Farm syndication is a new trend in South America
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Working from the old adage “together we achieve more” farm syndication in South America is to date still very much a small part of the rural economy.
Note that farm syndicates (equity farming, farm equity partnerships and multi-investor farming entities ) are not like listed Agriculture Funds that invest across multiple properties in a pooled fund. Syndicates have a different structure and investment profile altogether.
The growth in farm syndication has come from the likes of:
- professionally managed farming syndicates marketed to the public including existing farmers and new investors.
- smaller groups of individuals sharing their resources to provide rationalization of assets, skills and economies of scale.
- family farms that wish to leverage their equity.
Syndication has been common in most western countries for some time but, over the last few years there has been a noticeable growth in particularly, the dairy and forestry industry and to a lesser degree agriculture, sheep and beef industries. Now experienced farm administrators are introducing it into South America with opportunities mostly related to agricultural pursuits.
Smaller managed farm syndicates are now part of the investment landscape and provide a useful facility to existing farmers seeking to diversify and contribute their skills and experience. New non-farming investors are also attracted by the opportunities presented.
Whilst larger professionally managed syndicates are generally well managed, documented and presented, the more usual “closely held or family” syndicates seem to be more hit and miss and often subject to failure. This is understandable given the range of issues to be addressed in setting up a farming syndicate in what is usually a constrained period including:
- Who and on what basis is someone promoting the syndication?
- What preconditions need to be fulfilled?
- Are all parties involved solvent, untainted and compatible?
- What due diligence is necessary?
- Who will run the operation and what authorities are they to be given?
- Are there any legal or tax investment issues to be addressed?
- Which advisors are to provide the necessary independent advice to the parties involved?
- What legal entity is best suited to the operation?
- What documentation and agreements need to be in place before anything can be made “unconditional”?
- What is the intended term of the investment and what exit strategies are to be available?
This list is far from comprehensive but is a small sample of what should be considered.
All of the major banks have Equity Farm Managers who have seen what can go wrong with ill thought out farm syndicates. More often than not it is because the process and documentation have not been satisfactorily completed (and in doing so, ensuring the respective issues are addressed), which heightens the chance that the syndicate does not last the distance.
It is noteworthy that the smaller the number of investors, often the more issues there are – understandably when some parties can be wearing up to 3 hats – shareholder, director and manager/employee. This also brings into consideration relevant issues such as death, disability and insurance.
One often hears the saying “the devil is in the detail” – farm syndication is no exception. There is no substitute for good preparation, a clear process, full understanding and commitment.
If you are interested in being involved in a syndicate either as an investor and/or you feel you have a property suitable for syndication in Paraguay or Uruguay, contact us.
Disclosure of interest: GTSA is involved in assessing and promoting selected farm syndicates in South America.
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.
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Post available in: English Español