Count To 10 Before You Buy

The Brazilian Farmland Report (BFR) visited with farmland Brazil real estate agent Demetre Calimeris to gain insight into the process of purchasing farmland in Brazil. He has data on more than 400 properties for sale in the Northeast, North and Center-West regions.

BFR: What is the first advice you would give to a potential American buyer?

CALIMERIS: I prefer to say any buyer. And the advice is simple: Be patient and very, very careful. It doesn't matter if the investigation on the property title and overall legal status takes two or four months, the important thing is to be 120% sure that it's clear and confirmed by all competent authorities.

Aside from Notary Public offices and other bureaucracies, I also consult with the Banco do Brasil branch for the county. If the property is mortgaged or placed as collateral in a separate deal, you'll learn about it there.

BFR: Shouldn't the county's Notary Public office suffice? Aren't all deeds, titles and related documents registered there?

CALIMERIS: In an ideal world, yes, but don't forget we are talking about the boondocks — places that are a lot like the Old West towns. Sometimes there can be one powerful local authority who controls everything, and corruption is sometimes a way of life.

For a small fee, official books can easily be altered, or a fake document can be logged in the official registry. This is why a Notary Public is only a first step. Banco do Brasil should always be a second step. Then, I would also check with state and federal tax authorities.

BFR: Some legal assistance would be required, right?

CALIMERIS: Yes, and I would pick an outsider, not a local attorney. Some people hire big-name law firms and they are more expensive. However, they do offer more comprehensive services, including knowledge of the legislation on land acquisition by foreigners and other steps to follow for a safe acquisition process.

Depending on where you're looking for land and on the local real estate agent, you'll probably also need an interpreter. Again, pick an outsider. It's better to pay for travel and lodging for someone who doesn't have any family or business links with the locals. Also, since you may need an agronomist or farm manager anyway, that person may become your reliable local agent from the start.

BFR: Would you tell an American to buy land in Brazil? Why?

CALIMERIS: I definitely would recommend it. The opportunities are there, even more so now after the government enacted mandatory legislation on biodiesel. Castor beans, palm oil trees and, of course, soybeans will all now have additional domestic markets.

And don't forget eucalyptus, which grows at least twice as fast in Brazil as in northern hemisphere nations. Every seven years you can harvest the timber and re-plant, all with no special care or technology. It's a beautiful business, and several foreign and national cellulose companies are buying land like crazy all over Brazil. I guess the Kyoto Protocol also serves as an incentive.

BFR: How do you meet a buyer's needs?

CALIMERIS: By wearing the buyer's hat. I call it ‘putting the options on the shelf,’ by which I mean presenting three or four purchase options in a given region or county. I provide copies of documentation that the seller of Option A has made available, and we begin the investigation. If there is any doubt or hint of impropriety, I tell him: ‘Let's go to Option B.’ It's that simple.

BFR: And you do that often?

CALIMERIS: You bet. I do prospecting work for large corporations, including some European groups. Not long ago, a company asked me to find an area where they could safely purchase at least 40,000 acres of farmland. They were setting up a mill and wanted to vertically integrate by planting their own feedstock. I traveled in the state of Goias for more than two weeks and came back with offers for a total of almost 150,000 acres covering three townships.

BFR: And how much did they buy?

CALIMERIS: The question is, how much should they buy after investigating all properties in depth. It was in my best self-interest to encourage them to buy as large an acreage as possible, but I also like to sleep in peace, knowing my customers will come looking for me again in the future. So I told them to buy only the properties that looked safe. As it turned out, they purchased less than 35,000 acres.

BFR: Any closing words?

CALIMERIS: Yes. Count to 10 before committing to buy, and then count to 10 a few more times. Take your time to weigh all the data to be sure the property is clean. Believe me when I say that you don't want to get into a legal battle in Brazil.

BIOTECH COSTS

Brazil's National Agricultural Confederation (CNA) has estimated the annual costs for segregation and tracing of biotech soybeans at $1 billion U.S. dollars. This cost was calculated by incorporating the cost of following all Cartagena Protocol directives: sampling, laboratories, inspections and segregated silos. A CNA spokesperson indicated that, “Such cost will inevitably fall on producers' shoulders, eating up more of their income.”

