Productive Land Investment In Brazil

Plantation Profits

July 1, 2011: Here’s a low cost of entry productive asset investment opportunity in Fortaleza, Brazil.

Fortaleza, Brazil

Dear Live and Invest Overseas Reader,

About a month ago, I wrote to tell you about a group I know in Fortaleza, Brazil, that is offering an agricultural investment opportunity I believe is interesting even for the small investor. The minimum capital requirement is low, and the risks aren't extreme. Plus (and this is important), they've eliminated at least one of my big concerns related to investing in Brazil--that is, getting your money out of the country when you decide you want to.

The opportunity is coconut trees. The premise is straightforward. You buy 2 hectares planted with coconut trees, and the management company does the rest. The reality isn't quite that simple, but that's the bottom-line idea.

A managed plantation is really the only way for an individual to invest directly in agriculture...short of becoming a farmer yourself. The management company handles all the work, from planting and maintaining the trees to harvesting the crop. In this case, the crop is coconuts.

Coconuts produce several end products that give them value--coconut meat, coconut milk, coconut oil, and the husk of the nut. The big value is from the oil. It's used for biofuel, and, as you probably know, Brazil is a leader in developing biofuels. Right now more than 50% of the cars in Brazil run on bioethanol, and 90% of new cars in Brazil are designed to burn biofuel.

The price of coconut oil increased 93% from August 2010 to February 2011. It's expected to continue to rise as demand increases for biofuel, but, even if it doesn't, owning a couple of hectares of coconut trees can be a profitable concept. Of course, 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 access to a ready market for the sale of the end product.

You could always invest in a plantation of your own, but this is an ambitious undertaking, and, unless you're willing to invest a lot of time in understanding the industry and in managing the farm, you'll likely end up with little more than a bunch of trees. I see this all over Panama--teak "plantations" planted by people wanting to take advantage of government tax incentives for reforestation. Most of these plantations won't yield any return to speak of, because the owners haven't managed the tree growth and have no idea how or where to sell the timber when it's time for harvest.

This is why, for my money, buying into a managed plantation where you own the land is the only sensible way to invest in trees. You have direct ownership (rather than shares of a company, which I don't recommend), 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 the coconut plantation on the table now, the numbers are compelling.

Here's how this works.

You invest in 2 hectares, on which you can plant 500 trees. Each tree produces about 150 coconuts a year and each coconut sells for about 47 cents in today's market. This gives you around US$35,000 in gross revenue annually. The plantation manager takes 30%, leaving you with about US$25,000 a year in net revenues.

The cost of the investment is US$35,000.

What's the catch? The trees don't begin producing fruit for three years and aren't fully mature (that is, producing the 150 coconuts a year) until year five. Still, the projected returns are high.

The long-term projection for your return on investment is 33% annualized. Coconut trees produce for 60 years, so you wouldn't have a replanting issue in your lifetime. Should you want to resell your 2-hectare plantation at some point in the future, I would think that a buyer could be found if the management company isn't interested (and they likely could be, depending on the price you seek). There are always investors looking for a productive yield.

With the minimum investment being only US$35,000 (you could buy more than one 2-hectare investment, of course), this is a low cost way to diversify your real estate holdings. You get titled land with productive trees, turn-key management, some currency diversification, and a potential yield that is very appealing.

As I mentioned, I first wrote to you about this opportunity about a month ago. The response from Live and Invest Overseas readers has been great. That's why I'm writing to you about this again today. As of today, only 8 of the original 107 2-hectare parcels remain available.

For more details on this opportunity, get in touch here.

Lief Simon

P.S. After I first spoke with my contact in Brazil about this investment offering, I wanted to hop on a plane to go to see this plantation and to meet with the management company in person. Unfortunately, getting to Fortaleza from Panama isn't as easy as getting there from the United States (and it's not easy getting to Fortaleza from the United States). I still intend to try to make it down there at some point, but the travel itineraries mean a big investment of time.

You might find it easier to connect with Anthony (as I'm looking forward to doing) during our upcoming Offshore Summit, taking place in Panama City, Sept. 14-16. Anthony will participate in the conference to detail for those in attendance not only the particulars of this opportunity I've detailed today but others I like in Brazil right now, as well. You can read more here.

• P.P.S. Kathie and I are back in Panama City today after our week in Colombia. She'll have more for you on our Bogota adventures in her Sunday dispatch.

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