Author: Michael DeSa

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Agricultural Investing asset class Avocado Investing Panama South American Agriculture

Agriculture in Panama – The Investment Landscape and Opportunities

Panama is one of the fastest growing economies in Latin America. Foreign investments in Panama amount to nearly 9 percent of the country’s GDP, which is the largest share in the Americas and speaks to the country’s investor friendliness.(1) Foreign direct investment into Panama is up 6 percent since 2013 and accounted for 11.3 percent of the country’s GDP in 2014.

2014 Foreign Direct Investment - Panama

 

With Panama boasting the second largest Free Trade Zone in the world, it’s easy to see why a thriving expat community (3,000 foreigners from 30 different countries) has stimulated the growth of new businesses owned by foreigners and locals alike. Investing in Panama is straightforward as the currency is in USD, there are no restrictions on foreign ownership, nor any exchange controls. The U.S.-Panama Trade Promotion Agreement from October 2012 granted U.S. exporters immediate duty free treatment accounting for more than half of current trade.(2) The country’s tropical climate is favorable to agricultural practices, and can permit up to two growing cycles per year with the proper farming techniques. Couple that with cool, mountain climate retreats, and Panama emerges as an ideal agricultural investment location with the added benefit of being a sought after retirement destination.

Panama’s particularly fertile soil and favorable growing climate afford the country many unique agricultural opportunities. The avocado, particularly the Panamanian Hass variety, is ideally suited for cultivation in Panama. In 2016, the United States purchased nearly 2.2 billion pounds of avocados, a 16 percent increase from the quantity sold in 2014. The U.S. organic avocado market grew by over 30 percent in volume in 2014 while still leaving plenty of room for growth in the market, both in the U.S. and abroad, as presently many smaller producers are unable to meet the growing demand and required consistency of destination markets. Given these conditions, an investment with a Panamanian organic avocado producer could yield an investor a 16-plus percent IRR over a 30-year period through a fully managed, turnkey investment of US$45,000 for 2.5 acres.

Forestry is also another potentially profitable opportunity in Panama, with over 50 percent of the country’s land being forested. As an example, teak has been valued for more than 2,000 years as a durable construction material and is now a worldwide coveted commodity. With the right management and timing, it’s possible to realize a yield of 10 percent IRR over a 20-plus year timeframe when investing in Panamanian teak. There are also reforestation visas available through the Panamanian government where investors can apply for a temporary Panamanian visa or permanent residency, depending on the type and amount of investment in addition to receiving a tax break on their Panamanian taxes. (3)

Potential Yields at Key Stages of Teak Rotation

 

Mango cultivation in Panama also can be explored as a viable investment opportunity. With an average producing lifespan of 60-80 years depending on the variety, the mango is one of the more lucrative and dependable crops in the world. While the mango tree is native to Southeast Asia, the climate is quite similar in Panama and very conducive to mango production.

The United States is the greatest importer of mangos globally, accounting for a nearly 45 percent consumption rate of the world’s mango exports. Meanwhile, imports to European markets more than doubled between 1999 and 2008. Given Panama’s geographical proximity to both foreign markets and their strong business practices and incentives, exposure to the Panamanian mango export market could be a nice fit for a variety of investor classes. For example, an organic mango producer in Panama is projecting a nearly 17 percent IRR over a 30-year period for an initial investment of US$38,500.

The business and tax incentives in Panama are attractive to foreign investors. Panamanian income taxes (only 7 percent after the first US$9,000 and capped out at 27 percent) apply only to Panamanian-generated income. Capital gains taxes can be as low as 10 percent and all inheritance taxes have been completely abolished. The Foreign Investor Protection law grants foreign investors the same rights and freedoms as Panamanian citizens to own land.(4) There is also a law targeting reforestation investments that provides a 25-year income tax exemption to those who purchase farmland for the purpose of reforestation. Panama also boasts an all-around stable economy, where inflation is maintained at 2 percent with a Value Added Tax (VAT – similar to a U.S. sales tax) of zero. Property taxes are extremely affordable in Panama, with properties having a registered value of less than US$30,000 paying nothing and only 2.1 percent on properties more than US$75,000.(5) Investors in agricultural activities are exempt from paying Panamanian income taxes on their agriculturally-earned income if the annual income is under US$350,000 as well as taxes on income earned from exports. Agricultural investors are also exempt from Panamanian property taxes if their agricultural land is used exclusively for farming and the registered value of the property is less than $150,000. Exporters of non-traditional agricultural products (melons, watermelons, pumpkins, pineapples, etc.) enjoy the benefits of exemption from taxes for income earned from exports, duty-free importation of materials and equipment, and negotiable tax credits for amounts exported.(6) These foreign-friendly business practices, agricultural tax benefits, and extremely affordable tax rates make Panama an attractive agricultural investment opportunity worthy of further exploration.

 

 

[1] Alex, “Panama Farmland – A Guide to Agricultural Investment in Panama”, panama equity REAL ESTATE, September 2013, https://www.panamaequity.com/panama-farmland-a-guide-to-agriculture-investment-in-panama/, May 23, 2016.

[2] United States Department of Agriculture (USDA), “Panama”, USDA – Foreign Agricultural Services, n.d., http://www.fas.usda.gov/regions/panama, May 23, 2016.

[3] Jeff, “Panamanian residency visa investment through sustainable, environmentally friendly reforestation projects”, Panama Forestry, n.d., http://www.panamaforestry.com/, May 23, 2016.

[4] Michelle Martínellí and Rubén Irígoyen, “International tax – Panama Highlights 2015”, Deloitte Touche Tohmatsu Limited, 2015, https://www2.deloitte.com/content/dam/Deloitte/pa/Documents/tax/2015_PA_Tax-panamahighlights.pdf, May 24, 2016.

