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The new farming frontier in South America

The new farming frontier in South America

Commodity prices may be weaker but South American food producers still enjoy formidable comparative advantages. Foreign investors seeking to benefit from the enormous pick up in Chinese demand for agricultural commodities grown in Latin America have however had a fairly complicated time.

A 2010 law limits direct foreign ownership of land in Brazil. Tax and foreign constraints also  limit the profitability of farming in Argentina and listed agribusiness stocks are few and far between, making it hard for investors to buy into the sector in the region’s agriculture powerhouses.

However, there are still some interesting new opportunities are emerging in the smaller southern neighbours of Paraguay and Uruguay.

Uruguay, better known as a beef exporter, now earns more foreign exchange from exports of soya, with the majority of the revenues coming from China where soya is used to feed pigs and other farm animals.

Grown on just 12,000 hectares of land in 2000, soya beans covered 1.5m hectares in 2013. A cluster of dynamic agribusiness has prospered.

Foreign companies dominate Uruguay’s thriving forestry sector, but in agriculture a string of local businesses  – might attract private equity interest.

Next door in Paraguay the new pro-business can-do President, Horacio Cartes, elected to office last year, is taking steps to diversify his country’s strong agricultural industries. For now, however, private equity remains the only investment option in the absence of listed plays.

Paraguayan soya output – the bulk of which is grown by Brazilian immigrant farmers in Paraguay’s eastern provinces – reached 8.5m tonnes in the most recent harvest (2012/13) up from 4m in the previous harvest (2011/2012), confirming Paraguay as the world’s fourth biggest exporter of soya (after the US, Brazil and Argentina). Output in the 2013/14 harvest is expected to reach 9m tonnes according to the Paraguay Farm Coordination Group (CAP).

Cartes is looking to build on these strengths. Within months of taking the job he reduced a 10 per cent tax the country used to charge on soya bean exports to a simpler 5 per cent VAT, immediately increasing Paraguay’s attractions compared to those of Argentina, where farmers pay a hefty 25 per cent of revenues to the government.

Cartes is now eyeing expansion to the west in the vast, sparsely populated but fertile region of the Chaco, over which Paraguay fought a bloody war with Bolivia back in the 1930s. Water is short in the semi-arid region but the government is looking to promote investment in irrigation, having launched its first public private partnership programme in October last year.

Echoing the kind of technical advances pioneered by Brazilian agronomists, Paraguayan and US researchers are exploring new heat resistant varieties of soya beans. Tests run by the national Grain Export Association (Capeco) are underway in the northern province of Alto Paraguay.

Plans are also well underway to invest in road and river transport so that farmers can get their product to market faster. “The Paraguay River is where we breathe commercially, it needs to be more navigable,” Cartes told LatAm Confidential. Eighty-four per cent of soya bean exports are shipped by barge. Moves to deepen the navigable sections of the river that cuts across the middle of the country should increase capacity and reduce delays and costs.

Paraguay’s public works and communications ministry plans to auction a further 14 transport projects in 2014 – the majority road improvements – totalling $500m, increasing to over $1bn in 2015, although a bidding date for the Paraguay River project is yet to be confirmed.

Perhaps significantly, the Uruguayans have already woken up to the opportunity, acquiring nearly 1.5m hectares in the northern Chaco region, according to Jorge Gattini, Paraguay’s agriculture minister. It seems this duo of small LatAm nations is preparing its own logistical advantages to compete alongside their giant Southern Cone neighbours.

GTSA has a number of direct plays for investors in this market which are proving popular with the 100,000 US plus investors.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

www.gatewaytosouthamerica.com

 

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Gateway to South America

About Gateway to South America

Gateway to South America was established in 2006 as a single office in Buenos Aires. The company has since expanded into a vibrant regional network, servicing the Southern Cone communities of Argentina, Brazil, Chile, Paraguay, Peru and Uruguay with professional real estate services. Founded by Geoffrey McRae a New Zealander who maintains an active role in the business it has developed into an International team that has a well-deserved reputation for strong local knowledge, experience and professionalism. I hope you enjoy reading our news site. Please share it on your social media below.

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