1. THe gROWINg CONCeRN OVeR FOReIgN OWNeRSHIP OF LAND IN eASTeRN LATIN AMeRICA
a. Concentration of Land Ownership and Agricultural Value Chains
It would be a mistake to discuss large-scale investment in farmland in Brazil and Argentina with- out touching upon issues of land concentration as well as concentration in agricultural business value chains. Although information concerning foreign investment as well as its relationship to land concentration is scarce and awaiting further research, some points are worth noting in order to best approach the role that foreigners play in the land and agricultural structure of these coun- tries, if only because “large-scale” investment in or acquisition of land inevitably leads to concen- tration to some extent.
Land concentration in Brazil is a historical phenomenon resulting from the colonization of the country by the Portuguese monarchy.48 Starting from the sixteenth century, the Crown gave large plots of land to a few members of the Portuguese elite (through the Captanias Hereditarias) or to colonizers in accordance with Portuguese military and political goals (sesmarias). From the sixteenth to the twentieth century, cattle-ranches and sugar and coffee plantations were developed on these lands. As the production increase relied more on agricultural frontier expansion than on improving the land’s productivity, the concentration of land ownership in the hands of a few increased. Thus, today, one can observe significant regional discrepancies, with the north and northeast regions (where the colonizers started to settle) having higher levels of land concentration than the south. As a result of the inability of past land reforms to change this situation, Brazil has one of the most concentrated distributions of land in the world (prob- ably one of the highest Gini coefficients) regardless of the investor’s origin.49 Indeed, according
foreigners-to-circumvent-sales-restrictions>. We have emphasized that the role of foreigners in Latin America cannot be limited to land acquisition. There is indeed room for discussing issues of land sovereignty when we know the significance of foreigners in the agricultural value chain of each country.
48. On the historical causes of land concentration in Brazil, see Celso Furtado, The Economic Growth of Brazil: A Survey from Colonial to Modern Times (University of California Press 1963) 285; Guilherme BR Lambais, ‘Land Reform in Brazil: The Arrival of the Market Model’ (XXVIII Institute of Latin American Studies Student Association (ILASSA) conference, Austin, Texas, 2008), <http://mpra.ub.uni-muenchen.
de/25446/1/MPRA_paper_25446.pdf>.
49. The Gini coefficient is the most frequent measure of inequality. The Gini’s (or Lorenz) index of concentration is a measure of concentration of agricultural areas ranging from 0 to 1. When all agricultural holdings are equally distributed (have the same area) the value of the index is 0. When the entire agricultural area is concentrated in one holding, the value of the index is 1. For further information on the Gini coefficient, visit: Food and Agriculture Organization of the United Nations (FAO), ‘Other International Comparison Tables of Agricultural Census Data (Explanatory Notes and Comments)’ (FAO 2014), <http://www.fao.org/economic/the-statistics-division-ess/
world-census-of-agriculture/additional-international-comparison-tables-including-gini-coefficients/
other-international-comparison-tables-of-agricultural-census-data-explanatory-notes-and-comments/en/>, accessed 3 October 2014. Cited by Wilkinson, Bastian and Di Sabbato (n 18).
to the latest census conducted by the Instituto Brasileiro de Geografia e Estatísticas (IBGE) in 2006, 5% of the biggest establishments account 69.3% of all exploited land.50
In addition to the historical factors that shaped land ownership in Brazil, the development of modern agriculture has gone hand-in-hand with a growing concentration of land owner- ship, even though the phenomenon existed long before. Most of the commodities for which Brazil now stands at the top rank in both world production and exportation are also the ones in which concentration of land ownership has been most observed, namely sugarcane, soy- bean, forestry, cattle-ranching, white meat, fruits, and so forth.51 The emblematic commercial success of Brazil’s cerrado region, which was achieved mainly through large-scale mechaniza- tion of rice and soybean agriculture, is just one of the many examples of the high concentration of land ownership that characterizes Brazil’s agriculture today.
