I've been very bullish on agricultural land. This has been a focus for the past several years, as yield-generating investments are a critical part of any portfolio right now. Agricultural land can not only throw off a yield, but it also can be expected to appreciate in value as arable land around the world becomes scarcer and demand for food increases. Agricultural land in Colombia is no exception, but the crop you want to get involved with is coffee...not the other stuff.
Seriously, this country is known for growing some of the best coffee beans in the world. Surprisingly, though, the industry is not nearly as efficient or as developed as you might expect.
That's where Tierra Cafetera comes in. Their investment model is to source fincas already in production and then put turn-key operations and management in place on behalf of their investors.
You see, farmers in Colombia have little incentive to grow better or even more coffee. They get the same price for their product regardless of quality...unless they happen to be found by a micro-exporter like Tierra Cafetera's sister company Coffee Latin America.
With the sales outlet in place through Coffee Latin America, Tierra Cafetera is putting together the supply it needs—both directly, from Colombia coffee farmers, and by finding independent fincas to add to its portfolio. Fincas like La Virgen.
Now, with Finca La Virgen, the Tierra Cafetera team is at work on step 2—making the finca more efficient and productive. They are surveying the entire farm to finalize the planting plan for the high-value coffee bean varietals that Tierra Cafetera's wholesale buyers are looking for. It'll take up to three years for these newly planted coffee trees to produce, but that coffee will be worth considerably more than the good coffee already being harvested from this finca.
The high-value varietals that Tierra Cafetera plans to grow include Geisha, Mocha, Caturra, Parajito, and Bourbon. Geisha is the current hot commodity in the coffee world, but, like fine wine drinkers, gourmet coffee aficionados like different coffees for different occasions. Hence the plan to plant multiple high-quality specialty coffees.
Perhaps most important, the tenant farmer charged with caring for the coffee trees that Tierra Cafetera is planting is being trained in modern, state-of-the-art coffee-farming techniques so that he can maximize yields. Growing better quality coffee beans and increasing yields are two integral parts of the overall value formula at work here.
By implementing modern farming techniques—using fertilizers, organic pesticides, and better planting techniques, for example—Tierra Cafetera expects to be able to increase the average yield of farms from the current less than 50% of maximum potential to a more optimum level over the course of 10 years. Meantime, they will get better quality coffee from the current trees...and the new plantings (such as the Geisha) will increase the average per-pound price potential when those trees start producing.
The bottom line of all this is a turn-key opportunity for the investor. An investor buys a piece of property (that is, a parcel in La Virgen), and Tierra Cafetera takes over from there.
Built-in management is one of the big advantages of this kind of agricultural investment. You own the land, but it's worked by a local farmer who cares for the coffee plants and that farmer is managed by the Tierra Cafetera team. Returns for investing in these turn-key fincas are projected to reach an annualized 19% over a 20-year period. Of course, it'll take some time to optimize the finca for quality and quantity of the coffee produced, but, as each finca that Tierra Cafetera brings into their network is already a producing coffee farm, cash starts flowing back to investors six months after the farm is brought online. Initial cash flow will be nominal, but, over time, the revenue generated from the farm could become significant as the production yields increase and the higher value coffee comes online.
That 19% annualized yield doesn't include the value of the land (remember, as an investor, you own and take title to the piece of the finca in question that you invest in), which one could reasonably expect to increase over the 20-year period used for the projections.
Given the minimum investment of US$10,000 for a half-acre parcel, this is an opportunity to dip your toe into an agricultural land play with minimum risk. Note that I don't expect this low minimum to remain in place much longer. Soon, Tierra Cafetera intends to raise the minimum to five parcels (that is, US$50,000).
For more details on what I see as a very appealing productive land investment opportunity in a growth market, inquire here.
Lief SimonContinue Reading:
Latin America Correspondent Lee Harrison, a one-time resident of Ecuador who happens to be in Panama City with us for this week's meetings, responds:
"I used Banco Pichincha while in Ecuador. They had a good web interface and web functionality, and they remained solvent throughout Ecuador's banking crisis in 2000. Also, they have lots of branches around the country, so there's always a convenient location when you need to go in person.
Most important, they offer direct-debit for your utility bills, so you don't have to go to the utility and stand in line in order to pay.
Aside from Banco Pichincha, I'd also recommend Banco de Guayaquil. I never had an account there personally, but they were recommended by the U.S. consulate, and the consulate actually uses them for their own banking.
