agriculture in uruguay - overview
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Agriculture in Uruguay - Overview
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Executive Summary
Contract Farm in Uruguay, a safe and peaceful country in Latin Americawith tremendous growth opportunites.
Invest in one of the best growth sectors in the next few decades, as worldpopulation goes from 6.7 billion to 9 billion.
Diversify your risks away from agricultural areas threatened by waterscarcity and climate change.
Work to meet the food needs of India, especially in oilseeds and pulses.
Use Uruguay as a platform to expand into the rest of Latin America.
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Executive Summary
Benefit from a positive investment climate, clear land titles, a strong legal
system and open financial markets.
Repatriate 100% of capital, dividends and profits.
Enjoy working in a culture that values family and relationships, and is apluralistic democracy.
Watch Uruguay agriculture videos by clicking here
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Uruguay Country Info - Location
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Uruguay Country Info - Area
Sandwiched betweenArgentina and Brazil
Area: About 10% smaller
than the Indian states ofGujarat/Karnataka; 3times the size of Punjab
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Uruguay Country Info Population, Density
Population: 3.4 million (34lakhs), overall pop. densityabout 17 per sq.km.,
outside cities less than 5per sq.km.
Population: Small
compared toGujarat/Karnataka whichhave a population of over5.5 crores in about the
same area.
Population: About 95% areof European descent
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Uruguay Country Info Agriculture Suitability
Satellite map of Uruguay
86% land area is arable only1/8th of which is utilized
Abundant freshwater reservesfed by 28 rivers, network ofstreams and lakes; rain-fedagriculture, no irrigation pumps
required
4 cows for each citizen Each cow has 2 football fields of
grazing area Thriving dairy industry
Watch Uruguay agriculture videos by clicking here
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Uruguay Country Info Agriculture Environment
Land titles/ownership clear;legislation well-developed
Land transactions amongprivate parties
Politically stable country Government welcomes foreign
investment No governmental meddling in
agribusiness sector
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Uruguay Country Info Labour Force
Good standard of
basic education literacy rate 98%.
High standard of
university education TCS has its regional
office in the capital
Montevideo
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Investment Climate
The Uruguayan Constitution and investment law N 16.906 clearlystate that there can be no discrimination or unequal treatmentbetween local and foreign investors.
There is free movement of capital and dividends (in and out of thecountry) for any individual, institution or corporation.
All corporations and individuals are free to acquire any agribusiness
asset.
Corporate Tax on profits is 25% for all activities (except for forestryand software which is 0%) and can be lowered on certain types ofprojects (not agriculture).
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International Comments on Uruguay
Mr. John K. Veronaeau (Deputy Director of USTR): ..receiving such a compelling briefing on Uruguay and theeconomic strengths of this country and the strengths of the human capital of this country and the educational
attainment; it was very impressive, up to the point that I remarked that if Uruguay were a stock Iwould go out and buy it April 2008
For the U.S., Uruguay is a safe country for investments.http://uruguay.usembassy.gov/usaweb/2008/08-196EN.shtml
Uruguay: South Americas Best Kept Secret
http://www.us-television.tv/programs/uruguay-south-americas-best-kept-secret
http://www.associatedcontent.com/article/1465/uraguay_ssssh_south_americas_best_kept_pg2.html?cat=
http://whatwouldalpanadrink.blogspot.com/2008/12/uruguay-best-kept-secret-in-world.html
From the US & UK Government:http://uruguay.usembassy.gov/usaweb/2009/09-015EN.shtml
http://uruguay.usembassy.gov/usaweb/2009/09-119EN.shtml
http://www.state.gov/r/pa/ei/bgn/2091.htmhttp://www.commerce.gov/NewsRoom/PressReleases_FactSheets/PROD01_004210http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/uruguay?profile=all
Other Comments:http://www.heritage.org/research/latinamerica/em1003.cfmhttp://www.internationalliving.com/Countries/Uruguayhttp://www.prlog.org/10184987-uruguay-investment-property-one-to-watch.html
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Corporations in Agriculture
Corporations and individuals (local and foreigners) can acquire and operateagricultural projects in Uruguay
http://www.thompsonhine.com/publications/publication1778.html
http://news.bbc.co.uk/1/hi/world/americas/7469731.stm
Some Examples:
El Tejar (paragraphs 9 & 10) :http://www.ft.com/cms/s/0/6428e204-338d-11de-8f1b-00144feabdc0.html?nclick_check=1
Adeco Agro (Main shareholder: George Soros (UK)) with three farms in Uruguay.http://www.adecoagro.com
Metsa-Botnia (Finland) - Stora Enso (Sweden) - ENCE (Spain) - Portucel (Portugal)http://www.farminguk.com/news/Uruguay-Timber-plantations-attract-European-investors.13260.asp
New Zealand Farming - PGG Wrightson (Stake acquired by NRI company OLAM)http://www.nzfsu.co.nz/page.pasp?pageid=55
Weyerhaeuser (US)http://www.weyerhaeuser.com/Businesses/International/Uruguay
DAremberg Group (Germany), ADP (Grobocopatel ARG), several others.
