Agricultural input companies’ debts in bankruptcy top R$9bn - Valor International

Brazil’s agricultural input industry is facing a crisis that extends far beyond the high-profile case of distributor Agrogalaxy. Around 45 companies involved in the sale or production of fertilizers, pesticides, and seeds ended 2024 under bankruptcy protection, according to data from consultancy RGF&Associados and Valor Data. This figure, which includes Agrogalaxy and its seven subsidiaries, represents an 80% increase from the last quarter of 2023. Analysts warn that this number could rise even further.

The debts of 40 out of these 45 companies total approximately R$9 billion, according to data compiled by Valor Data. Agrogalaxy and its seven subsidiaries alone account for nearly half of this amount, with R$4.6 billion involved in their bankruptcy protection process. Debt figures for five of the companies were not available.

“The increase in bankruptcy protection filings in the agricultural input sector is mainly driven by rising default rates among farmers, particularly small and medium-sized producers,” said Rafael Pinto, a partner at RGF.

He noted that the number of bankruptcy protection cases in the sector is expected to continue rising in the coming quarters, following a trend observed in other industries.

According to analysts, the crisis in the input sector stems from a combination of declining grain prices, adverse weather conditions, and rising costs, which have hurt demand and farmers’ ability to pay. However, rapid expansion during boom years also contributed to the crisis, as seen in the case of Agrogalaxy, which filed for bankruptcy protection in September last year.

Bruno Fonseca, a senior analyst at Rabobank, pointed out that some input retailers pursued aggressive acquisitions while borrowing costs were high. “This was a factor in the case of the major company we saw,” he said, without directly naming Agrogalaxy.

Speaking to Valor, Agrogalaxy CEO Eron Martins outlined the factors he believes led the company to seek bankruptcy protection. Until 2022, he explained, farmers were enjoying high profitability, with soybean prices reaching R$200 per 60-kilogram bag and margins exceeding 60%. “From 2023 onward, a series of factors pushed margins below 10%,” he said.

A key turning point came in February 2022 with the outbreak of war between Russia and Ukraine, two of the world’s largest fertilizer suppliers. The price of fertilizers soared, impacting Brazil, which imports around 90% of its fertilizer needs.

At the same time, Mr. Martins noted, pesticide prices were also high due to supply chain disruptions from China and rising maritime freight costs. Meanwhile, soybean prices declined last year as global supply increased. Many farmers, who had invested in equipment and expansion, were left with mounting debt as their income shrank.

“When farmer profitability drops, borrowing costs are high, and there are years of adverse weather, it creates a challenge for producers to pay their bills, leading to higher default rates,” Mr. Martins explained.

Another factor that hurt the input sector, he said, was stockpiling, which led to price declines.

Since Agrogalaxy’s bankruptcy protection was granted in October last year, the company’s management has accelerated restructuring efforts. The plan includes store closures (reducing the network from 149 to 73 locations), streamlining operations, cutting exposure to fertilizers (which require more working capital), and establishing partnerships with suppliers to support the company during this challenging period.

Another group in bankruptcy protection since the end of 2024, B&F Agro—focused on grain production and input sales in Mato Grosso do Sul—is working to restructure R$360.8 million in debt.

Jean Cioffi, an attorney at JRCLaw representing B&F Agro, said the bankruptcy protection process provides breathing room for restructuring. One of the company’s key moves has been to reduce its dependence on input sales.

“The B&F Group has repositioned itself to focus more on its own soybean and corn production as a stable, long-term revenue source. In the input resale business, fixed costs and expenses have been drastically cut, and the product portfolio has been narrowed to focus on more profitable lines,” he said.

The company cultivates grains on 3,470 hectares in Mato Grosso do Sul, and the outlook for the 2024/25 harvest is positive, he added.

The market as a whole is anticipating a record grain harvest this season. However, a strong harvest alone may not be enough to rescue struggling companies.

“Better production performance and slightly higher prices help, but structural challenges may prevent a full recovery in a sector still burdened by past harvest debts,” said the B&F representative.

Mr. Martins, Agrogalaxy’s CEO, said “no one can complain about a year with a good harvest,” but he acknowledged that the sector’s financial difficulties could extend into 2026 or even 2027, depending on farm productivity and, above all, weather conditions. “If we face another climate-related challenge in 2026, the recovery timeline will stretch further,” he noted.

Mr. Fonseca of Rabobank estimates that it will take up to three more harvests, starting in 2024, to resolve the sector’s debt issues.