It is important to note that, in Brazil, concentration in terms of business structures is already significant at every other stage of the agricultural value chain. Indeed, the concen- tration of inputs, processing, and distribution stages in the hands of national or foreign companies has existed for a long time in Brazil, as in other countries of Latin America. For instance, foreigners wield considerable control over the production systems of some com- modities, such as soybean crops: “In the major soya bean producer countries (Argentina, Brazil and the United States), a small number of transnational corporations (TNCs) dom- inate all the stages of the value chain except farming.52 For instance, four TNCs (ADM, Bunge, Cargill and Louis Dreyfus) control over 40% of crushing capacity in Brazil. In the area of genetically modified soya, one TNC (Monsanto) alone provides 90% of the world’s GM soya seeds.”53 In addition to that, in the case of soybeans, there is also an important concentration of land ownership involved. On the other hand, some other sectors such as coffee or tobacco are characterized by less land concentration and ownership but by indi- rect control over the production system through contractual arrangements which define production requirements. The pressure driving land concentration is in fact caused by the necessary gathering of different capabilities to meet agribusiness conditions specific to each sector. Therefore, when the conditions are different, for instance when competition concerns the differentiation of quality in the coffee sector, land acquisition or long-term leasing does not seem necessary to optimize profits, and contracts are sufficient to achieve production goals.54
As is the case with Brazil, land concentration in Argentina is also very high, with 2% of the farms controlling 50% of the country’s land.55 However, there are strong regional differences and concentration is not always linked to large-scale farming as some highly capitalized farms
50. Institutio Brasileiro de Geografia e Estatistica (IBGE), Censo agropecuario 2006: Brasil, Grandes Regioes e Unidades da Federaỗao (IBGE 2009). Note that these figures are not perfectly reliable. Wilkinson, Bastian and Di Sabbato (n 18) note that the situation is more complex than it appears to be. Over 178 millions of land declared as private areas, 100 million ha have potentially been declared on the basis of fraudulent documentation.
51. Gómez E (n 1).
52. Nicole Moussa and Shin Ohinata, ‘Transnational Corporations and Agricultural Production: The Case of Soya.’ Paper prepared for the World Investment Report (WIR), 2009, cited in UNCTAD, ‘World Investment Report 2009’ (2009) Sales No. E.09.II.D.15, 204.
53. Moussa and Ohinata (n 52).
54. Wilkinson, Bastian and Di Sabbato (n 18) 94.
55. Sili and Soumoulou (n 46). 57% of farms account for 3% of the land.
operate over 25 ha of land in some states. A distinct feature of Brazil’s agricultural structure is the growing importance of leasing. According to Sili and Soumoulou: “The major emerging phenomenon is the advance of leasing as a mechanism for occupying and farming more land.
Leasing grew 64 per cent between 1988 and 2002 […].”56 This is the result of profound trans- formations in the country’s agriculture in recent decades. Restrictions on land leases in the 1950s had several impacts on the agricultural structure for the following decades, provoking a fall in the number of land contracts for agricultural production, a fall in cereal production, and an increase of livestock production. However, a major change took place in the 1980s with new approaches to agriculture. As noted by Manciana, Trucco, and Pineiro, the use of “new farming methods, new legal contracts and a totally new way to organize commercial farming took place bringing about rapid technological change and a huge increase in total agriculture production, which increased from less than 40 million tons of cereals and oil-seeds in the 80’s to over 90 million in the planting year of 2007–2008.”57 This totally transformed the traditional model of a unique social actor (i.e., the farmer) commanding, contributing, and combining all the factors of production (land, financial resources, labor, and technology) to the profit of a diversity of new social actors. In this new setting, many different actors, under different types of organizational and management structures join their efforts and competencies to produce agricultural outputs. For instance, a farm would be run by an entrepreneur (individual or corporate), either owning or renting the land (or both), using services provided by contrac- tors to work the land (sowing, tilling, providing of inputs such as seeds, insecticides, etc.) and would be self-funded or, in some cases, funded by a “pool” of companies and individuals. This contract-farming model marked Argentina’s agricultural landscape, illustrated by a famous business case of the Harvard Business School on Los Grobo.58
b. Increasing Foreign Ownership of Land or Increasing Presence of Foreigners: Two Distinct Questions
The structure of foreign ownership of land in Brazil is marked by a disequilibrium: The big- gest players (legal entities, typically corporations) have relatively more land than the smaller ones (individuals).59 However, a notable feature is that the number of rural properties owned by foreigners, either individuals or legal entities authorized to operate in Brazil, is relatively small at the national scale. According to INCRA’s60 register of rural property of May 2010, foreigners own 34,371 properties, which amount to as much as 4.3 million ha. Apparently, only 0.7% of rural properties in Brazil are officially owned by foreigners (0.79% of cultivated land). However, this number only represents land owned by foreigners themselves and not by
56. ibid 54.
57. Eduardo Manciana, Mario Trucco and Martin Pineiro, Large-scale Acquisition of Land Rights for Agricultural or Natural Resource-Based Use: Argentina (World Bank 2009) 85.
58. Bell, David E., and Cintra Scott. "Los Grobo: Farming's Future?" Harvard Business School Case 511-088, December 2010. (Revised January 2011.).
59. Wilkinson, Bastian and Di Sabbato (n 18) 100. According to INCRA’s May 2010 register on rural property, most properties (92.6%) belong to individuals but they only correspond to 73.9% of this area, whereas legal entities own 26.1% of it while they only own/hold 7.4% of these rural properties.
