Farmland Development in Paraguay Offers Exceptional Profitability
Investing in farmland can be one of the smartest ways to achieve superior returns over the long term, while at the same time benefiting from diversification and allocating your capital to real assets supported by healthy fundamental trends. In particular, farmland development in Paraguay looks like an exceptional opportunity for investors right now.
The Case for Investing in Farmland
The following chart from Business Insider shows how U.S. farmland has been an extraordinary investment in terms of return versus risk over the last decade. When compared to other investment alternatives available in the market, farmland has materially outperformed other investment vehicles over the years.
Data Sources: National Council of Real Estate Investment Fiduciaries (NCREIF), Morningstar, MSCI, NYU chart created by LandFund Partners Note: Chart shows excess returns based on 3 month US T-Bill
The fundamentals behind this superior performance are quite powerful and simple to understand in terms of supply and demand.
The United Nations projects that global population will increase to 9.55 billion by 2050. As a result, the UN estimates that world food production needs to increase by 60% in order to meet the increasing demand.
At the same time, global arable land is declining due to rising urbanization around the globe. On a per capita basis, the FAO projects that the amount of arable land available will decline steadily over the next few decades, from 0.218 hectares per person today to 0.181 hectares per person in 2050.
You don’t need a PhD in Economics, to tell how this demand and supply dynamics bode well for investors in farmland over the long term. In fact, 2000 years ago, The Talmud was recommending land as a key component of an asset allocation strategy: “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve”.
Much more recently, Mark Twain explained the rationale for farmland investing with his usual brilliance when he allegedly said: “Buy land, they’re not making it anymore”.
Why in Paraguay?
Paraguay is going through a true economic boom over the last decade, driven mostly by market-friendly economic policies and a strong focus on the agribusiness sector. Beef and soy exports represent nearly 40% of the country’s total exports, and local authorities are well aware of the need to foster this segment as a key strategic growth driver.
Paraguay has one of the lowest income tax rates in Latin America at 10%, and there are no restrictions whatsoever to exports. Financial capital and equipment can move freely through the borders, and the legal environment is remarkably favourable for international companies investing in Paraguay.
Importantly, these reforms have produced enormous benefits for the general population in Paraguay, and there is strong political support for the government’s strategic direction. This provides confidence on the fact that political authorities will continue on the right road over the years ahead.
According to The World Bank
“Over the past decade, the country has made significant progress on the macroeconomic front, with fiscal and monetary improvements and the implementation of major social reforms. These reforms include free access to primary health care and basic education and the expansion of conditional cash transfer programs to benefit vulnerable populations.
In 2015, economic growth is expected to reach 4.5%. International reserves continue at historically high levels, totalling more than US$ 6.6 billion in March 2015. The exchange rate has remained stable in recent years, with a slight tendency toward depreciation in 2015 as compared with the previous year.”
Paraguay Is a “Rising Star” In Beef Exports
A recent report from the U.S. Export Meat Federation refers to Paraguay a Rising Star in Beef Exports. Explaining how Paraguay is surpassing Argentina and other countries in the region on the back of sound economic policies, the report reads:
“Paraguay recently surpassed Argentina for eighth place among the world’s largest beef exports – a development that would have been unthinkable back when Argentina was considered an export powerhouse. Paraguay is expected to overtake Uruguay for seventh place in the near future, perhaps as early as 2015…Unlike Argentina, the Paraguayan government supports a very free market approach to agriculture which is conducive to exporting beef. Beef exports are viewed as a valuable economic engine for the country, rather than a “competitor” that drives up costs for domestic consumers.
In summary, our team came away quite impressed with the progress the Paraguayan beef industry has made in recent years and its ability to compete on the world stage. While still rather small compared to the world’s largest exporters, the industry appears well-positioned for continued growth.”
Why this particular project?
Right now, investors can purchase unproductive land in the Paraguayan Chaco region for prices around $250 – $300 / ha. After developing the land into grade-A pastures and operating the upgraded land for 3 or 4 cattle cycles to prove the increased productivity level, the land can easily be sold for prices in the neighbourhood of $1,500 – $2,000 / ha.
The purchase price is so attractive that even fully accounting for all development costs and making conservative assumptions about the sale price, we are expecting returns in the neighbourhood of 15%-16% over a five year period. This means investors can more than double their money in five years, a return rate which is quite exceptional for projects with moderate risk levels.
The technology is fully sustainable from an ecological perspective, and completely in accordance to all local rules and regulations. We are securing permits from the relevant authorities and relying on legal support from Peroni – Sosa – Burt & Narvaja, one of the most prestigious and renowned law firms in Paraguay. There is no debt involved in the financing structure, this substantially reduces the risks and provides additional flexibility to maximize returns for investors.
When analyzing the project in terms of the Rogers Innovation Curve, we are clearly in the early adoption phase. Feasibility is well established, adjacent lands have already been developed, and there is growing international interest from investors on farmland development in Paraguay. However, it’s still soon enough that entry prices are attractively low, allowing for compelling returns.
Who are the Developers
The farm developer is based in South America and focused on rural property development in this region. The company and its partners have been actively involved in agriculture and agribusiness for over a decade, farming and consulting over 100,000 hectares of land. We have extensive agricultural knowledge, an in-depth understanding of the vertically integrated farming value chain, and global agribusiness relationships spanning multiple decades, which are key assets to find unique farmland and manage institutional-quality funds for investors.
Furthermore, it has an extensive track record of maximizing yields above benchmark levels through innovative and progressive farming techniques and developing long-term relationships with the best farmers and industry professionals.
Some key advantages for investors
- Farmland has proven to be a superior investment in terms of risk and reward over the years. The long-term fundamentals look remarkably favourable in the years ahead.
- A project with exceptional return potential, supported by hard assets and operated by a management team with a rock-solid trajectory in the industry on a global scale.
- Investing in one of the most promising emerging markets around the world for agribusiness development. Not only in terms of natural resources and land productivity, but also when it comes to the economic, legal, and institutional environment.
- Minimum capital requirements are conveniently low at $50.000. This makes the project a unique vehicle providing an opportunity to invest in farmland development with small capital amounts.
- Full transparency: investors can visit the land at any time, and we provide online real-time access to satellite images of the development.
Sound interesting? You can get more information here
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.