BARREIRAS, Brazil (DTN) -- Vision Brazil's sleek minimalist boardroom overlooking 12 lanes of traffic and the faded grandeur of Sao Paulo's racetrack seems a world away from the heat and dust of a Cerrado soy farm.

But it is corporate groups such as this sovereign wealth and pension fund-backed outfit that are growing players in Brazil's soy and grain business.

The reason for the corporate groups' rise to prominence is quite simple: Access to levels of high-quality capital and cheap credit that even the best-structured individual farmer can only dream of.

"The financial backing allows Vision, and others, to invest heavily in land transformation and buy big enough farms to justify using top technology. That makes us more efficient," said Amaury Junior, a partner at Vision Brazil.

Brazil is no stranger to large landowners. In the 1970s, Olacyr de Moraes was hailed as Brazil's soy king for planting 120,000 acres of soybeans in Mato Grosso, to be succeeded by Blairo Maggi in the 1990s. But the mid- to late-2000s marked the coming of corporate farmers, such as Argentine giants El Tejar, Los Grobo, Cresud and Adecoagro, who joined locally-based SLC Agricola and fund-backed groups in farming on a whole new scale.

SLC Agricola planted more than 600,000 acres last year, while El Tejar produced 680,000 metric tons (25 million bushels) of soybeans in Mato Grosso, thus becoming the state's biggest farmer.

Visiting SLC Agricola's Palmares farm in western Bahia, you sense the corporate muscle. The company only took over this 43,000-acre unit three years ago, but everywhere there is evidence of heavy investment, from the construction of housing for the 440 fixed and temporary staff to the imposing fleet of state-of-the-art soybean and cotton harvesters.

"Scale and structure are everything," said Fabiano Genezini, SLC Agricola's manager at the farm.

That extends beyond the farm. SLC has a 50,000 metric ton (1.8 million bushels) grain storage facility 30 miles down the road at a twin property, which means the farm never delivers to elevators, just to end clients.

CHEAP FUNDING PROVIDES ADVANTAGE

This competitive advantage can be obtained because of access to cheap funding. In 2008, SLC Agricola obtained a $40 million loan from the International Finance Corporation for up to 10 years at rates under 3%. In contrast, many medium-sized farmers rely on government rural credit lines, which are limited to $380,000 per farmer, need to be renewed yearly and carry a rate of 6.75%. For extra working capital, homesteaders must resort to commercial loans with rates of 15% or more.

The corporate farms' big opportunity came with the 2006 farm debt crisis, which allowed them to purchase or rent large tracts of land in Brazil's Cerrado.

The influence of Wall Street and fund-backed farmers seems guaranteed to grow in the years ahead, given their lead role in the expansion into MAPITO, the frontier region in the northeastern states of Maranhao, Piaui, Tocantins and Bahia, in which the Agriculture Ministry predicts grain production will triple to 16.7 mmt (613 mb) by 2021.

"We feel that we are very well placed to create value from transforming land (from Cerrado brush)," said Matias Gaivironsky, head of capital markets at Cresud, which invests in Brazil though Brasilagro.

That's principally because they have the capital to better ride out the three unproductive years before new land starts yielding decent returns and to install infrastructure on the farm.

The strategy is different in the more established, more expensive regions, where corporate groups are aggressively renting more land to consolidate existing farms.

Last year's ban on large land purchases by foreigners has slowed the big expansions, although all are confident that the government will alter the rules to allow them to invest going forward.

Meanwhile, it's worth noting that the company and fund share of the market is still tiny compared with leaders in nearly any other line of business -- El Tejar was responsible for less than 1% of Brazilian soybean output last year.

MEDIUM FARMS SQUEEZED OUT

Nonetheless, the consolidation has spawned concerns that medium-sized farms, which produce on anything from 1,000 to 6,000 acres depending on the region, are being squeezed out, especially in Mato Grosso.

For the medium-sized ones, the main problem is a lack of credit. While small family farms have received ample government support during the last decade, they largely have had to make do with official credit that only covers a portion of their operating costs and has to be renewed every year.

"The medium-sized farmer has been the orphan of recent times. We recognize that they need more support as they are competing with corporations now," said Jose Carlos Vaz, deputy agriculture minister.

Nobody has talked about a corporate farming ban, such as exists in eight states in the U.S., but the farming lobby may become more vocal as consolidation moves forward.

In the meantime, expansion remains the name of the game for the corporate farms. Brasilagro recently told investors that it has no intention of slowing expansion -- its planted area has grown at around 30% in recent years -- while SLC plans to increase planted area by 10% in 2011-12 and halfway around the world Vision Brazil's Junior visits institutional investors that want to know more about getting a piece of a tropical farm in states they have probably barely heard of.

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Editor's Note: for a first-hand description of how Brazil's largest farms are redefining agriculture, hear SLC Agricola CEO Arlindo Moura speak at the DTN/The Progressive Farmer Ag Summit in Chicago Dec. 7-9. For details see www.dtnpf.com/go/agsummit.

Alastair Stewart can be reached at Alastair.stewart@telventdtn.com

(ES/AG)

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