World Population and Income Trends Favor Brazilian Frontier Investment

If current world population and income trends continue, world agriculture faces real challenges in the next 10 - 15 years. World population is expected to grow by more than 1 billion people--the equivalent of another India. An expanding middle class in China, India and other emerging economies will translate into sharp increases in demand for more food, fiber and energy.

No nation on earth is in a better position to respond to these demands than Brazil. Among all the world's nations, only Brazil has a massive untapped frontier capable of producing the food, fiber and biofuels the world will demand. That means profitable investment opportunities in Brazil's frontier will expand dramatically as production profits improve, land prices rise and agricultural and forestry output growth continue. Some of the most important of these opportunities are noted below.

         Land Investment Options (Below)

         Biofuels Investment Options

         Cerrado Forestry (Eucalyptus)

         Carbon Offsets (Credits)

Land Investment Options for Production Agriculture

There are a number of land investment options in Brazil's agricultural frontier. While we do not describe all of the options, below are some of the more popular options.

• Hands-on farming. In most developed nations such as the US, farmers face great challenges trying to expand operations. In the US, farmers have great difficulty acquiring more land even though their financial situation may enable them to. Land, especially nearby land, rarely comes on the market and when it does, there are many competing buyers--both farmers and land investors. In Brazil's frontier, there are many, many sellers and few buyers. Why? Because long-term credit does not exist and short-term capital is  expensive and difficult to access. If a farmer of a developed nation can take locally-sourced capital to Brazil, there is essentially no limit to the amount of land that can be purchased. What's the catch? Frontier agriculture is big agriculture; starting a commercially viable, hands-on, farming operation on rainfed or irrigated land requires access to liquidity of at least US$2 million. If hands-on farming is what you seek and you can access the necessary capital, AgBrazil can assist you.

• Absentee Land Ownership. Absentee ownership of land can be a profitable investment. There are a number of operation options available to the absentee investor--cash rent, crop share rent, complete management, etc. Farm operators, including US farmers in Brazil, may lack sufficient capital to expand their Brazilian land holdings and seek additional land to operate. Good local management is available. Land prices have moved up in recent years and investors may profit from both current operations and capital gains. A potential absentee investor will need at least US$1million for a commercially viable operation. Note: Most knowledgeable observers do not recommend buying and holding undeveloped land as a long term investment. If your are interested in absentee land ownership, AgBrazil can assists you.

• Investor Pools. There are a number of pooled investment operations involving a relatively small number of individual foreign (mostly US) investors. These often form outside of Brazil as partnerships or limited liability companies. Investment pools typically employ a farm operator and manager, usually an experienced US operator. Some own the land they farm, others rent the land they farm and others own and rent land. These operations generally have low management costs and have shown profit on current operations as well as capital gains. Some are closed to new investors, but most accept new investors that invest >US$250,000. AgBrazil can assist investors seeking to invest in Investor Pools.

• Other Investment Vehicles. A number of Investment Funds have been formed over the past several years, most based in the US. These vehicles have tended to attract small investors looking to diversify their investment portfolios. Somewhat resembling private hedge funds, these funds have had mixed success from the investor perspective. The founders of some funds had little or no previous experience in Brazil and encountered unanticipated challenges working within the Brazilian business culture. Investors express concern that active secondary markets for investor shares have been slow to develop, and management and administrative overhead has been high. Yet another investment vehicle is the Investment Condominium. These operations involve several investors who each own land that is operated jointly as a single farm and may thus enjoy scale economies. A land owner may have a reasonably liquid investment as he/she may sell his/her land at any time to anyone approved by the condo association. These operations tend to be popular with European investors. Competent management is critical to success. Given the somewhat mixed track record, AgBrazil does not assist investors with Investment Funds or Investment Condominiums.