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FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
 12 Months Ended
Dec. 31, 2021
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

23.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
23.1.Overview

In the ordinary course of business, the Company is exposed to credit, liquidity and market risks, which are actively managed in compliance with the Financial Risk Management Policy (“Risk Policy”) and internal guidelines and strategic documents subject to such policy, executing the formal designation of its hedge accounting relations. The Risk Policy was approved by the Board of Directors on December 16, 2021, is valid for one year and is available at the Company’s website.

The Company’s risk management strategy, guided by the Risk Policy, has as main objectives:

»To protect the Company’s operating and financial results, as well as its equity from adverse changes in the market prices, particularly commodities, foreign exchange and interests;
»To protect the Company against counterparty risks in existing financial operations as well as to establish guidelines for sustaining the necessary liquidity to fulfil its financial commitments;
»To protect the cash of Company against price volatilities, adverse conditions in the markets in which the Company acts and adverse conditions in its production chain.

 

The Risk Policy defines the governance of the bodies responsible for the execution, tracking and approval of the risk management strategies, as well as the limits and instruments that can be used.

Additionally, the Management of the Company approved the following policies on November 10, 2021, which are available at the Company’s website:

»Financial Policy, which aims to: (i) establish guidelines for the management of the Company's financial debt and capital structure; and (ii) guide the Company's decision-making in connection with cash management (financial investments).
»Profit Allocation Policy, which aims to establish the practices adopted by the Company regarding the allocation of its profits, providing, among others, the periodicity of payment of dividends and the baseline used to establish the respective amount.

 

 

23.2.Credit risk management

The Company is exposed to the credit risk related to the financial assets held: trade and non-trade accounts receivable, marketable securities, derivative instruments and cash and equivalents. The Company’s credit risk exposure can be assessed in notes 4, 5 and 6.

23.2.1.Credit risk in accounts receivable

The credit risk associated with trade accounts receivable is actively managed through specific systems and is supported by internal policies for credit analysis. The significant level of diversification and geographical dispersion of the customer portfolio significantly reduces the risk. However, the Company chooses to complement the risk management by contracting insurance policies for specific markets. The impairment of these financial assets is carried out based on expected credit losses.

23.2.2.Counterparty credit risk

The credit risk associated with marketable securities, cash and cash equivalents and derivative instruments in general is directed to counterparties with Investment Grade ratings. The maintenance of assets with counterparty risk is constantly assessed according to credit ratings and the Company’s portfolio concentration, aligned with the applicable impairment requisites.

On December 31, 2021, the Company held financial investments over R$100,000 at the following financial institutions: Banco Bradesco, Banco do Brasil, Banco BTG Pactual, Banco Inter, Banco Itaú, Banco Pan, Banco Safra, Banco Santander, Banco Votorantim, Banco XP, Caixa Econômica Federal, Citibank, Emirates NBD, First Abu Dhabi Bank, HSBC, J.P. Morgan Chase Bank and Vakiflar Bankasi.

The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco Itaú, Banco Santander, Banco Votorantim, Bank of America Merrill Lynch, Banco BNP Paribas, Citibank, Goldman Sachs, J.P. Morgan Chase Bank, Morgan Stanley, Rabobank, T. Garanti Bankasi A.Ş. and Banco XP.

23.3.Capital management and liquidity risk

The Company is exposed to liquidity risk as far as it needs cash or other financial assets to settle its obligations in the respective terms. The Company’s cash and liquidity strategy takes into consideration historical volatility scenarios of results as well as simulations of sectorial and systemic crisis. It is grounded on allowing resilience in scenarios of capital restriction.

The ideal capital structure definition at BRF is essentially associated with (i) strong cash position as a tolerance factor for liquidity shocks, which includes minimum cash analysis; (ii) net indebtedness; and (iii) maximization of the capital opportunity cost.

On December 31, 2021, the non-current consolidated gross debt, as presented below, represented 86.78% (93.66% as of December 31, 2020) of the total gross debt, which has an average term higher than nine years.

The Company monitors the gross debt and net debt as set forth below:

  12.31.21   12.31.20
   Current     Non-current     Total     Total 
Foreign currency loans and borrowings        (2,166,249)        (14,177,303)        (16,343,552)     (15,739,134)
Local currency loans and borrowings        (1,036,819)          (8,075,659)          (9,112,478)       (6,665,292)
Derivative financial instruments, net           (192,892)               (31,057)             (223,949)             (7,706)
Gross debt        (3,395,960)        (22,284,019)        (25,679,979)     (22,412,132)
               
Cash and cash equivalents         7,528,820                         -           7,528,820        7,576,625
Marketable securities            346,855              447,413              794,268           658,735
Restricted cash              24,963                        1                24,964             24,358
          7,900,638              447,414           8,348,052        8,259,718
Net debt         4,504,678        (21,836,605)        (17,331,927)     (14,152,414)

 

The table below summarizes the significant commitments and contractual obligations that may impact the Company’s liquidity:

