Brazil and China signed an agreement creating a $1 billion agriculture investment fund to invest in Brazilian farming services and agricultural infrastructure, storage, logistics and ports.
The agreement, which is indicative of Brazil’s more open stance toward foreign agricultural investment under its new administration headed by President Michel Temer, was finalized in Shanghai during an official visit by the Brazilian President.
Brazil enacted strict foreign ownership regulations in 2010 under then leftist president Luiz Inacio Lula da Silva in response to a fear that Chinese investors would acquire large tracts of the country’s farmland.
Temer, however, as a center-right politician, has taken a much more business friendly attitude since assuming office months ago and is exploring the possibility of redacting current restrictions on farmland ownership in order to attract foreign investment into the sector.
Further allaying any fears of widespread Chinese ownership of Brazilian farmland is the fact that Chinese officials have made it clear that investment interest lies in securing grain supplies, not in its production.
The Shift Away From Australia
The agreement with Brazil follows five years of almost frenzied attention paid to Chinese investment interest in Australia’s ag sector – interest that recently seems to be cooling.
Recent mixed signals to investors and high publicity surrounding Australia’s approval and/or rejection of various Chinese agricultural investment ventures has created an atmosphere of caution and reserve, while higher levels of rainfall in South America and lower cost of entry have drawn the attention of Chinese ag investors to Brazil and Argentina despite their greater level of political instability.
Some in Australia’s ag sector do not see the shift of China’s attention to be a threat to the future health of the industry, however.
“In the 1980s we saw a lot of activity here from Japanese investors, particularly in feedlots and beef processing,” David Goodfellow, Rifa Australia’s CEO told Farm Online. “Investment goes in spurts – it also tends to be more noticeable in particular sectors at certain times. Horticulture may be attracting a lot of interest in the next decade, or Indonesians might be our next notable investors.”
An Eye on Soybeans
In 2014, former Brazilian President Dilma Rousseff announced that the country’s soybean production grew 221 percent over the past 20 years while soybean acreage increased by 41 percent over the same time period. This year, the U.S. Department of Agriculture (USDA) forecasts that Brazil’s soybean output for this season will top 101 million tons, compared to 96.5 million tons last year.
Output of this magnitude has attracted Chinese companies and investors, such as Hunan Dakang – a unit of Shanghai Pengxin Group which agreed to acquire a majority stake in Brazilian soybean trader and biodiesel company Fiagril this past May for $286 million. Given that China bought 45 percent of Brazil’s soybeans, corn, and soymeal exports last year, it is not surprising that this deal, which is the largest acquisition of a Brazilian agricultural operation by a Chinese company to date, is for control of a soybean trader.
Indeed, tasked with feeding a fifth of the world’s population with approximately 10 percent of the world’s arable land, China can be expected to continue this outward reach for major agricultural deals in the world’s key food supplying countries, and Brazil’s land bank and production ability make it a natural target of interest. However, the country’s lack of infrastructure remains a challenge – one that this investment fund is designed to help address.
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Lynda Kiernan
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