[5] International Living, “Taxes in Panama”, International Living Magazine, Agora Inc., 2013, https://internationalliving.com/countries/panama/taxes/, May 24, 2016.

[6] Alvaro Aguilar, “Panamanian Tax Exemptions”, International Law Office, January 28, 2005, http://www.internationallawoffice.com/Newsletters/Corporate-Tax/Panama/Fabrega-Molino-y-Mulino/Panamanian-Tax-Exemptions, May 24, 2016.

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Agricultural Investing Articles asset class Investing South American Agriculture

Agriculture as an Asset Class

Agriculture is one of the oldest asset classes in the world, time tested and proven to weather economic uncertainty.  Within agriculture, farmland has historically proven itself as a tangible, stable storage of wealth, appreciating approximately 3.5 percent annually over the last 30 years.

 

A Global Farmland Index recently developed by Savills World Research, an index based on data from 15 key farmland markets across the globe, recorded an annualized growth since 2002 of 14.8 percent. The strong, steady growth highlighted by the index also illustrates a reduced volatility, characteristic of the asset class. A direct comparison between farmland and other global commodities shows farmland values were less volatile than other commodities and were significantly less affected by the credit crunch in 2008.

 

Historical Commodity Price Index

 

When compared to other selected asset classes within the U.S. markets and global commodities, farmland and timberland have upheld their reputation as high-returning, low-risk asset classes.

 

Historical Risk and Return

 

A further assessment between farmland and the S&P 500, the market index that represents roughly 70 percent of all stocks publicly traded, shows that farmland investments dramatically outperformed the S&P 500 Index over a 15-year span. As the graph below also illustrates, the 2008-2009 financial crisis had virtually no impact on the NCREIF Farmland Index’ investment value, further highlighting agriculture as a secure, stable alternative uncorrelated with the equities market.

 

NCREIF Farmland Index

The fundamentals of agriculture are some of the most promising characteristics of this asset class. With the global population expected to reach 9.7 billion people by the year 2050, the development of a robust food system will be crucial to ensuring a sustainable and prosperous future. This increase in global population will require a 60 percent increase in the demand for food production. Where will this growth in food production come from? While U.S. agricultural markets may be an investor’s first solution, they may not be the most lucrative market for an agricultural investment.

Potentially productive U.S. agricultural land is being developed at a rapid rate and as a result of this shrinking supply, prices for remaining farmland are increasing. From 2007 to 2012, nearly 3.5 million acres of rural land in the United States was converted to non-agricultural uses. During that same time period, according to the USDA’s 2016 Land Value Summary, U.S. farm real estate, cropland, and pasture land rose in price per acre an average of 17 percent.

 

Average Farm Real Estate, Cropland and Pasture Land Values

 

The relative ease of agricultural transactions in the U.S. has more investors chasing the same shrinking pool of opportunities, further reducing supply and continuing to drive up prices. Investors bold enough to diversify with an overseas agricultural investment can find plenty of untapped opportunities, strong upside potential, and an industry poised to not only support, but profit from the rise in global population and corresponding demand for increased food production.

Opportunities and Risks in Latin American Agriculture

The multi-faceted investment opportunities in Latin American agriculture provide an assortment of alternatives for a variety of investors – private, institutional, family offices, and High Net Worth Individuals (HNWIs). Ideal climate, quantifiable soil productivity, and an immature agribusiness market creates opportunities that the U.S., as a fully developed market, can hardly present. These conditions present a growth potential offered by Latin American agriculture that is hard to match in other parts of the world.

 

A critical consideration when researching agricultural land as an investment is the availability of arable land and sufficient water resources in that region to support sustained agriculture.  The Latin American region is home to the world’s greatest agricultural land and water availability per capita. Comprising only 15 percent of the world’s land area, Latin America receives nearly 30 percent of the world’s precipitation and is home to almost 35 percent of globally available renewable resources[i]. As you can see from the image below, much of Latin America has a water stress level (ratio between withdrawal and availability) between 0 and 0.3.  Essentially, there is very little competition or stress between the amount of water being consumed by the population and its availability in the environment. The same cannot be said for the United States.

Water Stress Level Map

 

One very compelling point of differentiation between U.S. and Latin American farmland is price. A 2016 Iowa Land Value Survey found the average price of Iowa farmland, some of the most productive and sought-after farmland in the U.S., was approximately $7,183 per acre[ii].  Compare that, for example, to the average price per acre for top quality, fertile farmland in Uruguay at $4,850 per acre or productive cropland in Argentina for $3,600 per acre and these price points become hard to ignore. As the graph below shows, the average price of varying types of agricultural land in several different Latin American countries is extremely competitive against current U.S. agricultural land prices.

 

Approximate Dollars Per Acre of Agricultural Land

 

It’s important to note here that Panamanian land prices are influenced by the country’s excellent foreign investor and business practices, their longstanding and proven track record of excellent agricultural practices, their proximity to the U.S. and ease of export, and their use of the USD as a primary currency. Uruguay, Argentina, and Ecuador, on average, offer more affordable land prices than their North American counterpart.

 

When considering U.S. versus emerging market investments, one of the key differences is the risk profile an investor is willing to assume. An investment in Latin American agriculture, for example, may present a higher risk profile, but these risks are becoming increasingly easier to understand and mitigate. To minimize these risks, as with any investment, investors need to first parse emerging market risk at a country-level first, then isolate specific, often localized risks that may not be readily apparent at the country-level assessment phase. This is particularly true in the resource/agricultural sectors. Some of the greatest risks revolve around politics, macroeconomics, and rule of law. While there is little that can be done to manage political and macroeconomic risks, investors need to fully assess these environments, understand all possible scenarios, and make the right trade-off for themselves between potential risks and reward.

