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July 7, 2011

Largest Soy Producers in Brazil are Argentine Companies

The largest soybean producer in Brazil is no longer Brazilian, but has been replaced by El Tejar based in Argentina. The Argentine company cultivates a total of 700,000 hectares of soybeans in Argentina, Brazil, Paraguay, Bolivia, and Uruguay, but the state of Mato Grosso is one of their largest endeavors with 21 production units. The company not only produces soybeans, they are also heavily involved in marketing grain as well.

El Tejar has only been in Brazil for eight years, but their aggressive expansion has already made them the largest producer of soybeans in the country. Even in the state of Mato Grosso, which is famous for its large soybean operations, El Tejar with its 250-300,000 hectares of soybean production in the state has surpassed Brazilian groups such as Bon Futuro with 180,000 hectares or members of the Maggi family with 135,000 hectares.

Their aggressive expansion in soybean production is based partly on renting land and hiring the landowner to produce the soybeans instead of purchasing the land and the equipment needed to farm such large acreages. In addition to paying rent on the land, the company contracts the landowner for his services as if he was an employee. This turns out better for the landowner because he receives rent payments in addition to being paid for his labor to produce the crop. He has an income without the inherit risk of growing crops, but in exchange for a more secure income stream, his income may be lower than if he produced the crop himself.

Many local farmers do not like the company's rental policies because they can pay a higher than average rent and in some cases double the normal going rate. This has prevented local farmers from being able to rent land to expand their operations. The company can afford to pay more rent because their costs are lower, especially their credit cost. The company can borrow money on the international market for as little as 3% interest rates, whereas if a Brazilian farmer borrowed money from an international grain company for example, their interest rates would be around 15%. Disgruntled farmers also point out that any landowner who accepts the conditions of El Tejar is just basically an employee of the company.

In addition to El Tejar, other Argentine groups such as Los Grobo have also moved into Brazil to grow soybeans. They also rent the land and pay the producer to grow soybeans instead of buying the land and the machinery. Los Grobo planted 247,000 hectares in Mercosul countries last growing season with one third of their production in Brazil. These groups are expanding in Brazil because of the land availability and also because of the high export taxes imposed on their grain production in Argentina.

Local agricultural officials have expressed concern that if these international companies just rent the land, they may pull out of Brazil in the future if commodity prices fall. Additionally, they worry about the company's commitment to local rural communities if they are just absentee renters. A spokesperson for the company stressed they are committed to Brazil for many years and will not pull out if commodity prices dip.