Brazilian government split on land ownership law

China’s state-owned Chongqing Grain Group caused quite a stir in 2010. On traveling to Brazil alongside then President Hu Jintao, the company declared it would invest US$300 million in soybean production in the western state of Bahía.

The project was one of a series of promised investments and a sign that Brazil and China were integrating more closely. Brazil’s response, however, put a dampener on the plan.

That year, the Federal Attorney General’s Office (AGU) restricted the purchase of large tracts of land by foreigners, arguing that the new regulation preserved national sovereignty in a strategic sector of the economy.

Since then, pressure to reform the law has only increased and investors and some politicians now hope the new Brazilian government could overturn the AGU’s ruling. However, they face mounting opposition from nationalist factions and environmental groups who say relaxing the law could expose precious biomes to deforestation.

Chinese pressure

Pressure to open the land market comes mainly from China. Growing demand for food and the ongoing US-China trade war have led to increased Chinese imports of commodities from its other major trading partners. China is the largest purchaser of Brazilian soybeans. Demand for its other farming products is also growing. China is already the lead importer of Brazilian beef and pork.

The ability to buy land in Brazil would enable Chinese grain dealers to control production lines, eliminate middlemen and keep costs down.

The foreignisation of land is a process of devastation. It begins in the name of increasing productivity, increasing wealth, and stimulating development, but the money does not stay here

“Brazil has lost US$100 billion dollars in investment from around the world in recent years because of this ban,” said Charles Tang, president of the Brazil-China Chamber of Commerce and Industry (CCIBC).

Tang, who will soon travel to the capital Brasília to raise this issue with President Jair Bolsonaro’s representatives, added: “The entire world wants to attract capital and Brazil has granted itself the luxury of rejecting it.”

Others, however, believe ending foreign land ownership restrictions would be catastrophic for the country as it would facilitate the destruction of natural resources, displace rural communities and generate conflict.

“The foreignisation of land is a process of devastation. It begins in the name of increasing productivity, increasing wealth, and stimulating development, but the money does not stay here,” said Bernardo Mançano Fernandes, a geography professor at Paulista State University (UNESP).

Mançano, who leads a research group on foreign land ownership, said only landowners and investors will profit from a change in the law, while rural communities would live an impoverished and precarious existence.

“It is a dependent and exploitative model that does not have any benefits for the local population,” he said.

Cerrado threatened

The final text of the bill, proposed by Newton Cardoso Júnior of the Brazilian Democratic Movement (MDB), lifts all restrictions on the sale of land to foreign companies, except in the Amazon. The law requires 80% of land in the world’s largest rainforest to be set aside as preservation areas.

The Cerrado will be most affected because it is not declared as national heritage in the Brazilian constitution

Foreign companies would only be permitted to own a 49% stake in a company with land in the Amazon, according to the law. However, there would be no restrictions on land purchases for concessions such as electricity generation and mining.

The Cerrado, a near 200-million hectare savannah that extends across central-western Brazil, is where agribusiness is expanding most. It stands to feel the biggest impacts from a change in the law, according to Lorena Izá Pereira, a researcher at UNESP.

“The Cerrado will be most affected because it is not declared as national heritage in the Brazilian constitution,” she said.

Sovereignty versus credit

The greatest resistance to foreign land sales in the new government comes from President Bolsonaro himself, who campaigned on a nationalist ticket strong on anti-Chinese sentiment. Congresspeople who spoke to Diálogo Chino say Bolsonaro believes that ending the restrictions would undermine national sovereignty.

However, the agribusiness caucus, which was one of the strongest political forces to back Bolsonaro’s campaign, supports changing the current law.

Cardoso Júnior said conversations with the Ministry of Agriculture on changing the law have already begun and that he will resume negotiations in February. Agribusiness-allied government representatives and economy minister Paulo Guedes could change the president’s mind given the scope for new investment, he added.

“If international capital is to finance something, there must be guarantees. And this guarantee may be the land itself.”

Since domestic sources of funding are more expensive, external credit for agribusiness could be a bargaining chip in negotiations with the president, Cardoso Júnior said. But he admitted it may be a tough sell for Bolsonaro.

“We need to present to him an option that is legally secure but which also guarantees sovereignty,” Cardoso Júnior said. “I believe he could still overturn restrictions if he thinks there is no threat [to it].”

In light of current restrictions, foreign companies have refrained from investing large sums in Brazil’s land market. But aided by Brazilian law firms, some have managed to exploit legal loopholes or shareholder agreements that guarantee access to land.

However, this creates uncertainty and prevents companies from officially declaring land.

In one of his first acts as president, Bolsonaro transferred the power to demarcate indigenous and quilombola lands to the Ministry of Agriculture. Many interpreted the move as a concession to agribusiness and a grave threat to communities.

According to Richard Torsiano, a former director at the National Institute of Colonisation and Agrarian Reform (INCRA), the government is already preparing to overturn the restrictions.

Yet nationalistic military factions within government – six of the 22 new cabinet ministers were appointed from the barracks – oppose the new law.

Tang said that if the restrictions are overturned, Chinese investment in land could be worth up to US$2 billion per year, eventually rising to $10 billion.

According to Cardoso Júnior, forestry has the potential to bring in investment of US$30 to $40 billion to Brazil if uncertainty on the land issue is resolved.

“We want to see Brazil opening its doors to investment and creating jobs. If there is stability on the land question, the country will receive a lot of investment. Today the rural sector is strategic for the country.”