 

Understanding a country’s legal framework is crucial to protecting and insulating the investment as much as possible. This is where sound legal assistance is an absolute must. The right representative can provide you with advice concerning titling issues, cultural differences, and connect you with governmental agencies to apply for special investor programs. Potential investors should seek counsel from someone with international investment experience as local advisors may tend to favor loyalty to their local network more than finding the investment that best suits your needs. Finally, a failure to understand the culture of the country you’re investing in is a recipe for a failed investment. Essentially, an absentee investor is asking the surrounding community to watch over their investment while they are away, something that’s not possible without their support.

 

[i] Wendong Zhang, “2016 Farmland Value Survey Iowa State University”, Iowa State University Extension and Outreach, 2016, https://www.extension.iastate.edu/AGDM/wholefarm/html/c2-70.html, January 2nd, 2017.

[ii] Inda Flachsbarth, Barbara Willaarts, Hua Xie, Gauthier Pitois, Nathaniel D. Mueller, Claudia Ringler, and Alberto Garrido.  “The Role of Latin American’s Land and Water Resources for Global Food Security:  Environment Trade-Offs of Future Food Production Pathways”, PLOS One, U.S. National Library of Medicine National Institutes of Health, January 24, 2015, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4305321/, May 20, 2016.

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Argentina Due Diligence Tours Latin America relations Veteran Entrepreneur

Top 5 Fears Facing First Time Veteran Entrepreneurs and How to Combat Them

All too often, transitioning veterans seeking to become entrepreneurs never take the first step in pursuing their dreams because of perceived insecurities.  They prematurely assume failure by telling themselves they’re not qualified to compete in the business community. This couldn’t be further from the truth.  The leadership, confidence, and problem-solving skills veterans bring to the corporate sector are precisely the type of intangible skills sets needed for success.  As a veteran entrepreneur, I’d like to share my experiences by highlighting five fears facing many first-time veteran entrepreneurs and methods I’ve used to help combat these fears.

  1. Lack of Business Experience

When I left the Marine Corps in July 2014, I knew I wanted to work for myself doing something I loved.  Yet, as I began to put together a plan for AGD Consulting, a US-based agricultural investment advisory company, I couldn’t help but feel like I was woefully lacking in experience.  What business experience could I bring to this type of venture, having spent the last seven years as a Marine Corps infantry officer?  What I was failing to consider was the sum of all my life experiences, not just my Marine Corps service.  Throughout college, travels in Latin America, and my time as an infantry officer, I developed sound leadership and management experience through years of exposure to uncertain and rapidly changing environments.  My degree in Agricultural Engineering has served me well in managing our family’s agricultural investments in Latin America and the US.  A previous investment in Ecuador and a current one in Argentina taught valuable business and investment management lessons.

Family Farm in Argentina
Family Farm in Argentina

 

Last year, my family and I set off on a 6-month, 6-country investment research trip to Latin America to gain first-hand experience about local agricultural and financial markets in the region.

 

The Day We Left for Latin America
The Day We Left for Latin America

During that trip, I conducted over 100 unique agricultural site visits in six countries.  The point here is to draw on all your experiences, not just your time in the service, to showcase your full range of talents.

 

  1. No Business Contacts or Network

 

You might also be thinking, “I’ve heard networking is one of the most important parts of starting a new business, but I don’t have a single business related contact.  Where do I begin?”  Family is always a good first step.  Start with your immediate family and extend out as far as you can.  Social media platforms, phone calls, and personal visits serve as effective ways to reach distant relatives.  Explain to them what you’re trying to do and ask if they know anybody in that field willing to help.  Remember, you’re not asking for money or a great deal of their time; only contacts to build your own network.  Next, reach back to your military contacts.  Find a Bunker Labs group in your area as they can be a tremendous resource for linking veteran entrepreneurs to the business community.  Contact American Corporate Partners and have them match you with you an experienced mentor in your field.  Bottom line: don’t narrow your scope of support because you think you don’t know anybody who can help.  It never hurts to ask.

 

  1. I Have No Means of Financial Support While I Build My Business

 

This one requires some preparation.  If you’re considering entrepreneurship after the military, start planning for it well before you leave the steady income it provides.  My family and I started saving for an entrepreneurship venture in 2007.  While in the Marine Corps, we tried to be responsible stewards of our money by living within our means, keeping a detailed budget, taking advantage of tax-free benefits offered deployments, and tucking away money every month.  As a testament to what’s possible, our family of six left active duty service in September 2014, and aside from a few odd jobs, have not had a source of income since.  As I write this article nearly two and a half years later, we still have enough in savings for two years of living expenses and capital to continue to grow our business.  Anything is possible with a little preparation and a lot of passion.

 

  1. How Much Time Do I Have? How Do I Manage it?

 

Start by creating a detailed budget.  You need to be meticulous about keeping track of all money expenditures; everything from gas and groceries to larger expenses like house payments, medical costs, and business improvements.  Build a reasonable miscellaneous fund into your budget to cover the unexpected.  If you don’t use it all during a particular month, roll it over into the next month in order to extend your timeline a little further.  Once you’ve determined your monthly expenses, take the amount of money you’ve set aside to launch your business and divide it by your monthly living expenses.  This will give you an approximate timeline for how long you can build your business without seed money.

Managing your time is where the discipline you learned in the service is vital.  At first, set a daily schedule that resembles the schedule you had in the service as a way to slowly transition into life as an entrepreneur.  Each night, create a bulleted list of tasks you want to accomplish for the next day.  Stay focused on those tasks throughout the day and don’t let the freedoms of your new work environment pull you off task.  Work until your daily tasks are complete.  If it’s a multi-day project, set aside a certain numbers of hours on that project per day and stop when you’ve reached that time limit.  Work in time blocks that fit your daily schedule and biological clock. If your kids have an event at school, take advantage of your new found flexibility; just make up for lost time by working later at night or waking up earlier the next day.  These are just a few examples of how a detailed budget, disciplined schedule, and strong work ethic can be the start of a successful transition into life as an entrepreneur.

