount, and covered the payment risk of the four
distributors through credit insurance. Bunge Brasil, a trading company, participated in the
32
transaction as supplier of fertilizers, as buyer of the grains produced by the farmers who
received inputs on credit from the Syngenta distributors, and as buyer of the subordinated
tranche of the deal. The R$ 85.5 million senior tranche was AAA-rated, and was sold through
the stock exchange to 211 recognized large investors; the issue was oversubscribed 170%.
After this successful first transaction, the issue was repeated in following years, and other
CRAs were issued in the soya and sugar/ethanol sectors.
CRAs – two examples
Agribusiness Securitization Companies can be more or less specialized, financing only a

small number of pre-determined farmers involved in one crop, or giving its managers
flexibility to invest in a range of CPRs and CDCAs across a range of crops. An example of a
“simple” structure is a R$ 17.3 million (US$ 10.2 million) CRA issue in September 2010 by a
SPV called Ecoagro, which was Brazil’s second securitization of agricultural receivables, and
the first for soyabean producers.46 Figure 6 describes the structure.
Figure 6
The Ecoagro soyabean securitization
Source: author, based on Standard & Poor’s, 2010.
To summarize the essential characteristics of this CRA issue:
 The underlying were financial CPRs issued by eight producers selected, following a
due diligence process, by Ecoagro.
 These issued financial CPRs, each for between 4 and 17.3 per cent of the total. The
CPRs were collateralized by commitments on the future delivery of soyabeans adding
46
See Standard & Poor’s, 2010. In 2009, Ecoagro had structured a similar CRA transaction for a sugar
processor.
33
up to 110 per cent of the face value of the CPRs (using the Chicago Mercantile
Exchange November 2011 futures contract as reference); and further collateralized by
the farmers’ real estate.
 Commercial contracts were in place for delivery to a large trader (ADM) and
receivables under the contracts were assigned to Ecoagro’s custodian bank, Citibank.
 The local branch of a Swiss firm (Cotecna) acted as monitoring agent to ensure that
the soyabeans committed under the contract were indeed delivered to the logistics
agent, NPK.
 Senior, mezzanine and junior notes with an expected life of 10 ½ months were issued;
and the senior notes (about one third of the issue) were rated by a local agency as well
as by Standard & Poor’s (which gave them a local currency rating of A+, noting that
it assumed the eight producers each to have a much lower CCC rating).
The proceeds from the sale of the CRAs, minus costs (about 6 per cent) were remitted to the
farmers, enabling them to finance their production campaign. The soyabeans were harvested
from February to April 2011, and ADM paid into the Citibank escrow account from May to
30 July 2011. The funds received in the escrow account were used to reimburse the investors,
with a payment waterfall – first, the holders of the senior notes were paid, then the mezzanine
bond holders, then the holders of the junior bonds. To deal with the eventuality of production
shortfalls or price falls (beyond the 10 per cent of “overcollateralization”), the legal term of
the transaction extended nine months beyond the planned repayment date, to permit the
obligations to bondholders to be met through deliveries in 2012.
These eight producers, as noted, each had a low credit rating, and thus would not have had
access to bank credit at affordable terms – thus, they fell squarely in the category of mid-sized
producers for which CPR-based funding was meant. However, as investors became more
familiar with the instruments, financing costs fell, and it has now become attractive even for
large commodity sector companies, with many alternative financing options, to fund
themselves through CRAs. Thus, 2014 and 2015 saw a number of large single-company
CRAs – the largest so far was in late 2015, with a CRA of R$ 750 million (US$ 180 million)
issued by BRF, the world’s seventh largest food company in market value, producing and
exporting a wide range of processed food products.
Another example (see Figure 7) illustrates how a more diversified CRA can be created, with
the example of a CRA structured so support a major Brazilian input supply company,
Nufarm, in selling various inputs on credit. For this particular deal, the credit notes that
Nufarm receives against its credit provision are fiscal notes and trade bills (duplicatas), but it
would work equally well with CPRs.
34
Figure 7
A CRA in support of input credits
AAA, S&P
35
8. Post-harvest instruments
Brazil has had a reasonable legal framework for warehouse receipt finance for a long time.
Its 1903 Decree on Public Warehouses (“Decreto 1.102 – Armazéns Gerais”) specified a
double warehouse receipt system, with certificates of deposit confirming the warehouseman’s
receipt of the goods, and warrants as pledge instruments; both documents were transferable
through endorsement. But each transfer attracted taxes, and as financial instruments the
warrants were inferior to many other products available on the market. There was also a lack
of properly managed, financially secure independent warehousing companies. Thus, the legal
framework was not enough to stimulate active use of warehouse receipt finance.
To address the constraints, Brazilian regulations on warehouse receipts were modified in

200447, making them an integral part of the financial sector rather than just tools for physical
trade. The innovations, as compared to the earlier system, were the following 48:
 Obligatory registration in an officially-approved (electronic) registry

 Obligatory use of custodian institutions
 Electronic transfer and trade was made possible (but use of the exchange or BM&F’s
electronic auction system is not obligatory – however, only if one of these two
systems is used is it possible to endorse and separate the CDA and WA).
 Exemption from the tax on financial operations, and application of VAT only after
exercise/liquidation of the CDA/WA
 Liquidation of the warrant through the custodian institution rather than with the
warehouse.
As before, current regulations stipulate two instruments for post-harvest finance, Agricultural
Deposit Certificates (CDAs) and Agricultural Warrants (WAs). Both are issued
simultaneously by an accredited warehouse operator on request of a depositor upon his
deposit of agricultural commodities. Their main characteristics:
 The CDA represents a commitment to deliver agricultural products (including in

semi-processed form).
 The WA represents the commitment to pay in cash and grants the right of pledge over
the product described in the corresponding CDA.
47
Law 11.076 of 30 December 2004, http://www.planalto.gov.br/ccivil_03/_ato2004-
2006/2004/lei/L11076.htm
48
Silva and Marques, 2006.
36
 The WA and CDA are always issued together and carry the same number.
 They are valid up to two years, with possibility for extension.
 The CDA and WA both need to be registered, electronically, in an approved registry
(the Registry for Agribusiness Notes, managed by Bolsa Brasileira de Mercadorias,
BBM, part of the country’s futures exchange, BM&F 49 (in April 2016, it acquired the
second registry, CETIP, the Settlement and Custody Chamber), within 30 days of
issuance (see Figure 8 for the transaction flow of CDAs and WAs).
 Once registered, the CDA and WA can be traded separately.
 Once the CDA and WA have been issued, the product cannot be seized by any other
claimant, not even through workers’ claims or tax claims.
The option to take delivery is in the hands of the holder of the CDA. If he also holds the WA,
he can immediately take delivery (assuming the warehousing charges have been paid) – he
Figure 8
The flow of CDAs and WAs
CDA (& possibly WA)

