A vast array of
choices in farmland
investing
Farmland purchases are far more complex and intricate than the purchase of a residential or commercial property. It involves elements and procedures largely unknown, which are new to even the most seasoned international investor. This requires careful considerations.
Why invest in Agriculture?
Agriculture continues to demonstrate long-term growth and stability across different jurisdictions and sectors. Investors enter the agricultural investment space for several reasons:
- The search for security and investing in productive, developed markets provides quality farmland in reliable climatic zones.
- A triple bottom-line approach, where financial, environmental and social factors are in focus. The best use of land is carefully considered, including carbon-farming practices and farmland optimization by integrating Ag-Tech solutions.
- Long-term growth and regular income, coupled with a sector typical stability offers increased overall income potential.
- No correlation to traditional asset classes and the inflation hedge.
- An absolute ‘must’ for any portfolio diversification.
An important concept to consider about Uruguayan farmland systems is that Uruguay, even though a relatively small country, has a wide diversity of soil types that allows for different farming systems and different farming activities within one particular property.
In light of this, it is important to highlight that Uruguay counts with a unique tool, the CONEAT system. The Coneat system was developed by the Ministry of Agriculture and depicts maps of soil types for every land plot registered in Uruguay. Each soil type has a productivity index associated that varies from 0 to 263, which accurately describes the productive potential of any given soil in the country. This information is public, available and verifiable on-line and only by inserting the registry number of any given land plot in the Coneat database can an investor get complete information on location, soil types and productivity, water resources, and satellite images in relation to the land.
This system is unique worldwide, and has some clear and highly important advantages:
- Transparency: clear information for every piece of land in Uruguay.
- A very useful tool to assess potential land use for any given property.
- The coneat Index correlates with the price of land.
- It makes it easy to compare properties (benchmarking) and assess fair market value.
There are three main farming activities
in Uruguayan farmlands:
3 general agricultural
investment sectors can be distinguished:
Row Crops
- Total area under crops in Uruguay: over 1,200,000 hectares.
- Uruguay best soils and climate allow for two crop harvests in one year, a summer crop and winter crop.
- Main summer crops in Uruguay: soya, corn, sorghum, rice.
- Main winter crops in Uruguay: wheat, barley, canola.
- Crop Agribusiness has had rocket high growth rates in the last two decades.
- Driven by increased global demand for food and high commodity prices.
- Over 60% of production is for export markets (China, Argentina, Brazil, etc).
- At farm level, row crops offer high annual income potential.
Grazing
Beef-Sheep
& Dairy
- Total area under grazing in Uruguay = over 15,000,000 hectares (beef, sheep & dairy systems).
- Nº of beef cattle heads: 11M.
- Nº of sheep cattle heads: 7M.
- Nº of dairy cattle heads: 700,000.
- Uruguayan meat quality is acknowledged all over the world for being produced under open skies, free of hormones and 100% traceable.
- Organic meat certifications are in place in Uruguay and the country is moving toward carbon neutral meat (first exports already occurred in 2022).
- Over 50-60% of total production (meat & dairy products) is exported.
- High quality standards (high end markets: EU, USA, Canada, China, etc).
- At the farm level, grazing systems offer on average a lower annual income potential than crops, but are more stable over time and lower in risk. The cattle market is highly liquid and transparent.
Forestry
- Total area under forestry in Uruguay is over 1M hectares.
- Main species: Eucaliptus.
- Not all land in Uruguay can be forested, but only land declared for forestry priority by law.
- This is important as commonly forestry grows very well in poor soils and adds value and diversity to lower yielding farms; and it does not compete with the best crop soils.
- Eucaliptus has high growth rate in Uruguay and can be harvested every 10 years on average.
- The forestry sector is highly integrated and Uruguay counts with three state-of-the-art pulp mills (Swedish and Finnish companies), thus there is large demand for wood, with stability over time.
- At the farm level, forestry offers very interesting income potential, is highly stable in time, but with a probable opportunity cost as it is only harvested every 10 years.
Uruguay offers a variety of different and attractive alternatives to operate and manage farmland and timberland.
A foreign investor may farm the land directly, hire a specialist farm management company to do the job, or take the buy and lease approach. The farmland leasing market in Uruguay is highly liquid and demand for all the previously described in farming activities.
land appreciation
Topography
Breeding
Shallows basaltic
Sandy soils
Complete Cycle
Fertile meadows
Basaltic soils (medium depth)
Beef & Sheep
Deep soils, low drainage,
heavy clay layer potentially floodable
Dairy
Crops
Fertile valleys
Deep fertile basaltic soils
High fertility valleys
Deep black meadows
Sedimentary soils
Beef & Sheep
Shallows soils
Sandy soils
Lifestyle
Hilly scenic country
Lakes, lagoons
Land Market Evolution in Uruguay:
The following graph shows the evolution of the price of land for the last 21 years. This assessment includes all land classes and transactions during the period, therefore is an average for the whole country. Analysis begins in 2000 as DIEA (official statistics office from the Ministry of Agriculture in Uruguay) started publishing these assessments and figures in that year.
The graph shows that even though there were some short periods of decreasing values and/or stagnancy, in the long run there is a very interesting land value increase trend for the overall 21 year period. The annual average appreciation of the land shown for the overall period is 4.76%.
* Enero 1 Junio 30 de 2021
Clearly, there are advantages and disadvantages associated with each option, as well as different income and asset appreciation matrices and ‘criteria’, which need careful consideration.
The value of an investment will also depend on other factors, such as soil quality, measured in a CONEAT index, indicating the location, shape and topographical composition that determines the percentage of actual farmable/usable land, which will have an effect on the annual income and long-term land appreciation.
This is where SOUTHLAND360 provides valuable assistance and guidance with choosing your perfect farm.
