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Brazil prepares new bill to allow farmland foreign ownership

According to a source at the Presidential Chief of Staff’s Office, Brazil’s government is preparing a bill that would once again allow foreigners to buy over 5,000 hectares (12,350 acres) of land subject to prior government approval. Congress must approve purchases of 500,000 hectares (1.2 million acres) or more.

The ban – which took the form of a reinterpretation of a 1971 law – was a response to reports that Middle Eastern sovereign funds and Chinese state-owned companies were attempting to buy large tracts of Brazilian farmland.

However, it was a blunt tool that also inhibited foreign investment in storage, processing and sale of Brazilian soft commodities, which has been so important to the industry’s development. Ever since then foreign land ownership have been restricted to buying small lots of up to 5,000 hectares and can’t own more than 10% of any municipality.

Agriculture Minister Wagner Rossi explained that the idea is not to ban all foreign farmers, but to separate the investments that are in Brazil’s strategic interest from the speculative and those that threaten Brazilian sovereignty. Rossi also said that Brazil would look to welcome foreign investment in production but would seek to block land price speculation. The draft bill appears to have been created with this in mind.

Under the proposal, in addition to prior approval, the federal government would retain the right to veto projects for foreign-owned land after purchase and could also force sale.

From 2002 to 2008, there was a rush of foreign farmland investment in South America. Brazil´s Central Bank data shows a contribution of usd 2.43 billion in this period. If every agribusiness activities are considered, such as agro-industries and agri-services, the bill comes to a total of usd 46.91 billion over seven years.

If passed, the new law would be good news for foreign farm operators, such as Argentina’s Adecoago, who have frozen Brazilian land investments since August, and local farmers, who have seen land prices level off since the ban.

Brazil needs heavy investments if it is to meet global demand for its agricultural commodities. According to a report by Brazilian Rural Society (SRB), the farm sector will need to invest $58 billion over the next 10 years to produce enough food to keep prices stable. Foreign investors would contribute half of the total.

It is in recognition of this need for foreign investment that the government drew up its new proposal, said the government source.

As in the U.S., a bill’s passage through Brazilian Congress can be long and torturous. Indeed, there is no guarantee that it will be passed in 2012 and could undergo major changes.

Meanwhile, short-term problems raised by the ban remain. For example, it has driven legal actions in court, like annulment action on farm sales. Brazilian vendors claim that some foreign buyers have suspended their part payments on the grounds of not being able to access funding or conduct transactions because of the rules change. Buyers complain that they are not allowed to register land under their names. Nor can do simple operations such as buying inputs or close contracts without the vendors´ consent in cases where mortgages are required.

Contact the Gateway to South America team  to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Uruguay and Chile, providing expert advice on property acquisition and investment tours.

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