Their coconut water products are not marketed aggressively in the United States by either Coke or Pepsi, because neither group can get enough supply. They sell all that they are able to produce even without making any serious investment in promotion.
Coconut water alone has enough of a market to make investing in plantations of coconuts a good idea, but it's only the beginning of the investment opportunity. In addition, there's the oil, which, like the nut itself, has many potential uses, key among them biofuel. Brazil is energy self-sufficient. It produces all the energy it needs from products within its borders, both fossil fuels, like oil and natural gas, and biofuels, from coconuts and other crops. Biofuel from coconut oil is more efficient than biofuel from corn, making it a more interesting option, and Brazil is at the forefront of efforts to use coconut oil for fuel. More than 50% of the cars in Brazil run on bioethanol, and 90% of new cars in Brazil are designed to burn biofuel. Meantime, coconut oil can also be used for cooking and pharmaceuticals.
A coconut also has a husk, which also can be used as a biofuel (I visited a coconut processing plant in Brazil that uses the husks from the coconuts it's processing to run the generator that powers the entire plant). Coconut husks also can be made into stuffing for mattresses and furniture. Then you have the meat, which is used for foodstuffs, including coconut milk when pressed a certain way, and the shell. You may never have seen a coconut shell, because it hides beneath the husk, but it, too, has value, as an animal feed.
With all these potential revenue streams, the investor in a coconut plantation can feel comfortable that, when his nuts are ready for harvest, he'll find a market. If folks are drinking less coconut water, maybe cosmetic companies are shopping for more oil. If biofuel prices are down, maybe pharmaceutical prices are up.
Owning a couple of hectares of coconut trees could be a very profitable concept. At the same time, owning a couple of random hectares of any kind of tree doesn't make much investment sense. For this kind of investment to work, you need trees that are managed professionally by an outfit that has both experience growing and harvesting the crop in question and access to a ready market for the end product. Unless you're ready to invest a lot time in understanding the industry and running the farm, owning a plantation of your own is certainly an ambitious and probably a silly idea. The more sensible option, as with teak, is to invest in a managed plantation where you own the land. This way, you have direct ownership, while benefiting from the management company's economies of scale and expertise.
Over the years, I've looked at several tree investment opportunities. In the case of coconuts, I believe the best ones are grown in Brazil, specifically in Fortaleza, thanks to this region's soil and climate. Fortaleza has long stretches of the kind of sandy soil that coconut trees like and favorable annual rainfall levels. Plus, unlike the Philippines and India, two other big coconut-growing locales, this part of the world is out of any treacherous storm zone, so the trees aren't exposed to damaging winds.
Despite this, there are few coconut plantations in Brazil, making this a growth market. The country has the infrastructure to process coconuts for all their various uses, and one group in particular packages a coconut plantation investment opportunity on Brazil's northern coast specifically for the small individual foreign investor.
The investment is fully turn-key, completely managed for you. The developer's management group plants the trees and manages the ongoing harvesting as well as the sale of the coconuts to processing plants. They also take care of all administration and paperwork associated with investing in Brazil, including to do with getting money in and out of this country, even paying local Brazil taxes. Then they send you your profits on a bi-annual basis.
The minimum investment requirement is US$60,000, which buys you 2 hectares of land in a managed plantation. The projected annualized return, net of all costs and expenses, including, again, Brazilian income tax, is about 15%.
That net return figure is based on the first coconuts being sold in year three, as it takes three years in the ground before trees begin to produce. Once the trees are fully producing, the net annual yield on your original investment is projected at 35%. That's impressive.
The trees produce for 60 years, but production declines after 40 years, so the management company is planning a tree replacement program. They will switch out older trees for new ones so that production is not interrupted.
The management company takes 30% of the revenue after direct crop-care expenses are deducted. This aligns their interest with yours, as the more money they make, the more money you make.
Few property opportunities available right now have the potential for double-digit returns. A net annualized lifetime ROI of 15% and a net annual ROI of 35% once the trees are producing fully? These are numbers to get excited about. The only way to beat them would be to do a large project on your own.
One of the many reasons I like this opportunity is because it generates cash flow relatively quickly and for the very long term. Unlike a timber investment, for example, you don't have to wait for one big harvest many years down the road to see your return.
For more information, you can get in touch here.
P.S. I've detailed for you this week three of the best current productive land investment opportunities in the world--farmland in Uruguay, teak in Panama, and managed coconut plantations in Brazil. I've also invited representatives for each of these diversification opportunities to join us in Panama City next week for our final Offshore Summit of this year.
We scheduled this event so that attendees would have time to make plans in the wake of yesterday's U.S. presidential election and in anticipation of year-end tax and banking changes. A handful of seats remain available in the room. Details are here.Continue Reading:
To help investors engaged in active discussions, therefore, the principals put together an investigation tour for this month (May 24 to 27).
