This is a photo I took of page 154 of the May 2012 issue of Elle Decor magazine (the magazine’s site is linked below). See the significance of this shot for early retirement.
There is a huge emigration from the USA and Canada to South America. Thousands of my readers are in this process and they share a lot about their reasoning with me.
I see several main themes behind this movement.
#1: Lower cost of living.
#2: New expanded horizons and reduction of stress.
#3: Escape from government intervention.
#4: Escape from bad weather and the traditional options of Florida and Arizona are no longer attractive.
#5: Fed up with big business… national distribution and dehumanization of service.
#6: Fear of high medical costs.
#7: Fear of lawsuits.
Not many people are immigrating to the Netherlands from North America but the article entitled “Going Dutch” by Gisela Williams tells of one couple who left Manhattan and moved to a château in the Netherlands that is updated with modern comforts, but filled with old-world charm.
The point in the article that caught my eye is quoted here (my bolds): Daniel Beauchemin and Marc de Laat have lived the golden life. Beauchemin was a top decorators who helped decorate the apartment of Mayor Bloomberg. De Laat had a lucrative real estate business in the Netherlands that allowed him in his 40s to sell out to focus on his passion in photograph and graphic design.
But as Beauchemin approached 50 they decide to step off Manhattan’s fast track. “What do you do in New York if you don’t work? Hang out in cafes and galleries all day?“
This is one reason so many North Americans are leaving and headed south or elsewhere. They perceive that life in the USA and Canada are no longer what they want. They see an overall drop in the standard of living… a dull grey existence has been forming and they want broader horizons.
Regretfully though I see too many who do leave not planning enough ahead for what they are going to do in their new home.
This is one reason we have been recommending investments in mini agriculture… not in the Netherlands… though the Dutch are fantastic farmers but in South America.
Food is one item that will rise in value with inflation and farming is enormously satisfying.
Now it is becoming easier to farm as farm management companies are catering to expats.
A law firm in Uruguay just sent this note: Uruguay: a top choice for farmland investing
Productive agricultural farmland is gaining increasing attention from investors worldwide, as global demand for food rises and arable land per capita decreases. The attractiveness of this new asset class lies in its non-speculative nature and steady yields, along with the consistent appreciation that the land is likely to deliver over time.
Uruguay, one of South America’s most stable and open economies, not only has the continent’s friendliest investment climate, but is also endowed with some of the most productive soil available, both for agriculture and cattle breeding. It’s no surprise that foreign investors are progressively focusing on Uruguayan land.
Among the factors that draw investors to Uruguay, we find:
• A well priced and transparent property market: Every property in the country is mapped, and that map is available online, so an investor can verify a property´s soil types and productivity index.
• Widespread availability of farm management expertise: This makes it easy for the absentee investor to purchase a farm and have a farm management firm oversee it and run the activity on the land, reporting to the owner as required.
• A very liquid and dynamic land-lease market: This enables owners who do not wish to exploit the farm, to simply lease it.
• Sound fundamentals underlying the investment: The asset will likely appreciate consistently and in the meantime provide stable returns: leasing agricultural land yields between 3.5 and 4% of the land’s value, and farming it yields –on average- 3 to 9%.
Our specialized farmland investment advisory unit assists investors of different sizes and from many corners of the world in farmland investing, by:
• Finding the correct farm, according to the buyer’s specifications.
• Structuring the purchase: our conveyance attorneys conduct the due diligence on the deeds and handle the documentation of the purchase through the recording of the deed.
• Incorporating an ownership vehicle (if required).
• Setting up the operational aspects of the investment: either helping secure a farm management company or a lease on the land.
• Providing the ongoing legal, accounting and tax support.
Jean Marie Butterlin who heads up A Team Ecuador offers a farm management program in Ecuador.
Ecuador farming ranges from big to small.
Potato farming family near Otavalo.
Dairy for organic cheese outside Cotacachi.
There is an unimaginable variety in Ecuador agriculture.
Llamas for wool.
Corn is everywhere… huge farms and small concerns like this family plot nearby.
There is almost every type of vegetable… nut and fruit.
Ecuador food market.
Amazing varieties of flowers.
Ecuador tropical flowers.
A good case study for a specific and large Ecuador agri operation is the farming operation set up by Young Living Essential oils.
After creating a marketing system for the oils and farming in the USA, Gary and his wife…
moved to Ecuador… began a large farming operation as well as…
Yet Ecuador agricultural prices are still low… especially on the coast.
Save $499 on agricultural tour.
Jean Marie began conducting four wheel drive agricultural tours last year. Many readers wanted to attend this tour but also wanted to take real estate tours to see residential real estate. So, Jean Marie came up with a great solution… any delegate on an ag expedition can attend a coastal real estate tour (normally $499) free.
Here’s the note that Jean Marie recently sent me.
Ecuador Agriculture Business Summary
A- Introduction :
We were all taught that Investing is all about relationship between risk and reward.
