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June 21, 2011

Brazil Searching for a Way to Allow Foreign Ag Investments

Since August of 2010 when new rules went into effect limiting the amount of farmland in Brazil than can be purchased by foreign individuals, companies or governments, an estimated R$ 15 to R$ 25 billion in foreign investments in Brazilian agriculture have been stalled. Investors moved to the sidelines while they waited for more clarity as to what they could or could not do in Brazil. Depending on the location within Brazil, the new rules generally limited the amount of land a foreigner could own to 5,000 hectares.

For their part, the Brazilian government has struggled to find a way to continue encouraging foreign investment in agriculture while at the same time not giving up ownership of some of its best farmland. The Brazilian Minister of Agriculture, Wagner Rossi, realizes that foreign investment has been critical to the growth of agriculture in recent years and he is searching for a way to resolve this impasse. The Minister and the federal government want to limit land speculation on the part of foreign investors while at the same time still encouraging investors who want to produce or process agricultural commodities.

One of his current proposals is to create an institute specifically in charge of regulating farmland where the owners are non-Brazilian. Some initial ideas being discussed is to offer long term leases for the land where the investors would be guaranteed the production for an extended period of time.

The Secretary of Agriculture from the state of Bahia lamented that the new restrictions have significantly reduced foreign investments in his state. He commented that his administration is also against land speculation, but that a different approach must be found for legitimate foreign investors who want to invest in production agriculture and agribusinesses.

The president of the Union of Sugarcane Industries, Marcos Jank, indicated that 30% of the investments in the Brazilian sugar/ethanol sector in recent years have been foreign capital. It has been this foreign capital that has accelerated the growth in the sector in recent years. Sugarcane production and sugar/ethanol mills are rather unique in that the mill generally owns a significant portion of the land on which the sugarcane is produced. The remaining production is from areas where the mill has entered into long term leases with the landowners.

The trend of foreign ownership of farmland is not unique to Brazil. Similar purchases are occurring all across South America and Africa wherever abundant land is still available.