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November 1, 2011

Two Giant Agricultural Companies in Brazil Expanding Operations

Two of the largest agricultural companies in Brazil, Vanguarda Agro and SLC Agricola, recently announced that they are expanding their agricultural operations in Brazil. This represents a continuation of the consolidation of agricultural production in Brazil

Vanguarda Agro S.A. (formerly known as Brasil Ecodiesel S.A.) has recently completed a series of acquisitions and a name change that now makes it one of largest, if not the largest, agricultural company in Brazil. Vanguarda Agro owns and operates 320,000 hectares of farm land (800,000 acres) mainly in the states of Mato Grosso, Bahia, and Piaui on which they produce soybeans, corn, and cotton. Through these acquisitions, the 13 units in the company are now set to expand their influence beyond their core business of biodiesel production into grain production, beef and pork production, food manufacturing, and grain transportation and storage.

Vanguarda Agro started out as one of the pioneers of biodiesel production in Brazil by developing large-scale efficient and sustainable biodiesel production. While still maintaining its interest in biodiesel production, the company is diversifying and expanding into other areas of agriculture. The company president, Bento Moreira Franco, feels this will better position the company to capture the opportunities resulting from the increased global demand for food in the coming years.

The second company, SLC Agricola, recently announced the purchase of an additional 12,936 hectares (32,340 acres) of land in the state of Piaui for R$ 47.3 million or US$ 860 per acre. The newly purchased land is still native cerrado that must be cleared for agricultural production. Of the 12,936 hectares, the company will clear 8,900 hectares, which is the limit allowed under Brazilian law. The remaining area (4,036 hectares) must remain in its native vegetation. Planting on the newly acquired land will start a year from now.

With this new purchase, the company now owns 262,200 hectares (655,500 acres) of farm land in Brazil. During the current growing season, the company will plant 250,000 hectares of crops between company owned land and rented land. This represents an increase of 10.6% over last year with corn and cotton acreage increasing the most.

These set-aside requirements have been on the books in Brazil for decades, but they were universally ignored until recently. The Brazilian Congress is in the midst of difficult negotiations in an effort to develop what is being called the Forestry Code. This new legislation will detail how much land must be returned to its native vegetation and what the new requirements will be moving forward. The problem is how to reconcile the positions of the agricultural community and the environmental community, which many times seem 180 degrees apart. The final legislation is expected to be voted on by the end of the year.