Chilterra: A Dairy Farm in Chile

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Chilterra dairy was a great New Zealand idea but has showed some  structural flaws. It is an equity partnership with some New Zealand minority owners along with a local Chilean owner called Ricardo Rios who has spent the first 25 years of his working life a computer programmer. Ricardo Rios is the majority shareholder and thus has effective control. The company has grown over time to have now over one hundred staff.

It owns and operates six dairy farms on approx 1400 hectares and a further 2800 hectares of dairy support land. Six dairy farms are fully developed and currently support 3300 plus cows. Although small by Manukau standards which is another New Zealand dairy farm close by ( 30,000 cows and growing ) it has a good reputation for being well run.

The farms are within 100Km radius of Osorno in Region X of the Southern geographical zone. This area is known for its dairy farming and similarities to New Zealand soils and climate. It also boasts eye-catching scenery of wonderful lakes and towering mountains.

Michael McBeath a New Zealander was the original  president of Chilterra from  1996 is enthusiastic with the region in comparison to New Zealand. He would say:

Several factors lead New Zealand producers to leave their small island nation for greener pastures on this side of the Pacific. Most obviously, the price of land is important, with good agricultural land in southern Chile costing between $8.000 and $12,000 per hectare, about a quarter of the price in New Zealand.

Other points also tilt the balance towards Chile. Labour rates here are less than half those in New Zealand, and many Kiwis hope to introduce their dairy techniques that can raise milk production from the current Chilean average of 5,600 liters per hectare to the 9,900 liter per hectare average typical of back home.

Other New Zealanders currently farm thousands of hectares in Region X close by.  Another contributing factor: the New Zealand co-operative called Fonterra which  controls 56.85 percent of Soprole, giving kiwi farmers an instant connection with Chile’s largest dairy company. The other large dairy milk company is Nestle which is known to most people.

“I am sure that with time we will see more and more Kiwis here. The majority will be in joint ventures with local investors. Those who come individually will be young couples because, for them, it will be easier to adjust to a new culture and a different language,” said McBeath.

We would disagree with this comment as we see more and more foreign investors buying stand-alone units and implementing their own style of dairy farming. For example the American investors see the New Zealand model as being not being animal welfare or environmentally friendly and prefer to use larger animal sizes like Holsteins and feed them supplementary foods like Maize etc. Using these methods they are achieving very high kgs of milk per cow. ie 3 to 4 times Chile’s average.

The Central Valley dairy area, where many of these properties are, has seasons and rainfall similar to New Zealand Waikato famous farming region (1331.8  mm ). Soils are also similar, volcanic over river alluvial. Dairy pastures are New Zealand-developed, with contemporary varieties well suited to the Central Valley. Everyone that comes to this region says the same thing.  They could be standing in a New Zealand paddock. Better still all the major Artifical Insemination companies are all represented.

Operating costs are similar to New Zealand, with staffing cheaper but fertiliser more expensive. While the same money buys more land, interest rates can be higher in Chile.

So what could be wrong?  The advantage of equity is that you can stay away from banks. The disadvantage is that if invest as a minority shareholder in a fund that has no shareholder agreement you can be locked in for life. This is the situation with Chilterra. It has no shareholder agreement. Many investors want out but there are few outside buyers for obvious reasons.

Last I heard there was talk of litigation. Our advice is buy your own farm and develop it.


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