But the most important point is, that we are always looking FIRST for the return OF the money (safety) before SECOND the return ON the money (yield).
When investing, we are asking ourselves these 3 questions :
- How safe is the asset and how much does it yield?
- How liquid is the asset we are buying i.e. how quickly can we sell it for cash?
- What happens if the USD drops or goes up ? (Ecuador is a dollarized country.)
We have been studying the Ecuadorian agriculture business for some time now and have found out good opportunities for making some nice returns. Right now we are investing our money in Ecuadorian land as we have in the past invested in Ecuadorian real estate esp. in Bahia, which is the cheapest coast in the world.
We have assembled a team of experts in agriculture i.e. agri-engineers, business management, sales and marketing, accounting, legal areas, but most importantly we have setup a network of locals in many parts of Manabi, whom we call “spotters”, that help us find the available properties at the best possible price. These spotters live within the community and know the history, owner of each property. They help us to sort out the deed issues and we get the also all the info : good, bad, i.e. potential problems with water, neighbors, etc.
Our team allows us to minimize the risks associated with agri-business from knowing all about potential pest problems in an area to the date of last drought or flooding etc.
When buying an asset class, one has to ask also, how desirable that asset will be in the foreseable future. Mankind just passed the 7 billion mark and arable land is decreasing every year. China is buying all over the world big tracks of land to secure enough food production for their own people. More and more land is allocated to making biofuel, which is one of the areas we are working also in Manabi.
Ecuador has still one of the best and cheapest land available in all South America.
What I have found in Ecuador is a nice RISK/REWARD combination:
- land will never go down in price like housing has done in the past; no bubble yet
- Ecuador law is pro-foreign ownership
- land is still cheap : $500/hectare to $5,000/hectare depending on water availability.
- Good labor : qualified and cheap
- on site management by Ecuadorian experts supervised by a team of business people that have experience in managing businesses.
B- Profit potential in Ecuador Agriculture:
How much can you expect to make in Ecuador agri business?
It depends on 3 factors :
- price of the land
- combination of crops
- quality of management
We have our own team of experts that work for us. These experts have their own farms and teach at agri-engineers schools. For example, one of them was born in Israel (Israel knows how to grow food in the desert…) and has managed a 15,000 acre cacao farm in Ecuador. He now manages his own farms….
Here are the 2 big questions we are always being asked : If the agri-business is so good, why are not more people getting into it and why are most Ecuadorian farmers so poor?
The answer to Question 1 is simple : It is not easy to find good available property, with deeds, etc…. as Ecuadorians hold onto their properties and do not sell easily. That is why I have setup a network of locals that roam the countryside where they live and where they are respected.
The answer to Question 2 is a bit more complex but has a lot to do with access to funding for poor Ecuadorian farmers, as well as business education of these farmers and mostly the famous ” middlemen” that are one of the problems of Ecuadorian agriculture.
There are also a lot of rich Ecuadorian farmers….. and they are making a lot of money even by US standards.
When we talk about management :
•We choose to bring crops to the market at the ideal time of the year when prices are at the highest= timing of the planting.
•We choose crops where there is less competition and lots of demand.
•We choose crops that are ideal for the soil, water and sun.
•We choose crops that have clients ready to purchase before we plant.
•We choose crops that are least disease prone.
•We choose crops that are not too labor intensive.
•We choose crops that have big potential in the future.
•We select a combination of crops for each finca that will maximize income/cash flow and minimize risks.
•We think “outside the box” = Innovation!
The net income per hectare is about $2,700. We plant a minimum of 4 ha in a specific area.
Cost of acquisition of the land is about $3,000/ha.
This shows that initial land cost will be paid back in about just over a year.
Balsawood has a 4 year crop cycle. The wood is very much in demand worldwide as there only a few countries that can produce this kind of wood.
Acquisition cost per ha is about $2,500 on average and can be a hilly type farm.
On a minimum 10 ha farm net income for 4 years is $139,000.
When acquisition cost of the land are deducted total cash flow on a typical 4 year period is : $114,000 and you still own the land.
For a typical $25,000 original land investment and a $17,120 investment in planting and growing (total $42,120) you will get $156,250 gross income fr the sale of the wood for a net cash flow of $114,000.
For the second 4 year cycle, the cash flow will be $139,000 as the land has aleady paid for itself.
We also can elect to farm other short cycle crops like Aji, (the red Pepper) that is sold exclusively to the Tabasco Company. Tabasco pre-buys the whole crop at a fixed price.
Cacao is another longer cycle crop as it takes 4 years to really start harvesting. The Ecuadorian Cacao has a good reputation and sells well.
Papaya is also a very profitable short cycle crop.
An area that will see a big development is the bio-fuel and bio-diesel. Ecuador produces already a lot of palm oil but pinon and linseed oil are extremely profitable crops as well. The whole harvest is also pre-sold to companies that produce bio-fuel. The price is a linked to the oil market price.
Bamboo production is also a good option on any farm and the Manabi climate is well suited for the constant growth of bamboo production.
