Government establishes rural insurance as a mandatory expense

Published on Monday, 23, in the Federal Official Gazette, the Budget Guidelines Law of 2022 (LDO 2022) confirmed that, from next year, the subsidies destined to the Rural Insurance Subsidy Program (PSR) will be treated as mandatory expenses. The change of category in the federal budget should bring more predictability and stability to the program.

Since its creation, the PSR has always been categorized as a discretionary expense and, therefore, it was subject to possible cutbacks and blockages of resources. For 2020, for example, Agriculture Minister Tereza Cristina had announced that R$1 billion would be allocated to the program that pays part of the insurance premium contracted by the rural producer. However, the year ended with a transfer lower than expected: R$881 million.

In general terms, discretionary expenditures are a possible source of funds for the federal government in the event of a need to reallocate for an unexpected disbursement, as was the case in the fight against the Covid-19 pandemic in 2020. Expenditures classified as discretionary may have their own resources sacrificed. Mandatory expenses, however, cannot undergo changes in the revenues allocated to them.

The transition from the PSR to the mandatory expenditure category was articulated by Tereza Cristina since the beginning of her term. The objective is to provide predictability to both rural producers and the insurers and reinsurers participating in the program. The constant cuts made to the planned budget undermine the reliability of the private sector. Investments in technicians, new products, improvement of insurance and even the entry of new companies – which make the market more competitive – are harmed.

Agricultural parliamentarians had already tried to make the PSR a mandatory expense in the discussion of LDO 2021. But this change was vetoed by President Jair Bolsonaro in enacting the law on the recommendation of the Ministry of Economy. This year, the rapporteur of the LDO 2022 bill, federal deputy Juscelino Filho (DEM-MA), accepted an amendment by deputy José Mário Schreiner (DEM-GO) and included the PSR as a mandatory expense in the final text of the bill which was approved in a session of the National Congress. This inclusion included articulations by the minister Tereza Cristina and the Confederation of Agriculture and Livestock of Brazil (CNA) .

In recent weeks, the effort of members of the Agriculture portfolio was to demonstrate to colleagues in the Economy that making rural insurance a State policy brings benefits both to governments and to the country’s food security and economy. Between 2019 and 2020, data from the Superintendency of Private Insurance (Susep) show that insurance companies paid R$4.6 billion to producers who had losses. Without the payment of insurance, these losses could mean the withdrawal of farmers and ranchers from activities and the need for the government to support producers with debt renegotiation programs.

Check out the full publication of LDO 2022

Next step

With the sanction of LDO 2022, the Executive Branch has until August 31 to send the National Congress the bill that deals with the Annual Budget Law 2022 (PLOA 2022).

The LDO is the document that defines the priorities to be taken by the Executive Branch in defining the budget. The Annual Budget Law describes in detail the Union’s forecast regarding collections and division of revenues for payment of expenses.