Brazilian agribusiness push for reversal of foreign purchase bans

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Brazilian farmers push for reversal of foreign purchase ban

Be careful what you wish for…

In what looks a sign of the extent of the reversal in agriculture’s fortunes, farmers in Brazil – which four years ago introduced restrictions on foreign ownership of farmland for fear of a wave of inward investment – are asking for the shackles to be loosened.

The Sociedade Rural Brasileira (SRB), which represents large- and medium-scale farmers, has opened a legal battle to open up land purchases to foreign commercial investors – if not to the sovereign wealth funds whose appetite for Brazilian land prompted the 2010 curbs.

It has gained support for the campaign from the IBA wood and pulp industry group.

“The current restrictions were put in place by President Lula when it was revealed that China was in the process of purchasing large quantities of farmland in the state of Bahia,” said Michael Cordonnier, the influential crop analyst and commentator on South America.

It was a “time of record high commodity prices, when countries such as China and Saudi Arabia were seeking to purchase land for agricultural production, as well as the extraction of raw materials such as iron ore and precious metals”.

Rural Investments have stalled

Overseas investment in agricultural land between 2002-08 was estimated by the Brazilian central bank at $2.4bn.

However, it is not clear that the investments have prospered, with reports last year that the Chinese state-owned Chongqing Grain Group had made no progress on a planned $2bn soy crushing and exporting supply line, based in Bahia.

In 2013, Reuters reported that as much as two-thirds of announced Chinese investment in Brazil had failed since 2007.

And farmers since then have faced pressure on profits from lower crop values – albeit, thanks to the depreciating real, not feeling the price falls as significantly as their US peers.

Constitutional challenge

“The SRB feels that the current restrictions have made potential investors shy away from the Brazilian market thus limiting investments in the expanding agricultural sector,” Dr Cordonnier said.

Gustavo Junqueira, the SRA president, has warned of the loss of investment in particular in Brazil’s sugar industry, which has seen a long series of mill closures, many under the weight of heavy debts.

The SRA, which sees the restrictions also as unconstitutional, has filed a case with Brazil’s Supreme Court to challenge the rules, which give the Incra institute responsibility for approving sales of smaller parcels to non-Brazilians.

Sales of properties of more than 10,000 hectares require the approval of Brazil’s Congress.

“Any adjustments to the current restrictions will probably need to be accomplished through new legislation in the Brazilian Congress,” Dr Cordonnier said.

It will be interesting to see if these failed policies introduced into Brazil will be also looking to be changed in Argentina which has similar restrictive policies.

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