Chicago Forum: Be prepared, or lose your shirt

In 2017, global demand for grain is outpacing supply once again. Where can growers find available land at affordable cost to fill the gap? In emerging markets, according to experts speaking at Agri Investor’s Chicago Forum on Thursday.

Macro food trends are likely to make this case even more prevalent in years to come. This is not lost to all investors. “There are plenty of people willing to give us money,” said Jorge Usandivaras, a founding partner at Paraguay-based Verbank Advisors.

But there are caveats. “In many cases, investors are still not feeling comfortable with the illiquid profile of agriculture assets,” noted Roberto Vitón, founder and managing partner of Valoral Advisors. He adds that, in emerging markets, it is also difficult to find good farm managers.

“If you’re a US investor investing in the US, you never face this question. It’s not hard to find a good tenant. But if you go to emerging markets, most of the time you find first-time managers who don’t have a track record.”

Taxing issues

Eduardo Gonzales, a senior vice-president at Lazard Asset Management, noted that his clients’ main concerns largely revolve around currency, as most of them are US dollar or euro-denominated, and liquidity, even if his firm invests in listed equities.

“If you look for exposure to teak, for instance, you’ll often need to do that through small-cap equities, which are more illiquid.”

More unique to the markets themselves is the challenge of regulation. “When you land in Latin America, everything is different,” Usandivaras said. “Politics function in a different way, regulation is written in a different way, currencies are controlled in a different way. If you’re not very well prepared, you’re going to lose your shirt.”

He recalled an advice he was given on his first job, during a visit to Chicago from New York. “My boss told me: if you don’t like the weather in Chicago, wait five minutes and it’s going to change. Later, I found out that this applies to Latin American regulation as well.”

One such ever-evolving issue was that of taxation between countries, he noted, though he reckoned investors doing their homework could “always be one step ahead.”

Yet challenges sometimes turn into opportunities. Luis Alberto Ibarra, chairman of Mexico’s Capitalization and Investment Fund for the Rural Sector, said a crucial bottleneck for Mexican agriculture was low productivity.

But he cited the state of Yucatan, where a program to transform poor soils has yielded good fruit, as an example of how to overcome the problem. “The soil is now three times more productive than it used to be. It’s become much more profitable.”