  12.31.21
  Book
value		   Contractual cash flow   2022   2023   2024   2025   2026   2027 onwards
Non derivative financial liabilities                              
Loans and borrowings    25,456,030      41,664,411        3,810,339        4,154,098        3,199,554        2,408,937        4,720,689      23,370,794
Principal        28,248,591        2,434,990        2,907,304        2,114,428        1,396,164        3,772,786      15,622,919
Interest        13,415,820        1,375,349        1,246,794        1,085,126        1,012,773           947,903        7,747,875
Trade accounts payable    11,714,624      11,832,602      11,823,884              5,756              2,856                 106                     -                     -
Supply chain finance      2,237,975        2,265,173        2,265,173                     -                     -                     -                     -                     -
Lease liabilities      2,479,246        3,166,028           504,285           547,239           423,422           342,027           259,424        1,089,631
Derivative financial liabilities                              
Financial instruments designated as cash flow hedge                              
Interest rate derivatives          40,565            40,565                     -                     -                     -                     -                     -            40,565
Currency derivatives          37,959            37,959            37,658                 301                     -                     -                     -                     -
Commodities derivatives          57,608            57,608            56,614                 994                     -                     -                     -                     -
Financial instruments not designated as cash flow hedge                              
Currency derivatives         233,172           233,172           233,172                     -                     -                     -                     -                     -

 

 

The Company does not expect that the cash outflows to fulfill the obligations shown above will be significantly anticipated by factors unrelated to its best interests, or have its value substantially modified outside the normal course of business.

23.4.        Market risk management

23.4.1.Interest rate risk

The interest rate risk may cause economic losses to the Company resulting from volatility in interest rates that affect its assets and liabilities.

The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for fixed or floating rates. However, the Company continually monitors the market interest rates in order to evaluate any need to enter into hedging transactions to protect from the volatility of such rates and manage the mismatch between its financial assets and liabilities.

The Company’s exposure to interest rates is set forth below:

                  12.31.21
      Notional    
Index     Assets   Liabilities   Derivative financial instruments   Exposure, Net 
Fixed                  
Fixed Reais                   199,904               (427,102)             (8,454,971)             (8,682,169)
Fixed U.S. Dollars (USD)                2,489,430           (16,114,760)              7,036,609             (6,588,721)
Fixed Turkish Liras (TRY)                   147,313               (452,917)                           -               (305,604)
Fixed Euros (EUR)                     87,385             (1,053,534)              1,539,537                 573,388
Fixed Other                   614,129                           -               (121,175)                 492,954
Floating                  
Floating IPCA Reais                             -             (4,331,732)              3,300,000             (1,031,732)
Floating CDI Reais                4,809,891             (1,678,268)             (3,300,000)               (168,377)
Floating Libor U.S. Dollars (USD)                           -               (279,025)                           -               (279,025)
                 8,348,052           (24,337,338)                           -           (15,989,286)
Interest and fair value adjustment of derivatives                         -             (1,118,692)               (223,949)             (1,342,641)
Total                8,348,052           (25,456,030)               (223,949)           (17,331,927)

 

The derivative financial instruments used to hedge the exposure to interest rates as of December 31, 2021 are presented in the table below:

12.31.21
                          Fair value (R$)
Fair value hedge - Derivative instruments   Hedged Object   Maturity   Asset   Liability   Notional   Instrument   Object (1)
Interest rate swap    Debenture - 1st Issue - 3rd series - IPCA + 5.50% p.a.     2nd Qtr. 2026    IPCA + 5.50% p.a.    CDI + 0.57% p.a.            200,000  BRL                1,863           (1,179)
Interest rate swap    Debenture - 2nd Issue - 1st series - IPCA + 5.30% p.a.     3rd Qtr. 2027    IPCA + 5.30% p.a.    CDI + 2.16% p.a.            705,000  BRL               (3,204)          46,560
Interest rate swap    Debenture - 2nd Issue - 2nd series - IPCA + 5.60% p.a.     3rd Qtr. 2030    IPCA + 5.60% p.a.    CDI + 2.29% p.a.         1,495,000  BRL             (34,368)         112,240
Interest rate swap    Debenture - 3rd Issue - single series - IPCA + 4.78% p.a.     2nd Qtr. 2031    IPCA + 4.78% p.a.    CDI + 0.20% p.a.            900,000  BRL                5,601            6,853
                         3,300,000              (30,108)         164,474
(1)Corresponds to the accumulated amount of fair value hedge adjustments on the hedged items, included in the carrying amount of the debentures.

 

23.4.2.Foreign exchange risk

The risk is the one that may cause unexpected losses to the Company resulting from volatility of the FX rates, reducing its assets and revenues, or increasing its liabilities and costs. The Company’s exposure is managed in three dimensions: statement of financial position exposure, operating income exposure and investments exposure.

  i. Statement of financial position exposure

The Risk Policy regarding statement of financial position exposure has the objective to balance assets and liabilities denominated in foreign currencies, hedging the Company’s statement of financial position by using natural hedges, over-the-counter derivatives and exchange traded futures.

