"The agribusiness real estate fund can buy agro lands and participate in the agro industrial and farming activity, participating in soy planting and cattle raising, for example, and it does this by buying quotas of companies. Besides being able to own land and participate in the activity, you can also buy credit rights from rural activity, agribusiness securitization," explains Lacerda. Agribusiness funds can also have securitized products in their portfolio, such as Rural Product Notes (CPRs) and Agribusiness Receivables Certificates (CRAs).

For the lawyer Renato Buranello, partner of VBSO Advogados and director of the Brazilian Institute of Agribusiness Law, "this extensive list of assets confers inherent polyvalence" to FIAgro, which can act in several different areas. He highlights in particular the possibility of private equity transactions, in which the fund may act as a strategic investor in privately-held companies of the agribusiness chain.

In practice, this means that FIAgro has advantages over FII, which cannot directly participate in the sector's businesses, and over FIP, which cannot hold shares in securitized companies and assets. Thus, the scope of FIAgro is larger than that of other instruments.

This hasn't changed with the vetoes, but, in the opinion of Juliana Mello, from Fortesec, without the attraction on the investor's side, managers may stop to think if it isn't better to choose other instruments that are already better known, such as FIIs, FIPs, and even FIDCs (Receivables Investment Funds), which can buy credits of different papers, including agricultural debt.

"There are already other funds that can acquire CRAs; the difference is that they don't have the tax benefit, precisely what would be the differential of FIAgro. In my understanding, FIAgro no longer has so much relevance [with the vetoes]. In my opinion, it doesn't make much sense to have FIAgro for this if they already have other ways to buy papers", he points out.

Luis Peyser, partner of the law firm i2a Advogados, specialized in structuring FIIs issues and who was waiting for the approval of the PL to offer FIAgro to clients who have already shown interest, also regrets the disfiguration of the initial project, which made FIAgro of little interest to the capital market. In practice, he points out that it is already strange that FIAgro is in the same law as FIIs and does not have the same tax benefits.

"Basically, the way they did it here says, 'it's created, and whether you use it or not is up to you. The initial intention, of attracting the public of individuals as well as the FIIs, ended up falling apart," says Peyser. "It's more difficult to convince investors to put their money in an agro fund, of a business in the countryside of Mato Grosso, that they are not close to and don't know the risks, and that will still pay less than a real estate fund of a logistics warehouse leased to a retailer, for example", he exemplifies.

The lawyer explains that the lower interest of the market, of investors and managers, ends up being reflected on the other side of the chain, that of the rural producer or the company that operates in the field. "Less people investing, less money, the more expensive it becomes for the company and the rural producer. We can't know how much the investor will ask for to want to run the risk of something he has never heard of and that doesn't even have a tax incentive," he says. The companies themselves may end up opting for funding instruments that are already known, such as LCAs (Agribusiness Letters of Credit) and CRAs.

Peyser also explains that he expected a boom in the agro fund segment focused on CRAs, something that they already have with CRIs, which are attractive because they have the exemption.

"It would be a very strong market, very cool. When they created the funds that invest in CRIs, it was very interesting, and they have huge funds of CRIs. It's good to see that there are specialized people, professionals, thinking about strategies and managing them; for individuals, going to brokerage houses and evaluating CRAs and CRIs is much more difficult, managers are important to help this small investor evaluate risks and compose the portfolio", he reiterates.

Without the attractiveness to investors, it is possible that this market will end up as it is: with bonds issued only by the big players, who have the money to structure CRAs, and be sold to traditional institutional investors and pension funds.

Another veto that caused a stir was that of the deferral of the payment of Income Tax on the capital gain calculated on the payment of assets in the fund, such as rural real estate. To understand what was being proposed, think that a fund can act in two ways: get the money from investors and then buy the assets; or buy the assets and go to the market in search of market interested parties. In the latter case, an appraisal report of the value of the rural property or real estate is needed, and from then on the seller will need to pay the tax on the difference in value.

What the FIAgro text called for was that, in the case of funds that would buy the properties before seeking investors, the owners of these assets would defer payment of the tax only at the time the investors buy the shares or when there is redemption upon liquidation of the funds - not upon issuance of the shares.

According to Peyser, this could generate an incentive for heirs of properties, for example, who don't have the money to cover the tax, or owners who have had the property for many years, to decide to sell. It is a sector in which the lack of liquidity has always hindered transactions, since it involves very high values and long-term investments.

But, when arguing for the veto of this section, the order published on Tuesday morning says that "the measure is legally impeded because it entails a waiver of revenue, without the equivalent cancellation of other mandatory expenses and without being accompanied by an estimate of its budgetary and financial impact.

For the deputy Christino Áureo, the FPA is convinced that the measure would increase the liquidity of the process, consequently increasing the number of new transactions, which would be enough to ensure the opposite, the increase of revenues.

"The [tax] waiver in this case [of deferred collection of income tax], we do not see this point in the way presented by the IRS. We see it precisely as a great opportunity for the government to expand the ability to collect taxes, since it would bring greater liquidity to the securitization industry of debt assets and transactions and commercialization of agricultural land. The larger number of transactions, in this new reality, will also generate more revenue", comments the congressman.

For him - and also for the specialists heard by the report - the vetoes make no sense. "In a very clear and transparent way, we came to defend our point of view and it is now up to us to discuss within the FPA, the Agriculture Committee of the House [of Representatives], and other instances, in addition to remaining in dialogue with the IRS itself. In our point of view, we have the view that there is a waiver that is merely theoretical. In practice, the tax payment is made, just not at the time of sale", said the congressman to Valor Investe.

He reinforced that the IRS needs to understand that there are new, recent factors that can change the dynamics of the markets; "everything is constantly evolving. He believes that not only small investors, including those who are closer to agribusiness and who do not connect with what is offered today in the financial market could be interested, but also foreign investors, since agribusiness is one of the most powerful sectors of the local economy.

"This [agro] sector is today in Brazil the one that grows the most and generates the most income. It is the one that stands on its own feet and has sustained the country in various situations. But it is also a difficult sector. Even within a segment, such as sugar cane, for example, there are mills that do very well and others that do very badly. The same thing in cattle breeding. The only exception has been soy. But all this means that it is complex for the investor and involves different risks than the investors in FIIs are used to, even greater risks," points out Lacerda, from Hieron.

Buranello, from the Brazilian Institute of Agribusiness Law, reinforces the chorus saying that, under the fear of renouncing a tax revenue that doesn't exist today, the government renounces the possibility of doing new business in agribusiness, making obsolete already in its birth an important source of financing for the fastest growing sector in the country.

"FIAgro was born as the worst investment vehicle from a tax perspective: its investors will have a higher withholding income tax on the fund's earnings - even when compared to investment funds that don't have exemption - and FIAgro will still have its portfolio taxed - when no other investment fund besides FII has it - making it absolutely inefficient", he says.

He ends by saying that it makes "no sense to structure a FIAgro" when compared to other vehicles already available, although less versatile and not focused on agribusiness, such as FIDC, FIP, and the FII itself.