Aug 06, 2010
Brazilian Congress to Make Land Purchases by Foreigners More Difficult
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The Brazilian government is contemplating measures that would make the purchase of Brazilian farmland by foreign individuals and corporations more difficult and more transparent. One of the key provisions of the proposed regulations is to require the purchase process be approved by Incra before it can move forward. Incra, which is the National Institute of Colonization and Agrarian Reform, is the agency most heavily involved in land acquisitions in Brazil.
President Lula, who will be leaving the presidency by the end of the year due to term limitations, wants to establish clear limits as to who can purchase the land and how much they will be allowed to purchase and he wants this accomplished before he leaves office. His overriding goals are to insure that Brazilian farmland will be used primarily to produce food for Brazilians and to insure the preservation of biodiversity in the Amazon Region of Brazil.
One of the proposed measures is to limit the amount of land foreigners may own in any given area. Currently, the proposal is to limit the amount of land foreigners may own in any municipality to 25% of the total land area. The proposal would also limit the foreign ownership of land in a municipality to 40% for any one nationality.
Another key provision is to increase the transparency as to who actually owns the land. Currently, the title holder to the land may be listed as a Brazilian holding company even though the holding company may have as little as a 1% stake in the enterprise. Many times this technique is used to hide who actually owns the land. The new proposal would eliminate that possibility by forcing the revelation of all the owners, not just the holding company.
The Brazilian Central Bank estimates that between 2002 and 2008, US$ 2.43 billion dollars flowed into Brazil to purchase land. By 2008, Incra registered 4.04 million hectares of land as being owned by foreigners spread over 34,216 parcels. Most of the purchases were in the states Mato Grosso, Mato Grosso do Sul, Sao Paulo, Bahia, and Minas Gerais.
Hedge funds and private equity firms have been especially aggressive in purchasing land in Brazil. It is estimated that one fourth of the 120 largest investor groups have already purchased assets in Brazil.