Global Policy Forum

Brazil Groups say Farmland Rules Choke Investment

In 2010, the Attorney-General of Brazil introduced a new law limiting foreign land speculation and acquisition. Under the new law, foreign-controlled companies cannot own more than 25 percent of any municipality and would no longer be considered Brazilian even if they had its headquarters in Brazil. Like the soy, paper and pulp industry, the sugarcane sector in Brazil is highly dependent on foreign capital and sees government restrictions on foreign investment in land as an obstacle to future ethanol production. The sugarcane industry estimates that restrictions on foreign investment will deprive the agricultural sector of 100 billion reais ($56.15 billion). The new rules prevent the companies from taking small farmers’ land.

By Fabiola Gomes


March 9, 2012

Restrictions on foreign companies buying Brazilian farmland will deprive the agricultural sector of around 100 billion reais ($56.15 billion) in investment, according to estimates drawn up by the sector.

"The (attorney general's) restriction on foreign-controlled Brazilian companies has thrown up a lot of obstacles ... It is jeopardizing many land sales," Marcos Jank, head of the sugarcane industry association Unica, said on Friday.

The sugarcane sector is hungry for land to expand cane planting with the potential for big growth in domestic demand for cane-based ethanol which became popular with the launch of flex-fuel cars in the country nearly a decade ago.

Jank presented the estimate at the inaugural meeting of the commission for legal affairs in agribusiness, at the Brazilian Institute for Corporate Law in Sao Paulo. He did not say over what period this sum was to have been invested.

He said the ethanol industry needed 150 billion reais in investment to meet future ethanol demand through 2020. About a third of this sum, or 45 billion reais in foreign capital, was expected to be poured into the sector but investments were frozen after rules on foreign land purchases changed in 2010.

The 100 billion reais figure looked mainly at agricultural industries which produce crops on their own large plantations or that lease land. Beyond the cane sector, those most dependent on foreign capital to bolster investment are soy producers and the paper and pulp industry.

Limits on the area of land foreign companies can buy were imposed when the attorney general's office issued in 2010 a new interpretation of an existing law, enabling the rules to be changed without drafting a new law that would be put to a vote.

The change meant foreign-controlled companies were no longer considered Brazilian when headquartered in the country, a status they had previously enjoyed. Foreign company status means they must now adhere to tighter rules for land purchases.

The result is that foreign-controlled companies cannot own more than 25 percent of any municipality or lease more than 100 "modules" of land - the size of which varies depending on the region, from 100 to 10,000 hectares.

The agriculture ministry wants tweaks to the rules to discriminate between productive investments and speculative land grabbing -- the trend that alarmed the government and prompted the attorney general to impose the restrictions.

A senior government official told Reuters last year that these exceptions would soon be incorporated into a revised law that would be voted on in congress, but the draft bill has still to surface nearly six months later.


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