3- Cash Flow Management:
In our development strategy, we aim to maximize regular cash flow i.e. combining on specific one fram short cycle crops like plantain or passion fruit and longer cycle crops like balsawood or cacao. This enables to minimize capital outlay to acquisition costs and first year production costs ; income from short term crops will pay for cost of longer cycle crops.
4- Management Package:
We offer a management package that we provide to our clients, who know nothing about agri-business. It is all based on shared net revenues.
The client invests in a farm that he owns outright himself; minimum is $100,000 in order to have a nice size farm and operating cash flow.
5- Our Vision:
•Chemical free agriculture:
We only use organic and sustainable agriculture. Organic pest control is a lot cheaper and healthier of course, the key being the ability to monetize the « organic » side of the business.
•Help the local economy and local communities in Ecuador.
Why are not more people investing in Ecuador agriculture ?
a) Ecuadorian campesinos are not business people. They are not entrepreneurs as they lack basic skills outside their trade and they do not have easy access to cheap crédit to finance their production costs. They often prefer a low income lifestyle than high stress work….
b) A lot of Ecuadorian farms are highly successful when run by smart educated people.
c) The big investors are just finding out about how cheap and how fertile Ecaudor land is.
What is the rate of return on the investment ?
On a 10 year average, a good managed farm can produce between 20 and 30% return. Cash flow is generated at the end of each crop cycle. This takes into account 2 bad years of production every 10 years, due to unpredictable weather pattern like a strong el niño.
What are you providing?
We provide the following services:
- Selection of the land: with pros and cons
- Selection of the crops for maximum cash flow and lowest risks
- Management of the farm including sales of the crops
What is our business model?
We only make money when our Client/Partner makes money. We take a percentage of gross sales payable only when money is received from the crop buyer.
Appendix 1 :Balsawood
The balsa wood tree, scientifically named Ochroma lagopus, is a relatively fast growing plant found primarily in Central and South America. Balsa wood trees grow best under the conditions found in rainforests, ideally in mountainous terrain between rivers. The country of Ecuador is perhaps the largest exporter of balsa wood, although many local farmers consider the plant to be little more than a weed.
Balsa wood is one of the lightest varieties of wood available, but not the absolute lightest. It is remarkably strong for its weight, however. Originally, the US military sought out balsa wood as a substitute for cork during World War I, but it soon proved more useful as a lightweight construction material for gliders and shipping containers. Hobbyists also began to work with balsa wood because it could be carved easily with standard woodworking tools and bent into a number of shapes without sacrificing strength.
Balsa tree (Ochroma pyramidale, or O. lagopus) of the bombax family (Bombacaceae), native to tropical South America and noted for its extremely light wood, which resembles clear white pine or basswood. Because of its buoyancy (about twice that of cork), balsa has long been used for making floats for lifelines and life preservers. Its resilience makes it an excellent shock-absorbing packing material. Its insulating properties make it a good lining material for incubators, refrigerators, and cold-storage rooms. Because it combines lightness and high insulating power, it is a valuable construction material for transportation containers for dry ice (solidified carbon dioxide). It is also used in the construction of airplane passenger compartments and in model airplanes and boats.
The main farmers’ motivation to establish small balsa plantations (between 10 and 30 hectares) has been the demand by a local balsa handicrafts producer company that sells its products in the national and export market. On the other hand, the fast growth of the species allows obtaining economic benefits after approximately 4 – 5 years and also allows demonstrating its advantages to farmers, what is difficult to achieve in the case of species which require much longer time.
It is important to note that, to establish a plantation diminishing management costs the first year, farmers associate balsa with an agricultural crop (e.g. cassava, bananas, orito, and maize); they plant 625 to 830 balsa plants per hectare. An important point to considerer is that the plantation has to be near a road, or by a road, since this would facilitate exploitation activities and diminishes the operation’s costs, increasing in this way economic benefits.
The opportunity to supply the demand of a local market and the of crop’s quickness of returns are the features that make this case relevant. This is a practice that contributes to the development of a forestry culture with small initiatives such as those detailed in the case study.
It is very profitable business that tree is growing very fast, only 3 years old to maximum of 4 years old to be cut.
This year 2011 the domestic demand from balsa factories in Ecuador are very high, so the thousand of acres planted can not fill with the high demand from USA and China in particular. Of course the prices here have risen from $ 0.30 per bd.ft. as a balsa raw material but not dried or processed, up to $ 0.55 per bd.ft.: If before planting balsa trees was a good business, today is one of the best and fastest ways to make money with short-term forestry.
With the explosion of nuclear reactors in Japan, tendency will be for renewable energy and one of the most popular is eolic energy is applied, which are wind vanes fillings made of balsa, so expect a very large demand for this wood, where our country is world leader in quality, productivity, history and extraction techniques.
Jean Marie Butterlin has created a new agricultural property Expedition September 17-18-19, 2012.
Attend the Agri Business Expedition and attend a coastal tour free. Save $499.