Food inflation, land grabs spur Latin America to restrict foreign ownership
| São Paulo, Brazil
One of the first things passengers see when disembarking at Cuiaba airport in central Brazil is a real estate advertisement promoting arable land to foreigners.
South America has some of the most productive land on the planet, and buyers have long been drawn to pastureland for cattle; fields for grains, soybeans, and sugar cane; and forests where they can plant eucalyptus for timber and paper. Farms can reach the size of small nations.
Such advertisements may soon be preaching to an empty audience, however, as this and other South American nations that traditionally welcomed foreign investors are now changing land laws to restrict foreign ownership as arable areas worldwide become more sought after, a fact underlined by recent food crises. For lawmakers in Brazil, Argentina, and Uruguay, a nation where an estimated 25 percent of all land (an area the size of Denmark) already sits in foreign hands, it isn't a moment too soon to roll back the welcome mat.
These three nations produce much of the world's beef and grains and have been attractive to investors not just because land is available, but also because buying it was relatively straightforward.
Newly concerned over land grabs and eager to exercise more control over its food security, Argentinean President Cristina Fernández de Kirchner said April 27 she would send a bill to Congress restricting how much land foreigners can buy or own. Uruguay fears that nations such as China and Saudi Arabia want to buy prime real estate and has promised to clamp down. Brazil, the world's biggest producer or exporter of beef, coffee, sugar cane, orange juice, and tobacco, last year blocked foreign companies based in Brazil from purchasing additional local real estate.
"What is happening more and more frequently is that countries ... are interested in buying in the parts of the world where the food, water, and energy are," says Jorge Saravia, an Uruguayan senator charged with helping pass new legislation.
Volatile food prices
To be sure, South America has benefited greatly from the commodities boom. Its grains, oils, and minerals are helping fuel China's rapid growth. Just five commodities accounted for 43 percent of Brazil's exports last year. Argentina's commodities exports doubled between 2005 and 2008. Yet the fear that rich countries that don't have their own supplies of food or raw materials will buy up land in poorer, more productive nations is growing, with the World Bank last year citing South American and African countries among those most vulnerable.
The report said volatility in food markets that caused food riots in some places in 2007 and 2008 was a wake-up call to import-dependent nations. Some of them targeted arable land abroad in a bid to protect themselves from uncertainty and guarantee their future food supply.
This is not the first time Brazil has wrestled with the issue of foreign landownership. A 1971 law prohibiting foreign companies from buying land was reinterpreted in the 1990s, when Brazil needed foreign currency, to consider a foreign company Brazilian if it was based here and run from here. Last year, the government said the original interpretation applied once again. Officially, about 1 percent of Brazil's land is foreign-owned, although the true number is believed to be at least twice that.
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The change comes because foreigners were getting around the law by partnering with locals whose name went on the title deed. Brokers in places like rural São Paulo State say outside interest has doubled the price of fertile land over the last two years and that buyers keep calling. In some of the most notable examples, reports said three Chinese groups were interested in buying huge tracts of arable land in Brazil's center and northeast.
"There are more people interested than ever, principally European and Japanese," says Silvo Rosas, a real estate agent who sells farms and rural properties. "They are looking for more profitable deals."
In Argentina, Chaco Province is discussing selling 240,000 hectares (600,000 acres) to Saudi Arabia and Rio Negro Province is negotiating a multimillion-dollar deal that would give China access to 300,000 hectares (750,000 acres), an area bigger than Rhode Island, says Omar Principe, one of the leaders of the Argentina Agricultural Federation (FAA).
Like others hoping to put the brakes on foreign ownership, the FAA is concerned China wants to alter the historic purpose of land traditionally used to grow apples, pears, and other fruits to produce soybeans, as well as concerned about the possible loss of jobs and the threat to national sovereignty.
Foreigners own about 9 percent of all Argentine land, Mr. Principe says, and another 15 million hectares (37 million acres) is still available for purchase. "Argentina has always been a country of immigrants and that shouldn't change. But there needs to be a limit," he says. "This is also about the concentration of land. Ownership and production is becoming concentrated in the hands of fewer and fewer people and that needs to be halted."
Lawyers and experts say governments must clarify existing investment laws because changing interpretations leave foreign companies confused. Most agree, though, that South America, with its huge potential for food production, will remain in the sights of foreign buyers, and governments will look for ways to make deals possible because the agricultural sector needs investment.
"We will have new, clearer laws," says Marc Stalder, senior associate at the real estate practice group at KLA-Koury Lopes Advogados in São Paulo. "Brazil needs the investment."
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