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Uruguay offers these advantages in Latin America
Switzerland
Mauritius New Zealand
Social andPolitical Stability
BankingSecrecy
Agriculture Dairy
Forestry
Business-transparency
Company
Formation Sound Legal
framework
Qualified
workforce Preferential
market access
Uruguay
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Agriculture in Uruguay
High growth of planted area in the last 9 years from300,000 to over 1.3 million hectares
High yields compared to international standards approaching 3 tons/ha for soya, 8 tons/ha for rice
Highly mechanized and technology based operations
Continuous appreciation of land prices, but stillsignificantly lower that other agricultural areas in the
world (even than Argentina, neighbour across a river).
Strong inflow of foreign investors for 7 years in a row(30% of agricultural land in Uruguay is owned by foreign
companies).
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Growth in planted area 2001 to 2009
Source:UruguayanMinistryOfAgric
ulture
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Farmland available in abundance.
Total of at least 3 more million hectares very suitable for agriculture;
1 to 1.5 million hectares to be planted in the next 10 years
51%13%2.4Marginal
100%49%8.5Not proper for
agriculture
6%6%1Very highAptitude
100%
14%
17%
%
17.3Total
38%2.5Moderate
23%3High
Acc %MillionHa
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Agricultural Areas
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Fundamentals of Profitability
1. Excellent Agricultural Land and abundance of fresh water
Soybean plantation in a typical uruguayan landscape with no irrigation systems.
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Fundamentals of Profitability
2. Excellent weather conditions and water availability through rain.
Source: www.meteorologia.com.uy
Average Temperature (C) by Country Region
5
10
15
20
25
30
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
T-East
T-North
T-West
T-South
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Fundamentals of Profitability
2. Excellent weather conditions and water availability through rain.
Average Monthly Rain (mm) by Region
0
20
40
60
80
100
120
140
160
180
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
R-East
R-North
R-West
R-South
Annual Average = 1400 mm
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Fundamentals of Profitability
3. Large Areas + Technology + Logistics
All agricultural land is satellite-mapped and soil types and conditions detailedfor every hectare of the country.
Planters, Sprayers and Harvesters are satellite linked with high precision GPSsystems (
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Fundamentals of Profitability
4. Research and Knowledge
This region has a numerous group of internationally recognized agricultureresearch centres.
Qualified professionals are available to manage agricultural operations.
Agricultural Technology is being produced locally (Argentina and Brazil) andexported to Europe and the US.
The region is considered to be the most efficient grain cluster in the world.
USDA projects that in ten years, 80% of worlds international trade of grain willbe provided by this region (Brazil, Argentina, Paraguay and Uruguay).
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Economics of the Business
Operations and Management
All operations are outsourced. There are a large number of service providerswho provide the planting, spraying, harvesting, transport and warehousing
services. Management and Administration is also outsourced to specialized firms (such
as Allied Venture).
The company owned by the investor can have no more than 1 employee (the lotwatchman).
Planting, spraying and harvesting services are provided on an USD amount perhectare price. Transport and logistics on a USD per ton price.
Legal issues for human resource claims, etc. are thus diminished or inexistent.
Investment in expensive machinery is un-necessary (85% of agriculturaloperations work this way; only producers with more than 40.000 hectaresacquire machinery).
Contracts with operational parties are done on a single operation at a time(planting for this season), with no long-term commitment, so one can easily
switch operating service providers based on price and quality of services. It isa highly competitive market.
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Economics of the Business
Planting and Harvesting windows by Crop
PLANTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ftSoy (1st)Soy(2nd)WheatBarleyMaizeSorgumSunflowerOats
HARVESTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ftSoy (1st)Soy(2nd)WheatBarleyMaizeSorgum
SunflowerOats
APR MAY JUN JULDEC JAN FEB MARAUG SEP OCT NOV
AUTUMN WINTERSUMMERSPRING
ft: fortnight
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Economics of the Business
Production Schemes:
Almost all agricultural operations are based on crop rotations. Landand climate allows for crop switching or combination from season to
season.
Rotation is also a good practice to avoid land degradation producedby single crop plantation.
Typical productive schemes are based on selecting (or combiningplanted areas) of soy, maize, sunflower and/or sorghum in thesummer with wheat or barley in winter.
Diversification is adopted also to control weather risks andcommodity price risks.
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Risks and Risk Management:
Weather: Undoubtedly the most important risk for agriculture. Can be hedged byinsurance policies, location diversification, crop diversification and crop planning.
Commodity Prices: Usually volatile. Control actions include, contract farming (pricesand costs set at the start of operations), crop selection and diversification. Marginstend to have a much more stable behaviour given the high correlation between priceof grains and production costs. Prices are international prices with no tax distortions.
Operations Risk: Medium impact on financials. Nevertheless, selecting appropriateservice providers, close supervision of operations and good planning considerablydiminishes this risk.
Country Risk: All operations, prices and costs are US Dollar based, so there is nosignificant exchange rate risk. Uruguay, along with Chile, is the safest businessenvironment in the region with a long standing tradition of respect for law, contractsand the most stable.
Economics of the Business
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Is farming a profitable and attractive venture?
