December 15, 2010

Land Purchases in Brazil by Foreigners Face New Hurdles

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

According to Incra (the Institute of Colonization and Agrarian Reform), there are 4,340,000 hectares of land in Brazil that is owned by foreign individuals or companies. Approximately 20% of that land, or 844,027 hectares, is in the state of Mato Grosso. Officials feel the true amount of land owned by foreigners could be higher because some foreign companies set up Brazilian corporations with the sole intent of purchasing land as if they were a Brazilian company even though the financial support is from non-Brazilians.

In August of 2010, the Brazilian Attorney General published new rules approved by President Lula concerning the foreign purchase of Brazilian land. The new rules state that foreign individuals or companies cannot purchase more than 25% of the municipality where the land is located and any one group of foreign investors cannot purchase more than 10% of the municipality where the land is located. These new rules apply to foreign individuals or companies that are operating with foreign capital. The new rules also stipulate that each new land purchase must now be registered with local title companies which must report to Incra every three months concerning land purchases.

Under these new rules, the true nature of the investment capital must be revealed and companies will no longer be allowed to hide the source of the capital by setting up Brazilian corporations whose sole intent is to purchase land.

These new restrictions were put in place after it was revealed earlier in 2009 that the Chinese government, through one of its state owned companies, purchased large tracks of land in the state of Bahia. Since then the government has been trying to walk a fine line between trying to control foreign investment in Brazilian farmland, but at the same time not discouraging investment. Brazil continues to welcome individual investors and the real target of these new rules are foreign governments.