On October 10, 2024, a preventive measure issued by the Londrina Court in northern Paraná, Brazil, brought Belagrícola, a major Brazilian agricultural input distributor controlled by the Chinese-owned Pengdu Group, into the public spotlight. This enterprise, which boasts 52 retail branches and controls a storage capacity of 1.5 million tons, was granted 60 days of judicial protection, suspending payments to creditors and grain pricing agreements with farmers. This move is not a sign of the enterprise's collapse, but an emergency response amid an industry-wide systemic crisis. It not only reflects the deep-seated predicaments of Brazil's agricultural input distribution industry but also demonstrates the enterprise's attempts to break through by leveraging its asset advantages.

Liquidity Dilemma: The Chain Reaction of 1 Billion Brazilian Reals in Bad Debts

The direct trigger for Belagrícola's liquidity crunch is the sharp increase in default rates among agricultural producers. Over the past two years, the company has accumulated non-performing accounts receivable of approximately 1 billion Brazilian Reals, a figure that accounts for a significant proportion of its balance sheet and has become a heavy burden on its working capital. More critically, many of these defaulted debts have been renegotiated through the producers' judicial reorganization processes, subjecting Belagrícola to both principal write-downs and extended payment terms—a double blow that has further eroded its cash flow.

This predicament is not unique to Belagrícola but rather a concentrated manifestation of the transmission effect within Brazil's agricultural industrial chain. In 2024, the number of bankruptcy protection applications in Brazil's agricultural sector hit a record high: applications from individual farmers surged by over 500% year-on-year compared to 2023, while applications from corporate producers increased by nearly 200%. The producers' financial distress stems from a combination of pressures: sluggish commodity prices for two to three consecutive years, a sharp rise in production costs since 2022, and crop losses caused by adverse weather in 2024. These factors have squeezed producers' profit margins from 25%-50% to a mere 10%-15%. When producers are unable to repay their debts, agricultural input distributors—acting as "agricultural lenders"—become the direct bearers of this risk.

Financial data vividly illustrates the severity of the crisis. Belagrícola's total revenue for the 2024 fiscal year dropped to 4.7 billion Brazilian Reals, with a net loss exceeding 400 million Brazilian Reals. These figures not only reflect the company's own operational pressures but also confirm the broader industry trends of compressed profit margins and deteriorating credit quality. Notably, the judicial protection covers affiliated entities such as Bela Sementes but excludes Fiagril—a key platform under Pengdu Group's control located in Mato Grosso—highlighting the group's strategic consideration of risk isolation.

The Path to Breaking Through: Sustaining Operations and the Strength of Assets

In the face of the crisis, Belagrícola's response strategy combines "conservative" and "innovative" measures. The most critical "conservative" move is ensuring the continuity of its core business: despite suspending external payments, the delivery of agricultural inputs for the 2025/26 crop cycle remains unaffected. Shipments of fertilizers, seeds, and other products for the current planting season are nearly complete, with strong sales performance. This operational resilience stems from a precise grasp of Brazil's agricultural production cycles: agricultural input distributors typically provide credit during the pre-planting period (March to September for summer crops), while repayments are scheduled for the harvest season when producers sell their grains. The judicial protection has thus created a buffer period for the company to "maintain revenue generation while temporarily suspending payments."

The company's management's confidence is further bolstered by its substantial physical asset base. Belagrícola owns 58 grain silos (40 of which are self-owned), 52 retail outlets, its own farmland, and sufficient inventory. These assets not only hold high mortgage value but also form a complete distribution and storage loop, providing solid support for operations. Based on this, management has clearly stated that there are no immediate plans to initiate formal judicial reorganization or out-of-court restructuring, aiming to navigate the current difficulties without comprehensive debt reduction.

