Agriculture in Uruguay - Overview

8/9/2019 Agriculture in Uruguay - Overview

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0www.alliedventure.com

Agriculture in Uruguay - Overview


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Executive Summary

Contract Farm in Uruguay, a safe and peaceful country in Latin Americawith tremendous growth opportunites.

Invest in one of the best growth sectors in the next few decades, as worldpopulation goes from 6.7 billion to 9 billion.

Diversify your risks away from agricultural areas threatened by waterscarcity and climate change.

Work to meet the food needs of India, especially in oilseeds and pulses.

Use Uruguay as a platform to expand into the rest of Latin America.


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Executive Summary

Benefit from a positive investment climate, clear land titles, a strong legal

system and open financial markets.

Repatriate 100% of capital, dividends and profits.

Enjoy working in a culture that values family and relationships, and is apluralistic democracy.

Watch Uruguay agriculture videos by clicking here


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Uruguay Country Info - Location


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Uruguay Country Info - Area

Sandwiched betweenArgentina and Brazil

Area: About 10% smaller

than the Indian states ofGujarat/Karnataka; 3times the size of Punjab


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Uruguay Country Info Population, Density

Population: 3.4 million (34lakhs), overall pop. densityabout 17 per sq.km.,

outside cities less than 5per sq.km.

Population: Small

compared toGujarat/Karnataka whichhave a population of over5.5 crores in about the

same area.

Population: About 95% areof European descent


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Uruguay Country Info Agriculture Suitability

Satellite map of Uruguay

86% land area is arable only1/8th of which is utilized

Abundant freshwater reservesfed by 28 rivers, network ofstreams and lakes; rain-fedagriculture, no irrigation pumps

required

4 cows for each citizen Each cow has 2 football fields of

grazing area Thriving dairy industry

Watch Uruguay agriculture videos by clicking here


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Uruguay Country Info Agriculture Environment

Land titles/ownership clear;legislation well-developed

Land transactions amongprivate parties

Politically stable country Government welcomes foreign

investment No governmental meddling in

agribusiness sector


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Uruguay Country Info Labour Force

Good standard of

basic education literacy rate 98%.

High standard of

university education TCS has its regional

office in the capital

Montevideo


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Investment Climate

The Uruguayan Constitution and investment law N 16.906 clearlystate that there can be no discrimination or unequal treatmentbetween local and foreign investors.

There is free movement of capital and dividends (in and out of thecountry) for any individual, institution or corporation.

All corporations and individuals are free to acquire any agribusiness

asset.

Corporate Tax on profits is 25% for all activities (except for forestryand software which is 0%) and can be lowered on certain types ofprojects (not agriculture).


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International Comments on Uruguay

Mr. John K. Veronaeau (Deputy Director of USTR): ..receiving such a compelling briefing on Uruguay and theeconomic strengths of this country and the strengths of the human capital of this country and the educational

attainment; it was very impressive, up to the point that I remarked that if Uruguay were a stock Iwould go out and buy it April 2008

For the U.S., Uruguay is a safe country for investments.http://uruguay.usembassy.gov/usaweb/2008/08-196EN.shtml

Uruguay: South Americas Best Kept Secret

http://www.us-television.tv/programs/uruguay-south-americas-best-kept-secret

http://www.associatedcontent.com/article/1465/uraguay_ssssh_south_americas_best_kept_pg2.html?cat=

http://whatwouldalpanadrink.blogspot.com/2008/12/uruguay-best-kept-secret-in-world.html

From the US & UK Government:http://uruguay.usembassy.gov/usaweb/2009/09-015EN.shtml

http://uruguay.usembassy.gov/usaweb/2009/09-119EN.shtml

http://www.state.gov/r/pa/ei/bgn/2091.htmhttp://www.commerce.gov/NewsRoom/PressReleases_FactSheets/PROD01_004210http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/uruguay?profile=all

Other Comments:http://www.heritage.org/research/latinamerica/em1003.cfmhttp://www.internationalliving.com/Countries/Uruguayhttp://www.prlog.org/10184987-uruguay-investment-property-one-to-watch.html


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Corporations in Agriculture

Corporations and individuals (local and foreigners) can acquire and operateagricultural projects in Uruguay

http://www.thompsonhine.com/publications/publication1778.html

http://news.bbc.co.uk/1/hi/world/americas/7469731.stm

Some Examples:

El Tejar (paragraphs 9 & 10) :http://www.ft.com/cms/s/0/6428e204-338d-11de-8f1b-00144feabdc0.html?nclick_check=1

Adeco Agro (Main shareholder: George Soros (UK)) with three farms in Uruguay.http://www.adecoagro.com

Metsa-Botnia (Finland) - Stora Enso (Sweden) - ENCE (Spain) - Portucel (Portugal)http://www.farminguk.com/news/Uruguay-Timber-plantations-attract-European-investors.13260.asp

New Zealand Farming - PGG Wrightson (Stake acquired by NRI company OLAM)http://www.nzfsu.co.nz/page.pasp?pageid=55

Weyerhaeuser (US)http://www.weyerhaeuser.com/Businesses/International/Uruguay

DAremberg Group (Germany), ADP (Grobocopatel ARG), several others.