Source: Based on Rodrigues and De Melo Franco, 2013
49
BBM is an arm of BM&F which was set up in 2002 by BM&F (with 55% of the shares) and six of
the country’s smaller commodities exchanges, which were trading in physical commodities for
immediate and forward delivery. The smaller exchanges than transferred trading functions to BM&F,
and BBM was tasked with registering and settling operations involving the physical settlement of
goods and services, as well as operations in titles that represent these products (for physical, forward
and futures/options trade) . It retained this role when BM&F merged with the country’s stock
exchange, BOVESPA, in 2008.
37
does this by asking the bank that acts as the custodian to cancel the electronic registration and
surrender the CDA and WA. If he does not hold the WA that corresponds to his CDA, then
he must deposit the amount of the debt guaranteed by the WA (i.e., its face value) in cash to
the custodian before he can claim the products from the warehouse.
The main criteria for the issuance of CDAs and WAs are as follows:
 Warehouses that issue CDAs and WAs must be accredited by the National Register of
Warehousing Units50.
 A warehouse is not permitted to issue CDAs/WAs for its owner; but cooperative
warehouses are permitted to issue CDAs and WAs to their members.
 The warehouse needs to meet certain technical criteria with respect to its
infrastructure. As many warehouses have difficulties meeting these norms, regulators
have been flexible, with timelines regularly shifting forward – warehouses now have
to meet the norms by 2017.
 Other than that, there appear to be no restrictions, in terms of financial strength,
operational capabilities or relationship with the depositor.
 The warehouse operator needs to have insurance against a range of risks, including
disasters and (for public warehouses) theft.
 In terms of prior claims, the depositor has to declare that the product belongs to him
and is free of any liens. Also, at the time of deposit, he has to irrevocably grant
power to the warehouse to transfer the goods represented by the CDA to the last
endorsee (i.e., final holder) of the CDA. 51
With these instruments, a farmer who has issued a financial CPR but does not wish to sell his
crop immediately after harvest to service his debt, can to roll his loan into a CDA/WA
structure to obtain post-harvest finance. Figure 9 describes how this is done. An owner of
commodities ( a farmer, trader or end-user – or as in this example, a processor) deposits them
in a warehouse. The warehouse operator issues both CDAs and WAs, and the processor sells
CDCAs to a financier, with the CDAs/WAs and optionally, a commercial contract with an
ultimate buyer as collateral. When the processor decides to sell the commodities, the buyer
pays the bank, receives the CDAs/WAs, and then takes delivery from the warehouse.
Figure 9
Use of CDAs/WAs in post-harvest finance
50
Administered by CONAB, the state-owned National Food Supply Company. When the law
establishing CDAs and WAs was passed in 2004, this National Register was not yet operational, and
warehouses were permitted until 2009 to continue under Ministry of Agriculture regulations. On 1
January 2010, the CONAB accreditation system became operational.
51
Andima, 2009b.
Source: based on Ministry of Agriculture, Livestock
38 and Food Supply, 2010.
9. Bank processes and procedures

Figure 10
When financing against CPRs, banks
follow a normal loan process. The applicant Bank process flow
farmer is visited, and his business analyzed
to make certain that he is well-placed to If it is decided to continue
receive the credit and repay it. After that,
the CPR is issued and registered, and then
the loan is monitored like a normal loan.
However, there seem to be conflicting

views on the accounting treatment of CPRs
and associated instruments. From a
provisioning and valuation perspective,
they can be treated both as loans and as
securities. If they are treated as securities,
banks have to classify them into one of
three categories: held for trading (traded
frequently by the bank); available for sale;
and held to maturity. In the first two cases,
the instruments have to be measured at
market value. The market values can be
established either on the basis of the value
at which the instrument trades in the
market, or on the basis of a model. Market
values should incorporate credit risk. In the
third case, instruments can be held at
notional value, but they need to be
provisioned for credit risk.52
52
Leite Netto, undated paper.
39
10. The growth of CPRs and related financial instruments
Having representative numbers for CPRs and related instruments, and the agricultural credit
that is given on the back of these instruments, is difficult, for a number of reasons:
 CPRs and related agri-business titles can be registered (in the official registry,
managed by BM&F Bovespa53), but this is only required if these titles are to be
traded. The majority of CPRs is not meant to be traded, and there is no mechanism
for measuring the size of this un-registered market. Other titles like CRAs as well
may be issued, but not registered (for example, if they are meant for private
placement).
 The – until 2016 – two registries do not publish their numbers in a readily accessible
or consolidated manner (SRTA, BM&F BOVESPA’s registry, reports for example
registrations on a daily basis, without enabling their consolidation into monthly or
annual numbers). CETIP data were more readily usable, and as a result, many of the
reports on market size or growth only referred to CETIP-registered volumes. Reports
only based on CETIP volumes strongly underestimated the market for CPRs, which
are mostly registered on the BM&F BOVESPA platform (because this is what Banco
do Brasil uses for its aval programme).54
 Physical CPRs are not primarily registered in value terms, but in tons of crops, heads
of cattle, etc.. So the only practical way to estimate value developments is to look at
the value of the avals (bank guarantees) provided by Banco do Brasil (by far the
major but not the only player in this market) on physical CPRs, keeping in mind that
this underestimates the total size of the market. Similarly, CDA/WAs are also not
registered in value terms.
 Which numbers should one use? Registered volumes? Outstanding volumes

(stocks)? Traded volumes? Clearly not traded volumes – these numbers just refer to
secondary trading of titles. But registration numbers and outstanding stock both have
their pros and cons. Secondary sources give wildly differing numbers for volumes,
often without clearly stating which volumes exactly they refer to, and whether they
limit themselves to CETIP numbers or also include BM&F numbers.
 Even if one can estimate the values of the various titles issued in the country in each
year, this cannot be equated to agricultural financing provided on the basis of these
instruments: loans correspond to only a part of the notional value of the CPRs (for
example, for physical trade, the CPR value is often double or more of the size of the
loan given on the back of the CPR).
 The crop year (July to June) differs from the calendar year; some sources report on
the basis of crop years.
53
In November 2015, BM&F Bovespa and CETIP started discussing merger opportunities, and in
April 2016, BM&F Bovespa acquired CETIP.
54
As an example, in May 2008, 82% of CPRs were registered with BM&F Bovespa, and only 18%
with CETIP (Carrer, 2012)
40
 There are massive year-to-year changes in the registration numbers for the various
titles. This is partly due to the fact that CPRs and related instruments are tools for
agricultural finance “in between” official government funding (at subsidized interest
rates) and funding available from international markets for export commodities.
Developments on one or the other market can thus easily squeeze out CPR-related
finance. It is therefore difficult to recognize trends.
The following, however, hopefully gives some indications.
The CPR market
For the reasons described above, there are no satisfactory time series on the use of CPRs in
Brazil. Broadly speaking, there was a slow growth of physical CPRs from 1995 to 2000, and
after that, relatively fast growth until 2004. Financial CPRs were started only in 2001, but
were an immediate success and grew rapidly. By the end of 2004, BM&F, the main registrar
for CPRs, had a total stock of almost 41,000 CPRs (see Table 3). Numbers continued
increasing in the first months of 2005, reaching almost 50,000, but a decline then started that
would last until 2013. This decline was due to unfavourable experiences post the 2003/4 crop
season: many soyabean farmers had financed their operations through fixed-price forward
sales (at times evidenced by CPRs, part of which were registered), but then when prices had
risen strongly by harvest time, defaulted on their obligations to their financiers. There were
many court cases, with in some instances outcomes that put the usefulness of CPRs in doubt.
The situation was resolved in a few years, but the impact on the trust of financiers was, in the
beginning, strong.
Table 3:
Stock of registered CPRs as per the last working day of each year (number)
Year CETIP CETIP BM&F