Improvements in the external environment have also brought a turning point for the company. Agricultural conditions in Brazil for the 2025/26 season have significantly improved: favorable rainfall and temperature patterns, in sharp contrast to the drought caused by El Niño last year, are expected to reduce crop losses and thereby alleviate producers' default risks at the source. Meanwhile, negotiations with U.S. agribusiness giant Bunge regarding a minority equity investment are still ongoing. Although the final completion of the transaction has been repeatedly delayed due to due diligence processes and the ongoing industry downturn, a successful deal would inject new capital and resources into the company. Bunge's investment model of "no direct participation in operations" will also ensure the continuity of Belagrícola's business operations.

Industry Reflection: Systemic Risks of the Credit-Dependent Model

Belagrícola's crisis is essentially a concentrated outbreak of flaws in the business model of Brazil's agricultural input distribution industry. The industry has long relied on a "credit + distribution" operational model, with input distributors essentially acting as agricultural lenders. In 2023, members of Brazil's Plant Protection Industry Association provided 29 billion Brazilian Reals in financing for crop protection product purchases, with 43% of these payments having terms exceeding 240 days. This model operates smoothly when commodity prices are stable and weather conditions are favorable, but when external risks converge, unsecured accounts receivable can easily turn into bad debts.

Multiple shocks in recent years have plunged the industry into a systemic crisis. In September 2023, AgroGalaxy—once Brazil's largest listed agricultural input retailer—filed for judicial reorganization with debts exceeding 7 billion Brazilian Reals. In February 2024, Lavoro, backed by private equity firm Thomas Bravo, faced the same predicament with accumulated liabilities of 3.2 billion Brazilian Reals. The collapse of these industry giants, coupled with Belagrícola's struggles, reveals the industry's inherent risks: external shocks such as commodity price volatility and climate disasters quickly spread through the credit chain to the distribution link, creating a vicious cycle of "producer defaults → distributor bad debts → liquidity depletion."

More alarmingly, the industry crisis has triggered a chain reaction. As default rates rise, creditors have tightened credit standards and raised collateral requirements, further exacerbating producers' financing difficulties and creating a vicious circle of "more defaults → credit contraction → even more defaults." Data from Brazilian credit bureau Serasa Experian shows that applications for bankruptcy protection by agricultural input enterprises increased by 36.8% year-on-year in the first three quarters of 2024. Although the number of applications declined quarter-on-quarter in the third quarter, the agency warned that this may be a short-term fluctuation and that industry recovery will take several years.

Future Outlook: Can Asset Advantages Resolve the Industry Dilemma?

Belagrícola's breakthrough attempt offers a new solution for the industry: relying on physical assets to survive the crisis. Unlike enterprises such as AgroGalaxy, which lack sufficient physical asset support, Belagrícola's warehouses, retail outlets, and other assets not only have mortgage financing capabilities but also ensure the continuity of core business operations, allowing it to maintain normal operations during the judicial protection period. If this "asset-backed + business continuity" model succeeds, it will provide a replicable template for other medium-sized distributors.

However, the industry's long-term recovery will require in-depth reforms to its business model. Brazil's Plant Protection Industry Association has called on the industry to develop sustainable operational models that avoid excessive debt and high credit risks. In the future, distributors may need to adjust their credit strategies, introduce more robust risk assessment systems, or explore a combined "insurance + credit + distribution" model to mitigate climate and price risks. Additionally, strengthening cooperation with financial institutions to transfer part of the credit risk to professional financial platforms may also become a direction for industry transformation.

For Chinese enterprises, Belagrícola's experience also provides valuable insights for overseas investment. Pengdu Group's agricultural layout in Brazil, built through the acquisition of Belagrícola and Fiagril, allows it to benefit from local agricultural resources while having to cope with cyclical industry risks and regional-specific challenges. Its approach of addressing the crisis through risk isolation and leveraging asset advantages serves as a practical reference for Chinese agricultural enterprises in managing overseas risks.

The 60-day judicial protection period is not only a buffer for Belagrícola but also an observation period for Brazil's agricultural input distribution industry. Its final outcome will determine not only the fate of a single enterprise but also the future transformation direction of the entire industry. Against the backdrop of uncertain commodity markets and normalized climate risks, balancing credit support with risk control and building resilience through core assets will be a critical question for all industry participants.