They designed the trip to be similar to the one Kathie and I made with them when doing our due diligence last year. One day you visit the plantation, where more than 20 hectares of trees are already in production and plantings are under way on the first section of new dwarf coconut trees. Then you go over to the nearby processing plant to see how they use all the various parts of the coconut to create the different end products they're then able to sell.
The processing plant is a critical piece, very important to the projected returns. To state the obvious, if you don't have a market for the coconuts, then you have no revenues. There are several processing plants in the vicinity of the plantations, one of which in particular is interested in buying every coconut these guys can grow.
On the second day, you visit Cohibra, the outfit that is providing the baby trees for planting and that has been engaged to manage both the planting and the harvesting of the coconuts. This company has more than 30 years' experience researching and growing better coconut trees. The new specially engineered hybrid coconuts, for example, that will be planted for the current plantation offering come from this group.
At Cohibra, you'll see the nursery, the cross pollination lab, and the irrigation and fertilization infrastructure that will be installed at the developer's plantation. Cohibra brings a level of sophistication to the operation. They'll be responsible for making sure the growing process maximizes coconut production.
As I mentioned, the trip this month was initially put together for people already engaged in active discussions about making an investment. However, we've worked with the developer to expand the invitation. Now, the trip is available to anyone interested in looking more closely at the opportunity. At this point, they can still accommodate a handful of additional people.
This isn't a tour, per se (not designed for sightseeing), but it is all-inclusive. You're responsible for getting yourself to Fortaleza, the jumping-off point for the program. Once there, everything (hotel, transportation, meals, etc.) is included in the single fee of US$750 per person or US$1,000 for a couple traveling together.
If you decide, after viewing the plantation, etc., to buy two or more units, the developer will rebate the cost of your tour from your purchase price. If you decide for some reason not to buy after having toured the operation, you'll at least have had a unique experience in Brazil and an interesting lesson in coconut agriculture. However, I'd bet that, if you're seriously thinking about making a productive land investment, you'll be so impressed by what has been put together here that you'll want to get involved.
For more details on the trip and to reserve a place, please inquire here.
P.S. Remember that Americans need a visa to travel to Brazil. This can take less than a week. The visa you receive will be multiple-entry good for five years, so you'll be able to travel back to visit your coconut trees as they mature without having to get another one.
P.P.S. If you're not able to make these May dates, the developer plans another such expedition later this year. Note that the cost of the investment likely will be higher by then.Continuing Reading:
The first plantation, offered last June, is fully sold out and being planted as you read this. Both the infrastructure (including irrigation, fertilization, and monitoring systems) and the coconut trees are going in. The last six months have been spent sourcing, finalizing permits for, and coordinating the purchase and transportation of 50,000 dwarf coconut trees, which will be farmed on the 234 hectares of land that this plantation includes.
Note that 20 hectares of this first plantation were planted when the developers bought the land. I make this point because it means they had real figures based on past production to reference when putting together their projections for future production.
The first plantation offering sold out, the developer managed to procure additional land adjacent to the first parcel and, as I mentioned, has recently launched a second plantation, which will farm not dwarf, but hybrid coconut trees. This 400-hectare plantation has been broken out into four 100-hectare sections. The first section is sold out, the second nearly so.
Why is everyone coo-coo for coconuts? Primarily, it's the projected returns.
For the first plantation, the developer projected almost unbelievable returns. I knew investors at the time who didn't buy because they thought the offer sounded too good to be true.
The returns were so high because the initial buy-in was so low. The developer had to create proof of concept. He's done that. Now, with his second plantation, he's got an emerging track record.
Still, the purchase price on offer right now translates to very appealing projected returns. Specifically, the investor buying today is looking at 16.6% annualized returns (or 36% annual yields once the trees are fully producing). In today's world, that's an income stream that gets your attention.
Another reason the concept has taken off so strongly is the broad diversification it offers. This is an agricultural investment, in fast-growing Brazil, in a commodity that can be converted into multiple end products, in a currency outside the U.S. dollar and the euro. If one of your investment objectives is diversification (as it should be), it doesn't get any better than that.
Further, the multiple end products this commodity can be used for is a key factor in its own right. There's coconut water, an established market in Brazil but an emerging health-drink favorite in the United States and Europe, as well. Big-deal beverage companies Coca-Cola and Pepsi are branching out into coconut water lines.
The demand in Brazil is established and growing. However, as the rest of the world starts drinking coconut water, too, the expectation is that supply won't be able to keep up with demand. Already a small start-up company, Vita Coco, has expanded from its U.S. origins into niche European markets. The coconut water brands launched by Coke and Pepsi don't market because they can't keep bottles on the shelves. Both companies are looking for big new suppliers in Brazil (and both have been speaking with this developer about long-term contracts).
