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SOVEREIGN MAN

One of the cheapest places in the world to buy agricultural land…

two avokados, persea americana, hanging from a tree in paraguay

May 7, 2012
Asuncion, Paraguay

Long-time readers know that I’m unabashedly bullish on agriculture. The supply and demand fundamentals for food speak for themselves, but let’s briefly review:

On the demand side:

1) World population isn’t getting any smaller for now. Even some of the most Malthusian models show a continued rise in global population for the next few decades until peak resources and economic conditions begin to thin the herd. In the meantime, demand for basic sustenance will continue to rise.

2) More importantly, millions of people in the developing world are being lifted from poverty into the middle class. More wealth means demand for more Calories. Not only does this increase general food demand, but often specific demand for things like beef which require far greater resources to produce.

On the supply side:

1) While industrial farming techniques and genetic modification have dramatically increased productive yield, cultivated land is on the decline. The UN Food and Agriculture Organization estimates that, over the last several decades, cultivated land per capita has declined by 43% worldwide.

2) Topsoil erosion, anomalous weather, and lack of water availability are becoming especially problematic in certain countries, further reducing the supply of arable land.

3) Rising input costs (particularly oil prices) have pushed many farmers out of business in recent years, reducing the already low number of people who dedicate their lives and land to feeding everyone else.

And of course, there’s the monetary side… arguably the most important factor:

1) Central bankers continue to expand their balance sheets and create more money at an alarming rate. This pushes up the price of real assets like agricultural commodities as there is simply too much paper chasing to scarce resources.

2) Meanwhile, politicians have enacted completely idiotic policies to subsidize and encourage inefficient biofuels, further reducing food output.

It’s true that technology may very well save the world from its agricultural woes one day, but this is unlikely to take place over the next few years.

As such, the above points suggest that, at a minimum, food prices are bound to keep rising.

I see this over and over again throughout the world as I travel, particularly in developing countries where food purchases often comprise more than half of a typical household budget.

Rising food prices mean that people are forced into making very difficult choices. And history teaches us that, while people generally put up with a lot of BS from their governments, all bets are off if a food crisis strikes.

From the French Revolution (Let them eat cake!) to the Arab Spring, messing with someone’s ability to put food on the table for his family has almost always caused a restructuring of the social contract.

Politicians understand this. It’s why some governments (Saudi Arabia, Kuwait) provide retail food subsidies, and why others (Russia, Argentina) foolishly mandate food export bans… or even try price fixing.

Between the obvious supply and demand challenges, the political and monetary idiocy that exacerbates the problems, and the potential revolutionary spark, it makes sense to have a position in agriculture.

The most comprehensive way to do this, by far, is to own agricultural property. Sure you could buy ETFs and futures contracts, but just like in the gold market, such instruments are full of counterparty risk and exposed to a manipulated financial system.

Owning a farm or ranch is like owning physical gold. Instead of trading one kind of paper (fiat currency) for another (ETFs), buying agricultural property or physical gold is essentially trading paper for a real asset.

Regionally, the best deal in the world right now on a risk-adjusted basis for farmland or grazing land is definitely Latin America, specifically Chile, Uruguay, and here in Paraguay.

Paraguay is, in fact, still the cheapest place in the world I’ve seen for agricultural property… particularly in the dry Chaco area where you can pick up an acre of land for the price of a couple of pizzas.

To give you an example, a friend of mine is looking at a 5,000-acre plot in the central Chaco for less than $300,000.

On the other side of the country near the quaint town of Paraguari, I’ve seen a small 50-acre, fully planted personal farm with a spacious home for just over $100,000. Based on my math, they’re selling the house for the cost of construction and giving away the land for free. Not a bad deal…

The carrying capacity, growing conditions, and soil quality in Paraguay are lower than in most of Uruguay and central Chile, but the net yields (particularly for cattle, soy, corn, and stevia) are still strong.

The dark side to Paraguayan agriculture is that ultra-cheap prices have attracted the likes of Monsanto, which is using some of Paraguay’s countryside as proving grounds for its genetically modified seeds.

Overall, though, Paraguay is definitely worth the trip if you’re interested in foreign agricultural property. The barrier to entry is quite low given the ridiculously cheap prices and reasonable foreign asset ownership rules, while the potential for both yield and speculative upside are quite high.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Gordon

    will it matter when were are all chipped and all private property is seized in the name of the government

  • Peervoss

    I basically agree with everything said. And from my (professional) point of view Paraguay is indeed the best farmland price/value country of South America.
    While there again the Chaco is the most interesting area, due to its early stage of development, it does not necessarily need to be the arid Chaco, price/value in the humid Chaco is comparable.
    The disadvantage of the arid Chaco consists of the natural vegetation cover being impenetrable semi dry forest, for any agri use that forest needs to be cut and the world’s natural woods to be diminished further. On the other hand at today’s modest prices it is probably a viable approach to buy such lands, not to deforest, and see whether future carbon offset schemes will reimburse you for having been an environmentally nice guy.
    The advantage of the humid (“Bajo”-) Chaco lies with fact that its natural vegetation type is more Savannas / Grasslands like. You just put some cows there and do extensive cattle farming.
    While per hectare prices are low (they did however multiply fife fold over the last 6 years), US$300/hectare on average for good rainfall virgin forest properties, US$700/hectare for Bajo Chaco cattle farms, property sizes are large, usually above 2000 hectare. Regards, Peer Voss

  • http://www.rugbyleaguereport.com.au/ Matt John Canty

    nice info I want to eventually get involved in some offline and offshore assets. Most IM’ers do not seem at all interested but there really is money to be made with the right strategy. I have been considering Philippine Apartment investment as like Paraguay its very cheap. If i were to buy something similar in my home country Australia it would be close to x5 or more the price. Surely when the day comes when population growth slows prices for real estate will rapidly decline…lucky that’s a long time away.

  • SimonP

    With the tide of nationalism sweeping the world what is the chance that foreigners owning tangible assets could end up having them confiscated, or end up dead.
    One hundred years ago Africa was the expatriates paradise – look at it now.
    You can’t take land with you when you need to run.
    I’m buying land in my own country

  • JJ

    How do you protect your crops in a food crisis? Seems to me you’d need an army to do the job….

  • al

    buy land where you like + trust the people and culture around you.  The land is only “YOURS” as long as the community around you ACCEPT it to be yours…

  • LZAKAR

    Monsanto, which is using some of Paraguay’s countryside as proving grounds for its genetically modified seeds, WHICH COULD INDANGER PARAGUAY’S FUTURE FOOD PRODUCTION. WHAT IS THE OUT COME WITH ALL OF THIS MODIFIED SEEDS THAT MONSANTO’S IS DOING THERE.

  • Angel

    cheap land is cheap for a reason, including cost of bringing goods to market (Paraguay is landlocked) dangers (guerrillas and criminals in Paraguay) government expropriation, taxes on exports (As in Argentina on soybean exports) (taxes are a slow form of expropriation) squatters, climate/weather (a dry season or excessively rainy season can wipe you out) lack of labor, including skilled labor etc.

  • Gregori Mason

    This post is old and I don´t mean the date on which it was written but on the information it contains, getting land at the prices simon talks about is impossible and has been so since about 2005, the $30 to $60 per hectare is now $200 to $400 for undeveloped land $400 to $2000 for developed land

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