LatAm’s Agricultural Sector – Hotspot for Foreign Investors

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Welcome to the second article in our series on key industries in Latin America (“LatAm”) that are attractive and promising for foreign investment. In the first article, we have generally touched on the key industries in LatAm that are particularly appealing for foreign investment. In this article, we are focusing on the agricultural sector in the region and learning why is it considered a hotspot for foreign investors. The present article is a continuation of our previous article Natural Resources Sector in LatAm: Opportunities and Challenges for Foreign Investors, where we focused on the natural resources sector in the region. 

Let´s begin…

Agriculture has always been a major industry in the region. The region boasts a varied range of climates and soils, which allows for the cultivation of a wide variety of crops, such as coffee, sugar, soybeans, corn, bananas, and beef to name just a few. It is hardly surprising that agriculture sector has become one of the main sectors of economic growth and development in the region.

According to the World Bank, the agricultural sector (agriculture, forestry, and fishing) in Latin America and the Caribbean contributed about 6.9% of the region’s GDP (data for 2021) and employed 14% of the total labor force in 2019

LatAm’s agricultural sector is undoubtedly attractive for foreign investment. Let us see why.

First, the region boast some of the largest and most fertile lands in the world. In addition, the region’s favorable climatic conditions provide ideal conditions for growing a diverse range of crops (e.g. corn, soybeans etc.). 

Secondly, the world’s population is constantly growing and so is the demand for food. The region’s agricultural sector possesses the capability to address the increasing demand for agricultural products. In fact, some refer to the region as the “breadbasket of the world”. In addition, the LatAm’s export of agricultural products has been increasing over the years, thus generating opportunities for foreign investors to take advantage of the growing demand for the region’s agricultural products.

Thirdly, several countries in the region (such as Brazil, Mexico, Colombia, Chile and Argentina, to name just a few) have implemented favorable government policies in order to attract foreign investment in the respective sector. LatAm countries have implemented incentives such as tax incentives and subsidies for agricultural investments, simplified administrative procedures, preferential treatment for foreign investors in the agricultural sector, etc.

Last but not least, countries in the region are working diligently to improve infrastructure, allowing investors easier access to the region’s agricultural resources. Governments in the region are rapidly investing in infrastructure projects such as highways, railways and ports in order to make it easier to transport agricultural products to global markets.

In spite of the vast opportunities, investors should also be mindful of the challenges faced by the agricultural sector in LatAm.

As noted in our previous articles, several countries in the region have a history of political and economic instability (e.g. changes in government policies, different regulatory requirements, exchange rate fluctuations, etc.), which can greatly influence investment environment. This being said, foreign investors should be mindful of the potential risks associated with investing in the region.

Secondly, environmental concerns have been a persistent issue in the LatAm agricultural sector, with examples such as Brazil under the previous presidency of Jair Bolsonaro (mainly the problem of deforestation of the Amazon rainforest). The enlargement of agricultural land in the region has been associated with deforestation, water pollution, soil erosion, etc. In recent years, many countries in the region have addressed this environmental concerns. Regardless, investors should be aware of the potential environmental risks linked with these investments and ensure that the investments they make are sustainable and in accordance with all applicable environmental laws and regulations in the region.

Finally yet importantly, the regulatory environment for land ownership in the region can be quite complex. Additionally, investing in land ownership in the region can be a rather difficult and complicated process, since each country in the region has its own particular set of laws and regulations governing land ownership. In addition, the land acquisition process can prove to be time-consuming and bureaucratic, creating further complexity for foreign investors. This being said, performing an in depth research prior to investing in land ownership in the region is crucial.

To conclude: As this article shows, the agricultural sector is undoubtedly a hotpot for foreign investment due to its vast natural resources, steadily increasing global demand for agricultural products, positive government measures for foreign investment in the agricultural sector, and extensive investment in improving infrastructure in the region. Nevertheless, foreign investors should also be aware of the above-mentioned challenges facing the sector before making any investments.

Stay tuned for our next article, where we will further discuss another key industry in LatAm that presents great opportunities for foreign investment.

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