Financial CPRs Physical CPRs CPRs
2003 412 308 17,437
2004 222 64 40,927
2005 244 411 34,068
2006 939 619 14,493
2007 1,235 863 9,577
2008 1,510 942 7,780
2009 1,654 629 6,675
2010 1,691 551 5,757
2011 1,864 665 4,829
2012 2,345 562 4,161
2013 2,121 658 4,657
2014 1,371 560 5,553
2015 988 157 6,330
Source: calculated from the databases of CETIP and BM&F.
However, CPRs have become larger. In 2004, a stock of 40,927 had a value of R$ 3,182
million; in 2015, a stock of 6,328 CPRs had a value of R$ 6,796 million. In terms of size of
the market, CPRs hit a bottom in 2011 (at least as is reflected in BM&F Bovespa figures), but
has since recovered – in the four years since the end of 2011, while the number of CPRs has
grown with 50%, the market size has grown eight-fold.
41
Another way to look at market developments is to consider the value of CPRs avalized (and
to a small degree bought) by Banco do Brasil, as reported in Table 4. These avalized CPRs
are used as credit instruments. This market hit a peak in the 2004/05 crop season, then
declined rapidly, and only started recovering in the 2012/13 crop season. Avalized CPRs in
2013/14, however, were still only at one third of the level reached in 2004/5. It may also be
noted that 2014/15 was the last year in which Banco do Brasil gave avals on physical CPRs.
Taking this fact together with the above-mentioned development in the number of CPRs and
in particular, their average value, this suggests that larger CPRs are being issued in recent
years by larger farmers, who do not need a Banco do Brasil aval to get finance against their
CPRs.
The officially-registered CPRs are, Table 4:

however, only a part of the market. How The value of CPRs avalized or bought by Banco
large is debatable. In 2008, the total CPR do Brasil
volume was estimated at 30 billion
R$/year, of which one tenth was Crop year Amount
officially registered.55 In June 2009, (July-June)
R$ million Converted in
another estimate come a similar number
US$ million
– 28.8 billion R$/year, representing
some 12,000 registered CPRs (of which
2002/03 487 164
3,000 were physical CPRs), with an
2003/04 2,087 671
average size of real (R$) 150,000; and 2004/05 5,630 2,390
with a volume of unregistered CPRs 2005/06 3,588 1,618
some 15 times higher.56 But market 2006/07 1,626 840
estimates in 2016 were much larger, 2007/08 1,447 899
indicating that as much as 60-70% of 2008/09 1,472 755
physical CPRs are registered, and an 2009/10 1,213 672
2010/11 1,333 850
even higher share of financial CPRs.
2011/12 1,025 492
2012/13 1,377 628
For the 2008/2009 crop year, the CPRs
2013/14 1,912 867
that were avalized or bought by Banco 2014/15 2,864 907
do Brasil represented only 1.95% of total Source: Extracted from data in MAPA,
rural finance during that year, and in Estatísticas e Dados Básicos de Economia
2009/2010, this fell to 1.27%. 57 For Agrícola, Julho 2015. R$ amounts were
converted into US$ using the exchange rates of
cattle, from 2007 to 2009, R$ 394.8 the last working day of June of each crop year as
million worth of CPRs were issued, reported on www.oanda.com
compared to official credits of R$ 20.1
billion during these same years.58
Twelve thousand registered CPRs can be
compared to a total number of farming
households of 5.2 million – so at most 0.23 per cent of Brazilian farmers used negotiable
CPRs59, and another 3.5% non-negotiable CPRs (and probably many less, as most farmers
able to access the CPR market are likely to issue more than one CPR a year).
55
Andima, 2008.
56
Marzo, 2010. Exchange rates: 1 June 2009, R$ 1 = US$ 0.502; 1 June 2010, R$ 1 = US$ 0.549; 1
June 2011, R$ 1 = US$ 0.628.
57
Carrer et al., 2012.
58
Idem.
42
When holders of CPRs do not wish to publicly negotiate them, the CPRs are in all likelihood
used to reinforce credit transactions between two parties, e.g. large corporates (input
providers, processors, traders) which have longstanding and good relations with certain
farmers. Such non-negotiable CPRs are thus likely to represent a different way to express a
credit relationship, rather than a source of new credit.
Registered titles: comparing CPR-F with related agricultural titles
The two following tables give an impression of the size of the registered part of the market.
While only a small fraction of farmers (less than a quarter of a per cent) benefit of negotiable
CPRs, in terms of the credit provided through such CPRs and the capital market instruments
based on them, they are quite significant. In 2007, for example, the total official resources
59
2008 was evidently a poor year for registered CPRs, but even in its most active year, 2004, Banco do
Brasil only did 36,000 CPR transactions.
43
Table 6
Registrations with CETIP and BMFBOVESPA (million R$)