 

  1. What if I Fail?

 

Failure is never far from a new entrepreneur’s mind.  Even with a solid base of business experience, a developed network of contacts, and sufficient funds, many more new businesses fail than succeed. However, veteran entrepreneurs have a distinct advantage when it comes to dealing with fear and uncertainty.  Their leadership experience and disciplined nature give them an advantage when walking a path less traveled.  Being an entrepreneur is about leaving the familiar behind and taking on the challenges that many do not.  As a veteran entrepreneur, you are equipped with a set of skills that allow you to rationally weigh the risks, understand consequences, and develop solutions in short periods of time.  As counterproductive as it might seem, part of that pragmatic solution should include a contingency plan.  Once you’ve laid the mental and financial framework for Plan B, put it completely aside and focus 100% of your effort on the success of your business.  Ruthlessly run down every lead, learn to embrace the uncertainty, and let your intuition tell you when it’s time to pivot.

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Agricultural Investing Investing South American Agriculture

The Case for Ag Investment in South America

Insight from International Entrepreneurs in Agriculture

The Case for Ag In South America

 

 

 

 

 

 

Written by Michael DeSa, Wilfred Morren, and Monica Ganley

In the context of recent political turmoil and today’s uncertain economic times, many investors and entrepreneurs are seeking alternative investment options outside the U.S. as a way to add diversity and uncorrelated assets to their portfolios. Agriculture is one of the oldest asset classes in the world, time tested and proven to withstand economic uncertainty and volatility.  In particular, multi-faceted and diverse agricultural investment opportunities in South America provide an assortment of alternative opportunities for a variety of investors.

To help shed light on this topic, Jacob Warwick, founder of ThinkWarwick Communications, recently interviewed three investment entrepreneurs and founders that specialize in South American agricultural markets. Michael DeSa, Monica Ganley, and Wilfred Morren, discuss how South American agriculture markets differ from the U.S. and where you should focus your efforts this year.

Agriculture as a Growing Asset Class

These experts believe agriculture in South America is a more stable, tangible alternative compared to low yielding bonds or overvalued, risky, and extremely volatile equity markets within the US.

Wilfred Morren, a Dutch native who has lived and worked in Uruguay for ten years, is the director of an investment brokerage firm called, Farmland Uruguay. He points out, “Farmland has historically proven itself as a tangible storage of wealth. In fact, the appreciation of farmland worldwide over the last 30 years is approximately 3.5 percent annually.”

Monica Ganley is the founder of Quarterra, a boutique strategy consultancy dedicated to providing clients insight into the Latin American food and agriculture industries—and the tools needed to unlock business opportunities in the region.

For Ganley, the fundamentals of agriculture as an asset class are the exciting aspect. She authenticates her belief in agriculture with facts. “With the global population expanding rapidly, the U.N. estimates a world population of almost 10 billion by 2050, enabling the development of a robust food system will be crucial to ensuring both a peaceful and prosperous global future.” She further solidifies this point by saying, “If there are any doubts about the relationship between food availability and geopolitical stability, look no further than the role hunger played in the Arab Spring.”

While it’s a near given that population will continue to compound over the foreseeable future, this doesn’t necessarily mean agriculture in the United States is a bad investment option; only that it may not prove the most lucrative investment opportunity.

Ganley adds, “There’s nothing wrong with agriculture in the United States, but I think because of the relative ‘ease’ of these transactions, there are a lot more people chasing the same opportunities.”

Michael DeSa is the founder of AGD Consulting, a US-based, veteran-owned advisory company offering consulting services and customized investment research trips to private and institutional investors. DeSa shares insight into the US market, “Research shows that from 2007 to 2012, nearly 3.5 million acres of rural land in the U.S. was converted to non-agricultural uses. During that same period, the average price per acre of U.S. farmland rose nearly 22 percent.”

It appears that while there are agricultural investment opportunities within the United States, their availability is shrinking and prices are increasing. Investors bold enough to diversify with an overseas investment can find plenty of untapped opportunities.

Opportunities in South American Agriculture

Both DeSa and Morren agree that South American agriculture has grown more attractive over the past several years. “It’s one of the few regions of the world that still has underdeveloped and underutilized farmland. The region is home to nearly 30 percent of the globe’s arable land and one third of its freshwater supply, speaking to its sustainability over time.”

Morren adds that for the past three decades, countries such as Uruguay have concentrated on establishing foreign investor-friendly business practices to draw more outside investment dollars. This means that securing a long-term investment partner is more obtainable for United States citizens that is has been in the past.

Ganley, a resident of Buenos Aires, agrees that investment opportunities are becoming increasingly accessible. “We have seen an important shift in Argentina’s attitude toward foreign investment. Since taking office in December 2015, president Macri has eliminated the parallel exchange rate and taken other measures to facilitate investment flowing into the country.”

With its sustainable water supply and untapped arable land, South American agriculture may be poised to support the world’s growing need for food; however, with the tremendous size and scope of the continent, these three experts believe the most value and upside potential is concentrated in the southern cone, primarily Argentina, Uruguay, and Paraguay.

DeSa acknowledges that while opportunities abound throughout the continent, “The south and central region has the most potential for future upside. In this region, you’ll find a stronger physical and legal infrastructure, a longer track record of strong foreign investor sentiment, and examples of a more stable geopolitical climate.”

DeSa’s sentiment on the region closely aligns with what Ganley has been seeing in Argentina, particularly within governance around the agriculture industry.

