Agriculture in Uruguay - Overview

Agriculture in Uruguay - Overview
0
www.alliedventure.com
Executive Summary
• Contract Farm in Uruguay, a safe and peaceful country in Latin America

with tremendous growth opportunites.
• Invest in one of the best growth sectors in the next few decades, as world
population goes from 6.7 billion to 9 billion.
• Diversify your risks away from agricultural areas threatened by water

scarcity 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.
1
Executive Summary
• Grow two crops a year (occasionally three crops can be achieved).
• Adopt a a non-speculative farming approach (i.e. secure costs and prices

through contracts at the beginning of each planting season and do not
speculate with obtaining better prices on the spot market at the end of the
season).
• Outsource all farm services (no investment in machinery or people on

payroll necessary.)
• Achieve Returns by: (annually in USD, based on 5 year averages)

Leasing Farmland – 20 to 25% IRR
Owning Farmland – 10 to 14% IRR
2
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 a

pluralistic democracy.
• Watch Uruguay agriculture videos by clicking here
3
Uruguay Country Info - Location
4
Uruguay Country Info - Area
• Sandwiched between
Argentina and Brazil
• Area: About 10% smaller

than the Indian states of
Gujarat/Karnataka; 3
times the size of Punjab
5
Uruguay Country Info – Population, Density
• Population: 3.4 million (34

lakhs), overall pop. density
about 17 per sq.km.,
outside cities less than 5
per sq.km.
• Population: Small
compared to
Gujarat/Karnataka which
have a population of over
5.5 crores in about the
same area.
• Population: About 95% are

of European descent
6
Uruguay Country Info – Agriculture Suitability
• 86% land area is arable only

1/8th of which is utilized
• Abundant freshwater reserves
fed by 28 rivers, network of
streams and lakes; rain-fed
agriculture, no irrigation pumps
required
• 4 cows for each citizen

• Each cow has 2 football fields of
grazing area
• Thriving dairy industry
Satellite map of Uruguay
Watch Uruguay agriculture videos by clicking here
7
Uruguay Country Info – Agriculture Environment
• Land titles/ownership clear;

legislation well-developed
• Land transactions among
private parties
• Politically stable country
• Government welcomes foreign
investment
• No governmental meddling in
agribusiness sector
8
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
9
Investment Climate
• The Uruguayan Constitution and investment law Nº 16.906 clearly

state that there can be no discrimination or unequal treatment
between local and foreign investors.
• There is free movement of capital and dividends (in and out of the
country) 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 forestry
and software which is 0%) and can be lowered on certain types of
projects (not agriculture).
10
International Comments on Uruguay
• Mr. John K. Veronaeau (Deputy Director of USTR): “..receiving such a compelling briefing on Uruguay and the
economic 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 I
would 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 America’s 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://www.state.gov/r/pa/ei/bgn/2091.htm
http://www.commerce.gov/NewsRoom/PressReleases_FactSheets/PROD01_004210
http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/uruguay?profile=all
• Other Comments:
http://www.heritage.org/research/latinamerica/em1003.cfm
http://www.internationalliving.com/Countries/Uruguay
http://www.prlog.org/10184987-uruguay-investment-property-one-to-watch.html
11
Corporations in Agriculture
• Corporations and individuals (local and foreigners) can acquire and operate
agricultural 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
• D’Aremberg Group (Germany), ADP (Grobocopatel ARG), several others.
12
Uruguay offers these advantages in Latin America
– Social and
Political Stability
– Business- • Switzerland – Banking
transparency Secrecy
– Company
Formation
– Sound Legal
framework
– Qualified
workforce – Agriculture
– Preferential – Dairy
market access – Forestry
• Mauritius Uruguay • New Zealand

13
Agriculture in Uruguay
• High growth of planted area in the last 9 years – from

300,000 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 still

significantly 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). 14
Growth in planted area – 2001 to 2009
Source: Uruguayan Ministry Of Agriculture

15
Farmland available in abundance.
Million % Acc %
Ha
Very high 1 6% 6%
Aptitude
High 3 17% 23%
Moderate 2.5 14% 38%
Marginal 2.4 13% 51%
Not proper for 8.5 49% 100%
agriculture
Total 17.3 100%
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 16
Agricultural Areas
17
Fundamentals of Profitability
1. Excellent Agricultural Land and abundance of fresh water
Soybean plantation in a typical uruguayan landscape with no irrigation systems.

