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Construction was underway on a railway that would run between the cities of [[São Paulo (city)|São Paulo]] to [[Santa Maria, Rio Grande do Sul|Santa Maria]], in the southern Brazilian state [[Rio Grande do Sul]], much of which ran through the contested territory. The construction of this railroad was commissioned by President Afonso Pena in 1908, and the task would be contracted to a North American based company known as the ''[[Brazil Railway Company]]'', under the ownership of [[Percival Farquhar]].<ref name=":2" />
In addition to the right to finish the project, the company also obtained from the government the right to explore a strip of land 15 km (9.32 mi) wide on each side of the railroad. The Company thus legally seized ownership of the land that it bordered and offered work to local families during the construction of the railroad. A number of communities in the region, living off subsistence agriculture, existed in the path of this newly privatized strip of land leading to the expulsion of many farmers of the region from the land they occupied.<ref name=":3">{{Cite journal |last=Diacon |first=Todd A. |date=Jul 1, 1991 |title=The Search for Meaning in an Historical Context: Popular Religion, Millenarianism, and the Contestado Rebellion |url=https://www.jstor.org/stable/3513282 |journal=Luso-Brazilian Review |volume=28 |issue=1 |pages=50–51 |jstor=3513282 |via=JSTOR}}</ref>
At the same time, the concession guaranteed that another associated company of the trust, the Southern Brazil Lumber & Colonization, would have the rights to extract lumber and later resell the land.<ref name=":2" />
It was estimated that 8000 men had worked for the railroad at the time;<ref name=":3" /> with the workers coming largely from the urban populations of cities Rio de Janeiro and Pernambuco.<ref name=":4">{{Cite journal |last=Siegel |first=Bernard J. |date=Jul 1, 1977 |title=The Contestado Rebellion, 1912-16: A Case Study in Brazilian Messianism and Regional Dynamics |url=https://www.jstor.org/stable/3629739 |journal=Journal of Anthropological Research |volume=33 |issue=2 |pages=205 |doi=10.1086/jar.33.2.3629739 |jstor=3629739 |via=JSTOR}}</ref>
However, by the time the construction work was finished a large number of people were left without work or a place to go (as much land around the railroad was legally owned by the Trust) adding to the local unrest.<ref name=":3" />
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