“The elimination of effective export taxes on corn and wheat have increased potential returns while the soy industry is benefitting from recent tariff reductions. In the Northern provinces, the government is aiding soy farmers by offering subsidies and transport initiatives.”

Argentina’s beef industry is also poised for growth as a result of the government removing export taxes imposed by the former administration.

Morren is seeing farmers in Uruguay play towards trends in the United States to increase investor interest.

“The climate and physical landscape (in Uruguay) are ideal for extensive cattle breeding and uniquely qualified to meet the increasing demand for grass-fed beef. Premium quality beef production is business as usual in Uruguay, with many of the animals bound for the U.S. having a rating of Never Ever III, which indicates that the animal has never received antibiotics, growth hormones, or proteins of animal origin.”

Morren adds that forestry in Uruguay has also been a strong sector, “Forestry started growing nearly 30 years ago when the government was able to attract large multinational investors such as Shell and UPM from Finland.” These major investments primed the Uruguayan economy with established pulp mills and processes that are designed for large scale operations.

Risks and Opportunities in South America Versus United States

DeSa, while not against investing in the United States, advises his clients about one very compelling differentiation between the two—farmland prices.

“A 2016 Iowa Land Value Survey found the average value of Iowa farmland was approximately $7,183 per acre. Compare that to the average price per acre of top quality, fertile land in Uruguay at $3,500 and these price points become hard to ignore.”

Morren agrees, “The strong growth potential offered by South American agriculture is hard to match in other parts of the world. Ideal climate, quantifiable soil productivity, and an immature agribusiness market creates opportunities that the U.S., as a fully developed market, can hardly present.”

While Ganley, a proponent of investing in South America, understands these opportunities, she also empathizes with North American investors. “When thinking about U.S. versus foreign farmland investments, the key difference is the risk profile an investor is willing to assume” she comments.

“An investment in South American agriculture could come with more risk, but in my opinion, these risks are becoming increasingly easy to understand and mitigate. Many investors are watching the region, especially in Argentina, and its shifting political climate with piqued interest. Investment opportunities here offer compelling fundamentals, but they won’t last forever.”

To minimize this risks, as with other investments, you need to be extremely thorough when researching opportunities in South America. DeSa, who has personally invested in the region twice, argues for due diligence and boots-on-the-ground experience.

“A picture is not worth a thousand words. In my experience, online photos or reports can over or undersell an asset’s potential. Find a company or expert to help you walk the ground, experience the local financial and agricultural culture, and build trustworthy relationships with managers and communities before investing.”

Ganley adds that the greatest risks revolve around politics, macroeconomics, and rule of law. “While there is little that can be done to manage political and macroeconomic risks, the wise investor fully assesses these environments, understands all possible scenarios, and makes the right tradeoff for themselves between potential risks and reward. It’s critical to understand a country’s legal framework in order to protect and insulate the investment as much as possible.”

Sound legal assistance is an absolute must.

“The right representative can provide you with advice concerning titling issues, cultural differences, and connect you with governmental agencies to apply for special investment regimes,” comments Morren.

“Possible investors should seek counsel from someone with international investment experience as local advisors may tend to favor loyalty to their local network more than finding the investment that best suits your needs.”

A failure to embrace the culture of the country you’re investing in is a recipe for a failed investment— potential investors must spend time developing quality relationships.

“You’re asking the surrounding community to watch over your investment while you’re away, something that’s not possible without their trust and support.” adds DeSa.

Conclusion

The vast array of affordable and diverse investment opportunities in South American agriculture are largely unparalleled. As U.S. markets continue to struggle and become increasingly uncertain, many investors will depart traditional asset classes in search of better investment alternatives.

South American agriculture is backed by undeniably strong fundamentals, a high degree of investor freedom to act and create new businesses with local workers, and welcomes the incorporation of experience and technology from developed markets to create high value opportunities with strong growth potential.

Investors should seek to partner with reliable and professional advisors in order to achieve the upside potential of this market.

The future belongs to those who can become comfortable enough with the risks to operate successfully in this high-opportunity environment and while current opportunities exist which are competitive compared to those in more seasoned geographies, fortune will continue to favor the bold, first movers.

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Agricultural Investing Due Diligence Tours Latin America relations

Top Five Reasons to Walk the Ground Yourself

In an age of market volatility, diversification is increasingly recommended.  Investors bold enough to expand into international agriculture can find stores of untapped opportunities, strong upside potential, and an industry poised to profit from the coming rise in global population. As the Founder/CEO of AGD Consulting, a US-based, veteran-owned firm offering advisory services and due diligence trips for investors seeking experience in international agricultural investing, we believe overseas agriculture is an excellent way to achieve these goals.  It’s imperative that investors walk the ground, experience the local financial and agricultural culture, and build trustworthy relationships with managers and communities before investing.

Below are the top five reasons investors need to walk the ground themselves.

A picture is not worth a thousand words

In my experience, online photos or reports can over or undersell an asset’s potential.  Investment managers and syndicates tend to only present the best possible front for the project they’re promoting, therefore, it’s imperative for investors to see what they’re not showing you.  Often times, these sites and experiences do not negatively impact the project, rather they add context and breadth for an investor to more fully understand what they are involved with.  Find a company or expert to help you organize a research trip and perform your own due diligence before investing.  As an example, AG DTours, a division of AGD Consulting, is providing customized expeditions to Colombia in partnership with Farmfolio as way to provide investors a richer understanding of their investment opportunity.

