World’s Best Agri-Buys Part 3—Managed And Turn-Key Coconut Profits In Brazil
Nov. 7, 2012, Fortaleza, Brazil: A managed coconut plantation investment on the northeastern coast of Brazil is one of the best productive land investment opportunities in the world right now.
Dear Live and Invest Overseas Reader,
Coconuts are a multi-purpose crop. You can get a multitude of products out of one of these nuts, from water to meat, husk to oil. Each product has a different use and a different market. The biggest demands are for the water and the oil.
Coconuts are ubiquitous in Brazil and so is the water they produce. On any beach along this country's long coast, you can find coconut vendors hacking off the tops of coconuts, sticking a straw into each open nut, and selling the portable, natural thirst-quencher to hot and sticky passers-by. In the United States and Europe, coconut water is mass-produced, packaged in bottles and cans by big drink companies including Coca-Cola and Pepsi (the respective brands are Zico and O.N.E.), and sold on grocery store shelves.
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.
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