Food and agriculture finance: Brazilian agro-investments set to rise

Long-term trends in demand and supply for the world’s food resources are leading to growing interest in Brazilian agriculture as an asset class. A recent report by UK-based Chatham House suggests that demand for food will increase by between 70% and 100% by 2050, and states that the world will likely teeter close to food crises in the coming years. The UN’s Food and Agriculture Organization agrees with the low end of the range in the Chatham House report, estimating that food production must increase by 70% over the next 40 years.

Brazil is at the forefront of the development of new agricultural land to match this expected demand. An area of land that spans the Brazilian states of Maranhão (MA), Tocantins (TO), Piauí (PI) and Bahia (BA) – dubbed Matopiba – produced 12.2 million tonnes of Brazil’s total grains and oilseed crops in 2011/12, equivalent to 8.2% of the country’s total production, according to a report by Rabobank. The region’s output has grown from essentially zero a decade earlier, when the land was considered unfit for large-scale agricultural production. However, the Brazilian Agricultural Research Corporation discovered that the prevailing cerrado biome could be made fertile with large additions to the soil of lime and phosphorus. With further investment in machinery and infrastructure, large farms have been created in this area.

Rabobank estimates that the Matopiba has 2 million hectares of high-quality land available for future production. There is also land outside this designated area with big potential and the area’s weather – warm, sunny and with plenty of rainfall – make it possible that if crop prices continue to increase, the investment in these new tracts of land will make commercial sense.

MetLife, the largest US life insurer, has already started this year to offer agricultural loans in Brazil, seeing the appreciation of land as good, growing and safe collateral. According to Brazil’s agriculture ministry, agricultural loans in the 2011-12 season total R$107 billion ($51.2 billion) and the potential for growth is attracting local and foreign financial institutions to these Brazilian regions.

For the full story visit: Euromoney Magazine

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