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March 1, 2008
I get e-mails from people everyday asking
about Brazil farmland. There are many websites that feature parcels
of land for sale. Some feature large tracts of land
at very cheap prices. These tracts of land (if they even exist)
often are located in very remote areas of Brazil. Even if one could
get clear title, take possession, and form a Brazilian company to
hold the land, how does one plan to administrate the land once you
have it?
Too many investor types assume the American
business model will work in Brazil just like it does on the Great
Plains. In developed areas of Brazil that have been farmed for 20-30
years one could buy a piece of land and rent it to a neighbor with
few problems. However, land in these areas is circa
3,000 dollars an acre. The land that is for sale from $100 dollars to $500 dollars an acre can have an incredible amount of
problems associated with it. When a person contacts the realtors,
please ask the following questions:
1.
Has a vintenaria been completed?
2.
Has the land been Geo-referenced?
3.
Can a title insurance policy be issued? (with American
company)
4.
Is the land in compliance with
Ibama?
5.
Does the land have any
Incra projects, if so in
compliance?
6.
Are irrigation permits available? Are existing wells
legal?
7.
Is there a defined physical border to the land? i.e.
fence, road, river?
8.
Has the previous owner been in possession of the land for
the last 5 years?
9.
Is a satellite map of the property available?
10.
Since I (the buyer) do not speak Portuguese, what are my
options for local management?
The above are 10 good questions. I could think
of 50 more to ask.
There are so many stories of land that has
been sold that does not exist. Yes, the land exists in physical form,
but when you research the legal description, the previous owner was
in possession of a fake title. Geo-referencing is being done on all
land in Brazil but at a very slow pace. This will give you exact GPS
coordinates of the land. The problem is that if the new GPS
coordinates do not match the old legal description, one must start
from scratch and re-register the whole farm. This takes time and
money. It’s up to the previous owner to do due diligence on this.
Ibama is the equivalent to the EPA and
National Forestry Service in USA. In Minnesota we also have the DNR
which monitors the states natural resources. Those of us that farm
in the USA are very familiar with FSA office. In Minnesota the SCS
part of the office can be very powerful with regards to sod busting
and swamp buster activities. I know what it is like to have
government payments withheld because of a swamp buster violation.
The point I am trying to make is that all the aforementioned
agencies are equal to an IBAMA at the federal level and all its
bureaucracy.
In the USA, we can be in violation of a federal program payment and
can still sell the land. The new owner will assume the problem.
In Brazil, if there is an environmental issue, one cannot even sell
the land. Imagine going to the FSA office and getting them to sign
off on an abstract or title opinion in USA. This is why I always
tell my clients, you must leave your American business model at home.
Come to Brazil with open mind and learn the system first. If you are
unable to change your mindset, there is no reason to come to Brazil
for investment reasons. I am not promoting the Brazil business
model. They are slowing evolving towards global standards. The key
will be complete transparency in the banking system. There are still
many old debts on properties that go back to the 1980’s. Two and
Three currencies also are common. This debt must be discharged to
allow clear title transfers.
Why do I bring all of this up? It sounds like
I am anti-Brazil? I am very pro-Brazil and embrace all the
challenges and opportunities it presents.
To the first timer to Brazil, no one mentions
the above problems. Upon multiple trips to Brazil and commitment to
a project is when the complex details start to reveal themselves.
The above problems are commonplace in the interior of Brazil where
the land does not have a long history, where land is cheap, and
environmental issues abound.
This is why I preach to newcomers to Brazil.
Take some time, see the old Brazil, see middle Brazil and then see
how fast the new frontier areas of central Mato Grosso are
vertically integrating. Until one grasps what Brazil can be, one
cannot understand how cheap land in the interior will have a future.
The opportunities are there, but one must comprehend the “monolith”
your about to tackle.
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