FOLLOWING THE BRAZILIAN PATH

The European Union (EU) recently launched a new plan for development of biofuels, designed to stimulate a large increase in renewable fuels production and consumption in the region. The original EU legislation stated that by 2005, 2% of fuels consumed in Europe should come from vegetable sources.

Falling short of their target at only 1.4%, the European Commission decided to increase its efforts, especially in view of recent increases in the price of crude oil. EU officials seem eager to compete with Brazil, already the world leader in renewable fuels. After Brazil issued legislation defining ambitious targets for biodiesel production and use, the EU defined a new target of 5.75% of renewable fuels to be consumed in Europe by 2010.

SMALL CHANGE — BIG EFFECT

Brazilian authorities fear apotential change in the wording required for shipping biotech products may create even more costs for producers and exporters. Currently, exporters must state that a product “may contain MLOs (modified living organisms).” If this expression is altered to read “contains MLOs,” exporters would be forced to supply precise information on the contents of all MLOs. As one farmer points out, “If you believe the trading companies will absorb those costs, you must also believe in Santa Claus.”

FALLING GROWTH

Growth in Brazil's Gross Domestic Product (GDP) slowed to 2.3% in 2005 — more than a 50% decrease from the 2004 rate of 4.9%.

SLOWING INFLOW

Foreign Direct Investment (FDI) into Brazil fell by 15% in 2005 when compared to the previous years inflow of capital.

DESIGNER SEEDS

Brazilian producers refer to seeds supplied by major American and European companies, or by Embrapa, the government's ag research agency, as designer seeds. The seeds are designed specifically for each region, or in some cases, for each micro-region. And each offer very specific traits. However, these seeds are expensive — in many cases 2-2.5 times costlier than the brown-bagged varieties or biotech seeds smuggled in from Argentina. The combination of poor economics and lack of credit has forced a large percentage of producers to plant cheaper, non-designer seeds, many offering lower germination and overall productivity. This is yet another factor contributing to the lower-than-expected yields.

BUNCHES OF BANKS

In the year 2004, there were 15 banks for every 100,000 Brazilian citizens. Compare that to the U.S. that had 31, and Russia with just two.

SHORTAGE OF ROADS

Brazil provides its cars and trucks with just 26 kilometers of roads for each 1,000 sq. mi. of territory. On the other end of the spectrum, U.S. cars can drive on 447 kilometers of roads for every 1,000 sq. kilometers of territory. Even Chinese drivers have more roads to choose from, with 38 per 1,000.

SOARING REAL

Brazil's official currency, the Real, continues its assault against the U.S. dollar. In early March, the Real traded for 2.09 to the U.S. dollar.

AND SINKING SOY

Primarily driven by the slumping Real-to-dollar exchange rate, soybean prices continue to slide lower in Brazil. On March 11, local prices for soybeans in the state of Tocantins fell below 20 Reais (Reals)/sac — or about 4.34/bu.

News In A Pod

HIGHER COSTS

New studies confirm the increase in variable production costs in Brazil. According to the study, in the major soybean county of Rio Verde, state of Goias, producers spent 37.5% more for inputs on the 2005-06 crop, when compared to the previous year's crop. In Mato Grosso, total input costs are reported to have increased by 15%. Biotech seeds are used extensively in Goias, whereas Mato Grosso produces mostly conventional beans.

LOWER PROFITS

With the low soybean prices, higher input and freight costs and with no improvements in the foreseeable future, producers are facing the second year in a row of heavy financial losses. Farmers all point to the weakened U.S. dollar as their main concern, creating lower local soybean prices. Higher input costs are a close second on their list of concerns. And to compound problems, heavy Asian rust attacks in the Southeast and Center-West have forced many producers to make three or even four fungicide applications.

THEY'RE NO. 1

According to USDA, Brazil may surpass the U.S. in bulk soybean exports for the first time in history during the 2005-06 harvest. USDA projects Brazilian exports of 26.1 million metric tons (mmt), vs. 24.8 mmt by the U.S. The U.S. offers better conditions for the export of soy meal and oil, while Brazilian firms are more inclined to export the grain in bulk, since additional processing creates additional taxes. Also, it appears the U.S. may continue to grow its domestic market as biodiesel production increases the demand for soy oil.

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