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Uruguay offers these advantages in Latin America

Switzerland

Mauritius New Zealand

Social andPolitical Stability

BankingSecrecy

Agriculture Dairy

Forestry

Business-transparency

Company

Formation Sound Legal

framework

Qualified

workforce Preferential

market access

Uruguay


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Agriculture in Uruguay

High growth of planted area in the last 9 years from300,000 to over 1.3 million hectares

High yields compared to international standards approaching 3 tons/ha for soya, 8 tons/ha for rice

Highly mechanized and technology based operations

Continuous appreciation of land prices, but stillsignificantly lower that other agricultural areas in the

world (even than Argentina, neighbour across a river).

Strong inflow of foreign investors for 7 years in a row(30% of agricultural land in Uruguay is owned by foreign

companies).


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Growth in planted area 2001 to 2009

Source:UruguayanMinistryOfAgric

ulture


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Farmland available in abundance.

Total of at least 3 more million hectares very suitable for agriculture;

1 to 1.5 million hectares to be planted in the next 10 years

51%13%2.4Marginal

100%49%8.5Not proper for

agriculture

6%6%1Very highAptitude

100%

14%

17%

%

17.3Total

38%2.5Moderate

23%3High

Acc %MillionHa


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Agricultural Areas


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Fundamentals of Profitability

1. Excellent Agricultural Land and abundance of fresh water

Soybean plantation in a typical uruguayan landscape with no irrigation systems.


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2. Excellent weather conditions and water availability through rain.

Source: www.meteorologia.com.uy

Average Temperature (C) by Country Region

5

10

15

20

25

30

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

T-East

T-North

T-West

T-South


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2. Excellent weather conditions and water availability through rain.

Average Monthly Rain (mm) by Region

0

20

40

60

80

100

120

140

160

180

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

R-East

R-North

R-West

R-South

Annual Average = 1400 mm


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3. Large Areas + Technology + Logistics

All agricultural land is satellite-mapped and soil types and conditions detailedfor every hectare of the country.

Planters, Sprayers and Harvesters are satellite linked with high precision GPSsystems (


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4. Research and Knowledge

This region has a numerous group of internationally recognized agricultureresearch centres.

Qualified professionals are available to manage agricultural operations.

Agricultural Technology is being produced locally (Argentina and Brazil) andexported to Europe and the US.

The region is considered to be the most efficient grain cluster in the world.

USDA projects that in ten years, 80% of worlds international trade of grain willbe provided by this region (Brazil, Argentina, Paraguay and Uruguay).


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Economics of the Business

Operations and Management

All operations are outsourced. There are a large number of service providerswho provide the planting, spraying, harvesting, transport and warehousing

services. Management and Administration is also outsourced to specialized firms (such

as Allied Venture).

The company owned by the investor can have no more than 1 employee (the lotwatchman).

Planting, spraying and harvesting services are provided on an USD amount perhectare price. Transport and logistics on a USD per ton price.

Legal issues for human resource claims, etc. are thus diminished or inexistent.

Investment in expensive machinery is un-necessary (85% of agriculturaloperations work this way; only producers with more than 40.000 hectaresacquire machinery).

Contracts with operational parties are done on a single operation at a time(planting for this season), with no long-term commitment, so one can easily

switch operating service providers based on price and quality of services. It isa highly competitive market.


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Planting and Harvesting windows by Crop

PLANTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ftSoy (1st)Soy(2nd)WheatBarleyMaizeSorgumSunflowerOats

HARVESTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ftSoy (1st)Soy(2nd)WheatBarleyMaizeSorgum

SunflowerOats

APR MAY JUN JULDEC JAN FEB MARAUG SEP OCT NOV

AUTUMN WINTERSUMMERSPRING

ft: fortnight


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Production Schemes:

Almost all agricultural operations are based on crop rotations. Landand climate allows for crop switching or combination from season to

season.

Rotation is also a good practice to avoid land degradation producedby single crop plantation.

Typical productive schemes are based on selecting (or combiningplanted areas) of soy, maize, sunflower and/or sorghum in thesummer with wheat or barley in winter.

Diversification is adopted also to control weather risks andcommodity price risks.


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Risks and Risk Management:

Weather: Undoubtedly the most important risk for agriculture. Can be hedged byinsurance policies, location diversification, crop diversification and crop planning.

Commodity Prices: Usually volatile. Control actions include, contract farming (pricesand costs set at the start of operations), crop selection and diversification. Marginstend to have a much more stable behaviour given the high correlation between priceof grains and production costs. Prices are international prices with no tax distortions.

Operations Risk: Medium impact on financials. Nevertheless, selecting appropriateservice providers, close supervision of operations and good planning considerablydiminishes this risk.

Country Risk: All operations, prices and costs are US Dollar based, so there is nosignificant exchange rate risk. Uruguay, along with Chile, is the safest businessenvironment in the region with a long standing tradition of respect for law, contractsand the most stable.



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Is farming a profitable and attractive venture?

Projections at last years average prices, yields, and costs show returnsbetween 10 and 14% for owned land, between 20 and 25% for leased land.

