Earn Better Than 16% Per Annum From This Turn-Key Agri-Play
I’ve been telling you since February about an opportunity I’ve identified to invest in a mango plantation here in Panama. My team and I carried out due diligence on this investment for months in advance of my reporting on it initially, and my research team has been out to the plantation many times. However, finally, last weekend, I had a chance to go to see the operation firsthand myself. I was impressed.
The developer’s original plan was to clear the first 100 hectares (of a total 750 hectares) for planting. However, sales have been brisker than expected, so they’ve taken advantage of having the necessary equipment on site and are clearing beyond 100 hectares. They expect to start putting trees in the ground in the next week or so. They have 8,000 trees ready for planting and another 4,000 being prepared offsite to follow. The nursery system has been designed to keep up with land clearance.
The most impressive thing I witnessed during the visit was the flight of the drone plane they are using to map the terrain before planting. The lead agronomist (and president of the company) wants to ensure optimal drainage, so he has his guys send up the drone at least once a week. The drone takes rapid-fire photos that the crew then review to monitor and manage the earthwork being done on the ground. It’s a high-tech strategy for making sure the trees will get the right amount of water to produce optimum quantities and quality of mangos.
The first 85 hectares will be planted with 16-month-old saplings, meaning these trees will begin producing mangos sooner than the younger six-month-old saplings that the original financial projections were based on.
As a result, the first investors will not have to wait until year four for cash flow, as had been projected, but will see some cash in year three. Getting a first crop nearly a year sooner than expected could increase the projected 20-year annualized return on investment from 16.52% to 20.21%.
Unfortunately, those first 85 hectares are sold already. In fact more than 150 hectares have been sold at this point.
Still, a 16.52% IRR sounds great, right? The question, though, of course, is: Why mangos?
Mangos are the most eaten tree fruit in the world. In Panama, the processing plants can’t get enough mangos locally so they have to import much of the supply they need from Brazil (where currency fluctuations between the dollar and the real have kept one plant from buying any mangos from Brazil this year), Ecuador (which is influenced by El Niño), or elsewhere. In fact, 80% of the mangos processed in Panama are from outside the country, which is more complicated and more expensive than a local supply would be.
Bottom line, the processing plants in Panama would love to be able to buy more mangos locally.
Meantime, while mangos are well known and highly consumed in the tropics, they are gaining notoriety in the United States and Europe, and many U.S. and European grocery chains are looking for suppliers. The projections for the return from this plantation have been based on selling harvests locally; however, there is a real possibility of increasing revenues (and returns to investors) by shipping fruit north, and this is an avenue the developer is rigorously exploring. In fact, one of the largest U.S. dried fruit distributors toured the operations a few weeks ago.
Panama’s is a perfect climate for growing mangos, and the country’s central geographic location, at the hub of the Americas, provides many long-term options for selling the fruit. Mango processing plants are based here for those reasons, among others. Del Monte, for example, processes mango fruit into juice in Panama, boxes it up, and ships the boxes regionally.
All of this is to say that demand is not a concern. Even if the developers get 1,000 hectares planted and producing in the next couple of years, their harvests won’t make a dent in the current demand…and the current demand is growing.
In addition, revenue from farming, including fruit orchards such as these, isn’t taxable in Panama if the revenue is less than US$300,000 per year per farm. So unless you are buying more than a dozen hectares, you should be able to take your returns tax-free in Panama for some time until or unless mango prices increase to the point where you surpass that revenue limit. That wouldn’t be the worst problem to have…and if that did happen, you could break your holdings into separate farms if you wanted to further avoid any Panama tax on revenues.
The management company that will oversee the planting and care of the trees has four generations of experience in farming in Panama. The head guy, Alan, knows his stuff. In fact, he already has a 350-hectare plantation under management. He planted those trees about 10 years ago.
Even with all of his experience, Alan has been conservative with the projections for this undertaking. They are based on the lowest production numbers and price per pound for mangos that could reasonably be used without obviously undercutting. So, while the returns look good, they definitely aren’t inflated.
Still, what if something goes wrong?
The variety of mangos being planted for this project is a hearty breed called Lady Victoria. A Lady Victoria mango has the pulp of an Alphonso but a thicker skin to help protect against pests. The trees themselves have deep roots that seek out water underground to help them survive during droughts. Drought isn’t generally a worry in Panama, but Alan is installing irrigation systems (which he’s managing with his cool drone plane) so he can control the water intake of the trees during the dry season and manage the harvest timing nevertheless.
Mango trees live for 60 to 80 years. This means that owning them can give you and your heirs a lifetime of cash flow from a sustainable investment.
A 1-hectare plot in this Panama plantation is priced at US$38,500. However, I have negotiated a reduced price with the developer of US$33,500 for Live and Invest Overseas readers only…at least until they get the first 100 hectares planted. This price includes all planting costs, irrigation infrastructure, and care of the trees until they start producing, at which point you’ll begin to pay an annual crop care fee.
If you invest in time to get in on the more mature saplings currently being planted, you could look for cash flow to begin in year three.
With this investment, you take title to the land and own the trees. Alan and his team simply manage the trees for you and take a percentage of your gross revenue for harvesting and selling the produce for you.
If you’d like to diversify your real estate holdings to include a mango plantation (something I recommend and that I am doing personally), you can get in touch here for more information here.
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