Assets and liabilities denominated in foreign currency for which the exchange variations are recognized in the Financial Results are as follows, summarized in Brazilian Reais:

    12.31.21   12.31.20
Cash and cash equivalents           2,064,631           2,855,979
Trade accounts receivable           6,377,104           5,765,753
Trade accounts payable          (1,221,354)             (859,790)
Loans and borrowings        (16,726,412)        (14,947,793)
Other assets and liabilities, net                49,732              225,694
Exposure of assets and liabilities in foreign currencies          (9,456,299)          (6,960,157)
Derivative financial instruments (hedge)           8,454,971           6,849,947
Exposure in result, net          (1,001,328)             (110,210)

 

The net P&L exposure is mainly composed of the following currencies:

 

Net P&L Exposure   12.31.21   12.31.20
Argentinian Peso (ARS)                (5,783)                (5,310)
Angolan kwanza (AOA)              318,660                       -   
Euros (EUR)                33,381              112,672
Yen (JPY)                77,178                29,976
Turkish Liras (TRY)              266,541              178,906
U.S. Dollars (USD)          (1,691,305)             (426,454)
Total          (1,001,328)             (110,210)

 

The Company is exposed to other currencies, although they have been grouped in the currencies above due to its high correlation or for not being individually significant.

The derivative financial instruments acquired to hedge the foreign currency statement of financial position exposure on December 31, 2021 are not designated as hedge accounting and are set forth below:

12.31.21
Derivative instruments not designated   Asset   Liability   Maturity   Notional   Exercise rate   Fair value (R$)
Non-deliverable forward    EUR     BRL    1st Qtr. 2022    EUR           265,000             6.5766         (46,336)
Non-deliverable forward    USD     BRL    1st Qtr. 2022    USD           935,928             5.8088       (151,493)
Futures - B3    USD     BRL    1st Qtr. 2022    USD           279,000             5.6169         (34,613)
Non-deliverable forward    EUR     JPY    1st Qtr. 2022    EUR             19,491         128.2633            2,054
Non-deliverable forward    USD     EUR    1st Qtr. 2022    EUR             40,669             1.1311              (731)
Total                             (231,119)

 

ii.Operating income exposure

The Risk Policy regarding operating income exposure has the objective to hedge revenues and costs denominated in foreign currencies. The Company is supported by internal models to measure and monitor these risks, and uses financial instruments for hedging, designating the relations as cash flow hedges.

The derivative financial instruments designated as cash flow hedges for foreing exchange operating income exposure on December 31, 2021 are set forth below:

12.31.21
Cash flow hedge - Derivative instruments   Hedged object   Asset   Liability   Maturity   Notional   Designation rate   Fair value
Non-deliverable forward    USD Exports     BRL     USD    1st Qtr. 2022    USD    261,000             5.6261             1,392
Non-deliverable forward    USD Exports     BRL     USD    2nd Qtr. 2022    USD      23,000             5.7978             1,569
Collar    USD Exports     BRL     USD    1st Qtr. 2022    USD      35,000             5.7164                878
Collar    USD Exports     BRL     USD    2nd Qtr. 2022    USD      30,000             5.8056                  35
Collar    USD Exports     BRL     USD    3rd Qtr. 2022    USD      10,000             6.0750                  90
                                        3,964
iii.Investments exposure

The Company holds investments abroad in functional currencies different than the Brazilian Real, which generate currency exposure that affects directly the Company’s Equity, in Other Comprehensive Income.

The non-derivative financial instruments designated as net investment hedge instruments on December 31, 2021 are set forth below:

12.31.21
Net investment hedge -
Non-derivative instruments		   Object (Investment)   Liability   Maturity   Notional   Rate   Fair value (1)
Bond - BRF SA BRFSBZ 4.35   Federal Foods LLC    USD    3rd Qtr. 2026    USD      75,673               3.7649            (138,080)
Bond - BRF SA BRFSBZ 4.35   BRF Kuwait WLL    USD    3rd Qtr. 2026    USD    108,757               3.7649            (184,667)
Bond - BRF SA BRFSBZ 4.35   Al Khan Foodstuff LLC    USD    3rd Qtr. 2026    USD      65,570               3.7649            (118,482)
                                   (441,229)
(1)Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.

 

23.4.3.Commodities price risk

In the ordinary course of business, the Company purchases commodities, mainly corn, soybean, soybean meal and soybean oil, individual components of the production costs.

Corn and soy prices are subject to volatility resulting from weather conditions, harvest productivity, transport and warehouse costs, government agricultural policies, FX rates and international market prices, among other factors.

The Risk Policy establishes coverage limits to the flow of purchases of corn and soy with the purpose of reducing the impact due to a price increase of these raw materials. The hedge may be reached using derivatives or by inventory management.