Meet the management

An experienced, well balanced management team who believe in what they’re doing is one of the most important indicators to investors on whether or not a project will succeed.  If the project manager and his team don’t truly believe in the opportunity, it will be evident when you talk with them face-to-face. If you’re traveling to a country where you don’t speak the language, have your research trip provider arrange for interpreters to meet you at the project site.  Talk to the local workers, ask what they think of the project, and watch how the investment manager interacts with his team.  Listen and observe how the workers respond to your questions and watch how they perform their work; it will speak volumes as to how much they believe in what they’re doing.

Experience the geopolitical and economic climate

Potential investors need to experience the current geopolitical and economic climate of the country their investing in and/or what it could become during the investment’s lifetime.  Talk with the locals about the current political administration, ask them what they think of foreign investors, and get a sense of how important agriculture is to their local economy.  Talk to local street vendors selling agricultural products and ask them where they get their supply from, how business is going, and what would make their lives easier and more profitable.  Learn how to convert money back and forth between currencies in order to get a sense for how easy or difficult it is. Go to a local bank and see if American citizens can open bank accounts.  While you may never need to do this as an absentee agricultural investor, it will provide you with contextual and fundamental understanding of the geography and economic climate you’re investing in.

The right legal assistance

Understanding a country’s legal framework is crucial to protecting and insulating your investment as much as possible.  This is where sound legal advice is an absolute must.  If the investment opportunity you’re pursuing already has an embedded legal team with experience in the country you’re operating, great, if not, then you need to find one.  The right representative can provide you with advice concerning titling issues, cultural differences, and connect you with governmental agencies to apply for special investor programs.  Investors should seek counsel from someone with international investment experience as local advisors may tend to favor loyalty to their local network more than providing you the best advice that suits your needs.

Understand the culture

One of the most common misconceptions foreign investors have regarding international investments, especially in the agricultural sector, is the assumption the processes move at the same speed as the Western world.  The Latin American way of life is generally slower-paced than many Americans are used to.  Foreign investors need to experience this culture for themselves and determine if it suits their personality and investment needs.  If you try to force your cultural expectations onto the local management team and the surrounding community, you will struggle.  As an absentee investor, you are asking the community and team on the ground to watch over your investment while you are away.  This is simply not possible without an understanding and appreciation for the local people and their culture.

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Investing Uruguay

IMF Ups Forecast for Uruguay’s Growth

A quick read about Uruguay’s stronger-than-expected growth projections. In spite of some of the economic difficulties of its neighbors, Uruguay is proving itself, time and time again, as a beacon of stability within the region. As usual, my emphasis is in bold with my comments in italics.

IMF ups forecast for Uruguay’s growth in 2016 to 0.7% – In October it had anticipated 0.1%

Friday, December 9th 2016 – 16:30 UTC
International Monitary FundUruguay was doing better than the October figures were telling, according to IMF.

The International Monetary Fund (IMF) on Thursday raised its forecast for economic growth in Uruguay this year to 0.7%, a substantial increase from the 0.1% estimated in October, (this is a seven-fold increase from the original projection) and underlined the country’s resilience to the problems of its neighbors Argentina and Brazil.

”Uruguay is proving resistance to deep recessions in its large neighbors (Argentina and Brazil),“ said the IMF’s technicians mission after finishing its visit to the country for the annual review of the economy. For the year, the IMF expects Uruguay to grow by 0.7% and a slight rebound in 2017 to 1.1%, as it ”improves the external environment and private consumption“. In October, the IMF had placed calculations for Uruguay in an expansion of 0.1% in 2016 and 1.2% in 2017.

The report by the international financial institution highlights that ”despite the slowdown in activity, inflation persists at levels above the target band set by the central bank,“ ranging from 3% to 7% a year. Following the measures taken by the Central Bank this year, and having hit a year-on-year high in May of 11%, “inflation is forecast to remain below 9% in 2017 and it will be progressively reduced to approximately 6% in the medium term.”

Looking ahead, the IMF stressed that ”a slower than expected recovery in Argentina and Brazil could be a drag on the economy, and the same would happen with weaker growth projected in China.“

In addition, IMF officials stressed the need to move forward in fiscal consolidation ”as debt levels have increased significantly in recent years, and financial markets closely monitor implementation of the adjustment,” with the goal of reducing the budget deficit to 2.5% of GDP by 2019.

Categories
Agricultural Investing Articles Latin America relations Uncategorized Veteran Entrepreneur

Our PodCast with Cigars and Sea Stories

AG DTours Featured on Cigars and Sea Stories

Cigars and Sea Stories

We were recently featured on Cigars and Sea Stories, a Podcast for Veterans who want to make a difference in the world. Enjoy as we talk about our current endeavors with AG DTours, my service in the Marine Corps, and our experiences traveling throughout the region.

http://www.cigarsandseastories.com/146-michael-desa-ag-dtours/

 

Categories
Argentina Cattle Investing Latin America relations South American Agriculture Uncategorized

Argentina Wants to Recapture Global Beef Market Share

An opinion piece about Argentina’s efforts to return to their former beef market glory days.  My emphasis is in bold with my comments in italics.  

Argentina Wants to Recapture Global Beef Market Share

November 30th, 2016

The current wave of agricultural reforms in Argentina could help the country recapture the global beef market share it has lost in recent years, says Valoral consultant Roberto Viton in an interview with Agrimoney.

Viton sees a brighter future for Argentine beef since the election of Mauricio Macri in 2015. Still, the process will take significant time and effort (I recently talked about the need for patience in Argentina in a recent blog post.  Bottom Line: it will take time to change many years of poor economic management, so patience is in order) among producers who are looking to first improve their margins before expanding their production. In the first half of the year, there was much greater retention of cattle by Argentine producers with the goal of building back their herds over time (This is an indication that the local farmer sees future value in cattle and therefore is willing to forgo the immediate revenue in order to build equity in their farms through larger herds.  This is a good sign).