Planted area grows year after year, so does production and yields with recordproductions being achieved in Uruguay each passing season.

Investors (new and old) keep investing in agriculture in Uruguay.

Big groups moved to Uruguay and havent stopped for expanding for morethan 5 consecutive years.

They say the are very satisfied and are planning for more.

Official numbers prove sustainability of margins and profits for the last 6consecutive years and in an upward trend.

Argentina, known for being an agricultural powerhouse, is the main source ofinvestors and farmers pouring into Uruguay.

The Business Case


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We have been involved in agriculture for decades, so we know about thesoundness of this business opportunity.

2009/early 2010 is an excellent year to enter the business, as land priceslagged when commodities went down.

Operating returns are high (above 35%) and so it is

a stable cash business despite commodity pricefluctuations and weather events.

The Business Case

Is farming a profitable and attractive venture?


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Knowledge of Latin America

Knowledge of Agribusiness

Knowledge of Uruguay

Investment Advisors

Why Allied Venture?


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Executive Team

Marcos Marin (38) - EC., MBA,MFINCorporate Finance, Private Equity,Business Strategy, Agribusiness,Food, Retail, Energy, IT

Univ. de la Repblica, UniversidadTorcuato di Tella, HarvardBusiness School

Lautaro Perez (36) - AGR., MAB,PHD(c)Agriculture, Food Processing andDistribution, Sales, Management,Business Strategy

Farming, Agribusiness, FoodUniv. de la Repblica, Kansas StateUniversity, ESADE

Dave Ramaswamy (38) - B.S., MBAMarketing and Sales, Mgmt. Consulting,Business Strategy, International Business

University of Illinois (Urbana-Champaign),

Kellogg School of Management -Northwestern University


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We are at your service!

Treinta y Tres 1334, Of. 401

Montevideo 11000 - Uruguay

Tel.: +598 (2) 916.2600

Through USA: +1 (305) 722 1275Through UK: +44 (20) 3026 0037

www.alliedventure.com

Marcos Marin - [email protected]

Dave Ramaswamy - [email protected]

Lautaro Perez - [email protected]


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Appendix


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Comparisons across Key Indices

Democracy Corruption Human Devl Literacy Rate Envt.

Sustainability

BRA: 42 80 70 89.6 11

ARG: 54 109 46 97.6 9

PAR: 71 138 95 93.6 17

URU: 27 23 47 97.8 3

IND: 35 85 132 65.2 101

Index

Source:DI: Democracy Index - The EconomistCPI: Corruption Perception Index - TransparencyInternationalHDI: Human Development Index - United NationsLR: Literacy Rate - United NationsESI: Environmental Sustainability Index - Yale University


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43,787

1,646

Uruguay

India

Agricultural landPer capita (Sq. km per 1000 people)

* Year 2005

Source: NationMaster.com


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40,420

1,750

Uruguay

India

Total Actual Renewable Water Resources (TARWR)Per capita m3/year

* Year 2005

Source: UN Aquastat


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Macroeconomic data

GNP per sector and per capitaIn million US$

2005 2006 2007 2008

Agribusiness 1562 1774 2102 3062Manufacturing 2579 3018 3523 4999Electricity, gas, Water 544 404 784 497Construction 962 1180 1453 2040Commerce 2210 2593 3277 4557Transport and Communications 1437 1668 1977 2818Other 8073 9397 11146 14234

TOTAL 17367 20032 24262 32207

GNP per capita (US$) 5254 6040 7299 9660

UNEMPLOYMENT RATE (%) 12,2% 11,4% 9,7% 7,6%

Uruguay GNP Growth (%)

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

2005 2006 2007 2008

Note: 2009 GDP growth estimated at 1%

Agricultural sectors share of GDP


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Agricultural sector s share of GDP

0%

2%

4%

6%

8%

10%

12%

14%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

%

ofTotalGDP

Agriculture

Livestock

Total and agricultural GDP evolution


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g(1990 = 100)

Growth 2002-2008: 66,5%

Annual cumulative growth: 7,6%

3,8-3,2Livestock

16,97,7Agriculture

11,22,8Total AGRO

20082007

Oth i i bl


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Exchange rate S/US$

Inflation

Other macroeconomic variables

Note: the majority of agricultural commodities in Uruguay are tradedin US dollars


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Evolution of Uruguay's total products export

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

MillionUS$

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

Thousandtons

Million US$

Thousand Tons

Source: Uruguay Central Bank, 2008, 36% increase compared to2007

Uruguay Exports breakdown


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Uruguay Exports breakdown

Beef products: 20%

Cereals: 8.3%

Dairy products: 8%

Cattle furs 6.7%

Wood: 5.7%

Wool: 5.1%

Oilseeds: 4.9%

Agricultural exports

represent almost 60%of total exports !!

Uruguay export markets (in %)


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Uruguay export markets (in %)

05

10

15

20

25

30

35

40

45

Mercosur UE Nafta Asia Africa Others

2000

2008

Source: BCU, Uruguay XXI, INE

E.U.

Agriculture in Uruguay - Overview

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