Year CDCA LCA CRA
CETIP+ Registered on Total
CETIP BM&F CETIP
BMFBOVESPA CETIP issued
2005 28 0 168 - -
2006 473 186 23 - -
2007 2,246 191 3,569 - -
2008 1,549 299 35,553 1 1
2009 1,427 114 63,287 22 22
2010 757 39 171,967 140 152
2011 1,122 212 174
2012 1,628 164 283
2013 1,498 925 1,218
2014 947 98,254 1,739 2,394
2015 880 72,708 3,898
Source: CETIP data based on data provided in Uqbar, 2015, except the 2015 numbers and the
LCA numbers which were calculated from the CETIP database. The LCA totals are as reported
by the Ministry of Agriculture in its Plano Agricola e Pecuário 2011/12 (the last year that it
reported these numbers). For the “total issued” numbers for CRAs, numbers are based on the
information as provided on the web pages of the four companies that have so far issued CRAs
(no CRAs are registered with BM&F BOVESPA).
Table 7
Open positions (stocks) of agribusiness titles in the CETIP and BM&F registries
(value, in million R$)
Date CPR CDCA LCA CRA
(BM&F only)
31/12/2003 1,047 - - -
31/12/2004 3,182 - - -
31/12/2005 2,457 29 30 -
31/12/2006 1,257 637 19 -
31/12/2007 1,076 2,266 2,401 -
31/12/2008 1,349 1,734 10,317 1
31/12/2009 1,026 1,663 9,516 23
31/12/2010 836 1,428 13,419 156
31/12/2011 844 1,588 26,689 345
31/12/2012 1,332 3,005 58,660 370
31/12/2013 1,899 3,202 118,898 969
31/12/2014 2,937 3,266 148,681 2,045
31/12/2015 6,797 3,224 193,122 6,387
Source: CDCA, LCA and CRA data up to 2013 come from Ministério da Agricultura, Pecuária e
Abastecimento (MAPA), Plano Agrícola e Pecuário 2014/2015; for 2014, they are calculated from the
databases of BM&F BOVESPA and CETIP. BM&F CPR data are extracted from the statistical
allocated for agricultural lending were R$ 51.2 billion. This compared with R$ 4.46 billion
for CDA-WAs (promissory notes backed by physical inventories), R$ 1.55 billion for
CDCAs, R$ 1.076 billion for physical and financial CPRs, and R$ 746 million for LCAs – in
total, these various promissory notes accounted for 10.8 per cent of lending to
44
agriculture.60database of BM&F BOVESPA (SRTA, Volume de Títulos Registrados,

Estatisticas iBalção).
It may be noted that the market for CDCA has rather stagnated, whereas that for LCAs has
boomed, and the CRA market is newly emerging. Both LCA and CRA issuers (banks,
respectively securitization companies) target wealthy private investors with the means to
invest at least US$ 250,000 in agri-business titles, because only for investments by private
persons is there an exemption of income tax.
CDCAs, LCAs and CRAs all need to be (over-)collateralized by promissory notes that reflect
other agricultural financing transactions. This means that, for example, the R$ 193 billion of
stock of LCAs reflects R$ 193 billion of agricultural finance, of which clearly only a small
part is against registered CPRs, and a larger part against unregistered CPRs as well as other
kinds of promissory notes. This is more or less equal to the total of short-term financing needs
of the Brazilian agricultural sector.
60
Rocha Souza, 2009.
45
11. The secondary market
There is an active secondary market for CPRs and associated instruments, and even for the
agricultural promissory notes that existed before CPRs were introduced. 61 Figure 11 gives
the simplest structure. An investor can endorse a CPR and sell it to a bank, and the bank will
pay him the face value of the bond discounted at prevalent interest rates. The bank can
warehouse the CPR, or pledge it to another bank as part of a security package, or after
endorsement, sell/discount it to another bank. International banks are often the buyer in the
second case.
Only CPRs and other instruments that are registered either in BM&F BOVESPA or CETIP
can be traded electronically through the trading network provided by these two organizations.
CETIP’s electronic trading network, Cetip Trader, it provides for interbank trading in liquid
instruments – with respect to agri-finance instruments, this includes LCAs and, from 2016
onward, CRAs.
Registration in the two systems can be done only by financial institutions accredited by
BM&F, resp. CETIP. These institutions are accountable (and thus liable) for the veracity of
the information registered in the system, and for keeping the information updated. The
registration is directly into the system, using standard templates. 62
Once the instrument is registered, there are several ways to procure finance (other functions,
such as back office operations, or linking instruments to certain transactions, or delivering on
the commodity exchange, are also enabled). The simplest financing tool is to sell the title.
Repo transactions (sale with promise to buyback or buy with promise of resale) are possible
for financial CPRs (but not for CPRs specifying physical settlement), as well as CDCAs,
LRAs and CRAs, with trade taking place both bilaterally (as long as one of the two parties is
From 2011 onwards, it also became possible to trade non-registered financial CPRs, CDCAs
and warrants through public offers with restricted efforts – these can be marketed only to
Figure 11
Refinancing CPRs
Source: author
61
CCRs, CRPs and NCRs can be traded through BM&F’s and CETIP’s electronic networks, and CRPs
and NCRs are included in electronic custody systems (CETIP, Manual de normas CCR – Cédula de
Credito Rural, July 2008).
62
http://www.bmfbovespa.com.br/pt-br/renda-fixa/titulos-agronegocio-srta.aspx?idioma=pt-br#d1
46
qualified investors, and need to be intermediated by regulated participants of the Brazilian

