This Farmland is Your Land, This Farmland is My Land

I first learned that Argentina’s president had announced a revision to the country’s land rights law on Facebook, of all places. The particular friend who shared the article was incensed by what she viewed as the government selling out the livelihood of the rural population. This visceral response is one of the reasons I am so interested in rural land rights and investment. The topic is messy and complicated, pitting national identity and protectionism against open borders and economic opportunity.

 

How Did We Get Here?

 

Before we look at Argentina’s recent announcement, let’s take a moment to review the path that brought us to this point. It is no secret that Argentina is home to some of the world’s most renowned farmland. Even those outside the industry are aware of the vast, fertile Pampas that are the basis for the country’s well earned reputation as a leading grain and livestock producer.

 

In 2011, in an attempt to keep more land under the ownership of Argentines, then President Cristina Kirchner brought a law to her majority controlled congress limiting the foreign ownership of rural lands. The reasons for implementing this law were many and varied, including ensuring national food security as well as giving a leg up to local producers. Let’s also not forget that by 2011, Argentina’s economic condition was rapidly deteriorating under Kirchner’s populist regime.

 

The Ley de Tierras Rurales was passed easily by congress and featured key provisions including:

  1. Foreigners cannot acquire more than 1,000 hectares each, or less, if it is a highly productive area. (The equivalents in productive areas were to be calculated by the provinces.)
  2. No more than 15% of rural lands may be owned by foreigners.
  3. Of this 15%, no more than 30% may be owned by foreigners of a single nationality.
  4. Foreigners may not acquire lands that have important and permanent bodies of water.

 

At the time that the law was implemented, current owners were grandfathered in. That is to say, the government did not seize or repossess land that was already owned by foreigners.

 

Although the law immediately disrupted foreign investment by individuals and companies interested in the agriculture space, it was not viewed negatively by all. Douglas Tompkins, founder of The North Face and prominent South Cone landowner, was among those supportive of the limits, arguing that it would support conservation initiatives and prevent “the over-exploitation of agricultural lands and the damage to the vegetal layers of the soil.” In addition, the Food and Agriculture Organization of the UN applauded the law as an important step forward in a region where land rights have been a frequently talked about but seldom acted upon issue.

 

Yet, all did not go smoothly with the implementation of the law. One of the biggest complications was that at the time the law was passed, there existed no credible data on the amount of land already under foreign ownership – which made it nearly impossible to calculate how close Argentina was to the 15% threshold set forth in the law. At that time estimates ranged from 7% to 10% of land being held by foreigners. In addition, delays were caused by provinces in possession of highly productive land that failed to submit equivalents for the 1,000 hectares limit decreed by the law.

 

Following an extensive census-like effort, in July 2013, the government announced that their land survey revealed that 15.9 million hectares of Argentine land was held by foreign owners. Equivalent to about 5.9% of total rural lands, this amount fell well below the 15% limit. But what was most interesting from the survey results was where foreign ownership is focused. The highest levels of foreign interest are not in the grain belt, as previously assumed. Rather, foreign owners hold a disproportionate amount of land in Argentina’s arid Northwest, known for its mineral deposits, and in the tropical Northeast, where timber is the dominant industry.

Macri Changes the Game

 

On July 1, 2016, the current president of Argentina, Mauricio Macri, announced that he would be amending the national land law. This is action is one in a series that Macri has undertaken to demonstrate to the world that Argentina is serious about returning to participate in global markets. While his announcement doesn’t completely negate the 2011 law, it certainly leaves a strong impression that Macri is interested in rolling out the welcome mat to foreign investors, leaving many to speculate additional changes will occur with the law in the future.

 

According to Argentine newspaper, La Cronista, one of Macri’s key changes has to do with the exclusion of industrial land, which will be exempt from the limits set forth in the law. Land zoned as industrial, including industrial parks, will no longer count as part of a foreigner’s ‘allowed’ 1,000 hectares, nor will it be factored into the total percentage owned by foreigners. In addition, he has placed additional pressure on the delinquent provinces, giving them 30 days to submit land area equivalents for highly productive land.

 

More importantly, however, Macri’s decree redefines who is deemed a foreign owner. Under the Kirchner administration a foreigner qualified as a titular, or essentially an owner, if they held 25% ownership. Under the Macri decree, this percentage has been raised to 51%. This law will have important implications for minority shareholders who will no longer qualify as foreign owners.

 

To assuage fears about foreigners making a land grab, the Macri administration emphasized the statistic that foreign ownership sits below 6% of total land area. A spokesperson of the administration stated that should this percentage begin to approach the 15% specified in the original law, the topic would be revisited.

 

The Intricacies of Land Right Legislation

 

Despite demonstrating commitment to opening Argentina to foreign investment, the fact that the Macri administration felt it necessary to include the addendum about revisiting the law reveals the sensitivity of land right legislation. People on both sides of the issue feel passionately about their position and it is challenging to strike a balance that is satisfactory to all involved.

 

Those who believe that foreign ownership of farmland should be limited often believe that foreign owners will fail to perform as proper land stewards, implementing farming practices that will degrade the quality of soil and other natural resources. Others believe that foreign interest raises land prices to a level that will exclude local producers. Still others worry about the entrance of faceless agricultural corporations, believing that supporting a locally based farming network will have positive externalities for the community and contribute to improved food security for the country.

 

Alternatively, those who believe farmland should be open for foreign investment argue that the entrance of foreign capital generates economic growth opportunities that create jobs and can provide stimulus at all points of the agricultural value chain. These people contend that good land stewardship is essential to the preservation of the asset, and that their professional orientation may make them even more progressive and better prepared to address issues such as environmental sustainability.  

 

Argentina is far from the only country in the region grappling with laws such as these. Brazil famously tried to implement similar legislation beginning with a 1971 law to limit land purchases by foreigners. However, the logistics proved complicated. In 2010 the government again ramped up efforts, restricting foreign owners to 5,000 hectares. Fast forward to May of this year when Brazil’s Investment Secretary claims the law will be repealed altogether. Uruguay, Paraguay, Colombia, Ecuador, and Peru have all also struggled with how to handle the important and contentious issue of land ownership. 

 

If implementation of these laws wasn’t difficult enough, enforcement has proven even more challenging. In many cases foreigner owners have evaded these limits by using local representatives who qualify as domestic owners as intermediaries. In addition, even though foreigners may not own the land, they may rent large tracts which for all intents and purposes leads to the same level of concentration and gives them the same amount of power as outright ownership would.

 

Summary

 

As with most issues, an appropriate balance surely exists between foreign and domestic ownership of farmland and the trick will be determining where this balance lies. Along with their neighbors, Argentina is likely to struggle with the pros and cons of allowing foreigners increased access to their farmland, mines, and timber resources well into the future.

 

Nevertheless, the Macri administration has made it clear that they are willing to take action to undo the steps taken by the prior president in an attempt to lessen Argentina’s economic isolation. As such, the land law decree is probably the first of many announcements that will open up new opportunities for agricultural businesses in Argentina. Investors and business professionals should stay tuned.