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SAO PAULO: Some Brazilian farmers filing for bankruptcy protection have managed to include as debt in these proceedings their obligations to commodities traders in forward sales agreements, according to industry sources.

The situation increases risks for traders in Brazil as it compromises deliveries of goods like coffee and sugar. Matheus Miaki, a partner at coffee producer MC Miaki, said the firm’s lawyer advised it to submit coffee contracts to the rule of the bankruptcy procedure after a frost in 2021 left it with only 20% of the crop. He said while some farmers decided not to deliver products after the frost, his firm opted to calculate the value of the contracts and related fines and turn them into financial obligations.

“In the past, the vast majority of farmers used not to subject these contracts to bankruptcy proceedings,” said Fernando Bilotti, a lawyer for traders.

But as more Brazilian farmers face financial difficulties amid a strengthening of the real and a fall in the price of some commodities, he said more sales contracts could suffer the same fate.

Japan’s Mitsui & Co. Coffee Trading and Singapore’s Olam challenged MC Miaki’s stance with mixed results. After a judicial administrator analysis, only open contracts, with a delivery date after the bankruptcy filing, were excluded from proceedings, court records show. That left Mitsui with almost 20 million reais ($4.10 million) in outstanding coffee deliveries and Olam with 4.4 million reais. Bilotti said at least one sugar mill also subjected a sale commitment to its bankruptcy filing, raising the prospect of this issue affecting more commodities types.

Mitsui did not respond to requests for comment. Olam said farmers other than MC Miaki have subjected sales contracts to bankruptcy filings, adding that this represents “a negligible” risk to its Brazilian operations.

Olam noted that every year 25-30% of the coffee crop is negotiated for delivery in the future. “We are managing this on a case by case basis and are mostly in the process of discussing with the concerned growers to arrive at mutually agreeable solutions.”

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