securities system.63
The secondary market in CPRs and related bonds is strengthened by the presence of investors
keen to package sets of such instruments. Agribusiness Securitization Companies have
already been mentioned – but they are restricted to investing in CPRs and CDCAs. More
important are the so-called Credit Rights Investment Funds, FIDCs. 64 Figure 12 shows how
these operate. FIDCs can be closed-end or open-ended investment funds. They can invest in
any asset class. But because of the significant potential of agriculture in Brazil, financial
institutions and portfolio managers have structured FIDCs specifically for agribusiness
instruments and receivables – in 2007, the first year that such dedicated FIDCs were
operational, they accounted for some 15 per cent of the US$ 5 billion invested in FIDCs 65;
and by 2009, there were 26 such FIDCs, investing billions of R$.
FIDCs operate as follows:
 A fund manager finds companies that can cede credit rights, e.g. through CPRs,
CDCAs or LCAs. With fixed costs for the FIDC structure of around US$ 100,000 to
200,00066, the credit rights have to add up to more than US$ 25 million to start
making the transaction worthwhile.
 Due diligence is done on these companies to check their ability to perform in the
future.
 The credit rights are sent electronically to the fund’s custodian which checks if they
are indeed eligible (e.g. no double pledges).
Figure 12
Investment funds for agricultural finance
Source: author
63
Walter Stuber and Adriana Maria Gödel Stuber, Brazilian Agribusiness Securities Can Now Be
Distributed With Restricted Efforts, Mondaq, 18 July 2011.
64
Andima, 2006.
65
Herscovici, 2008.
66
De Souza, 2010.
47
 If they are eligible, the FIDC buys them, with a subordinated tranche remaining with
the originating company (i.e., the originator sells US$ 120 of credit rights for US$
100. If at the end, only US$ 105 is paid, the FIDC receives the full US$ 100, and the
originator loses US$ 15).
 When a credit is due, the buyer pays into an escrow account managed by the FIDC
custodian.
 In priority and up to the value of the bonds, the sums received by the custodian are
paid to the FIDC, the remainder is remitted to the originator.
 The FIDC redeems the bonds from its investors; if there is a shortfall, there is a
payment waterfall, with first the senior debt being served, then mezzanine debt, and
the remainder, if any, to subordinated investors.
While the secondary market is active, there still is considerable room for growth. As
individual CPRs have a strong credit risk component, they are not the easiest investment
instruments for those not specialized in agricultural markets. If CPRs are “packaged” through
a LCA or another instrument, the larger pool may provide for better diversified risk, but the
investor still needs to be able to understand the particular risk profile of a specific
CDCA/LCA/CRA offer in order to properly price it. The case in the next section illustrates
the risks.
48
12. Union National Agro+ - not all agricultural bonds are equally safe
Selection of borrowers and decisions on portfolio allocation are of crucial importance for
FIDCs. If the fund managers get this wrong, the payment waterfall structure implies senior
debt holders may be partially protected, but others can see the value of their investment erode
fast. This can be illustrated by the case of Union National Agro+, a 300 million US$ FIDC
which was established in 2007 to invest in, primarily, financial CPRs and CDCAs (but with
the right to invest also in the other local-currency agricultural bonds discussed above). Figure
13 shows how the fund was to operate.
The notes, with a face value of 1 million R$ each and an expected life of two to six years 67,
were sold in November 2007. The global financial crisis struck a few months later. The
result was that by August 2008, sugar and ethanol prices in Brazil had fallen by 50 per cent
and 40 per cent, respectively. The Fund had a heavy concentration in the sugar industry – this
sector had received almost half of its investments. By the end of the year, more than three
quarters of its sugar sector investments were in default. In March 2009, the Fund had to
decide to stop lending, and to concentrate on recovery of outstanding dues. Senior debt was
largely protected, but mezzanine debt was not.
Figure 13
The Union National Agro+ FIDC
Source: author, based on Oliveira Trust, 2009.
67
After the expiry of the two-year notes, it was expected that the FIDC would issue another series of
equivalent amount to maintain its investment capital. Also, there was a provision that if the value of
senior notes in the FIDC exceeded 45 per cent, the administrator had to liquidate (i.e., buy back)
enough of these notes to achieve a proportion of mezzanine and junior debt of no less than 55 per
cent.
49
Table 8
Impact of sugar sector defaults on Union National Agro+ FIDC notes
Category Initial amount November 2007 November 2009 Value of each

(million R$) rating, Standard rating, Standard note* on 23
& Poor’s & Poor’s October 2009
(million R$)
Senior 239 AA A 1.11
Mezzanine 266 B CCC 0.53
Junior 127 Not rated Not rated 0
Source: based on Standard & Poor’s and Fitch rating reports.

* Face value of each note: 1 million R$.
In addition to the assignment of receivables, land and other assets had been given as
collateral. But there was no explicit strategy to manage price risk: the hedging policy was
formulated in terms of managing the interest rate risks between the rates expressed in the
CPRs and CDCAs on the one hand, and the interest rates on the notes issued by the FIDC on
the other. With the collapse of main clients, these risk management measures were
insufficient. Recovery of debts proved difficult, and even holders of senior debt were
affected. By September 2010, as much as 58 per cent of the debt owed to the fund was more
than 180 days overdue. Senior debt, by that time, had been further downgraded to a BB
rating.
50
13. Registries
In order to be publicly negotiated (i.e., to be considered as financial assets), CPRs must be

registered in the System of Registration and Financial Settlement of Assets, as managed by
the Central Bank of Brazil. Currently, two registries are approved by the Central Bank,
BM&F BOVESPA, and CETIP – CETIP is by far the largest registry for rural bonds. An
overview of the registration form of the MB&FBOVESPA registry is given below. Once
issued, CPRs must be held in custody in one of the 50+ financial institutions authorized by
the regulatory authority for capital markets to provide custody services for securities.
But in most cases, holders of CPRs do not wish to publicly negotiate them. This saves them
the costs of a bank aval or insurance cover (a Banco do Brasil aval cost as much as 0.55 per
cent per month68), and moreover, generally frees them from the requirement to provide
additional collaterals (other than the crop pledge) on the CPR. If the CPRs will not be
publicly negotiated, they do not need to be registered with a Central Bank-approved registry,
thus saving most registration costs 69, other than those of the municipal Registry of Deeds.
Such CPRs are used in particular to reinforce credit transactions between two known parties,
e.g. large corporates (input providers, processors, traders) which have longstanding and good
relations with certain farmers. As these bonds only are registered in municipal Registries of
Deeds, there is a risk that the same production is pledged more than once; to mitigate this risk,
BBM has created a central registry for voluntary free registration of non-negotiable CPRs, as
well as forward contracts, rural credit notes, rural promissory notes and the like. 70 Banks may
refinance such processors or traders, accepting these CPRs as collateral, but in the case of
default it is not clear whether, under the law, the banks have the right to directly enforce the
CPRs.
Once CPRs are in a Central Bank-approved registry they can be used for many purposes.
They can be traded on the commodity exchange; they can be used to meet delivery
obligations on a futures position; they can be traded over-the-counter; they can be auctioned
off through Banco do Brasil’s e-auctioning system 71; they can be used to meet margin
requirements on BM&F; and they can be used as underlying for more complex financial
transactions. Since July 2011, financial CPRs as well as CDCAs and WAs can also be
distributed to “qualified investors” through Brazil’s regulated markets.
Although registries are critical to the functioning of Brazil’s capital market financing for
agriculture, in several ways the registry function is still dysfunctional and needs
improvement. The key problem is that there are too many registries for different assets, some
of which cannot easily be electronically consulted; and these registries are not electronically
linked.
Floating assets as well as the CPR itself (including CPRs that are not meant to be traded) have
to be registered at the Register of Deeds Office in the issuer’s locality (together with the
68
Marzo, 2010.
69
The various registration costs reportedly add up to some 0.035 per cent.
70
Marzo, 2010. For an overview of this system, called IAgro, see BBM, IAGRO - Sistema de Registro
de Informações do Agronegócio, 2011. While registration is free, parties consulting the database
have to pay.
71
This is relatively expensive: buyers pay an auction fee of 0.75 per cent of the value of the CPRs
(https://www.agronegocios-e.com.br/cpr/quantoCusta.cdr).
51
registration number of the plot where the crop is planted or the cattle are to be raised). 72
Endorsements of the CPRs must also be registered. Real estate mortgages embedded in CPRS
have to be registered at the nearest Real Estate Registry; they are less frequently used as they
are difficult to enforce.
 The registration of the CPRs as well as the underlying collateral. CPRs have to be
registered with the Register of Deeds Office together with the registration number of
the property where the crop was planted. This has two advantages. First, it becomes
possible to control how many CPRs are issued on the same property (and also, by
using the separate registry of the National Institute of Colonization and Land Reform,
to check whether a farmer did not pledge too many CPRs given his land holdings).
Second, the CPRs cannot be falsified or pledged twice.
 The creation of another registry structure just to enable negotiability of the

