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Informa Economics

A Multi-Client Study Proposal
Farmland Dynamics in Brazil ~ July 2012

Background

Since the turn of the century, investors have given considerable attention to farmland (both crop and pasture). Most recently, global investors have taken a different posture regarding investments due to the financial crisis of 2008 and 2009 with farmland playing a more important role in many investment portfolios. The situation – as of July 2012 – also is alarming for investors in that many of the conventional financial investment portfolios are showing signs of fatigue/stress. Many of the traditional investments are becoming more risky and are leading many investors to re-examine farmland as a viable investment opportunity.

 

Historically, farm and pasture land has always been viewed as a food production resource and much has been written in recent years regarding the increasing global demand for food as developing countries create middle class consumers that have growing middle class demands for food products. Added to this are new demands such as biofuels which have made their entrance into the agricultural sector, now accounting for an estimated 16 million hectares on a global basis. Furthermore, environmental concern has added another hurdle to land availability. All of these factors tend to point in the direction that farmlands are and will continue to be a sustainable and profitable investment opportunity.

 

Brazil Situation


In the context described above, Brazil is considered one of the main sources of arable lands. Currently, the country is the third largest producer of food in the world with output at 160 million tons of grains and oilseeds and another 24 million tons of meat protein. Brazil is exporting an average 46% of soybeans produced and another 24% of beef output with these percentages increasing over the past decade. Aside from current farm and pasture land output, the potential for expansion is huge. As will be detailed in this report, Brazil has some 90 million arable hectares still available to be opened of which, if correctly and wisely utilized, could enable the country to expand crop and livestock production by a factor of three.

 

While there are numerous drivers for an expansion of farmed land in Brazil, a few barriers need to be addressed. Current legislation restricts foreign investment in farmland use and the forestry code – under discussion in Congress – will have an important impact on further use of virgin lands and farmlands. As of July, the forestry code is still under evaluation in Congress with at least 15 issues still to be negotiated.

 

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