The right guy in Uruguay

Ag investors talk up Latin America’s potential, but the diablo is in the details. Here’s a strategy that seems to nail the main bits.

The Carr-Ellison family, originally of Northumberland in the UK, has a long history up north. That includes the Baltics: over the last two decades, it has been managing 17,000 hectares in Latvia, Lithuania, Estonia and co-invested in a 12,000ha portfolio alongside high-net-worth individuals from Germany, Ireland and the UK. This was divested last year to an institutional investor and a family office, presumably for a tidy profit.

The family is now looking much further afield. Tom Carr-Ellison, whose father led its successful foray in the Baltics, is attempting to raise money for an ambitious venture in Uruguay. Where did he get the idea?

After graduating in ag management in 2010, Carr-Ellison spent a year in Latvia. Attracted by the country’s deep black-earth soils, he then went to Ukraine, but rapidly found the reality of the market “very problematic.” He opted for a change of scenery, spending two years in Brazil, Paraguay, Uruguay and Argentina. Back in Europe, he joined agribusiness consultancy Terravost, at a time when it was seeking to raise a farmland fund focused on Central and Eastern Europe. That proved rather tricky: compared to LatAm, Carr-Ellison says, CEE markets simply don’t have the same “sex appeal.”

So after three-and-a-half  years at Terravost, he is back to more appealing lands – starting with Uruguay. And with good reason: in recent years, the country’s soybean business has boomed as China wants ever more of the crop, which ranks among the cheapest animal feeds. Uruguay exports 75 percent of its production to the Middle Kingdom. Its favorable latitude lends itself to a temperate climate (though the country did not escape this year’s drought). Skilled contractors also mean machinery is available on demand, sparing farm operators from big capex investments.

But the country also demands a sophisticated approach. In Uruguay, 60 percent of operators are renters, and many of them can only secure relatively short leases. Yet, to be able to invest in their operation – by putting in irrigation pipes, say – farmers need visibility beyond two or three years. Which is why Carr-Ellison and his partners are looking to raise $8-9 million in equity to buy the land, so as to lease it from investors for longer periods.

The strategy hints at two ways investors can seek to enter Uruguay, which Carr-Ellison sees as a stable platform from which to get in high-risk, higher-return markets (like Argentina or Paraguay). Either they can take commodity exposure, with the potential for upside and downside this implies, through operating a farm (the Carr-Ellison family is putting this business together with European co-investors). The alternative is to own the asset and receive a guaranteed yield – in this case, 3.5 percent a year – plus a profit share. Carr-Ellison says his venture won’t charge a management fee to land investors, only a 10 percent levy on capital appreciation.

As things stand, the opportunity is unlikely to suit institutions. Carr-Ellison is looking to raise capital mostly from family office groups located in Germany, Ireland and the UK. He says the family is quite advanced in talks with a couple of high-net-worth individuals. But the ambition is to grow the estate over time – from about 1,000-1,200 hectares initially to 4,000-5,000 hectares over 10 years. As size increases, the portfolio stands a greater chance of getting noticed by pension funds and others.

But scale (or the lack thereof) may not be the only thing holding them back. Uruguayan farms, Carr-Ellison admits, compete against Midwest estates for investors’ attention; Uruguay is somewhat disadvantaged by its relatively lower profile. That may change. Provided they are deftly structured, investments there can avoid currency exposure: Carr-Ellison says his venture’s inputs and outputs are priced in dollars. What’s more, they may soon benefit from Donald Trump’s trade tantrums.

“Historically, Uruguay has had a price discount to the Chicago soybean price. I would expect instead a premium to be paid for Uruguay soybeans if the trade tariffs continue,” Carr-Ellison argues.

Write to the editor at matthieu.f@peimedia.com