Projections at last years average prices, yields, and costs show returnsbetween 10 and 14% for owned land, between 20 and 25% for leased land.
Planted area grows year after year, so does production and yields with recordproductions being achieved in Uruguay each passing season.
Investors (new and old) keep investing in agriculture in Uruguay.
Big groups moved to Uruguay and havent stopped for expanding for morethan 5 consecutive years.
They say the are very satisfied and are planning for more.
Official numbers prove sustainability of margins and profits for the last 6consecutive years and in an upward trend.
Argentina, known for being an agricultural powerhouse, is the main source ofinvestors and farmers pouring into Uruguay.
The Business Case
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We have been involved in agriculture for decades, so we know about thesoundness of this business opportunity.
2009/early 2010 is an excellent year to enter the business, as land priceslagged when commodities went down.
Operating returns are high (above 35%) and so it is
a stable cash business despite commodity pricefluctuations and weather events.
The Business Case
Is farming a profitable and attractive venture?
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Knowledge of Latin America
Knowledge of Agribusiness
Knowledge of Uruguay
Investment Advisors
Why Allied Venture?
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Executive Team
Marcos Marin (38) - EC., MBA,MFINCorporate Finance, Private Equity,Business Strategy, Agribusiness,Food, Retail, Energy, IT
Univ. de la Repblica, UniversidadTorcuato di Tella, HarvardBusiness School
Lautaro Perez (36) - AGR., MAB,PHD(c)Agriculture, Food Processing andDistribution, Sales, Management,Business Strategy
Farming, Agribusiness, FoodUniv. de la Repblica, Kansas StateUniversity, ESADE
Dave Ramaswamy (38) - B.S., MBAMarketing and Sales, Mgmt. Consulting,Business Strategy, International Business
University of Illinois (Urbana-Champaign),
Kellogg School of Management -Northwestern University
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We are at your service!
Treinta y Tres 1334, Of. 401
Montevideo 11000 - Uruguay
Tel.: +598 (2) 916.2600
Through USA: +1 (305) 722 1275Through UK: +44 (20) 3026 0037
www.alliedventure.com
Marcos Marin - [email protected]
Dave Ramaswamy - [email protected]
Lautaro Perez - [email protected]
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Appendix
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Comparisons across Key Indices
Democracy Corruption Human Devl Literacy Rate Envt.
Sustainability
BRA: 42 80 70 89.6 11
ARG: 54 109 46 97.6 9
PAR: 71 138 95 93.6 17
URU: 27 23 47 97.8 3
IND: 35 85 132 65.2 101
Index
Source:DI: Democracy Index - The EconomistCPI: Corruption Perception Index - TransparencyInternationalHDI: Human Development Index - United NationsLR: Literacy Rate - United NationsESI: Environmental Sustainability Index - Yale University
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43,787
1,646
Uruguay
India
Agricultural landPer capita (Sq. km per 1000 people)
* Year 2005
Source: NationMaster.com
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40,420
1,750
Uruguay
India
Total Actual Renewable Water Resources (TARWR)Per capita m3/year
* Year 2005
Source: UN Aquastat
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Macroeconomic data
GNP per sector and per capitaIn million US$
2005 2006 2007 2008
Agribusiness 1562 1774 2102 3062Manufacturing 2579 3018 3523 4999Electricity, gas, Water 544 404 784 497Construction 962 1180 1453 2040Commerce 2210 2593 3277 4557Transport and Communications 1437 1668 1977 2818Other 8073 9397 11146 14234
TOTAL 17367 20032 24262 32207
GNP per capita (US$) 5254 6040 7299 9660
UNEMPLOYMENT RATE (%) 12,2% 11,4% 9,7% 7,6%
Uruguay GNP Growth (%)
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
2005 2006 2007 2008
Note: 2009 GDP growth estimated at 1%
Agricultural sectors share of GDP
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Agricultural sector s share of GDP
0%
2%
4%
6%
8%
10%
12%
14%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
%
ofTotalGDP
Agriculture
Livestock
Total and agricultural GDP evolution
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g(1990 = 100)
Growth 2002-2008: 66,5%
Annual cumulative growth: 7,6%
3,8-3,2Livestock
16,97,7Agriculture
11,22,8Total AGRO
20082007
Oth i i bl
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Exchange rate S/US$
Inflation
Other macroeconomic variables
Note: the majority of agricultural commodities in Uruguay are tradedin US dollars
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Evolution of Uruguay's total products export
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MillionUS$
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
Thousandtons
Million US$
Thousand Tons
Source: Uruguay Central Bank, 2008, 36% increase compared to2007
Uruguay Exports breakdown
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Uruguay Exports breakdown
Beef products: 20%
Cereals: 8.3%
Dairy products: 8%
Cattle furs 6.7%
Wood: 5.7%
Wool: 5.1%
Oilseeds: 4.9%
Agricultural exports
represent almost 60%of total exports !!
Uruguay export markets (in %)
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Uruguay export markets (in %)
05
10
15
20
25
30
35
40
45
Mercosur UE Nafta Asia Africa Others
2000
2008
Source: BCU, Uruguay XXI, INE
E.U.