March 7, 2008

 

Brazil's farmland prices soar, thanks to pricier soy and ethanol

 

 

Hot demand for farm commodities like sugar and ethanol are driving up the price of land in Brazil, according to a study by AgraFNP, an agribusiness consultancy.

 

On average, a 1,000 hectare parcel of land that cost 1,700 Brazilian reals (US$1,017) in 2001 cost BRL4,000 by the end of 2007, an increase of 133 percent over seven years.

 

When calculated in dollar terms, land prices have risen by an average of 219 percent. The dollar has been in a free-fall against the Brazilian real for the last two years.

 

"The main influence has been soy prices and demand for soy," Mauricio Mendes, AgraFNP`s chief executive officer, said Thursday ( March 6).

 

"Whenever soy prices have risen, land prices have followed. The same holds for areas rich in sugarcane, and I suspect that the new frontier regions for cane will see even greater price rises for land over the next two to three years," Mendes said, citing Mato Grosso and Goias states as main examples.

 

In Sao Paulo state's main sugarcane regions of Ribeirao Preto and Sertaozinho, land in 2001 sold for BRL10,000 per hectare and rose to BRL20,000 by the end of 2007. However, new sugarcane regions in the state, like Serrano and Cravinho, saw prices go from BRL7,000 per hectare to over BRL20,000 in late 2007.

 

"If you bought a thousand hectares in Ribeirao Preto in 2001 you paid about 9.9 million (reals) for it and today if you sold it you would get at least 20.4 million," he said.

 

Mendes said that the government is currently reworking legislation that makes it difficult for foreign investors to buy Brazilian land directly, rather than through Brazilian subsidiaries or local partners.

 

"The current law is very prohibitive to any foreigner who wants to buy land to grow crops, raise cattle or plant trees for lumber," he said, adding that changes to the legislation could occur within the next 45 days.

 

Brazil is one of the world's leading producers of farm commodities. Soy and sugar prices have risen by over 20 percent since January.