Coo-Coo For Coconuts—One Of The Most Diversified Investments In The World Today (With Projected Returns Of 36% Per Year)
Feb. 24, 2012, Fortaleza, Brazil: This coconut plantation is an agricultural land investment that represents one of the most diversified investments available in the world today.
Dear Live and Invest Overseas Reader,
I first alerted readers to this agricultural opportunity last June. I was sold on it then (or wouldn't have reported on it), but, in the months since, I've become even more persuaded that this is one of the best productive land investments that the small investor could make today.
And, to keep things in perspective, in the current climate, a productive land investment is among the smartest plays, period.
In this case, the land in question will be producing coconuts. And now, 10 months on, the group behind the investment is offering plots in its second plantation.
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.
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