BRASILIA, March 17, 2011 - Brazil has closed a legal loophole used by foreigners to buy farm land, a change of rules that is fueling uncertainty among agricultural investors in one of the world's leading food exporters.
"We simply applied the law," Attorney-General Luis Inacio Adams told Reuters on Wednesday. "Foreigners can buy land up to a certain limit and they can create (minority) partnerships with Brazilians."
Buying local companies with land holdings has allowed foreigners to bypass a law limiting the size of their direct land purchases.
In August, the government interpreted the law to mean that only Brazilian-controlled companies could buy unlimited tracts of land, while foreigners could only do so as minority partners, thus limiting purchases by subsidiaries of foreign firms.
Last week Adams instructed local authorities to reject all foreign purchases of majority stakes in Brazilian companies that own farm land.
This is likely to reinforce apprehension by investors, whose land purchases have slowed since former President Luiz Inacio Lula da Silva warned against foreign land deals.
Under a 1971 law foreign firms are allowed to buy no more than 50 modules, which range in size from 250 hectares (620 acres) to more than 5,000 hectares (12,350 acres), depending on the region of the country.
Last month Agriculture Minister Wagner Rossi said the government would try to ease restrictions on foreign land purchases when put to productive use, but restrict speculative purchases
The latest measure seemed to give contradictory signals on what the government's position was.
Adams said his decision was based on a law signed by Lula and did not necessarily reflect the current government's view.
"If this government has a different approach, our decision can be undone," he said.
The latest move is unlikely to have much direct impact on foreign investors, most of whom had been abiding by last year's law and no longer bought majority stakes in Brazilian farms.
"We would expect this to be the natural interpretation of the law. We don't see any changes to what was said before," said Amaury Junior, head of Sao
Paulo-based Vision Brazil, which has invested around $2.1 billion in productive
Brazilian farming projects as a minority partner.
But contradictory signs from the government and the potential for drawn out legal battles, are generating growing uncertainty among investors.
"I fully understand Brazilians don't want foreigners to buy up their entire country and there should be rules on that," said Brian Willott, a U.S. real estate consultant in northeastern Brazil.
"But the rules should be clear. The government needs to revisit this whole issue and come out with a single voice," said Willott.
The latest restrictions could even affect Brazilian farmers as multinational banks and commodities traders may no longer want to take their land as collateral for fear of not being able to cash it in, said Willott.*******