18
2. Excellent weather conditions and water availability through rain.

Average Temperature (ºC) by Country Region
30
25
20
T-East
T-North
T-West
T-South
15
10
5
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Source: www.meteorologia.com.uy
19
2. Excellent weather conditions and water availability through rain.
Average Monthly Rain (mm) by Region
180
160
140
120
100 R-East
R-North
R-West
80 R-South
60
40
20
0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Annual Average = 1400 mm 20

3. Large Areas + Technology + Logistics
• All agricultural land is satellite-mapped and soil types and conditions detailed
for every hectare of the country.
• Planters, Sprayers and Harvesters are satellite linked with high precision GPS
systems (<10 cm error) and can work on automatic pilot even at night.
• Precision systems in planters, sprayers and harvesters allows for seed by seed
planting at exact distances, homogeneous spread of fertilizers and herbicides
with no overlapping, dampness and yield maps when harvesting, etc. resulting
in less use of materials (seeds, fertilizers, herbicides, diesel, etc), optimization
and so consequently, lower costs and higher yields.
• Highly developed logistics infrastructure for agriculture (trucks, silos,
specialized ports) results in additional lower costs.
• Distances to ports are low (< 300 km)
• All big international players are established: Cargill, Monsanto, Dreyfus, ADP,
Bunge, etc.
21
4. Research and Knowledge
• This region has a numerous group of internationally recognized agriculture

research centres.
• Qualified professionals are available to manage agricultural operations.
• Agricultural Technology is being produced locally (Argentina and Brazil) and
exported 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 world’s international trade of grain will
be provided by this region (Brazil, Argentina, Paraguay and Uruguay).
22
Economics of the Business
Operations and Management
• All operations are outsourced. There are a large number of service providers
who 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 lot
watchman).
• Planting, spraying and harvesting services are provided on an USD amount per
hectare 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 agricultural
operations work this way; only producers with more than 40.000 hectares
acquire 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 is
23
a highly competitive market. www.alliedventure.com
Planting and Harvesting windows by Crop
SPRING SUMMER AUTUMN WINTER
AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL
PLANTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft
Soy (1st)
Soy(2nd)
Wheat
Barley
Maize
Sorgum
Sunflower
Oats
HARVESTING 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft 1ft 2ft
Soy (1st)
Soy(2nd)
Wheat
Barley
Maize
Sorgum
Sunflower
Oats
ft: fortnight
24
Production Schemes:
• Almost all agricultural operations are based on crop rotations. Land

and climate allows for crop switching or combination from season to
season.
• Rotation is also a good practice to avoid land degradation produced

by single crop plantation.
• Typical productive schemes are based on selecting (or combining

planted areas) of soy, maize, sunflower and/or sorghum in the
summer with wheat or barley in winter.
• Diversification is adopted also to control weather risks and

commodity price risks.
25
Risks and Risk Management:
• Weather: Undoubtedly the most important risk for agriculture. Can be hedged by
insurance policies, location diversification, crop diversification and crop planning.
• Commodity Prices: Usually volatile. Control actions include, contract farming (prices
and costs set at the start of operations), crop selection and diversification. Margins
tend to have a much more stable behaviour given the high correlation between price
of grains and production costs. Prices are international prices with no tax distortions.
• Operations Risk: Medium impact on financials. Nevertheless, selecting appropriate