The financial instruments designated as cash flow hedges and fair value hedges for the commodities price exposure on December 31, 2021 are set forth below:

12.31.21
Cash flow hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     1st Qtr. 2022        55,975  ton                413.32                9,896
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     2nd Qtr. 2022      174,257  ton                391.73               47,504
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     3rd Qtr. 2022        59,628  ton                373.67               19,006
Collar - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     1st Qtr. 2022        40,000  ton                441.25                3,407
Collar - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     2nd Qtr. 2022        40,000  ton                440.65                4,362
Corn future - buy    Corn purchase - floating price     Corn - B3     1st Qtr. 2022          5,400  ton             1,494.17                    (77)
Corn future - buy    Corn purchase - floating price     Corn - B3     2nd Qtr. 2022        48,492  ton             1,415.59                  (816)
Collar - buy    Corn purchase - floating price     Corn - B3     1st Qtr. 2022        31,995  ton             1,675.54                  (181)
Collar - buy    Corn purchase - floating price     Corn - B3     2nd Qtr. 2022        66,015  ton             1,604.70               (1,381)
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     1st Qtr. 2022          1,000  ton             1,303.37                  (374)
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     2nd Qtr. 2022             500  ton             1,286.84                  (138)
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     1st Qtr. 2022          1,300  ton             1,230.35                   394
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     2nd Qtr. 2022          1,100  ton             1,243.40                   383
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT    3rd Qtr. 2022            500  ton             1,256.63                   236
                                      82,221
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

12.31.21
Cash flow hedge -
Derivative instruments		   Protection object   Assets   Liabilities   Maturity   Notional   Exercise price   Fair value (R$)
Non-deliverable forward    Cost in USD     USD     TRY     1st Qtr. 2022     USD        4,368   13.9818                 (1,283)
                                            (1,283)

 

12.31.21
Fair value hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - sell    Soybean purchase - fixed price     Soybean - CBOT    1st Qtr. 2022       30,999  ton                482.61               (1,593)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    1st Qtr. 2022       29,538  ton                213.72               (3,446)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    2nd Qtr. 2022     265,660  ton                218.85             (22,518)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    3rd Qtr. 2022       61,938  ton                197.41               (8,351)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    4th Qtr. 2022         5,800  ton                216.21                     44
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    2nd Qtr. 2023       28,442  ton                212.15                  (994)
Corn future - sell    Corn purchase - fixed price     Corn - B3    1st Qtr. 2022       25,569  ton             1,673.67                     37
Corn future - sell    Corn purchase - fixed price     Corn - B3    2nd Qtr. 2022         5,373  ton             1,527.26                     90
Corn future - sell    Corn purchase - fixed price     Corn - B3    3rd Qtr. 2022     268,893  ton             1,344.18                2,308
Corn future - sell    Corn purchase - fixed price     Corn - B3    4th Qtr. 2022       15,579  ton             1,349.89                     60
Corn future - sell    Corn purchase - fixed price     Corn - B3    1st Qtr. 2023         2,484  ton             1,433.33                     21
Corn future - sell    Corn purchase - fixed price     Corn - B3    3rd Qtr. 2023       15,174  ton             1,226.62                  (215)
Collar - sell    Corn purchase - fixed price     Corn - B3    1st Qtr. 2022         5,400  ton             1,541.67                    (44)
                                    (34,601)
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

12.31.21
Fair value hedge -
Derivative instruments		   Protection object   Assets   Liabilities   Maturity   Notional   Exercise price   Fair value
Non-deliverable forward    Cost in USD     BRL     USD     1st Qtr. 2022     USD      21,273   5.4942                 (3,132)
Non-deliverable forward    Cost in USD     BRL     USD     2nd Qtr. 2022     USD      58,140   5.7103                 (7,405)
Non-deliverable forward    Cost in USD     BRL     USD     3rd Qtr. 2022     USD      12,227   5.7418                 (2,469)
Non-deliverable forward    Cost in USD     BRL     USD     4th Qtr. 2022     USD        1,254   6.0520                      (62)
Non-deliverable forward    Cost in USD     BRL     USD     2nd Qtr. 2023     USD        6,034   6.4463                       45
                                          (13,023)

 

 

23.5.Effects of hedge instruments on financial information

The effects of the financial instruments for hedging exchange rate, commodities price and interest rates in the income (loss) for the year, in Other Comprehensive Income and in the financial position are set forth below:

Income for the year                    
12.31.21   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Net Sales                      48,327,703                         -                       -          48,327,703
Derivatives result        Operating Results     Cash flow                  15,602                         -                       -                15,602
Net Revenue   25                  48,343,305                         -                       -          48,343,305
                             
Cost of Sales                                     -         (37,858,788)                       -         (37,858,788)
Derivatives result        Operating Results     Cash flow / Fair value                          -             (318,821)                       -             (318,821)
Cost of Sales                                     -         (38,177,609)                       -         (38,177,609)
                             
