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August 5, 2011

Sorting out Who Owns What Land is Task of Brazilian Congress

In Brazil, there are 34,371 rural properties owned by individuals who are non-Brazilians. The total area owned by foreigners encompasses 4,348,000 hectares (10,870,000 acres) spread out over the entire country with the state of Mato Grosso having the most foreign owned land at 844,000 hectares (2,110,000 acres) distributed between 1,229 properties. These are the official figures according to the National Institute of Colonization and Agrarian Reform (Incra).

What is not included in these figures is the land that is owned by Brazilian companies which are in reality controlled by foreign investors. The trend in recent years has been for Brazilian holding companies or subsidiaries to purchase the land when in reality, it's the foreign investors who have the controlling interest of the company. Trying to identify these hidden investors has been very difficult due to a lack of legal authority to sort out who actually controls the business.

Land titles in Brazil are registered with private title companies and not with the local or state governments which make sorting this out extremely difficult. These private title companies have been fighting efforts of the federal government to reveal the true ownership of the land. This issue will probably not be resolved until new legislation is passed by the Brazilian Congress.

A subcommittee of the Brazilian Congress is in charge of drafting new legislation designed to sort out the ownership of Brazilian land and to propose new regulations on how foreign individuals or companies may be allowed to purchase land in the future. The committee has been given 180 days to finish their work.

While the new legislation is drafted, it is estimated that US$ 15 to US$ 25 billion in foreign investments have been put on hold. Many foreign companies and investors would like to invest in energy and forestry projects, but they will remain on the sidelines until it is clear what the new regulations will be.

A prime example of this uncertainty is the sugar/ethanol sector. Brazil currently has 426 sugar/ethanol mills and only four new mills are scheduled to begin operations in 2011. Dozens of new mills and millions of hectares of new sugarcane production will be needed in the next few years just to keep pace with the domestic demand for ethanol. With three disappointing sugarcane harvests in a row, Brazil is now being forced to import ever larger quantities of ethanol to fuel the growing fleet of flex fuel vehicles on Brazilian highways. If the current trend continues, within ten years, Brazil may be forced to import as much as 40% of its ethanol needs.