service providers, close supervision of operations and good planning considerably
diminishes this risk.
• Country Risk: All operations, prices and costs are US Dollar based, so there is no
significant exchange rate risk. Uruguay, along with Chile, is the ‘safest’ business
environment in the region with a long standing tradition of respect for law, contracts
and the most stable.
26
The Business Case
Is farming a profitable and attractive venture?
• Projections at last years average prices, yields, and costs show returns
between 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 record
productions being achieved in Uruguay each passing season.
• Investors (new and old) keep investing in agriculture in Uruguay.
• Big groups moved to Uruguay and haven’t stopped for expanding for more
than 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 6
consecutive years and in an upward trend.
• Argentina, known for being an agricultural powerhouse, is the main source of
investors and farmers pouring into Uruguay.
27
The Business Case
Is farming a profitable and attractive venture?
• We have been involved in agriculture for decades, so we know about the

soundness of this business opportunity.
• 2009/early 2010 is an excellent year to enter the business, as land prices
lagged when commodities went down.
• Operating returns are high (above 35%) and so it is

a stable cash business despite commodity price
fluctuations and weather events.
28
Why Allied Venture?
Knowledge of Latin America

Knowledge of Agribusiness
Knowledge of Uruguay
Investment Advisors
29
Executive Team
Marcos Marin (38) - EC., MBA, Dave Ramaswamy (38) - B.S., MBA
MFIN Marketing and Sales, Mgmt. Consulting,
Corporate Finance, Private Equity, Business Strategy, International Business
Business Strategy, Agribusiness,
Food, Retail, Energy, IT University of Illinois (Urbana-Champaign),
Kellogg School of Management -
Univ. de la República, Universidad Northwestern University
Torcuato di Tella, Harvard
Business School
Lautaro Perez (36) - AGR., MAB,

PHD(c)
Agriculture, Food Processing and
Distribution, Sales, Management,
Business Strategy
Farming, Agribusiness, Food

Univ. de la República, Kansas State
University, ESADE
30
We are at your service!
Treinta y Tres 1334, Of. 401

Montevideo 11000 - Uruguay
Tel.: +598 (2) 916.2600
Through USA: +1 (305) 722 1275
Through UK: +44 (20) 3026 0037
Marcos Marin - mmarin@alliedventure.com
Dave Ramaswamy - dramaswamy@alliedventure.com
Lautaro Perez - lperez@alliedventure.com
31
Appendix
32
Comparisons across Key Indices
Index Democracy Corruption Human Devl Literacy Rate Envt.

Sustainability
IND: 35 85 132 65.2 101

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
Source:
DI: Democracy Index - The Economist
CPI: Corruption Perception Index - Transparency
International
HDI: Human Development Index - United Nations 33
LR: Literacy Rate - United Nations
ESI: Environmental Sustainability Index - Yale University
Agricultural land
Per capita (Sq. km per 1000 people)
Uruguay 43,787
India 1,646
34
* Year 2005 www.alliedventure.com
Source: NationMaster.com
Total Actual Renewable Water Resources (TARWR)
Per capita m3/year
Uruguay 40,420
India 1,750
35
* Year 2005 www.alliedventure.com
Source: UN Aquastat
Macroeconomic data
GNP per sector and per capita

In million US$
2005 2006 2007 2008
Agribusiness 1562 1774 2102 3062
Manufacturing 2579 3018 3523 4999
Electricity, gas, Water 544 404 784 497
Construction 962 1180 1453 2040
Commerce 2210 2593 3277 4557
Transport and Communications 1437 1668 1977 2818
Other 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 (%)

12,00%
10,00%
8,00%
6,00%
4,00%
Note: 2009 GDP growth estimated at 1%
2,00%
0,00%
2005 2006 2007 2008
36
Agricultural sector’s share of GDP
14%
12%
% of Total GDP
10%
8% Agriculture
6% Livestock
4%
2%
0%
98
99
00
01
02
03
04
05
06
07
19
19
20
20
20
20
20
20
20
20 www.alliedventure.com
37
Total and agricultural GDP evolution
(1990 = 100)
2007 2008
Total AGRO 2,8 11,2

