Jun 29, 2010
Foreign Ownership of Farmland in Brazil Could be Restricted
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
There has been a lot written in the Brazilian press recently about potential changes in the amount of farmland a foreign individual, corporation, or government is allowed to purchase in Brazil. Recent comments by the Brazilian president and various Brazilian senators indicate that something will be done concerning this issue.
What really caught everyone's attention in Brazil was the fact that the Chinese government (through one of its holding companies) purchased several hundred thousand hectares of land in the state of Bahia. Brazilians are uneasy with the concept of foreign individuals buying up Brazilian farmland, but they are absolutely appalled when a foreign government purchases farmland in Brazil.
One of the problems is that it is difficult to determine just how much land has already been purchased by foreigners. In Brazil, if a foreigner want's to purchase land they must have a Brazilian partner who owns at least 1% of the enterprise. As a result, there are Brazilian holding companies who supply this service to foreign buyers. Additionally, some foreign companies set up Brazilian holding companies who purchase the land legally, but in reality, the foreign company still controls the enterprise. This requirement for a Brazilian partnership can hide the true ownership of the land. No one knows for sure how much land has been purchased by foreigners and estimates vary from between 1 to 4 million hectares.
Land ownership in Brazil holds a special place in the heart's of Brazilians. Virtually everyone in Brazil would like to own a piece of land they could call their own. Almost without exception, every wealthy Brazilian owns some rural land. Large ranchers and farmers hold a very special place in Brazilian society. As a result, land being owned by foreigners is almost an affront to Brazilian's pride
It is yet to be determined what the Brazilian Congress will do about this issue, but it is virtually certainty that foreign governments will be prohibited from purchasing farmland. As far as foreign corporation or individuals are concerned, it is more complicated. Brazilians do not mind if actual foreign farmers move to Brazil to buy land and start farming, but they certainly do not like large speculators such as hedge funds, banks, or the super rich coming to Brazil to purchase land just as an investment.
The size of the property in dispute is also important. The Brazilian government might be able to stomach a foreign farmer owning a few thousand hectares on which he actually operates his farm, but I think the era of foreigners purchasing several hundred thousand hectares as an investment will come to an end.
There is also speculation that any new restriction might be made retroactive and that the titles to land already purchased could be revoked. Once again, this will depend on who the foreign owner is and the amount of land in question. It is possible that land purchased by foreign governments would be nullified, but it would be harder to do for smaller properties purchased by individual farmers.
The Brazilian government still encourages foreign investment in Brazil, but investing in farmland may become more difficult in the future.