South America Calling

Brazil, China Sign $1B Ag Investment Fund Deal

Brazil and China Friday signed a deal creating a $1 billion investment fund for agricultural development in the South American country.

Formalized in Shanghai during an official visit by Brazilian President Michel Temer, the agreement promotes Chinese funding of projects to develop Brazilian agricultural services and especially infrastructure, including storage, logistics and ports.

The news highlights Brazil's new, more-open attitude to foreign investment in agriculture under the new Temer administration.

Back in 2010, concern that China would swoop in to acquire large tracts of farmland to produce grains prompted the leftist government of President Luiz Inacio Lula da Silva to bring in restrictions on foreign ownership of farms.

But Temer, a market-friendly center-right politician, has been actively courting foreign investors over the last months, and is studying an end to the land ownership restrictions. Meanwhile, Chinese officials have clarified their position since 2010, pointing out that China is primarily interested in securing grain supplies and doesn't particularly want to produce grain in Brazil.

Chinese companies have been expanding Brazilian operations in recent years, greatly increasing their stake in Brazilian soy exports. Friday's deal just reinforces that trend.

Despite some major infrastructure investments, logistics remain the South American agricultural giant's Achilles' heel.

Brazil is super-competitive when it comes to production costs, principally due to the abundance of relatively cheap cropland. But the new soybean fields remain far from port and grain transport costs from Mato Grosso, the No. 1 producing state, to port will still be three times greater than from Iowa farms.

Accompanying the president in Shanghai, Agriculture Minister Blairo Maggi said the goal of current administration is to increase Brazil's share of world farm exports from 7% to 10% over the next five years.

The strategy is to negotiate deals to increase sales of value-added products, like pork and beef.

(CZ)

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