Brazil tightens land acquisition by foreigners: ‘speculators and sovereign funds’

Attorney General Luiz Inacio Adams, interpreting legislation dating back to 1971

MercoPress | Thursday, March 17th 2011

The Brazilian government is tightening a law that restricts the amount of land foreigners can buy. The decree prohibits non-Brazilians from buying controlling shares of companies that own vast tracts of territory in the country, Brazilian Attorney General Luiz Inacio Adams said in a statement this week.

The action is aimed at preventing foreign investors from circumventing the interpretation of a law that restricts their direct acquisition of land. According to O Estado de Sao Paulo the Attorney General Office issued the ruling which has been distributed to state commerce councils responsible for the registration of company agreements. It’s not clear if deals already agreed could be suspended by tribunals.

Since 1971 the Brazilian government has limited the outright purchase of rural farmland by foreigners or companies based abroad for food-security reasons.

The law dictates that foreigners can own no more than one-fourth of a county, and no one nationality can own more than 10%. Under current legislation foreigners could purchase up to 50 modules, ranging from 250 to 5.000 hectares depending on the region and soil yield.

Currently, foreigners own 4.5 million acres (1.8 million hectares) of Brazilian land — a number that has grown 11.5% from 2008, according to the government agency charged with land distribution.

As one of the world’s most important agricultural powers, Brazil last year severely restricted all new farmland investment from abroad amid fears that foreign governments, led by China, were snapping up land in emerging markets to boost their food security.

However with global food prices hitting a record in February, Brazil is also eager to attract new capital to the sector to increase its share of world agricultural exports while continuing to screen out unwelcome “sovereign investors” owned entities, according to Wagner Rossi, the agriculture minister.

“We need to distinguish properly on the one hand between speculators and sovereign funds, which are a threat to our sovereignty, and on the other side, foreign investors who come with good projects” Mr Rossi told the Financial Times in a recent interview.

Brazil is already the world’s largest exporter of coffee and sugar, the second largest grower of soybeans and the third largest exporter of maize. But the need for additional production from the country to help alleviate global food shortages is urgent.

The Brazilian government, under the previous president, Lula da Silva, in 2010 reinterpreted the law to restrict foreign investment in agricultural land after watching foreign governments including China, South Korea and the Gulf states buying land in Africa and elsewhere to increase their food security.

The trend gained notoriety after Daewoo of South Korea attempted to purchase a large chunk of land in Madagascar, which helped to trigger a coup d’état in the African island country.

“Some of these countries are great partners in other areas, but having them buying land in Brazil creates some sort of sovereign risk for us. This is not part of our plan and we are not going to allow that” Rossi pointed out.

Brazil’s grain yield this year was expected to reach 150m-155m tons compared with 149m last year, Rossi said. This would include a bumper soybean crop of about 70m tons.

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