Agriculture 7,7 16,9
Livestock -3,2 3,8
• Growth 2002-2008: 66,5%

• Annual cumulative growth: 7,6%
38
Other macroeconomic variables
Exchange rate S/US$

Inflation
Note: the majority of agricultural commodities in Uruguay are traded

in US dollars
39
Evolution of Uruguay's total products export
7,000 1,700
Million US$ 1,600

6,000
Thousand Tons
1,500
5,000
Thousand tons
Million US$
1,400
4,000
1,300
3,000
1,200
2,000
1,100
1,000 1,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Uruguay Central Bank, 2008, 36% increase compared to

2007
40
Uruguay Exports breakdown
Beef products: 20%

Cereals: 8.3%
Dairy products: 8% Agricultural exports
Cattle furs 6.7% represent almost 60%
of total exports !!
Wood: 5.7%
Wool: 5.1%
Oilseeds: 4.9%
41
Uruguay export markets (in %)
45
2000
40
2008
35
30
25
20
15
10
5
0
Mercosur UE Nafta Asia Africa Others
E.U.
Source: BCU, Uruguay XXI, INE
42

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Agriculture in Uruguay - Overview

• Contract Farm in Uruguay, a safe and peaceful country in Latin America

• Diversify your risks away from agricultural areas threatened by water

• Use Uruguay as a platform to expand into the rest of Latin America.

• Grow two crops a year (occasionally three crops can be achieved).

• Adopt a a non-speculative farming approach (i.e. secure costs and prices

• Outsource all farm services (no investment in machinery or people on

• Achieve Returns by: (annually in USD, based on 5 year averages)

• Repatriate 100% of capital, dividends and profits.

• Enjoy working in a culture that values family and relationships, and is a

• Watch Uruguay agriculture videos by clicking here

• Area: About 10% smaller

• Population: 3.4 million (34

• Population: About 95% are

• 86% land area is arable only

• 4 cows for each citizen

• Land titles/ownership clear;

• The Uruguayan Constitution and investment law Nº 16.906 clearly

• “For the U.S., Uruguay is a safe country for investments.”

• “Uruguay: South America’s Best Kept Secret”

• From the US & UK Government:

• Mauritius Uruguay • New Zealand

• High growth of planted area in the last 9 years – from

• High yields compared to international standards –

• Highly mechanized and technology based operations

• Continuous appreciation of land prices, but still

• Strong inflow of foreign investors for 7 years in a row

Source: Uruguayan Ministry Of Agriculture

Soybean plantation in a typical uruguayan landscape with no irrigation systems.

2. Excellent weather conditions and water availability through rain.

2. Excellent weather conditions and water availability through rain.

Average Monthly Rain (mm) by Region

Annual Average = 1400 mm 20

3. Large Areas + Technology + Logistics

4. Research and Knowledge

• This region has a numerous group of internationally recognized agriculture

Operations and Management

Planting and Harvesting windows by Crop

SPRING SUMMER AUTUMN WINTER

• Almost all agricultural operations are based on crop rotations. Land

• Rotation is also a good practice to avoid land degradation produced

• Typical productive schemes are based on selecting (or combining

• Diversification is adopted also to control weather risks and

Risks and Risk Management:

• Operations Risk: Medium impact on financials. Nevertheless, selecting appropriate

Is farming a profitable and attractive venture?

Is farming a profitable and attractive venture?

• We have been involved in agriculture for decades, so we know about the

• Operating returns are high (above 35%) and so it is

Knowledge of Latin America

Lautaro Perez (36) - AGR., MAB,

Farming, Agribusiness, Food

Treinta y Tres 1334, Of. 401

Index Democracy Corruption Human Devl Literacy Rate Envt.

IND: 35 85 132 65.2 101

PAR: 71 138 95 93.6 17

GNP per sector and per capita

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 (%)

Total AGRO 2,8 11,2

• Growth 2002-2008: 66,5%