Beyond the excellent investment fundamentals of its agriculture sector, there are also numbers of macroeconomic factors that makes Brazil an attractive investment destination. This should help to foster further foreign investment inflows and bodes well for the future of the brazilian agricultural sector, both in term of asset values and rates of income. The outlook for the brazilian economy remains breaking all exporting records in the agribusiness sector, as it continues constantly to benefit from the emerging market demand. Brazil has low rural population densities and highest production per hectare comparing with any nation.
With China and India population rising demand for commodities and more proteins, these emerging markets are sourcing Brazil as food security and Brazil is recognized as having the highest productive land, one third of global water reserves, great majority of arable land and the biggest biodiversity of the world. All these factors combined, enable brazilian commodities exporting to be ranked in the leadership position until 2030 and become the principal food provider for these emerging markets demand in the coming years.
Comparing with United States, Canada and Europe, brazilian farmlands prices per tonne of soya produced is less than three times. Additionally, unlike many other markets, the brazilian agricultural sector is profitable in the absence of government subsidies. Veritas Agro was established to create attractive opportunities for farmland investors as a flood of forced and distressed sellers hit the market.
Smaller farms achieve lower rates of return then larger farms, data averaging the performance of all farms within a particular sector can be misleading. This is particularly true of the grains industry where larger farms with economies of scale are able to earn higher return on capital.
As such, there has been a trend towards consolidation in Brazil agriculture as farmers buy out their neighbors to create larger individual land holdings, the total number of agricultural enterprises in Brazil has decreased by 11%, smaller farms have been absorbed by their larger brethren.
Due the fact that scale allows arable farms to increase at a faster rate than costs, the investment performance of grain farms increases marketing with cropping intensity and size. In the past 20 years the largest grain farms have consistently earned over twice the cash income of the smallest farms.
Advances in modern commercial farming in recent years, particularly respect to power and size, now allow a single owner operator family to successfully manage a cropping enterprise of thousands of hectares, thus increasing the value of scale.
The actual proportion of transactions involving foreign or investment buyers still remains at very low levels in Brazil, despite some restriction of size allowance, monitored by INCRA (The National Institute for Agrarian Reform), mostly farmland transactions involving non-local farming buyers to be comfortably below 5%, unlike some other mature markets, this is good news for the investors who are still relatively early to the brazilian market.
Real estates are registered in Brazil via notary offices, extrajudicial private entities that are managed by the government. The real estate in Brazil is such that each property can only be registered at one notary office witch stores the entire transaction history and physical identification of each real state.
Furthermore, the acquirement legislation of rural property in Brazil, issued a re-interpretation of the 1971 law and limit sales of farmland to foreigners to 50 modules, something roughly equal to 5.000 hectares or 12.000 acres.
There are multiple avenues for appreciation that are unique to brazilian farmland. Veritas Agro objective is a strategic acquisition in terms of price, long-term appreciation and liquidity. The ability to double crop is what fundamentally separates Brazil´s cropland from other many countries. Tocatins state has a significant amount of valued-added production and also is going toward to the same direction, Veritas Agro can assure that land valorization in Brazil in several states overtook 400% in a decade, even with that appreciation brazilian farms have the lowest global value per hectare.
China signed in 2015 an agreement the with Brazil and Peru governments to construct the most ambitious logistic infra-structure of all Americas, with an estimated cost of 26 billion dollars. The transoceanic railway with connect Atlantic to Pacific ports giving more competitiveness and fastness to Brazil´s commodities exporting. Brazilian farmland will be the most valuable asset and greater return of investment (ROI) in the agribusiness sector. This is the reason Veritas Agro considers Brazil one of the most promising market for international land investors.