instruments. Use of this second registry structure is not mandatory, but it gives
flexibility to issuers as well as buyers. Apart from its evident benefits in terms of risk
management, the registry makes it possible to open up the whole of the Brazilian
market for potential buyers of agricultural commodities – some 400 traders are
connected to the electronic system of the BBM, for example. The system (similar to
what is described in annex 6 on an electronic warehouse receipt system) provides
easy functionalities for buying and selling contracts, for offering contracts for tender,
for custody arrangements etc.; and it is accessible through the internet.
 The registration of the CPRs as well as the underlying collateral. CPRs have to be
registered with the Register of Deeds Office together with the registration number of
the property where the crop was planted. This has two advantages. First, it becomes
possible to control how many CPRs are issued on the same property (and also, by
using the separate registry of the National Institute of Colonization and Land Reform,
to check whether a farmer did not pledge too many CPRs given his land holdings).
Second, the CPRs cannot be falsified or pledged twice.
 The creation of another registry structure just to enable negotiability of the

instruments. Use of this second registry structure is not mandatory, but it gives
flexibility to issuers as well as buyers. Apart from its evident benefits in terms of risk
management, the registry makes it possible to open up the whole of the Brazilian
market for potential buyers of agricultural commodities – some 400 traders are
connected to the electronic system of the BBM, for example. The system (similar to
what is described in annex 6 on an electronic warehouse receipt system) provides
easy functionalities for buying and selling contracts, for offering contracts for tender,
for custody arrangements etc.; and it is accessible through the internet.
While the registries for negotiable CPRs (and related instruments) work well, many of the
weaknesses in the Brazilian system relate to weaknesses in its “primary” registration
systems. Poor organization at this level can make it rather difficult to make all the checks
necessary to avoid the problems that have most frequently plagued CPRs in Brazil:
- Are there prior commitments by the farmer for the same crops/cattle?
72
It remains a problem that the local Register of Deeds Offices are not yet integrated into a nationwide
electronic registry.
52
- Are there prior liens over the crops/cattle, or over other assets offered as collateral?
- Are there lawsuits filed against the farmer that can have an impact on the collateral
offered in the CPR?
- Is the issuer of the CPR indeed the undisputed owner or lessee of the land where the
product is to be produced?
- Is the issuer of the CPR indeed the owner of the crop/cattle? 73
This information is now in various registries which are often not linked, and which do not
offer electronic access. Costly legal due diligence can therefore be necessary. One lesson
from the Brazilian experience is that one should try to have one national, electronically-
accessible registry for real estate as well as titles and deeds.
73
53
Forms for the electronic registration of a CPR
Page 1
Title
Select
Title Number
Date of issue Date of expiry
Tax registration code of custodian Modality
Registry agent
Type of liquidation
Select
Situation of the title
Select Select
Free Blocked
Page 2
Title
Select
Product Quantity
Grade Select State of product
Unit of the offer
Measurement unit Select
Value of the product Select Select
Select
Page 3
Producer information
Name of the producer Delivery location
Tax registration code of the producer
Select
Address of the producer
Buyer information
Name Address
City Account number
Tax registration code
Bank
Agency Select
Other data
Tax registration code of the warehouse Name of guarantor 1
Harvest
Select Name of guarantor 2
Guarantee Name of guarantor 3
Guarantor 1 tax registration code
Without With
54
CPR insurance
In Brazil, there are several types of “insurance” available to buyers of CPRs and related
instruments.
As already noted, there are various ways to mitigate the risks related to buying CPRs. Apart
from due diligence, taking various collaterals and using monitoring agencies to supervise
farm operations, this includes three ways to lay off risk on third parties:
- Crop insurance, to cover against harvest risk due particularly to climatic events
- Insurance guarantees, which guarantee to the holder of the CPR that the commodities
mentioned in the CPR will be delivered, or their value as per the value fixed in the
insurance contract, will be paid out, in case the issuer of the CPR defaults, fully or in
part, on his obligations. However, the risks that can be covered by crop insurance are
often excluded from the “guarantee” coverage: there is a clause in the insurance
contract under which the insurance company does not have to pay for the shortfall
between the amount pledged under the CPR, and the amount actually harvested if the
latter is lower due to drought or other external factors.
- An aval, which covers the above two risks, as well as other risks such as losses
between the moment of harvest and the moment of delivery to the buyer (transport
and storage losses), as well as deliberate non-payment by the producer.
The first two are provided by a number of insurance companies (including the insurance arm
of Banco do Brasil), but coverage is still weak – it is estimated that only 10% of Brazil’s
production is insured against production losses, as compared to 65% in the USA. Avals are
provided by banks (with the Banco do Brasil having a leading position in the market).
The provider of the aval or insurance does due diligence on the CPR-issuer, and asks for
negative pledge covenants (i.e., a commitment that the farmer will not pledge his assets to
others, unless if approved by the bank/insurance company), mortgages and pledges (i.e., on
machinery). In case the seller of a CPR does not deliver as set out in the CPR, the provider of
the aval or insurance takes on the seller’s obligations. After, it will either negotiate with the
farmer for reimbursement during the next campaign (the CPR gives it legal rights over this
next campaign), or will call on the mortgages/pledges.
In an interesting twist, there is a special type of cover regulated by the Superintendence of

Private Insurance, known as “CPR insurance”: this is a monitoring service, allowing the
creditor to follow the stages of the productive process of the crop/cattle pledged under the
CPR (Andima, 2009a).
55
14. The support system for a vibrant market in CPRs and related products
CPRs and the various other bond structures developed in their basis do not operate in a
vacuum. Figure 14 gives an overview of the institutional supports on which the success of
these instruments has been dependent.
A number of conditions have been essential for the success of CPRs and related instruments:
 A farming structure with enough large and mid-sized farmers with a good integration
into supply chains.74 The vast majority of CPRs are issued by farmers to suppliers
(input companies) or offtakers (processors or traders), not to banks or other
financiers. These supply chain partners know the farmers, and have commercial
incentives to supply them with finance. Doing so through CPRs rather than through,
say, prepaid forward contracts or input sales on credit, offer benefits to both sides. At
the same time, the farmers are large enough to issue CPRs of a size that the supply
Figure 14
The institutional context of Brazil’s CPRs and related instruments
Source: author
chain partners can package and refinance through the financial system.
 A supportive regulatory framework. When CPRs were introduced, courts already had
some 25 years of experience with promissory notes, making the risk of legal re-
74
Marzo, 2010.
56
interpretation small – although still not entirely absent, lower courts at times take
decisions that go against precedent. In particular, two aspects of the regulatory
framework are of key importance:
o priority over other claims, e.g. in the case of bankruptcy of the borrower (the
assets pledged in the CPR are excluded from the bankruptcy proceedings) 75;
and
o the provision of out-of-court dispute settlements (claims can be executed

