Though sometimes overshadowed by Brazil’s political turmoil, the country’s agriculture sector nevertheless remains strong and competitive in the global market. There are large tracts of underdeveloped land that hold much potential for investors willing to put in the necessary capital to convert pastureland to farmland. It is expected that the world population will surpass 9 billion by 2050, meaning food production will have to increase by 70% to meet demand. Brazil is perfectly suited to accommodate this growing demand due to the availability of land.
Brazil has begun to develop its frontier farming region, but there are still large pieces of undeveloped land that could be converted to farmland. Why hasn’t this happened yet? There is a lack of financing capital in the region, and it is expensive to develop this land. While it requires an initial investment to get land ready to farm, the returns on developed land are much higher than on undeveloped land. Completely undeveloped land is worth less than land that is a pasture, and that land is worth less than land in row-crop production. Land values are closely tied to value-added improvements such as soil fertility, infrastructure, and productivity developments. Once the land is ready for row-crop production, it can produce high-yielding crops that generate a return on investment even greater than cattle production.
Current exchange rates between the U.S. dollar and Brazilian real are favorable towards investors. The economic recession in Brazil has weakened the real, meaning the dollar can buy more land than it could in the past. While political speculation hurt the real, commodity export growth has helped strengthen it. As Brazil’s currency continues to gain value over time, land valuations will increase and boost investor's’ returns.
Brazil’s agriculture sector has many strengths, despite the unrest in the political sphere. Agriculture makes up 21% of GDP, 36% of exports and 35% of employment, and is the only sector that has continued to grow despite the current recession. Regional development in Brazil has begun as value-added industries continue to enter the region, which increases demand and consumption of locally produced crops. While improvements in Brazil’s infrastructure have been slow, they are happening and challenges faced by exporters are decreasing as alternative channels are developed. There are millions of hectares of land ready to be developed and a large, young labor force (51% of the population is under the age of 29). In addition, Brazil’s climate is very hospitable to crops, with generous rainfall and plenty of access to water resources.
Many investors may not think to consider investing in agriculture outside the U.S., especially when they don’t have experience with agricultural investments. Of any developing country in the world, Brazil has the most hectares of land that could be turned into farmland. For this reason, it is a particularly attractive market for investors. The land is inexpensive, yet has the potential to be worth much more once it is made suitable for farming. If you are interested in expanding your portfolio and willing to look a bit beyond your backyard, this opportunity may be for you!