March 29, 2011

Concentration of Farmland in Brazil Worries Producers

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

The concentration of agricultural production into the hands of fewer large producers continues to be a worrisome trend in Brazilian agriculture. This concentration is occurring all throughout Brazil, but probably more so in the state of Mato Grosso. According to a study released by the Mato Grosso Institute of Agricultural Economics (Imea), the 20 largest producers in the state account for 20% of the total agricultural production in the state. Most of the largest producers in the state are large business groups, domestic and foreign, as well as foreign investment funds.

Mato Grosso seems to have been signaled out by these groups because of the large tracks of land available for purchase in the state. Two factors appear to be responsible for the trend. The first and foremost factor is the benefits of economy of scale. Large operations are able to purchase inputs at lower prices, they can negotiate higher prices for their products, they are better able to spread out their fixed costs, they generally have more efficient production, and they can better optimize their labor costs. The second and equally important factor has been the availability of land in the state and the ease of which it could be purchased by foreign entities.

The economies of scale will remain, but the ease of purchasing new farmland in Brazil by foreigners is now in doubt. Many producers in the state feel it would be much better if the owners of the farming operations lived in the area and conducted business in the local area instead of having a few absentee land owners. They feel that having owner-operators living in the area helps the overall development of the region.

The federal government has also taken notice of this trend and has proposed new rules governing who may purchase farmland in Brazil and how much they can purchase. The government says these are not new regulations at all, but they are now simply enforcing regulations that have always been in place. The government does not object to individual farmers purchasing land to expand their farming operations, but they do object to foreign government such as China purchasing farmland and large investment funds that may be more interested in land speculation instead of production agriculture.

When these new rules were announced in late 2010, it appeared that purchases by foreign business or governments would be limited to a maximum of 5,000 hectares, but that may not end up being the final word on this matter. The government is in the process of fine tuning the rules and foreign investors may still be allowed to purchase farmland in Brazil under specific guidelines.