Any relaxation of restrictions on foreign agricultural land ownership in Brazil will have a limited effect because investors have already found ways to work within the existing system, according to panelists at a discussion of Brazilian agribusiness hosted by the Brazilian-America Chamber of Commerce in New York on Tuesday.
The event’s panel included representatives of Bunge Global Agribusiness, Agricola Rio Galhao, Brookfield Brazil, Westchester South America, and FARM Investimentos. They examined a range of recent developments in Brazilian agribusiness including the state of the ethanol industry, the role trading companies play in providing financing to farmers and the pressing need for investment in the country’s infrastructure.
Throughout, panelists touched on what moderator Thomas DeCoene of Global Capital Access LLC called “the elephant in the room”: existing regulations barring direct foreign ownership of agricultural land and the potential for those regulations be relaxed.
In February, Agriculture Minister Blairo Maggi told Reuters that a new law would look to ease restrictions on foreign purchases of agricultural land as part of President Michel Temer’s efforts to pursue business-friendly reforms. Maggi said that the new law could pass in the first half of 2017 and would include provisions to discourage speculation and ensure that any land purchased does not lay idle.
At Tuesday’s event, Brookfield Brazil managing director and senior vice president Renato Cavalini said the governments move to allow 100 percent foreign ownership of airlines in Brazil is an indication of the governments’ intention on land ownership reform.
Still, he said, any change would have little effect as large investors like Brookfield have already established themselves as Brazilian firms backed by international capital working with well-connected local partners in the region and are subject to Brazilian law.
If foreign ownership regulations were to be removed, he said, Brookfield’s name might change, but the underlying structure of the business and its registration with the government would remain largely the same.
“For those that are not deeply involved with the subject, it’s tough to understand. For those that have been involved for many years, this is not an issue anymore,” he said. “This is not part of the discussion with our investors or our shareholders.”
Cavalini added that he would like to see a change to the rule and it would be good to reduce bureaucracy surrounding land investments, but that after many years under the current system, investors have been able to adapt.
However, navigating land and title issues in Northern regions of the country that are newly opening up to investment can be especially challenging, he said, citing one example of a farm whose ownership title was challenged only after operations had begun.
Henrique Americano de Freitas, chief executive officer at TIAA-affiliate Westchester South America, said that his investors are most concerned with averting any potential ownership rights disputes, ensuring sustainability and avoiding the negative publicity that can accompany investing in Brazilian land.
“Most of the questions we receive from fund investors are much more related to transparency, to compliance, to sustainability, rather than performance,” he said. “They really want and like this asset and what we do to guarantee compliance and to be sustainable to keep their image healthy is go through a process of due diligence.”
de Freitas said that Westchester’s due diligence process is thus “the key” to its operations in Brazil and ultimately leads to higher returns for investors.
That due diligence process can take between 90 days and years to complete on a single piece of land, he said, extending to examination of unrelated investments by local partners and continuous monitoring after a land investment has been finalized.