Interests on loans and borrowings                                     -                         -        (1,681,078)          (1,681,078)
Interest Rate Derivatives result        Interest expenses     Fair value                          -                         -             (33,084)               (33,084)
Foreign Exchange variation on assets and liabilities                         (408,269)                         -                       -             (408,269)
Foreign Exchange Derivatives result        Financial Position     Not designated                157,573                         -                       -               157,573
Effects on Financial Result   27                     (250,696)                         -        (1,714,162)          (1,964,858)
                             
                     
Other Comprehensive Income                    
12.31.21       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow                (43,978)               (67,560)                       -             (111,538)
Non-derivative Instruments – current (1)        Operating Results     Cash flow              (444,953)                         -                       -             (444,953)
Non-derivative Instruments – non-current (1)        Operating Results     Cash flow                334,577                         -                       -               334,577
Non-derivative Instruments - non-current        Foreign investments     Net investment                (96,555)                         -                       -               (96,555)
Other Comprehensive Income (2)                         (250,909)               (67,560)                       -             (318,469)
                             
                     
Statement of financial position                    
12.31.21   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value                (10,342)                47,620             (30,108)                  7,170
Not designated derivatives        Financial Position     Not designated              (231,119)                         -                       -             (231,119)
Asset / (Liability) net                         (241,461)                47,620             (30,108)             (223,949)
                             
Derivative Instruments - current (3)        Operating Results     Cash flow                   3,964               103,746                       -               107,710
Non-derivative instruments – current        Operating Results     Cash flow              (444,953)                         -                       -             (444,953)
Non-derivative instruments – non-current        Operating Results     Cash flow              (548,640)                         -                       -             (548,640)
Non-derivative Instruments - non-current        Foreign investments     Net investment              (441,229)                         -                       -             (441,229)
Other Comprehensive Income (2)                       (1,430,858)               103,746                       -          (1,327,112)
                             
Derivatives result        Operating Results     Cash flow / Fair value                          -               531,732                       -               531,732
Inventories   7                                 -               531,732                       -               531,732
(1)In the year ended December 31, 2021, the amount of R$395,722 was reclassified from non-current to current.
(2)All effects are presented gross of taxes.
(3)Includes R$(1,126) related to the time value of the foreign exchange option contracts, and R$4,409 related to the time value of the commodity options contracts.

 

Income for the year                    
12.31.20   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Net Sales                    40,841,803                         -                       -          40,841,803
Derivatives result        Operating Results     Cash flow          (1,372,103)                         -                       -          (1,372,103)
Net Revenue   25                39,469,700                         -                       -          39,469,700
                             
Cost of Sales                                    -         (29,816,160)                       -         (29,816,160)
Derivatives result        Operating Results     Cash flow / Fair value                         -             (182,662)                       -             (182,662)
Cost of Sales                                    -         (29,998,822)                       -         (29,998,822)
                             
Interests on loans and borrowings                                    -                         -        (1,545,825)          (1,545,825)
Interest Rate Derivatives result        Interest expenses     Cash flow                         -                         -             (32,909)               (32,909)
Foreign Exchange variation on assets and liabilities                     (1,179,236)                         -                       -          (1,179,236)
Foreign Exchange Derivatives result        Financial Position     Not designated              981,847                         -                       -               981,847
Effects on Financial Result   27                    (197,389)                         -        (1,578,734)          (1,776,123)
                             
                     
Other Comprehensive Income                    
12.31.20       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow              (28,893)               211,751                       -               182,858
Non-derivative Instruments – non-current        Operating Results     Cash flow             (306,340)                         -                       -             (306,340)
Non-derivative Instruments - non-current        Foreign investments     Net investment             (277,856)                         -                       -             (277,856)
Other Comprehensive Income                        (613,089)               211,751                       -             (401,338)
                             
                     
Statement of financial position                    
12.31.20   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value                95,558             (144,057)                       -               (48,499)
Not designated derivatives        Financial Position     Not designated                55,442                         -             (14,649)                40,793
Asset / (Liability) net                         151,000             (144,057)             (14,649)                 (7,706)
                             
Derivative Instruments - current        Operating Results     Cash flow                47,942               171,306                       -               219,248
Non-derivative instruments – non-current        Operating Results     Cash flow             (883,218)                         -                       -             (883,218)
Non-derivative Instruments - non-current        Foreign investments     Net investment             (344,674)                         -                       -             (344,674)
Other Comprehensive Income                     (1,179,950)               171,306                       -          (1,008,644)
                             
Derivatives result        Operating Results     Cash flow / Fair value                         -               442,398                       -               442,398
Inventories   7                                -               442,398                       -               442,398

 

In the statement of cash flows, the effect of the derivative financial instruments designated as hedge accounting is presented in the line item in which the hedged object is recorded. For the instruments not designated, the effects are presented in the Derivative Financial Instruments line item.

On December 16, 2021, the Financial Risk Management Policy was amended and from this date, non-derivative financial instruments may only be designated as hedge instruments in net investment hedge relations. Thus, on December 16, 2021, the cash flow hedge relations presented below were discontinued because the hedging instruments were non-derivative financial instruments (loans) and no longer met the Company’s strategies and objectives.

