July 29, 2011

Brazil Congress Considering Proposals for Foreign Land Purchases

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

The Brazilian government continues to struggle in developing a framework that would allow foreign investments in Brazilian agriculture while still restricting foreign ownership of farmland. Land purchases by foreign individuals and corporations were abruptly halted in August 2010 when President Lula declared an end to the practice. There are currently six different proposals under consideration in the Brazilian Congress. One proposal that limits the foreign acquisition of land in the Amazon Region has already been approved by the lower house and is waiting consideration by the upper house of Congress.

According to the National Institute of Colonization and Agrarian Reform (Incra), as of January 2011, foreign individuals or companies owned 4.5 million hectares of land in Brazil, which was up 3.4% from the year before. The foreign owned land is distributed in 3,692 municipalities throughout the country with 19.9% of the total in the state of Mato Grosso, Sao Paulo accounts for 11.9%, Minas Gerais has 11.3%, and Mato Grosso do Sul has 10.8%. The state of Sao Paulo is the state with the most number of individual foreign owned properties at 12,272. The largest non-Brazilian nationality that owns land in Brazil is Japanese (23%) followed by Italian (7%).

Views vary widely on the wisdom of allowing foreigners to purchase Brazilian land. The Brazilian Confederation of Agriculture and Livestock (CNA) is in favor of allowing additional purchases. According to its president, Katia Abreu, foreign investments helps the country develop and they should be encouraged not restricted. Abreu feels it's inconceivable that agriculture be treated differently than other sectors of the economy such as manufacturing, banking, airlines, or the service industry.

Rural worker organizations are against any allowance for additional foreign ownership of farmland. They feel foreign ownership of land drives up land values making it more difficult for agrarian reform, it drives out local crops by increasing monoculture crops such as soybeans which are destined for exports, it increases the use of agricultural chemicals and fertilizers, and it increases rural unemployment.

The current law states that no more than 25% of any municipality may be owned by foreigners and that one nationality of persons collectively may not own more than 40% of the foreign-owned land in the municipality. Combined, one nationality may not own more than 10% of a given municipality.

Municipalities in Brazil vary widely by size from being tiny in southern and northeastern Brazil to enormous in size in central and northern Brazil. Therefore the total number of hectares that can be purchased by a foreigner varies widely as well. Depending on the municipality, foreigners may purchase from 15 hectares up to 5,000 hectares, but they need the prior approval of Incra. Depending on the municipality, 15 up to 300 hectares may be purchased by a foreigner without any prior approval from the government. For areas greater than 500 to 10,000 hectares (depending on the municipality) the purchase must currently be approved by the Brazilian Congress.