through a bailiff, without first having to prove the existence of a debt), and
the consequent relatively rapid dispute resolution process (weeks, rather than
years).
These mechanisms have been tested and they work relatively well. Albeit not as fast
as one would wish. The out-of-court settlement is in principle immediate: an
obligation due under a promissory note has to be paid within 24 hours. But in
practice, some time is lost in trying to recover the pledged assets (in the case of
physical CPRs); and if the debtor doesn’t pay, the seizure of his collateral.
 A court system that takes farmers serious and does not primarily consider them as a
group that needs to be protected from agri-business enterprises. Thus, terms as agreed
in contracts are seen as having been negotiated properly, and should therefore be
respected and executed not just by the contractual parties, but also by the courts.
“This process, which took quite some time, was not just technical in nature: it was
actually a cultural shift under which the courts have ceased to predominantly perceive
rural producers as the ‘weak’ party in the business chain of the agriculture sector,
who therefore need to be protected at all costs, including by redistributing, post-facto,
the risks, gains and losses which were negotiated, acted upon by the parties and then
embedded into the CPR documentation.”76
 The availability of bank guarantees and to a lesser extent, insurance to underwrite the
performance risks of individual farmers. CPRs are not without risk. There can be
adverse weather events, pests, diseases or other factors that negatively affect the
harvest, or the cattle. The issuer may decide not to plant the crop that he committed
to sell. Or if he plants it, he may divert the payment through an alternative channel.
The farmer who issued the CPRs may die. 77 For these reasons, CPRs are little used
by small farmers – their CPRs are considered too risky by financiers who cannot
afford to do any detailed due diligence. Third party guarantees or insurance removes
much of this risk. But the problem is that they can be expensive – as much as 6 to 10
per cent, annualized (0.45% to 0.65% per month on the notional value of the goods,
depending on the client and the time until harvest).78
75
However, the law is not clear in whether this priority also applies to tax and labour-related claims,
something that should be remedied. (De Lima Ramos, 2015)
76
77
Andima, 2009a.
78
Idem. An important reason for this is that under Basel provisioning rules for banks, such guarantees
need to 100% provisioned for, and therefore immobilize much bank capital.
57
 The existence of inspection agencies that are able to monitor whether CPR issuers are
using the funds they received for the intended purposes, and that products are not
diverted surreptitiously to buyers unknown to the financier.
 As discussed in the previous sector, multiple publicly-accessible registries – but it

will create significant efficiencies and cost reductions if these registries are brought
together into one internet-accessible registry..
 The integration of the products into the commodity exchange system. The exchange
provides reliable reference prices, as well as a point of sale of last resort for an
investor who has had to take delivery of physical commodities (e.g. in the case of
default by the seller of CPRs). Integrating CPR transactions with risk management
transactions permits arbitrage, and a flexible marketing strategy.
 The regulatory freedom of large institutional investors to buy the instruments. There
are some restrictions as to the percentage of their total portfolio that pension funds
and others can invest in agricultural markets, but these are not unduly harsh.
 The ability of the financial sector to use CPRs as building blocks for more complex
instruments, which has contributed significantly to the market’s liquidity. It should
be noted that bond structures of the nature described here are not unique to the
agricultural sector: they are widely used throughout the whole of Brazil’s economy.
For example, electricity firms obtain working capital by issuing bonds committing the
revenue of future electricity sales, and real estate firms finance their projects by
issuing bonds backed by the future sale of buildings. So banks, investors and
advisory firms (e.g. lawyers) have a high level of familiarity with the instruments and
their possible uses.
 The tax-exempt treatment provided by the government, both in terms of financial

transaction taxes, and in excluding individuals from paying income tax on revenue
from trading CPRs.
But there also have been structural weaknesses. 79 Lack of training continues to be a problem
– there is still a lack of awareness of the instruments both in the agricultural and the financial
sectors; and many structures, when submitted to one of the registries, do not meet the criteria
for acceptance.80 With respect to CDAs/WAs, it was only in January 2010 that the right to
issue these instruments was restricted to certified warehouses, which has not helped the
financial sector to develop trust.
79
Oliveira et al., 2010.
80
The main problem here is complexity. The registries recognize 20 different credit rights, and each
has its own format with respect to the information that needs to be entered into the system in order to
create a tradable title. If a piece of information is missing or is not exactly conform to the
requirements of the system, the attempt to register fails.
58
Conclusion
Brazil certainly has a most interesting experience when it comes to financing agriculture, and
it is well worth exploring the Brazilian case for getting inspiration for new possibilities in
other countries. However, given how well-embedded the CPRs and associated instruments
are in the wider institutional and financial framework of Brazil, one cannot expect that it is
possible to copy just one element. If an instrument is to be successfully implemented, a
sufficiently large part of its supporting environment needs to be replicated, in terms of laws
and regulations, support institutions, and a positive government approach in terms of taxation.
Much of farmers’ finance provided in Brazil outside of the system of government-subsidized