Recovering market share lost to neighboring countries like Brazil, Uruguay and Paraguay will take time in terms of volume, price and quality. At the same time, Argentina will have to regain the confidence of foreign investors and prove to them that “the reforms are truly hear to stay.”

In summary, “I would say that the history of cattle is a history of patience,” says Viton. (I couldn’t agree more).

 

Categories
Agricultural Investing Argentina Argentina economy Articles Latin America relations Uncategorized Uruguay

Argentina and Uruguay Agree on How to Approach Trade with China

Earlier this month, we talked about Uruguay’s trade dealings with China.  Today, we’ll look at how Uruguay and Argentina have come to a consensus on how to approach future trade deals with China.  My emphasis is in bold with my comments in italics

Macri and Vazquez agree that the trade approach to China should be done from Mercosur

Tuesday, October 25th 2016 – 10:29 UTC by Merco Press
Macri said that his government understands Uruguay´s need to have access to other markets and open to the world's second largest economy.

Macri said that his government understands Uruguay’s need to have access to other markets and to be open to the worlds’ second largest economy.

Argentine president Mauricio Macri promised his Uruguayan peer Tabare Vazquez to look into the draft of a Uruguay/China free trade deal, and expressed their deep concern about political events in Venezuela suggesting that under the current circumstances the Nicolas Maduro government cannot be considered a member of Mercosur (Things in Venezuela are not looking good.  Drastic shortages of food, medicine, electricity and other necessities are causing small riots. Organized crime and extrajudicial police killings have given the country a frighteningly high rate of murder and violence.  Runaway inflation means that from March 2015 to 2016 a basket of basic goods for a family of five became 524 % more expensive).

During a meeting on Monday midday at the Olivos presidential residence in Buenos Aires, Macri said that his government understands Uruguay´s need to have access to other markets and open to the world’s second largest economy.

“China is an option for Uruguay. With Vazquez we ratified the need to speed up this deal, in principle from inside Mercosur, but anyway I promised an open attitude and to look into what Uruguay is requesting”, said the Argentine leader. (Mercosur, which translated means Southern Common Market, was created in 1991 as a trade agreement aimed at providing free circulation of goods, services, and productive factors within member countries (Brazil, Paraguay, Venezuela, Uruguay, and Argentina) through the elimination of obstacles to regional trade).

“We understand that Uruguay produces food for ten times their population (A population of only three million people currently feeding 50 million) so it is only natural they should look for markets, but the ideal situation would have been for the issue to have been presented by Mercosur as a block, as we are doing with the European Union” emphasized Macri (Earlier this year, the EU Trade Commissioner and the Foreign Minister for Uruguay, who currently holds the rotating presidency of Mercosur, discussed the next steps in the negotiations on an EU-Mercosur trade agreement. The EU and Mercosur agreed to exchange market access offers specifying ways to increase mutual openness to each other’s goods and services, including access to public tenders. Those discussions also resulted in the adoption of a road map for talks during the rest of the year). 

Vazquez underlined the very generous attitude of Macri and thanked Argentina for having such consideration.

“We coincided in advancing in a free trade agreement with China through Mercosur. But [we need to take] into account that Beijing came up with the possibility of such a deal six years ago and Mercosur did not reply, it would be positive that at the next Mercosur meeting we address the issue”, indicated Vazquez.

“In the meantime Uruguay will continue to explore the way to advance in a free trade project with China. We’ve already presented the road map for such a treaty and the extent planned. China has not replied yet but when they do, it will be shared with all Mercosur members”, he added.

Regarding Venezuela, both presidents agreed that under the current situation, “we are deeply concerned with the political problems, and we shared the opinion that under these circumstances they can’t be members of Mercosur. The Maduro administration must be condemned and disavowed by all American countries since there is no respect for human rights” (As another point of context, in May of this year, Uruguay prepared to pass the president-pro-tempore seat to Venezuela by the end of June.  However, Argentina, Paraguay, and Brazil fiercely opposed this. Their arguments against Venezuela’s new role cited the country’s failure to follow the union’s rules as well as concerns about the government’s stance against its opposition).

Vazquez went further and said concern, regrettably, grows by the minute and “we are looking forward to a peaceful solution to the controversy, to dialogue between the Venezuelan government and the opposition. We also talked about the mediation from Pope Francis”.

Macri and Vazquez added that during the next Mercosur meeting whether to apply or not the democratic clause on Venezuela will be considered, since that is the correct place to consider such option.

“Uruguay will be attending the meeting and demand respect for peoples’ right to express their opinions and be respected. That is the essence of democracy and the direct participation of peoples”, added the Uruguayan leader.

Other issues considered by the presidents were drugs and crime, pollution in shared rivers and water ways, natural gas sales and the possibility of building another bridge across the River Uruguay that acts as a natural border between the neighboring countries.

Finally Vazquez, who never had a good relation or chemistry with the Kirchner couple, was most grateful with Macri and his hospitality. “I am profoundly grateful for his hospitality and friendship, with the Argentine president we have found ample paths of understanding”.

 

 

Categories
Argentina Argentina economy Articles Latin America relations Uncategorized

A Call for Patience in Argentina

An excellent article about the need for patience with the unfolding political and economic situation in Argentina.  My emphasis is in bold with my comments in italics

Herd Behavior: Why A Lack Of Patience Could Spark Argentina’s Next Crisis

President Mauricio Macri is making the right economic moves, but that is hardly enough to prevent the next crisis.

By Bianca Fernet – Oct 26, 2016 at 12:29

It’s been almost one year since President Mauricio Macri shocked the world by winning Argentina’s presidential elections, and the country is in a state of flux — hovering in an uncertainty characterized by hope, anxiety, fear and just a few whiffs of the dreaded stench of failure.