60. INCRA is the Instituto Nacional de Colonizaỗóo e Reforma Agrỏria or, in English, the Brazilian Institute for Agrarian Reform.
foreign-controlled Brazilian companies. If we include this category, the share owned by for- eigners would jump to 1.2% according to some estimations.61
Still, such small shares in the ownership of rural properties make it difficult to understand why the Brazilian government radically changed its mind and decided to debate the possibility of regulating these acquisitions as early as in 2007. The seemingly weak foreign ownership of land in Brazil hides important regional discrepancies. In eight states, foreign-owned land rep- resent an important share of the total area (for instance: 19.99% in Mato Grosso state, 13.48%
in Sao Paulo state, 11.7% in Mato Grosso do Sul state), but in other states, it only represents less than 3% of the state area.62 Yet, a much more relevant fact for understanding this change is the evolution of foreign ownership of land within some particular region during the 1998–2010 period. If it has decreased in some regions, the acquisition of rural properties by foreign legal entities has soared dramatically in the Nordeste (518%), Centro-Oeste (450.4%), and Sudeste (176.8%) regions63. Furthermore, compared to the development of all rural properties in Brazil, foreign-owned properties have been increasing far more than Brazilian properties in these regions (although, in other regions, foreign-owned properties decreased compared to Brazilian properties, but at a lower scale).
Before 2012, there was no centralized and systematized data on foreign ownership in Argentina. It was roughly estimated that foreigners owned between 3.4% and 9.9% of total agricultural land in Argentina.64 Creating this data has been one of the main goals of the new law passed by Argentina, which created a National Register on Rural lands (Registro Nacional de Tierras Rurales—RNTR).65 According to the RNTR, as of July 2013, foreigners own around 15.9 million ha of rural land in Argentina66 (around 5.93% of Argentina’s national territory).
Foreign legal entities account for 77% of this area and foreign individuals for 23%. As of July 2013, the biggest foreign landowners are U.S. nationals, followed by Italians and Spaniards.
It may be noted that other commentators strongly disagree with these numbers, saying that foreigners own between 20 and 25 million ha of rural land (between 7% and 9% of the national territory). Whatever the percentage of foreign land ownership in Argentina, it is much higher than in Brazil (1.2%), but still a lot less than in Uruguay (25.6%). As this set of data is new, not much information is available on the trend followed specifically by foreign large-scale pur- chases of land. During the last decade, land acquisition in Argentina has generally followed the trend in land prices. After the currency devaluation of 2002, interest in buying land grew and prices increased by 60% (measured in constant dollars) during the year 2003.67 However, this demand stemmed mainly from Argentine capital originating from abroad or frozen in local
61. Fundación Pensar, ‘Propriedad Extranjera de la Tierra. Datos, Legislación Comparada y Limites Constitucionales’ (Fundación Pensar 2011), <http://fundacionpensar.org/wp-content/uploads/2011/03/
Propiedad-extranjera-de-la-tierra.pdf>.
62. Gustavo de LT Oliveira, ‘Land Regularization in Brazil and the Global Land Grab: A State-Making Framework for Analysis’ (International Conference on Global Land Grabbing, Land Deals Politics Initiative, April 2011).
63. Wilkinson, Bastian and Di Sabbato (n 18) 102.
64. Fundación Pensar (n 61).
65. See Part C.2, below, on Argentina’s law.
66. Ministry of Justice and Human Rights, El Gobierno Nacional Presentó Relevamiento Sobre Ley de Tierras Rurales que Limita la Tenencia en Manos Extranjeras (Articulo de Prensa, 23 July 2013), http://www.jus.gob.
ar/prensa/noticia.aspx?id=1388>.
67. Manciana, Trucco and Pineiro (n 57) 66.
banks because of the Argentine crisis. From 2005, and because of growing concerns around food supplies, international financial resources started to play a role in these investments. Argentina saw international businesses buying up its land, though these purchases of rural land were not deemed as massive purchases. In 2008, the demand for rural land came to a halt because prices equaled U.S. prices.68
The fundamental question here, it seems, is whether there is an increasing foreign ownership of land or an increasing presence of foreigners in the agriculture sector globally. Why would foreigners buy or lease land instead of just buying the commodities once they are produced? There is unfortu- nately no clear answer to this question. In both Argentina and Brazil, foreigners come for various reasons and purposes. In Argentina, 90% of foreigners produce food,69 and they are mostly located in the central Pampean region. Half of them are in soybean cultivation. The other half are either in the cattle-ranching sector, or they produce milk, wheat, crop, sunflowers, or cotton and wool.
