Why the Farm Land Restrictions in Argentina have frozen the market

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In 2011 the National Register of Rural Lands or RNTR  took on the massive task of surveying the cadastral registers of the 23 Argentine provinces in order to determine the amount of land owned by foreign citizens and companies in every district in the country. Ley N° 26.737 de Protección al Dominio Nacional sobre la Propiedad, Posesión o Tenencia de Tierras Rurales, which is known in Spanish as  “Ley de Tierras”, is regulated by law  Decreto 274/2012.

At that time the president announced that 15.88m hectares are currently owned by foreigners, or 5.93% of all rural lands – an area equivalent to the whole of Tunisia or Suriname. How she knew that is a puzzle as no registry of lands owned by foreigners existed at that stage.

Rural lands makeup 95.88% of the total area of Argentina, and include not only agricultural lands, but also mining and tourism areas.

The New Law

In 2011, President Fernández sent a bill to Congress which sought to limit the amount of land foreigners can purchase, both in absolute and relative terms. In the words of then-Agriculture Minister Julián Domínguez, the aim was to “defend the right for land to remain in the hands of Argentines.”

The first limit imposed by law 26,737, passed by Congress on 22nd December 2011, is that each foreign individual or company cannot own more than 1,000 hectares of land – regardless of whether it is used for commercial exploitation or for private enjoyment.

Also, lands owned by foreigners cannot exceed 15% of the total area of the country, of each province, or of each sub-provincial district (the original bill set the limit on 20%, but it was modified by Congress). Furthermore, one nationality cannot own more than 4.5% of the total.

Law 26,737 is not retrospective, which means that people who had purchased land before the law was passed did not risk being dispossessed, even if they surpassed the allowed limits.

One of the main implementation problems that the law faced, however, was the lack of reliable information regarding actual land ownership by foreigners. The estimates varied so wildly, it was not even known whether the 15% limit had been exceeded or not.

In order to collect that information, held by provincial administrations, the law created the National Register of Rural Lands (RNTR), which started working on 1st June 2012. It has now completed its task and the data can be found here.

The RNTR collected information from affidavits submitted by foreign nationals who own property in the country, provincial land registries, and national bodies such as the Immigration Department, the Borders Directorate, the Geographic Institute, the Mining Secretariat, and others.

As well as carrying out this national survey, the RNTR set up a system to process online requests by foreigners who wish to purchase property in the country, who will now require a permit issued by the RNTR.

The Survey

The results of the survey show a huge disparity in terms of foreign land ownership between the different provinces.

Considering the soy boom that swept across the region over the last decade or so, it is perhaps surprising to find that the fertile lands of the pampas have some of the lowest rates of foreign ownership. Buenos Aires, La Pampa, Santa Fe, Entre Ríos, and Córdoba have between 1% and 4.9% of foreign ownership (Buenos Aires’ foreign land ownership is high in absolute terms, at just over 10m hectares, but this only represents 3.5% of the total area of the province). Academic studies, like that of FLACSO economist Eduardo Basualdo, show that the country’s prime agricultural land is in many cases still owned by the same families that acquired them in the 19th century.

Likewise, the survey showed that Patagonia, an area famously coveted by foreign investors due to its natural beauty, also had low-to-moderate rates of foreign land ownership. Chubut, where the Benetton brothers own hundreds of thousands of hectares, has a rate of 4.1%, while Tierra del Fuego has 7.7%, Río Negro 2%, and Neuquén 6.4%. Santa Cruz is the exception: with 9.6% of its rural land owned by foreigners, it is the sixth province in the ranking.

The case of Santa Cruz, where large-scale mining projects such as the Cerro Vanguardia gold mine and the Río Turbio coal mine (exploited by a state-owned company) are found, is however consistent with another finding of the survey. The mineral-rich Andean provinces are some of the ones with the highest rates of foreign land ownership. In fact, Catamarca (12.1%) and La Rioja (10.9%) are very near the top of the ranking, followed quite closely by Mendoza (8.6%) – which also has lands with high value for tourism, cattle rearing, and wine production – and San Juan (7.1%).

Salta is also near the top with the same percentage as La Rioja (10.9%). In this area, the RNTR report indicates that lands are mainly used to produce tobacco, grains, and oilseeds.

However, the two provinces with the highest rates of foreign land ownerships do not produce either gold or soy, but paper. The north-eastern provinces of Misiones (13.9%) and Corrientes (13.7%) have almost reached their limit, and will not be able to sell much more of their land to foreigners.

While no province surpassed the 15% limit, as many as 49 (out of 569) sub-provincial districts did. In some cases, in provinces like Santa Cruz, Chubut, La Rioja, Corrientes, and Misiones, the land owned by foreigners in these districts exceeds 30% of the total.