Besides displaying a shocking lack of political PR and taking on a few petty wastes of time, this government is doing most things within its power correctly to right the course of a vessel that seemed destined to crash. (This includes eliminating a parallel exchange rate from the previous administration, completing an oversubscribed bond sale, and eliminating export taxes on many agricultural commodities like corn and wheat).

Despite these positive steps, one sinister question looms: Has the Macri government managed to avert the looming economic crisis entirely, or is it merely kicking the can down the road? It’s scary, but Argentina is in uncharted territory. Rather than boom, the economy is in a prolonged recession that could be heading for an all too familiar outcome — bust.

Yet this time, the question really isn’t about economic fundamentals. The real variable threatening Macri isn’t economic at all — it is time. (To me, this says that many potential foreign investors recognize Macri’s attempts to repair some of the underlying fundamental economic issues facing the nation.  I believe, based in part on the oversubscribed bond sale, that there are many more foreign investors waiting on the sidelines to see if a resilient Macri administration and patience from the international community can allow these economic changes to positively affect the foreign investment climate of Argentina)  Time, that fickle mistress, is persistently stalking Macri’s administration and is not on his side. And Argentines aren’t exactly famous for patience.

Now that Argentina is back on the world stage, there seem to be no shortage of Argentina investment-themed symposiums, conferences, forums, delegations, road shows, panels, seminars, and other names they give to the indistinguishable gatherings of hundreds of white men in suits assembled in windowless spaces to watch powerpoints and exchange business cards over mediocre coffee and stale snacks. (While I don’t necessarily agree with all of the author’s points here, I appreciate both her sarcasm and perception, especially the part about windowless spaces and mediocre coffee).

In the past, representing Argentina at these business rituals meant repeating some variation of the tagline, “Argentina: it’s not so bad!” Now the conversation invariably veers first to new opportunity, but then quickly pivots to the question of Argentina — same old risk?

People love to say that “Argentina has a crisis every ten years.” A nice round number, except it is 2016 and the country’s last real crisis was in 2001 (no, the 2009 global downturn doesn’t count). The truth doesn’t follow simple formulas. (This saying may actually be more applicable to the US market with the collapse of the dot com bubble in the early 2000s, the Great Recession in 2008/2009, and the unstable economic times of today.)

To understand the situation, let’s think of economies like dinner plates, spinning atop sticks. Balance is essential.

iStock_000012016504_Medium
A balanced, diverse economy leads to stability

 

A poorly balanced plate will wobble dangerously and even crash to the floor from external conditions. Take a look at Argentina’s neighbors. Chile was thought to be as stable as they come, but a sudden drop in world copper prices have caused the country to wobble. Brazil was the next big thing in biofuels, technology, renewables — you name it. But a plunge in oil prices spun out the endemic corruption and tipped that plate right over.

So what do spinning plates and susceptibility to external crises have to do with Argentina?

From a purely economic standpoint, Argentina is just about the most stable, well-balanced, solid plate there ever was. The economy and the geography are large and diverse (One of the few countries in the world with the ability to be completely self-sustaining, hosting an abundance of natural resources, an educated population, and of course, famed agricultural land covering nearly 55% of the country).  Argentina was resilient through the global economic crisis of 2009. Sure, soy is important piece of the pie but even when soy prices took a nosedive in 2014, Argentina’s plate wobbled a bit but kept on spinning. The good news is that despite more than a decade of Kirchnerism, during which Cristina Fernández de Kirchner and her band of merry thieves administration carried out a heist worthy of its own Netflix series, the plate was somehow able to keep spinning.

Macri’s government has acknowledged systemic flaws and is leading the country to come to terms with uncomfortable and unpopular realities, such as that 30 percent of Argentines live in poverty. The administration has acknowledged persistently high inflation and taken painful steps to bring it down. It has dismantled the capital controls that created a de-facto dual currency system (RIP Blue Dollar), settled with the holdout creditors (aka “vulture funds”) and are setting clear rules for doing business (To further highlight the points I made earlier).

Sad Aranguren
Aranguren’s sad face 🙁

Perhaps most laudable, the administration has forced the population to acknowledge that energy subsidies for both electricity and gas are unsustainable and has launched a clear plan for prices to rise to meet generation costs. It’s not easy being Energy Minister Aranguren, the public face of these unpopular hikes. The man basically looks like he needs a hug all the time.

Yet that analysis misses a fundamental point of Macri’s challenge: to succeed, he won’t just have to right a plethora of economic distortions and rise above a mire of tragicomic corruption, he must also change a culture (This will take time, patience, and resilience on Macri’s part, but I think it can be done).

If Argentina’s economy is a plate, its next crisis won’t be caused by an external shock that throws an overweight area off balance. Argentina’s next crash will be caused by its people, who run from one side of the plate to the other, like an emotionally charged herd. Call it passion, color, soul, whatever you want — but we in Argentina are opinionated, loud, and most importantly impatient.

And without political patience, Macri will fail.

The key test will come next year, when the midterm elections will serve as a de facto referendum on his policies, many of which while are unarguably necessary albeit damningly unpopular.

Macri’s real challenge is not only to convince the world that Argentina can change; rather, he must lead his own people through a painful recession and politically maneuver entrenched powerful interests to restore an attractive labor market and an unsubsidized energy matrix.

(image/finedininglovers.com)
(image/finedininglovers.com)

There is no doubt he is dedicated, but the question looms as to whether it is possible to convince a country of fiery, passionate Argentinos to endure a recession without throwing a tantrum and inexplicably sprinting off the edge of the plate (It is easy to understand that Argentines are looking for quick evidence of progress, as I’m sure many Americans will on the heals of our US elections, but after over a decade of systematically taking apart the economy, it will take time to fix the country’s inflation and poverty problems).