December 7, 2012
7th Region, Chile
It seems these days I spend at least 50% of my time looking at farms for sale in Chile. And with good reason.
I’ve written before at length why agriculture seems like the no-brainer investment of the decade: given the fundamentals of supply and demand, the absolute best-case scenario is rising food prices. The worst-case scenario is shortages.
Owning farmland is comparable to owning physical gold. And I’m buying as much of it as I can, specifically in Chile.
Farmland in Chile is incredibly rich. It’s like Iowa meets California, but at a fraction of the cost. Highly productive farmland here runs anywhere between $2,000 per acre and $6,500 per acre. By comparison, farmland in Iowa and California can cost $10,000 to $12,000 per acre for similar quality.
What’s more, the production yields are typically as strong… and in some cases, even stronger. The UN Food and Agriculture Organization estimates that Chile’s corn production per acre is 20.13% higher than in the US, and 33.57% higher than in Canada, and the numbers are similar for wheat.
My own experiences match these statistics. For example, Michigan is the production leader in the US for ‘highbrush’ blueberry cultivars that we grow here in Chile. Yet, according to the USDA’s National Agricultural Statistics Service, Michigan yielded 3,850 pounds per acre last season. In the same period, my production yield in Chile was 60% greater… and rising.
What’s more, because Chile is in the southern hemisphere, our harvests are counterseasonal to those in the northern hemisphere. Supply is tighter when we harvest, which means the price we fetch is higher.
In 2010, for example, Michigan blueberry farmers were paid $1.23 per pound for their July-August harvest. In Chile, the price paid to farmers for export quality blueberries is around $1.75 per pound… 42% higher.
In addition to better revenue potential, labor costs in Chile are much lower. Laborers in the area near my farm command wages of just 2-3 dollars per hour, and even a seasoned manager with decades of experience will barely register more than $1,000 per month.
In the US, Canada, and UK by comparison, a veteran farm manager can command $60,000 to $80,000 annually.
So in addition to achieving optimal revenues, the operating costs in Chile are much lower. Higher revenues. Lower costs. More profit.
And the tax breaks for agriculture here are spectacular. The government allows what’s called ‘deemed income reporting’ for farmers, which reduces not only the tax liability, but also the time and costs of compliance. It’s incredibly simple.
Plus there’s no insane government regulator breathing down your neck, or big multinational like Monsanto mopping up the entire market.
Even if you don’t want to take any operational risks, you can simply buy property and lease it out to another farmer, achieving yields of between 6% and 11%. Residents of Chile can also obtain low-interest financing, so you can mitigate your risk while generating a superior cash on cash return for doing absolutely nothing.
And for foreigners, it’s incredibly easy to become a resident in order to obtain financing on agricultural property. I’m currently working on a way to borrow in dollars to buy farmland down here… so that I can simultaneously go long agriculture and short the dollar. I can’t think of a better investment.
Bottom line, if you believe that out of control money printing and world population demographics will contribute to significant food price inflation in the coming years, owning farmland is one of the smartest investments you can make.
And, taking into account all the factors– price, production, operating risks, etc., conditions here in Chile are ideal.