Who Are They?

The most intriguing aspect regarding foreign land ownership in Argentina is: who are the landowners, and what do they use the land for? Unfortunately, the RNTR was will not or cannot provide such information. Public information regarding ownership is still scarce and hard to come by, especially when it comes to the north-western provinces.

According to the RNTR survey, 23% of the foreigners who own rural land in Argentina are individuals, while 77% are companies, and around 50% of the land owned by foreigners is in the hands of US nationals (3m hectares), Italians (2.3m hectares), and Spanish (2.1m hectares). The Swiss, Uruguayans, and Chileans follow with fewer than 1m hectares each, whilst Canadians, French, Dutch, and British nationals trail behind with fewer than 0.5m hectares per nationality.

RNTR Director Florencia Gómez mentioned that “there is a myth about the South having higher levels of foreign land ownership, while actually foreign land ownership is spread throughout the country.”

This “myth” has it roots on a widely known fact: the Italian Benetton brothers, through their Compañía de Tierras Sud Argentino, are the single largest foreign landowners in the country, with over 900,000 hectares to their name. That is 900 times the new allowed maximum per foreign person or company. Other high-profile foreigners that own land in Patagonia -and may have helped spread the view that this region is being “taken over” by foreign investors- include CNN founder Ted Turner, Hard Rock Cafe owner Joseph Lewis, and businessman-turned-environmentalist Douglas Tompkins.

Tompkins, founder of clothing brands The North Face and Esprit, started a foundation in the 1990s with the aim of buying up large pieces of land in order to protect them from development, mainly in Chile and Argentina. In the latter, he is thought to own up to 350,000 hectares.

As well as owning land in Patagonia, one of Tompkins’ large-scale conservation projects has been the ‘Iberá Project’, which consists of buying up land in the Iberá Wetlands, in Corrientes, to create a national park. His Conservation Land Trust has purchased over 160,000 hectares in this area, “with the goal of including these lands within the area of strict conservation, creating 700,000 hectares of what we propose to call the Great Iberá Park,” .

Despite being largely over the new ownership limit, Tompkins supported the limits set out by the new law. In a radio interview in 2011, the millionaire expressed his view that the law “is a step, maybe, towards a policy that can stop the over-exploitation of agricultural lands and the damage to the vegetal layers of the soil,” and added that “not only foreigners, but also large companies are degrading Argentine soils, which are the country’s most important asset.”  It is ironical that Tompkins said this as he has been trying to sell one of his very large farms for a very long time without success.

Land conservation projects in foreign hands are not the only reason Corrientes ranked second in the RNTR survey. The north-east region is the main producer of wood pulp in the country, an activity were foreign capital features prominently.

Misiones, the province with the highest percentage of foreign land ownership, is the centre of forestry activities and wood pulp production. Here, land ownership is not only largely foreign, it is also highly concentrated.

Alto Paraná, the biggest wood pulp producer in the country, was an Argentine company until the mid-’90s, when it was sold to Chilean group Arauco. Now, Arauco Alto Paraná is the largest landowner in Misiones, with 232,000 declared hectares. However, indigenous organisations claim that the company in fact owns as much as 280,000 hectares through various means – that is 10% of the total area of the province, and accounts for the majority of the 400,000 hectares that are currently in foreign hands.

Throughout the years, Alto Paraná’s aggressive expansion caused numerous problems with the locals who were displaced and relocated to make room for the company’s exotic pine plantations, which have also affected the native forest and traditional crops such as yerba mate.

In the Andean region, prominent landowners include British-Malaysian group Walbrook, whose company Nieves de Mendoza purchased 250,000 hectares in Malargüe, Mendoza, in 2001, and later acquired the Las Leñas skiing complex, which spans 228,000 hectares. The province also has a large amount of smaller foreign landowners who have purchased parcels -mostly of fewer than 400 hectares- in productive areas such as the Uco Valley, for tourism and agricultural purposes.

The Result: Whilst the feel good factor of preventing foreigners from buying commercial farms or farms in need of development might have won a few extra votes for the Kirchner Government, the end result was a drop in land prices  and less farm development, with the new buyers of land now being rumored to be only politicians and their associated elite at depressed prices.

With fresh foreign development capital it would have possible to double Argentines agricultural exports and get them out of the current default they are in but no. When one studies the existing foreign ownership one finds many of the current owners have lead the way in development  of agro-businesses and tourist type operations that have  greatly benefited the nation.

Now many them having no free market to sell to wished they had not invested at all.

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, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

www.gatewaytosouthamerica.com

 

 

Post available in: English