Colombian Coffee—A Legacy Investment (That Returns Up To 19% A Year)
Karen Blixen was told that the elevation of her land outside Nairobi, Kenya, was too high for growing coffee. Ms. Blixen planted coffee nevertheless—and it did grow.
Alas, the coffee plantation burned down not too many years later, and Karen Blixen sold the land, which eventually became the suburb of Nairobi named for her—Karen.
I stayed at a resort built on part of that coffee plantation a few weeks ago. The altitude and climate reminded me of those of coffee plantations I’ve known in Colombia, including the plantations of Cima Coffee Farms.
While Karen Blixen’s coffee adventures didn’t work out for her, coffee does indeed grow well at altitudes as high as 7,000 feet, as the team at Cima Coffee Farms is reminding us. In fact, they’ve just sent out dividend checks to their initial plantation investors, ahead of projections.
You know how I feel about agricultural land as an investment. Bottom line, an agricultural investment is the best place to put money today. It’s a real asset; it has the potential to generate a yield; and it’s the best long-term store and growth of value prospect possible. You could invest in productive land to farm yourself or to lease to a farmer for a fixed rent. Or you could do what the land owners working with Cima Coffee Farms are doing—that is, have someone work and manage the farm for you and pay you a percentage of the cash generated from the harvests, in this case coffee.
The opportunity available from Cima Coffee Farms is turn-key. The development group behind Cima sources coffee fincas they believe have excellent upside potential and sell parcels of each plantation to individuals. These fincas are already producing coffee, meaning investors can see immediate cash flow. However, Cima targets plantations where they perceive an opportunity to improve both production yields and the quality of the coffee beans being harvested.
Most coffee farmers don’t have the means or the knowledge to invest in modern equipment, fertilizer, and other variables that could help them to improve their production. This is where Cima Coffee Farms adds value. They purchase an operating finca and invite the farmers to remain and continue to help work the land if they want, meantime introducing the knowledge and the equipment required to increase production and to improve the quality of the harvests.
Cima’s overriding objective is to work with farmers to produce high-end coffee beans that can be sold at a premium through Cima’s wholesale and retail outlets. Increasing overall coffee production on the plantations helps to increase revenue, but only so many beans can be harvested from any given amount of land. Producing higher quality coffee, therefore, is the key to the returns that Cima projects.
Commodity prices paid to a farmer for bulk coffee can be a fraction of the value of high-grade coffee beans. Unfortunately, most farmers, even if they are growing better-than-average coffee beans, have little choice but to accept the commodity prices offered to them (and every other farmer in the region) by local coffee co-ops. To get the better prices, farmers need an outlet, a way to access specialty coffee sellers willing to buy direct from farmers. Cima Coffee Farms makes this possible through their sister company Coffee Latin America (CLA). CLA purchases premium coffee from many sources, including Cima Coffee Farms.
An individual investor can become an owner of a small coffee farm in Cima’s network for as little as US$10,000, but the economies of scale kick in with bigger parcels. That’s why Cima Coffee Farms offers package discounts, starting with six parcels for US$54,000. Each parcel is a quarter-acre and comes planted with already producing coffee. Cima’s management company, Tierra Cafetera, goes into each farm after it’s purchased to create a development plan (involving the purchase of equipment, new plantings, new varieties of coffee, new fertilization methods, and irrigation if necessary) and to train the farmer. The cost of all of this initial management activity is included in the initial investment.
The projected annualized return for these improved farms is 19% over 20 years. The returns are lower in the first years but increase over time. The 19% is based on the assumption that the first year or two will run at break even or a loss, after production costs have been covered. However, recently, Cima sent checks to initial investors that amounted to an annualized return of 3.43% for year one of their investments. Again, that’s not 19%, but it’s better than break even or a loss, and, as the plantation improvements show results over time, those returns should increase significantly. Over a 20-year period, the returns look excellent.
Of course, as a plantation investor, you own the land, meaning the 20-year timeline is really an arbitrary period to help in the analysis of the opportunity. You could sell your land before 20 years if you wanted, and, assuming you didn’t, you’d own it after 20 years…indefinitely. This investment falls under the “legacy” category. It’s something you could leave to your kids or grandkids.
I’ve asked James Cummiskey, one of the principals behind Cima, to participate in a webinar for people interested in learning more about this Colombian coffee plantation investment opportunity. The Coffee Plantation Investment Webinar is scheduled for this Friday, Aug. 30, at 11 a.m. Central Time. It will be your chance to have all your questions answered.
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