                               
12.31.21
Cash flow hedge - Non-derivative instruments   Hedged object   Liability   Maturity   Notional   Designation rate   Rate (1)   Balance (2)
Bond BRF SA BRFSBZ 5 7/8 (3)    USD Exports     USD    2nd Qtr. 2022    USD    150,000             2.0213                 4.9877         (444,953)
Bond BRF SA BRFSBZ 3.95    USD Exports     USD    2nd Qtr. 2023    USD    150,000             2.0387                 5.6963         (548,640)
                               
                                    (993,593)
(1)Average discontinuance rates.
(2)Effective portion of the accumulated foreign exchange variations on the designated loans.
(3)During the existence of the loan, there were early settlements with the corresponding discontinuance of the hedge relation.

 

The amounts above will be kept under Other Comprehensive Income until their respective months of maturity, according to the previous designation and effectiveness of each relationship.

Summarized financial position of derivative financial instruments:

  12.31.21   12.31.20
Assets      
Designated as hedge accounting      
Currency derivatives            27,617            177,208
Commodities derivatives          105,228            125,304
Interest rate derivatives            10,457                       -
Not designated as hedge accounting      
Currency derivatives              2,053              75,478
           145,355            377,990
       
Current assets          134,551            377,756
Non-current assets            10,804                   234
       
Liabilities      
Designated as hedge accounting      
Currency derivatives           (37,959)             (81,650)
Commodities derivatives           (57,608)           (269,361)
Interest rate derivatives           (40,565)                       -
Not designated as hedge accounting      
Currency derivatives         (233,172)             (20,036)
Interest rate derivatives                     -             (14,649)
          (369,304)           (385,696)
       
Current liabilities         (327,443)           (384,969)
Non-current liabilities           (41,861)                 (727)

 

 

23.6.Sensitivity analysis

The Management believes that the most relevant risks that may affect the Company’s results are the volatility of commodities prices and foreign exchange rates. Currently the fluctuation of the interest rates does not affect significantly the Company’s results since Management has chosen to keep at fixed rates a considerable portion of its debts.

The amounts below represent the possible impacts (incremental results) of the hedging instruments and their respective hedged positions, considering situations of increase and decrease in the selected risk factors.

The information used in the preparation of the analysis is based on the position as of December 31, 2021, which has been described in the items above. The estimated values may differ significantly to numbers and results that will be effectively registered by the Company. Positive values indicate gains and negative values indicate losses.

    Scenario
Exchange rate - Balance   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.5805   2.7903   4.1854   5.0225   6.1386   6.9756   8.3708
                             
Monetary Assets and Liabilities            4,363,957        2,181,979           872,791          (872,791)       (2,181,979)       (4,363,957)
Derivative Instruments - Not designated           (3,518,304)       (1,759,152)          (703,661)           703,661        1,759,152        3,518,304
Net effect               845,653           422,827           169,130          (169,130)          (422,827)          (845,653)
                             
EUR   6.3210   3.1605   4.7408   5.6889   6.9531   7.9013   9.4815
                             
Monetary Assets and Liabilities               757,905           378,953           151,581          (151,581)          (378,953)          (757,905)
Derivative Instruments - Not designated              (770,243)          (385,122)          (154,049)           154,049           385,122           770,243
Net effect                (12,338)             (6,169)             (2,468)               2,468               6,169             12,338
                             
JPY   0.0485   0.0243   0.0364   0.0437   0.0534   0.0606   0.0728
                             
Monetary Assets and Liabilities                (99,177)            (49,588)            (19,835)             19,835             49,588             99,177
Derivative Instruments - Not designated                 60,588             30,294             12,118            (12,118)            (30,294)            (60,588)
Net effect                (38,589)            (19,294)             (7,717)               7,717             19,294             38,589
                             
TRY   0.4223   0.2112   0.3167   0.3801   0.4645   0.5279   0.6335
                             
Monetary Assets and Liabilities              (133,270)            (66,635)            (26,654)             26,654             66,635           133,270
Net effect              (133,270)            (66,635)            (26,654)             26,654             66,635           133,270
                             
                             
AOA   0.0099   0.0050   0.0074   0.0089   0.0109   0.0124   0.0149
                             
Monetary Assets and Liabilities              (159,330)            (79,665)            (31,866)             31,866             79,665           159,330
Net effect              (159,330)            (79,665)            (31,866)             31,866             79,665           159,330

 

    Scenario
Exchange rate - Operating results   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.5805   2.7903   4.1854   5.0225   6.1386   6.9756   8.3708
                             
Revenue in USD           (1,001,700)          (500,850)          (200,340)           200,340           500,850        1,001,700
NDF               792,431           396,216           158,486          (158,486)          (396,216)          (792,431)
Collar               202,303             97,668             34,888            (11,743)            (69,018)          (173,652)
Net effect                 (6,966)             (6,966)             (6,966)             30,111             35,616             35,617
    Scenario
Exchange rate - Operating results   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.5805   2.7903   4.1854   5.0225   6.1386   6.9756   8.3708
                             