"Kathleen, I've often thought how good it would be to buy a piece of land, even perhaps a small village, abroad and move there with friends in retirement, creating an instant community and avoiding all the problems of being alone in a new country. But it is a pipe-dream to think that friends would all up sticks and do the same thing together. This is where the idea of the 'self-sufficient community' created by Phil Hahn in Belize has great potential. It means that the community is there.
"I hope that other entrepreneurs can do similar things in other parts of the world. Perhaps somewhere coastal where it is warm but not too hot..."
--Stewart B., United States
A colleague is working now to set up such a community in Panama near the coast. We'll keep you advised as this project progresses.
"Kathleen, excellent piece from Lief on Colombian coffee, which is still the best. Unlike Brazilian coffee, which is machine harvested, Colombian coffee is hand-picked.
"However, you need to look at the role of the Coffee Federation Co-Op. They control what coffee does in Colombia and overseas."
--Bob A., United States
The Coffee Federation Co-Op is an important reason why the opportunity exists for the guys we reported on to buy the coffee direct from the growers and offer a better price for better coffee. You can go here now to read more about growing coffee in Colombia.
"Kathleen, I've been reading your work since the old days. I credit your influence with helping me to decide to move from New York City to Palma de Mallorca (Spain) almost nine years ago. Well, I think Palma's run its course. And Uruguay has been tickling my brain for a couple of years now.
"At the moment, my plan is to spend the entire month of August traveling the country. I know that it will be winter there at that time, but I believe it's best to look at a place in the off-season.
"It's a pretty big step. But, having done it before, I know it's possible. Last time, I think I got a little lucky. I'm trying to be a little smarter this time. That's why I'm reaching out to you folks for any contacts you might have to offer and why I've given myself a reasonable amount of planning time."
--Lee B., Spain
Two great resources for information on living and investing in Uruguay are Juan Federico Fischer and Paul Reynolds.
"Kathleen, the 'Worldwide Weekend Wire' you're now publishing provides excellent news and information. News organizations all over the world could learn how news is supposed to be written/presented . No slant...just the facts. WOW!
"Kudos and thank you. I read each week's issue from top to bottom."
--Linda F., United States
"Kathleen, I'm enjoying your writings about Panama. I spent 32 months there when I was in the Navy. I was at Balboa naval station. Years back, my wife and I and about 30 friends took a cruise through the Panama Canal. My surprise was that they had built a bridge across the canal. We had to wait if a ship was going into Miraflores locks, and people on the ship would wave at us.
"My, how things have changed. Lots of fine memories..."
--John B., United States
"Kathleen, the expression is 'down-at-heel,' not 'down at the heels,' as you've used it recently. Bloody American English! You yanks butcher the language!"
--Robin B., United Kingdom
"Kathleen, much of the information in your 52 Days retirement abroad program is geared to people who are probably retiring with little money and may need to work abroad. Hence, nations like Panama, Belize, and others are promoted.
"What if we can have a bit more money and need not live only on our Social Security checks?
"What is the next tier of nations? Or which cities in Central or South America might we also explore?
"Our preference is to reside part of each year in rotation countries; that is, perhaps Bariloche for part of the year, Montevideo for part of the year, and western Costa Rica for the rest.
"Does this approach make sense, or do you suggest that we simply pick a preferred country and then search for the right neighborhood?
"Many thanks, as we look forward to your 52 Days assignments every day!"
--Bill B., United States
What you're contemplating is what I call "following the seasons," spending time in three or four countries each year depending on the weather or some other criteria, depending on what is most important to you. This is a strategy that definitely makes sense. In fact, it's the strategy that Lief and I intend to follow when the time comes.
The downside to this approach is that it requires more administration than simply relocating or retiring to a single spot full-time.
You could invest in properties in each location where you want to spend time, you could invest in homes of your own in some of the locations, or you could buy in just one of the locations you've identified, a place to use as a base...then you'd rent furnished places in the other locations. Or you could rent everywhere and just travel with a couple suitcases and a laptop. We know people approaching this both ways. Our intention is to own in all the places where we want to be, but that's primarily because real estate is our preferred form of investment. This is a strategy that allows us to marry our retirement plan with our overall approach to investing.
Higher-end destinations in Latin America to consider in addition to those you have listed (Bariloche, Montevideo, and Costa Rica) might include Medellin, Colombia; Buenos Aires, Argentina; and Puerto Vallarta, Mexico.
I'd suggest also considering Europe. If budget isn't a concern, then including at least one European destination as part of your rotation could add a lot to the overall experience. Top of the list of top-end choices in this part of the world would be Paris, as well as the South of France; Barcelona, Spain; much of Italy; Croatia; Geneva, Switzerland; and Vienna, Austria.
I hope that helps.
Kathleen PeddicordContinue 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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