Investing in Uruguay: Farmland

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Ninety-five percent of Uruguay is rural and Uruguay is roughly the same size as England and Wales combined. Juan Federico Fischer, the managing partner at Andersen, advises multinationals and individuals about investing in Uruguay and has created frameworks for large-scale investments in agriculture, timber, and real estate investment in Uruguay. He’s regularly quoted in the international press on Uruguay’s investment climate.

In this interview, Karen A Higgs, founder of Guru’Guay, and Federico discuss why investors choose Uruguay, and specifically the attraction of farmland. We talk about yields and how to get started investing. Karen asks about the benefits to Uruguayan society of so much foreign investment and how the land is protected. Federico answers Guru’Guay readers’ questions about carbon-neutral beef, subsidies for organic farming and whether setting up a boutique winery is a good investment.

Federico, before we get into farmland, why do your clients choose to invest in Uruguay?

I think Uruguay has become well known over the decades. Often called the Switzerland of South America, there’s stability and predictability—you don’t see swings in the economy. It’s that stability and predictability that investors look for. It’s a place where the legal system works, the courts work and enforce contracts. Private property is strongly protected—there’s no history of expropriations. It’s the country with the lowest level of corruption in Latin America, on par with most OECD countries and European countries.

It’s a place where investors are protected, and foreign and local investors are treated equally. So it’s a country that’s very friendly and very open to investors, which it has shown consistently through its regulations and the way investors are treated. It’s a country one can rely on.

This article is based on the interview and has been edited for brevity and clarity

So why invest in farmland in Uruguay?

The commodity boom of the early 2000s changed Uruguay. Today Uruguay is the fifth biggest exporter of beef, the fourth exporter of rice, and the sixth exporter of soybeans in the world. When a third pulp mill opens next year, Uruguay will become the second exporter of short fibre for pulp for paper in the world after Brazil. So it’s a powerhouse in producing things from the land. When I say things from the land, I would say food plus wood.

That has made it a big attraction for foreign investors. Over the last 15 years, there’s been a huge inflow of investment in this sector from all over the world, giving it a competitive advantage. We’re very involved with investors of all sizes and profiles getting involved—from institutional companies to individuals—looking to diversify.

What kind of yields are investors seeing?

When we’re talking farmland there are several different options. The most standard ones are agriculture, mostly row crops:, soybeans, wheat and corn. Next is cattle grazing as Uruguay is a big cattle and beef producer, and the third is timberland which supplies pulp from eucalyptus trees for the production of paper. So I’ll focus on those three.

To keep it simple, generally, from row crop agriculture, you’re looking at yields of about 4 to 7% annually on the amount invested in the land.

In cattle, it’s more stable—there are fewer weather-related risks—so you’re looking at 2 to 4%. Some very efficient and scalable productions may bring in a little more.

Timberland forestry—mostly eucalyptus—yields are highest. The spread is from 7 to 11% on an annual basis. Unlike cattle or row crops where you’re receiving income every year, in forestry, you’re planting and cutting trees generally every nine years. So the difference to keep in mind is that you receive a lump sum every nine years, although larger investments may scale and payout annually.

What percentage of land in Uruguay is rural?

About 95%. The best soil is in southwest Uruguay and is dedicated to row crops. In the rest of the country, the land is only good enough to support mostly grazing or forestry. One thing that’s very neat is that forestry and cattle raising work together very well, with cattle grazing around and in between the trees.

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by The Guru of Guru’Guay

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