Cost of Sales              (276,035)          (138,018)            (55,207)             55,207           138,018           276,035
NDF               276,035           138,018             55,207            (55,207)          (138,018)          (276,035)
Net effect                        -                       -                       -                       -                       -                       -   
                             
                             
                             
    Scenario
Operating results - Commodities   Base (1)   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
Soy Grain - CBOT                  492                  246                  369                  443                  541                  615                  738
                             
Cost of Sales                 (7,623)             (3,811)             (1,525)               1,525               3,811               7,623
NDF                   7,623               3,811               1,525             (1,525)             (3,811)             (7,623)
Net effect                        -                       -                       -                       -                       -                       -   
                             
Soybean Meal - CBOT                  434                  217                  326                  391                  478                  543                  651
                             
Cost of Sales                 80,312             40,156             16,062            (16,062)            (40,156)            (80,312)
Collar                (15,414)             (6,550)             (1,819)                  919               5,883             14,747
NDF                (63,696)            (31,848)            (12,739)             12,739             31,848             63,696
Net effect                   1,202               1,758               1,504             (2,404)             (2,425)             (1,869)
                             
Soybean Oil - CBOT               1,237                  618                  927               1,113               1,360               1,546               1,855
                             
Cost of Sales                   2,721               1,360                  544                (544)             (1,360)             (2,721)
Collar                 (1,299)                (402)                    -                       -                     383               1,280
NDF                    (927)                (464)                (185)                  185                  464                  927
Net effect                      495                  494                  359                (359)                (513)                (514)
                             
Corn - CBOT                  231                  115                  173                  208                  254                  288                  346
                             
Cost of Sales                (45,151)            (22,575)             (9,030)               9,030             22,575             45,151
NDF                 45,151             22,575               9,030             (9,030)            (22,575)            (45,151)
Net effect                        -                       -                       -                       -                       -                       -   
                             
Corn - B3               1,418                  709               1,064               1,276               1,560               1,773               2,127
                             
Cost of Sales              (132,309)            (66,154)            (26,462)             26,462             66,154           132,309
Collar                (63,107)            (28,749)             (8,188)               1,611             21,039             55,397
Future               199,465             99,733             39,893            (39,893)            (99,733)          (199,465)
Net effect                   4,049               4,830               5,243            (11,820)            (12,540)            (11,759)
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

23.7.        Financial instruments by category

  12.31.21
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank          2,193,508                              -                           -            2,193,508
Cash equivalents                       -                              -              5,335,312            5,335,312
Marketable securities             418,637                     13,338                362,293               794,268
Restricted cash              24,964                              -                           -                24,964
Trade accounts receivable          3,709,399                              -                335,566            4,044,965
Other receivables              97,169                              -                           -                97,169
Derivatives not designated                       -                              -                    2,053                  2,053
Derivatives designated as hedge accounting (1)                       -                              -                143,302               143,302
               
Liabilities              
Trade accounts payable       (11,714,624)                              -                           -         (11,714,624)
Supply chain finance        (2,237,975)                              -                           -          (2,237,975)
Loans and borrowings (2)       (22,087,599)                              -            (3,368,431)         (25,456,030)
Derivatives not designated                       -                              -               (233,172)             (233,172)
Derivatives designated as hedge accounting (1)                       -                              -               (136,132)             (136,132)
        (29,596,521)                     13,338              2,440,791         (27,142,392)
(1)All derivatives are classified at fair value through profit and loss. Those designated as hedge accounting instruments have their gains and losses also affecting Equity and Inventories.
(2)The part of the loans and borrowings that is object in a fair value hedge is classified as Fair value through profit and loss. The rest of the loans and borrowings balance is classified as amortized cost and those designated as cash flow or net investment hedge accounting instruments have their gains and losses also affecting Equity.
  12.31.20
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank          2,439,072                              -                           -            2,439,072
Cash equivalents                       -                              -              5,137,553            5,137,553
Marketable securities             287,504                     42,029                329,202               658,735
Restricted cash              24,358                              -                           -                24,358
Trade accounts receivable          3,789,616                              -                310,265            4,099,881
Other receivables              86,404                              -                           -                86,404
Derivatives not designated                       -                              -                  75,478                75,478
Derivatives designated as hedge accounting                       -                              -                302,512               302,512
               
Liabilities              
Trade accounts payable        (9,009,987)                              -                           -          (9,009,987)
Supply chain finance        (1,452,637)                              -                           -          (1,452,637)
Loans and borrowings       (22,404,426)                              -                           -         (22,404,426)
Derivatives not designated                       -                              -                 (34,685)               (34,685)
Derivatives designated as hedge accounting                       -                              -               (351,011)             (351,011)
Written option– business combination                       -                              -               (185,401)             (185,401)
        (26,240,096)                     42,029              5,583,913         (20,614,154)