Their presence is not new, but it has been increasing as of late, mainly because of the expansion of oil-seeds such as soybean, cereals, and the displacement of cattle ranching.70 In Brazil, foreigners come to invest in Brazilian land because it brings many advantages: They can enjoy a place where property rights are well defined, although that is not true everywhere, and where infrastructure, advanced technology, and skilled labor are available.71 They generally look for places that already have experience in particular production modes so their huge demand for land and commodities can be achieved without changing the existing production mode altogether.72 In both countries, the investor’s choice of resorting to land acquisition or contract farming varies greatly from one deal to another. It might well be the case that land acquisition is favored over leasing or contracting because capturing the increasing value of the land over the years through property rights (without having to pay rent as when they are leasing) represents a significant economic advantage for inves- tors. On a side note, one may also remark that agricultural leasing is not very common in Brazil.73
The available data on foreign land ownership help provide a better view on the situation but do not make it easy to draw conclusions either about the overall “worrying” or insignificant impor- tance of foreign land acquisition, or about the reasons why investors would prefer resorting to land acquisition rather than leasing or contract farming. Although there is some evidence of an alarming amount of land purchases by foreigners in some parts of Brazil, which might have fueled the urge to limit foreign land acquisitions, their importance in the ownership of land at a national scale seems quite insignificant (1.2%) compared to Argentina (5.93%).74 But even in Argentina, the
68. ibid.
69. As always, this number is to be taken with caution. As foreigners’ interests are not clearly defined for mixed (domestic and foreign) capital corporations, it is hard to draw such a big picture.
70. Murmis and Murmis (n 19) 18.
71. Deininger and others (n 3).
72. Gómez E (n 1) 20.
73. Lee J. Alston, and Bernardo Mueller. Property rights, land conflict and tenancy in Brazil. No. w15771.
National Bureau of Economic Research, 2010.
74. Yet, in Argentina, it appears that ‘pure’ national companies (by ‘pure national companies’ we mean com- panies with their entire capital owned by Argentine nationals) rely more on land leasing and ‘pure’ foreign companies operate more on a land ownership basis. The first limit of this information is that it does not indi- cate anything to us about the behavior of companies with mixed capital (foreign and national). Remember that foreign acquisitions are hard to spot because there are, on the one hand, acquisitions made by purely foreign companies, and on the other, acquisitions made by mixed capital companies, or Argentinian subsidiaries controlled by foreigners. One should also remember that wealthy individuals (rather than corporations) also made some of these huge acquisitions. These were acquisitions made for the purposes of conservation (like
picture is one of contrasts because of the importance of leasing in agriculture. The cause of the regulations of 2010 and 2011 are not clear when it comes time to examine the data. Nevertheless, from the evidence gathered so far there is little doubt as to the increasing importance and interest of foreigners for Brazil’s and Argentina’s agriculture, which led to broader concerns for food secu- rity and natural resource sovereignty, which in turn eventually led these countries to take strong measures against foreigners.
2. ADDITIONAL ReASONS MOTIVATINg THe LIMITATIONS OF FOReIgN OWNeRSHIP OF LAND
a. The Official Rationale Underlying the Regulation of Foreign Acquisition of Land in Brazil and Argentina
As early as 2007, the Brazilian Government decided to tackle what it deemed to be a key issue in international developments in agriculture and food at the time, namely the increased pres- sure on land. Having linked the increased presence of foreigners with this phenomenon, a meeting was convened in the “Casa Civil” with the goal of improving the legislation on foreign acquisition of land in light of the world food crisis. The meeting also aimed to evaluate the likelihood that biofuels would become an important source of energy for Brazil and the rest of the world. Importantly, the people present at the meeting agreed that these new trends were the main drivers of a new approach to land property in Brazil.75 The meeting was also aimed at finding ways of changing the interpretation of the law that allowed any Brazilian firm held by foreigners (when they control the majority of the capital) to buy land without limit, contrary to foreign corporations authorized to operate in the country, which are limited in their right to acquire land. One of the main ideas was to stop investors from using land for speculation purposes. However, it is hard to show that speculators are a group solely made up of foreign- ers. Moreover, this argument is debatable, as foreigners seem more interested in acquiring Brazilian land to secure their food supplies rather than to speculate on prices. This revision of the law failed to be approved at that time, mainly because of various impediments due to a context of global economic crisis. Its publication was thus postponed in 2010.
With the reinterpretation of the Brazilian law, which took the form of a legal opinion handed down by the General Attorney Office (AGU), the government wanted to regain control over land acquisitions made by Brazilian firms predominantly owned by foreign corporations or individuals. According to the legal opinion of 2010, the absence of control over these acqui- sitions had detrimental effects such as:
(a) [L] and frontier expansion with encroachment of cultivated lands on protected areas and units of conservation;
(b) a rise of land value without justification and resulting from speculation, generating a rise in costs for expropriation undertaken for purposes of land reform, as well as the reduction of the stock of available land for the same purposes;
Douglas Tompkins, the founder of The North Face, and Esprit), wool production (like the Benetton brothers who actually own 930,000 ha of land in Rio Negro, Chubut and Santa Cruz), or tourism. See Murmis and Murmis (n 19).
75. Wilkinson, Bastian and Di Sabbato (n 18) 86.