💰 What is the outlook for farmland investments in 2016 and beyond ?
Outlook for Farmland Investments
A interview of Fernando Garcia – Koch (Latam Agro ) regarding farm syndication and the outlook for farmland investments.
Who is Latam Farms ?
Latam Farms is a wholly owned subsidiary of Latam Agro Holding, an agricultural company specialised in the design and execution of agricultural investment projects. LatAm Agro’s global agribusiness relationships are key assets to find unique farmland and manage institutional-quality funds for investors. Latam Farms provides an investment vehicle for those investors who want to own a farm in South America through a farm syndication model in which the investor can choose the individual farm or farms to invest in. South American Farmland investments in 2016 will we believe offer superiour returns to all other resource based options.
Global demand for agricultural commodities, food and biofuel is strong and we expect it to increase globally. However, supply is limited by field resources. Our business is based on lands, which is considered among the most solid investment. When compared with returns of private farm land versus agricultural commodities, farm land assets tend to show less volatility than that of the underlying agricultural commodities produced on the farms. North America remains the leading target market for investors. Now South America is gaining importance.
After many years of consistent value appreciation in most markets, the current outlook for lower farm commodity prices and expected decline of farm income, slow growth in farmland prices. While we expect this to continue in the short term in some countries in the region like Uruguay, the farmland market of each country has its own dynamics and we find that in Paraguay there are high quality properties that come up for sale.
Why invest in South America and Paraguay?
There are few places in the world with land suitable to grow crops efficiently. Paraguay in South America is among them. Farm value in Paraguay still represents a small fraction of the value of farms in other developed countries. Paraguay is a small country located in the heart of South America. By many latin american experts, Paraguay is termed as one of the top 3 countries with the best investment climate in Latin America.
The Timane river separates two natural regions very different one from each other. The oriental region contains 98% of the population and the occidental region all the Chaco. Both regions comprise important natural resources and great potential for strategic investment project.
Paraguay offers multiple resources to host foreign investment that are looking for the destinations in the most favorable conditions. Amongst those conditions we can mention a stable economy and a controlled level of inflation and macro economic stability which provides a secure environment for investment. With no restrictions to foreign ownership of local companies and assets and remittance of profits and capital flow. It has the lowest taxation in South America; for example corporate tax and VAT at 10%. Paraguay has the highest growth rate in the region. It’s the only tropical country that exports wheat. It’s the world’s 8th biggest exporter and the world’s 4th soy bean producer.
Who are the Managers ?
LatAm Agro was established in 2009 by Juan Manuel Sanchez Cordova and myself, Fernando Garcia-Koch. Our aim was clear. To become a company specialising in structuring, finding and operating successful agribusiness projects for our investors. Juan Manuel is also the director and shareholder of Banco Finansur. He has spent his life in finance and is highly experienced in institutional areas. I have participated in development and managing of business related finance and the commerce of agro supplies, grain storage and farming. I previously worked as CFO in Cofina Agro Cereales and in private banking in the agricultural area of Santander Bank. We started our business by renting farms for ourselves in Argentina, then we invited some investors to join us and when we felt we had enough, we started operations in Uruguay and Paraguay where we are working since 2012.
What is your farmland business model ?
In 2009 we also decided to diversify by incorporating a different asset class for our business, farmland investment. In this context, our aim is to invest capital to improve productivity and efficiency along the value chain with an increasing focus on sustainability. Again, we started in Argentina. We bought and developed a 600 acre farm with irrigation to grow alfalfa.
We look for underpriced farms from both a local and international perspective. These farms must have a high potential for appreciation. We structure each of our farmland investments in different vehicles specially assigned for those projects. This particular investment in Paraguay has been structured as a limited partnership in Canada which hosts the farms and the intermediate companies.
About this particular farmland project ?
We have identified 4 farms of 2,000 hectares (5000 acres) each, so as to have a total area of 8,000 hectares (20,000 acres). These farms are in the Chaco Paraguayo region. They are completely undeveloped and we have the option to buy them at a very low price, around $300 per hectare ($120 per acre ). Our goal is to transform and operate the current undeveloped land into a cattle ranch by clearing the current vegetation, fencing, building water supplies and sowing tropical pastures. We will operate the upgrade land for 3 or 4 cattle cycles with the most desirable genetic stock for the region to demonstrate the new potential of productivity level. After that, we expect to sell the land at market prices consistent with the new levels of productivity achieved, getting a very interesting return for our investors.
It’s very important to take into account that for sustainability reasons, only 50% of the land can be developed. The other 50% must remain as the forest it is nowadays. The total investment is of $7,000,000 and expected internal rate of return is 50%. We have 2 multiple capital that means we expect to double investment to investors in 4 or 5 years. What we find attractive about this project is that it’s based on a real estate asset, with a very low risk and which has proven its appreciation potential over the last 15 or 20 years.
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.