Comment: Brazil appears to be moving to ban foreign farmland ownership

TWITTER
FACEBOOK

Stephen Johnston

HedgeWeek | 1 September 2010

Stephen Johnston, Agcapita Partners

The Brazilian government recently announced an “immediately binding” decision that appears to outlaw all foreign ownership of Brazilian farmland. Stephen Johnston (pictured) of Agcapita Partners outlines the implications.

Food supply questions are even more politically charged than questions of energy sovereignty.  The UN has consistently stated that foreign direct investment into farmland has the potential to generate severe political backlash.

In practice, countries as diverse as New Zealand, Russia, India, Argentina, Indonesia, and Kazakhstan have imposed or are considering restrictions on agriculture ranging from export tariffs to proposals for outright nationalisation.

Further to this, the Brazilian government recently announced a decision that seeks to outlaw  foreign ownership of farmland. President Luiz Inacio Lula da Silva approved a rule that restricts the sale of farmland to foreign investors or a local company with more than a 50% stake controlled by foreign investors, the government said in an August 23rd press release.

Considerable uncertainty surrounds the force of the new rule and how it may be applied.  So much so that some observers believe there is a possibility that all farmland acquisitions since 1988 could be made null and void and some simply think the announcement is pre-election posturing.

The rhetoric coming out of the government however is not uncertain – the Minister of Agrarian Development, Guilherme Cassel, has been quoted that the government did not want foreigners to buy farmland in Brazil and that "Brazilian land must stay in the hands of Brazilians."

This sudden hostility to foreign farmland ownership is ill-timed as Brazil has become one of the world’s most active emerging markets for agriculture investments.  It has been estimated that foreign investors deployed approximately $2.5 billion into the Brazilian agriculture sector between 2002-2008.  Query as to the value of many of those investments today and to the pace of future capital inflows?

At Agcapita, we have always believed that removing political risk from farmland investments is a key element in achieving superior returns.  Events in Brazil seem to be proving this view correct.

The silver lining may be that turmoil in an emerging market like Brazil will be good news for agriculture investors elsewhere.  At the very least it should make farmland investments in developed markets such as Canada - with politically stability, low political risk and first world infrastructure - more attractive.
Original source: HedgeWeek
TWITTER
FACEBOOK
TWITTER
FACEBOOK

3 Comments


  1. Michael Smith
    30 Sep 2010

    It is important to note that farmland is different from country to country and even within countries. Most of the Brazilian cerrado offers good rainfall and frost free areas, where one can double crop soybeans/maize, plant cotton, sugarcane, raise grass fed cattle, forestry, etc. This is what makes it so attractive.

  2. mary
    02 Sep 2010

    How about feeding the 2 billion that are hungry? Shouldn't that come first instead of profit and investments. I wish there would be a law against agribusiness and trans-nationals altogether in the first place.

  3. Peter Prebeliak
    02 Sep 2010

    Stephen Johnston should say that he manages a farmland fund in Canada and therefore he wants funds to flow to Canada and out of developing countries such as Brazil. States as New York, Iowa and some of Canada have worse restrictive laws for foreign acquisition which is even prohibited in some cases. I think he should mention this too

Post a comment

Name

Email address (optional - if you want a reply)

Comment