The water portion of the demand curve is strong and growing, but it's only demand #1. In addition, coconuts produce meat and oil. Coconut meat is useful for food preparation and represents the ultimate back-up application for the commodity, as it's probably the least valuable use in the current climate.
Coconut oil, on the other hand, in big and growing demand, as well, has a potentially much more valuable application. Certain coconuts produce oils sought-after by the pharmaceutical industry. Others, including the ones being planted by the developers behind these plantations, produce oil that can be used as a bio-fuel. Brazil, it's important to note, with much experience in the production of green fuels, has processing plants in place where this oil can be sent for conversion.
The goal, of course, is to extract as much as possible of each of the potential by-products from each and every coconut harvested. The infrastructure to do this is already in place. The plant I toured when I visited was operating extremely efficiently, using the husks from the coconuts in its own power generator and selling the excess to other companies with generators to burn the husks (a very green fuel, with little exhaust pollution).
The water is extracted for canning and bottling. Then they take the meat and process that for food applications. Finally, they take the leftover bits and compress them for cooking oil. The solid remains from that process are high in nutrients, so they turn those into animal feed.
All in all, the coconut may be one of the most useful and diverse agricultural products on earth. For the investor, this translates to low downside risk, as chances are very strong coconut producers will always be able to sell their nuts for some purpose.
I also like that these plantations are located in Brazil. The region of the country where the trees are being farmed provides the perfect growing circumstances (of soil, water, climate, etc.). Plus, being in Brazil, as I mentioned, brings economic and currency diversification.
Brazil continues to be touted as an up-and-coming economy, but, the truth is, Brazil is a here-and-now economy. Much of the world remains unfamiliar with it because it is incredibly self-sufficient and doesn't need much from anyone else. Brazil can feed its people and produce its own energy. It has a manufacturing base, as well, and doesn't need to seek outside help to grow its economy. Its population of 195 million people represents about two-thirds the population of the United States. With a growing middle class, local demand for things like coconut water is expected to continue to increase at a fast clip.
I think the big-picture case for this investment is clear-cut. Could you do it on your own? That is, could you, as a small individual investor, diversify into your own coconut plantation? Would not be easy, which is why, the better I've come to understand all this, the more I like the group behind these plantations in Brazil. They have created a way for small investors to work together to benefit from one of the most appealing investment opportunities on offer anywhere in the world today.
This group has structured their plantations so that individuals can take ownership of their own titled parcels of land, planted with their own trees. Meantime, all the land together is managed as one plantation, creating great economies of scale.
The minimum purchase is 2 hectares, which is currently priced at US$60,000 (a hectare is about 2.5 acres, meaning you're buying about 5 acres).
Two hectares is the minimum, but you can buy in any hectare amount over 2 hectares--for example, 3 hectares or 8. Discounts begin at 10 hectares, when the price is reduced by US$2,500 per hectare.
At the minimum 2-hectare investment, the 16.6% referenced above is the projected annualized ROI. It takes three years before the trees begin producing coconuts. Meaning that you begin to see cash returns in year four, but it's not until year six, when the coconut trees are fully mature, that the full cash yields are achieved. At that point, the projected annual cash flow is a 36% yield on your original investment amount.
The projections are based on conservative figures for number of coconuts produced per tree per year and on conservative market price per coconut sold. Better to under-promise and over-fulfill is one of the mantras of the management team.
Meantime, it's in the management team's best interest long term to make you as much money from the coconuts as possible, as that's where they make most of their return. The management company gets 30% of the net profits after expenses and Brazilian income tax. (Note that the 16.6% annualized return is net of expenses, Brazil taxes, and management split. It's a true net figure. All you have to worry about is any taxes you might owe back home...wherever that is.)
The developer understands that many investors like to kick the tires, so to speak, before buying, so they are offering a site-inspection rebate for anyone who invests in 4 hectares or more (that is, for anyone who makes an investment of US$120,000 or more).
Specifically, they'll reimburse you up to US$1,000 for airfare and will cover your hotel expense for four nights if you want to visit them in Brazil. During your four-day visit, they will take you to see the plantation (irrigation and fertilization infrastructure is currently being installed for the first plantation, so you'd really be able to get an idea what's going on); they will take you to visit the management company that will oversee the care and harvest of the trees; and they will take you to visit a processing plant so you can see what will be done with the coconuts once they're harvested.
The next site-inspection trip is scheduled for May 17-20. Anyone interested is welcome, but the reimbursement offer is for those investing at the level referenced above only.
You can contact the developer here for more information about the current investment offering, as well as more details on the site inspection in May.Continue Reading:
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Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.
Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.
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