Courtesy of The Financial Times, a report of the fear arising over Chinese investment in Brazil’s agricultural sector:
Few subjects are likely to raise hackles more quickly in Brazil than the idea of foreigners owning its natural resources. “The Chinese have bought Africa and now they’re trying to buy Brazil”, stormed Antônio Delfim Netto, a tub-thumping former finance minister during Brazil’s military dictatorship, in a newspaper interview last year.
Reading that kind of thing is no surprise in a country where you don’t have to look hard to find people discussing seriously the threat of a US invasion of the Amazon (another idea fostered by the dictatorship). But now such fears look likely to turn away Chinese investment in Brazil’s fast-moving agricultural sector.
In August 2010 Luiz Inácio Lula da Silva, then president of Brazil, signed off on changes to the law to make it harder for foreigners to buy farm land in Brazil. The changes, however, scared away US and European investors in cellulose and agribusiness that Brazil now says it wants to attract.
So, yet more changes are under discussion, this time based on reciprocity. One result is that Chinese investors would be banned from buying any land in Brazil, as China does not permit private ownership of land.
Delfim Netto’s feelings were expressed in more reasoned tones by Sérgio Amaral, a former trade minister and now president of the China-Brazil Business Council. “The expansion of trade and of investment is very beneficial for the country, with one qualification,” he told the Global Post. “Sometimes you don’t know whether the investments are looking for Brazil as a market or whether they correspond to strategic purposes of the Chinese government.”
Last year Chinese state-owned enterprises announced their interest in buying land in Brazil to grow soybeans and maize. Food security is indeed a real threat in China, where arable land is scarce, famine is still in the memories of older generations and, more recently, inflation has led to drastically increased food prices.
But fears of a land-grab are not what you’ll find on the ground of one of the latest Chinese investments. Agribusiness experts in the soy-rich northeastern state of Bahia – a traditionally impoverished and rural area – say the objective of Chinese companies in buying land is to cut out middleman and get more control over prices of the commodities they are buying in ever-increasing quantities.
In a written statement to a Brazilian newspaper, Chen Deming, China’s trade minister, confirmed that this was his objective. “If this happens, it is favourable for Brazil and for China,” he wrote. Currently, China purchases most of its Brazilian soy from American agribusiness groups like Archer Daniels Midland, Bunge and Cargill, all of which operate in Brazil.
These business motives were ignored in the Brazilian policy debate. Instead, China’s drive to secure sources for the soybeans it needs has been characterised as “neocolonialism”.
But at least at the state level, Brazil is slowly learning to develop a more productive China strategy. In May 2010 the state of Bahia opened an office in Shanghai to attract investments. When approached by Chinese SOEs interested in making land purchases, the government of Bahia countered with proposals of industrial development that would still enable the Chinese access to the soy they so desired. Their approach worked.
With an initial investment of R$300m ($172m), Chongqing Grain Group will construct an industrial soy complex near the town of Barreiras. Following the model that Cargill has established in the region, the Chinese will buy soybeans from Brazilian producers and then manufacture soy oil – adding value in Brazil rather than China. The investment may reach R$4bn if the Chinese fulfil promises to invest in six other factories, along with a railway and port to facilitate exports.
The Chinese did not even need to buy any land for their plant – the state government of Bahia gave it to them. As a fiscal incentive, the mayor of Barreiras negotiated with a local landowner and business to donate 100 hectares of land for construction of the plant.
As a condition, the Chongqing Grain Group must build its plant within three years. Although a launch ceremony for the project was held in June, construction has not yet begun.
That’s because the Chinese are waiting for environmental permits before they can begin building. Approval is not guaranteed, as demonstrated by the case of Vale and Baosteel, forced to cancel construction of a steel mill in 2009. Chongqing Grain Group almost certainly faces delays as the land donated by the mayor contains a nature reserve.
And if environmental laws were not restricting enough, an appearance by the largest social movement in Latin America may scare the Chinese away. Across the road from the intended site of the soy plant, members of the Brazil’s landless rural workers’ movement, the MST, have pitched their tents, intent on squatting until the government expropriates the land and redistributes it to them.
The case of Chongqing Grain Group shows that rather than fearing a Chinese invasion Brazil should concentrate on lowering barriers to Chinese business. In the meantime, should the new measure pass – enforcing a selective welcoming of FDI that specifically excludes China- Chinese companies will likely take their proposed investments elsewhere.
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