 

23.8.Fair value of financial instruments

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Depending on the inputs used for measurement, the financial instruments at fair value may be classified into 3 hierarchy levels:

»Level 1 – Uses quoted prices (unadjusted) for identical instruments in active markets. In this category are classified investments in stocks, savings accounts, overnights, term deposits, Financial Treasury Bills (“LFT”) and investment funds;
»Level 2 – Uses prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable. In this level are classified the investments in Bank Deposit Certificates (“CDB”) and derivatives, which are measured by well-known pricing models: discounted cash flows and Black-Scholes. The observable inputs are interest rates and curves, volatility factors and foreign exchange rates;
»Level 3 – Instruments for which significant inputs are non-observable. The Company had a financial liability arising from a put option written in the context of a business combination, which was terminated on December 13, 2021 (notes 1.1.3 and 23.8.1).

The table below presents the overall classification of financial instruments measured at fair value by measurement hierarchy. For the year ended December 31, 2021, there were no changes among the 3 levels of hierarchy.

  12.31.21   12.31.20
  Level 1   Level 2   Total   Level 1   Level 2   Level 3   Total
Financial Assets                          
Fair value through other comprehensive income                          
Stocks            13,338                       -              13,338           42,029                   -                   -           42,029
Fair value through profit and loss                          
Savings account and overnight          701,386                       -            701,386      1,220,232                   -                   -      1,220,232
Term deposits          179,071                       -            179,071         250,189                   -                   -         250,189
Bank deposit certificates                     -          4,451,214          4,451,214                   -      3,662,448                   -      3,662,448
Financial treasury bills          324,771                       -            324,771         312,515                   -                   -         312,515
Investment funds            35,718                       -              35,718           21,371                   -                   -           21,371
Trade accounts receivable                     -            335,566            335,566                   -         310,265                   -         310,265
Derivatives                     -            145,355            145,355                   -         377,990                   -         377,990
Other titles              5,445                       -                5,445                   -                   -                   -                   -
Financial Liabilities                          
Fair value through profit and loss                          
Derivatives                     -           (369,304)           (369,304)                   -       (385,696)                   -       (385,696)
Loans and borrowings                     -        (3,368,431)        (3,368,431)                   -                   -                   -                   -
Written option– business combination                     -                       -                       -                   -                   -       (185,401)       (185,401)
         1,259,729          1,194,400          2,454,129      1,846,336      3,965,007       (185,401)      5,625,942

 

Except for the items set forth below, the fair value of all other financial instruments is approximate to their book value. The fair value of the bonds set forth below is based on prices observed in active markets, level 1 of the fair value hierarchy, while the debentures are based on level 2 and are measured by discounted cash flows.

            12.31.21   12.31.20
    Currency   Maturity   Book
value		   Fair
value		   Book
value		   Fair
value
BRF S.A.                        
BRF SA BRFSBZ 5 7/8   USD   2022             (396,802)             (409,454)             (367,714)             (389,611)
BRF SA BRFSBZ 4 3/4   USD   2024           (1,653,847)           (1,726,951)           (1,538,086)           (1,659,891)
BRF SA BRFSBZ 3.95   USD   2023           (1,303,821)           (1,337,246)           (1,207,468)           (1,275,598)
BRF SA BRFSBZ 2 3/4   EUR   2022           (1,072,454)           (1,076,964)           (1,081,404)           (1,105,478)
BRF SA BRFSBZ 4 7/8   USD   2030           (3,914,280)           (3,993,593)           (3,951,539)           (4,333,054)
BRF SA BRFSBZ 5 3/4   USD   2050           (4,423,083)           (4,521,103)           (4,106,115)           (4,705,851)
Debenture - 1st Issue   BRL   2026             (823,946)             (821,444)             (771,138)             (778,016)
Debenture - 2nd Issue   BRL   2030           (2,351,363)           (2,382,298)           (2,250,867)           (2,225,796)
Debenture - 3rd Issue   BRL   2031           (1,034,706)             (915,353)                         -                         -
BRF GmbH                        
BRF SA BRFSBZ 4.35   USD   2026           (2,779,725)           (2,854,701)           (2,577,667)           (2,779,574)
                  (19,754,027)         (20,039,107)         (17,851,998)         (19,252,869)

 

23.8.1.Level 3 measurement

The Company had a financial liability arising from a put option written in the context of a business combination, option that gave the non-controlling shareholder the right to sell its equity stake in the subsidiary for an amount equivalent, in Turkish Liras, to a multiple of the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of the economic group of this subsidiary in the last 12 months prior to the exercise.

This liability was measured at the present value of redemption amount using internal assumptions regarding the results of that economic group. The effects of the subsequent measurement resulted in a loss recorded in Financial expenses of R$278,618 in the year ended December 31, 2021 (gain of R$579,946 in the year ended December 31, 2020), as per note 27.

On December 31, 2021, this liability was terminated, as described in note 1.1.3.