farm credits is given through the purchase of farmer-issued commercial paper. The
regulatory framework for this commercial paper, CPRs, was introduced in 1994, and over the
years the framework has been expanded to include new forms of CPRs as well as various
other products based on CPRs.
CPRs are promissory notes (bonds) that can only be issued by farmers and farmers’
associations, including cooperatives, in which they pledge an agreed amount of crops
(including in semi-processed form) or cattle, in return for financing. Essentially, the CPR is a
promise of a farmer to a CPR buyer to deliver a certain quantity of crop/cattle or to make a
certain payment at a specific time in the future. And the buyer is willing to make an
immediate payment for receiving this promise.
It is the willingness of the CPR buyer to make such immediate payment against a promise
where the crux of the matter lies. If the political will exists, it may be relatively
straightforward to introduce the legal and regulatory framework for CPRs. But if the
complementary conditions to create trust are not created simultaneously, the newly created
instruments will hardly be used. The Brazilian experience also shows that there are a number
of factors that, while possibly not critical, do provide significant support to the development
of CPRs.
A number of conditions are essential for creating trust in the promises that are implicit in
CPRs – and this signifies that any effort to introduce CPR-like instruments in Africa have to
incorporate actions to replicate these conditions:
 Various registries help prevent farmers from “over-promising” – CPR buyers can
check whether farmers own enough land, whether they have made other pledges, and
whether farmers’ assets are mortgaged to any financiers. The Brazilian registry
system is inefficient, with too many registries spread out over the different States,
many of which are not electronically searchable. Ideally, African countries should
introduce of an electronic registry encompassing land ownership, farmers’ mortgages
and pledges over crops, livestock and other movable assets. Without such a registry
the introduction of CPR-like instruments will be difficult.
 An electronic environment has been created for the trade in CPRs (and instruments
based on them). This eliminates many potential risks, and thus provides
considerable trust in the CPR system; in addition, it reduces transaction costs. The
introduction of such a system (similar to the electronic warehouse receipt system
discussed elsewhere in this report) is another essential condition.
59
 The legal system provides for a high level of security: CPR-related claims have
priority over other claims (even in the case of bankruptcy); force majeure is not valid
excuse for defaulting on CPR-related obligations; and in case of dispute there is a
rapid out-of-court dispute resolution process. In addition, Brazilian courts are used
to bonds in general, and do not negatively intervene in the out-of-court process.
Creating similar legal protection may be the most difficult aspect of introducing
CPR-like instruments in transition countries, yet it is essential. It will require not
just the introduction of a suitable legal and regulatory framework for the CPRs
themselves, but also, efforts to work with the judiciary to ensure that judges
understand CPRs and will not undermine their functioning.
With respect to supportive factors, the Brazilian experience indicates among other things the
following:
 Much of the drive to use CPRs did not come from banks, but rather from channel
partners of farmers who had strong commercial reasons to build credit relations with
farmers: input suppliers for whom this was the best way to sell inputs; and
processors/traders for whom it was a good way to secure future supplies. In the
absence of CPRs, in many cases these companies would have provided finance
anyway (e.g. by selling inputs on credit, or pre-financing forward contracts), but
CPRs gave superior legal protection. This suggests that if CPRs are introduced, they
are most likely to be used in already-established value chains, and it is advisable to
focus initial efforts to establish CPRs on such chains and the channel partners
involved.
 It has been important for the buyers of CPRs that Brazil’s regulatory framework gives
them easy options to refinance the CPRs, through banks and the capital market.
Several instruments have been created for this purpose. This has benefitted both the
agricultural sector and investors, and has ensured that lack of credit/finance capacity
has not been an obstacle to the development of CPRs. It is advisable that when CPRs
are introduced, instruments to link CPR-based finance to the capital market are also
envisaged; and (together with the relevant financial regulation agencies) an effort is
made to conceptualize and develop the mechanisms to trade such instruments (over-
the-counter or preferably, on organized exchanges).
 Specialized monitoring agencies oversee sowing, then regularly check on the growing
process, and during harvest time, ensure through daily visits the pledged goods, once
harvested, are indeed going to the agreed buyer (and if it is first stored, they oversee
the storage facilities).81 While not all CPR issuers are monitored (many are deemed
sufficiently trustworthy82), the existence of monitoring agencies that can verify the
behaviour of farmers (and processors issuing bonds similar to CPRs) have added
further trust to the system: they give the bond buyer confidence that the bond seller is
indeed using the funds for the planned activity, and give hands-on control during the
critical period when the risk of diversion is largest. The creation and strengthening of
81
The large input providers have their own monitoring operations.
82
AMDI (2011) notes that BASF, a large input provider, monitors only 5 percent of the collateral
under CPRs.
60
such agencies merits support as a component of a program to introduce CPR-like

instruments.
 CPRs and similar instruments have benefitted from favourable tax treatment, in
particular making it attractive for wealthy individuals to invest in agricultural finance
by declaring the gains exempt from income taxes.
And ultimately, while CPRs are valuable tools, the fact that they remain based on trust in a
farmer’s promise implies that inherently, they are more likely to benefit medium- and large-
size, well-organized farmers rather than small and unorganized ones (as is indeed the case in
Brazil). They may be a good tool for agricultural development, but they are not a priori well
suited to target the poorest farmers or poverty alleviation.
61
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65

Using Agricultural Bonds For Pre - and Post-Harvest Finance in Brazil

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DRAFT – FOR COMMENTS ONLY

Using agricultural bonds for pre- and post-harvest finance in Brazil

1996 0.962 2011 0.532

ADEP Abu Dhabi Equity Partners

1. The inception of Brazil’s agricultural bonds

Brazil introduced the concept of enhancing an agricultural loan by adding an “unconditional

- In 1967, a decree/law that codified specialized financial instruments for agricultural

Example of a printed version of a physical CPR

CPR – Rural Product Note

Silvanópolis, 2 May 2006 [NAME AND SIGNATURE OF THE SELLER/ISSUER]

Time / Date Name of Registry Agent Registry code

CPR – RURAL PRODUCT NOTE

Issuer: Moacir Vieira de Almeida

CPR-F - Financial Rural Product Note

1. Definitions and terms (7-page list of definitions)

2. The basic forms of CPRs

 Farmers who are organized in cooperatives, with processing of their commodities

Initial date Harvest/delivery time

Source: Based on Sousa and Pimentel, 2005.

3. Using CPRs in structured trade finance

Source: Junior, 2008.

4. The legal and regulatory status of CPRs

CPRs have a number of well-defined features enshrined in Brazilian law, including:

5. Experiences with CPR defaults

6. Building on CPRs – the alphabet soup43

Acronym Name Underlying collateral Issuers

CPR Cédula de produto rural Crops, cattle, to be Farmers, cooperatives

CDA Certificado do depósito Goods in warehouse Warehouses

7. Pre-harvest financing instruments building on CPRs

Their common characteristics are as follows:

For the pre-harvest finance of agri-businesses (farmers, cooperatives, processors, traders,

Source: Junior, 2008

Table 2: Comparing bank certificates of deposits and LCAs

Bank certificate of deposits LCA

Obligatory deposit with the 15% None

CRAs – two examples

Agribusiness Securitization Companies can be more or less specialized, financing only a

Source: author, based on Standard & Poor’s, 2010.

To summarize the essential characteristics of this CRA issue:

To address the constraints, Brazilian regulations on warehouse receipts were modified in

 Obligatory registration in an officially-approved (electronic) registry

 The CDA represents a commitment to deliver agricultural products (including in

CDA (& possibly WA)

9. Bank processes and procedures

However, there seem to be conflicting

10. The growth of CPRs and related financial instruments

 Which numbers should one use? Registered volumes? Outstanding volumes

The following, however, hopefully gives some indications.

The CPR market

Year CETIP CETIP BM&F

The officially-registered CPRs are, Table 4:

Registered titles: comparing CPR-F with related agricultural titles

Registrations with CETIP and BMFBOVESPA (million R$)

agriculture.60database of BM&F BOVESPA (SRTA, Volume de Títulos Registrados,

11. The secondary market

qualified investors, and need to be intermediated by regulated participants of the Brazilian

FIDCs operate as follows:

Source: author, based on Oliveira Trust, 2009.

Category Initial amount November 2007 November 2009 Value of each

Senior 239 AA A 1.11

Mezzanine 266 B CCC 0.53

Junior 127 Not rated Not rated 0

Source: based on Standard & Poor’s and Fitch rating reports.