Agriarticle-business in South America

8/8/2019 Agriarticle-business in South America

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Need and opportunities for Indian investment in agricultural land in SouthAmerica

Executive Summary India is becoming increasingly dependent upon imports of edible oil and

pulses to meet the requirements of the growing population andconsumption.

Imports of edible oil increased to 8.18 million tons (over Rs 15000 crores)in 2008-9 from 0.1 million tons (Rs 166 crores) in 1992-93 and imports of

pulses went up from 0.56 mt in 1998-99 to 2.79 mt in 2007-8.

Besides the tonnage, the dollar burden is also becoming heavier with theincrease in the international prices of soy and sunflower oil by seven times

and that of palm oil by four times in the last ten years.

The growing global concern on food security, water scarcity and diversionof grains and oilseeds to produce biofuels will continue to drive the pricesof agro products.

Domestic production of oil seeds in the period 1996-97 (24.38 million tons)to 2006-7 (24.28 mt) had stagnated around 24 million tons.

Production of pulses has fared even worse. The production of 13.11 milliontons in 2005-6 is less than the 13.5 million tons produced in 1958-59, while

the population of India in this period has doubled.

The gap between demand and domestic production by the year 2026 isprojected to reach alarming levels - 27 million tons of edible oil, 39 million

tons of pulses and 74 million tons of sugar. Indias capacity to significantly increase production is constrained by falling

ground water levels and lack of extra space to increase area of cultivation.

One of the strategic options to bridge the demand and supply gap isacquisition of farm land overseas for food security strategy following the

same logic under which India is investing in oil and gas fields abroad, as

part of the energy security strategy.

India has been importing from South America edible oil (soya andsunflower oils) to the tune of over a billion dollars annually. In 2009, India

imported sugar from Brazil for more than a billion dollars. South America offers opportunities for Indian acquisition of farmland. It has

very large areas of fertile land and can increase the area of cultivation by

100 million hectares.

The region has 26 percent of the worlds fresh water reserves. The Guaraniaquifer below the surface of Mercosur region has the largest body of ground

water in the world.

South America has a large surplus production for exports and theirpopulation and consumption are relatively small.

The region has high yields, advanced technologies, best practices and worldclass infrastructure and logistics for agribusiness. Farming has become


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multinational business with large holdings and outsourcing of farming

operations.

El Tejar, the Argentine company cultivates a million hectares of land inArgentina, Brazil, Uruguay, Bolivia and Paraguay. The company plans to

double the area to two million hectares in the next five years. Los Grobo Group, another Argentine company has pioneered a new model

of APO- Agricultural Process Outsourcing similar to the BPOs and KPOs of

the Indian IT companies.

There is no restriction on acquisition of land by foreigners. Foreigncompanies and individuals own millions of hectares in the region. There is

no political or social sensitivity to large farm holdings by foreigners, unlike

in Africa.

The land can be bought on commercial basis from the private sector.

The Indian companies can follow a policy mix of acquisition and leasing ofland at 1:3 as many large companies do. They can also buy stakes in the

large agribusiness companies of South America and establish strategic

partnerships.

Cost of farmland in South America is half of the cost in Punjab. The mostproductive land is available for about 12,000 dollars a hectare while fallow

land, suitable to be brought under cultivation, can be bought for a few

hundred dollars a hectare.

There is no need to bring in labour, experts, technology or machinery sinceSouth America has an agribusiness ecosystem like the IT ecosystem in India

export-oriented with competent human resources and service providers

that allow investors to focus on output and returns.

Indian companies can grow oilseeds, pulses, wheat, sugarcane and takeback to India edible oil, pulses, sugar, fuel ethanol and biodiesel.

Indian companies can also acquire commercial forests and take back timberand paper pulp which are regular imports of India.

An NRI company Olam cultivates 30,000 hectares of land (leased) inArgentina and Renuka Sugar has invested 500 million dollars in Brazilian

sugar companies which hold 115,000 hectares.

A 16-member consortium of the Solvent ExtractorsAssociation of India hasa proposal to acquire 10,000 hectares of land (50 million dollars) in

Uruguay to grow oil seeds.

This is a good time to invest since there is less competition from thetraditional investors from USA and Europe who are mired in their domestic

crises.


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1. Indias increasing dependence on imports of edible oil and pulses1.1 India is becoming increasingly dependent upon imports of edible oil and

pulses to meet the requirements of the growing population and consumption.Indias imports of edible oil increased from 102,000 tons (Rs 166 crores) in 1992-

93 to 8.18 million tons in 2008-9. Edible oil has become the second biggest

burden on our foreign exchange after crude petroleum. The import bill has

crossed 15,000 crores of Rupees. Imports of pulses have increased from 0.25

million tons ( Rs 354 crores) in 1999-2000 to 2.79 million tons( Rs 5278 crores) in

2007-8.

1.2 Besides these regular imports, India had to import large quantity of sugarlast year to make up for the shortfall in domestic production.

1.3 While Indias production of cereals is adequate, there could be fall in

production from time to time due to monsoon failures, as witnessed in 2008 when

India had to import wheat.

Imports of edible oil and pulses in recent years in million tons given below:

Year Edible oil Pulses

2008-9 8.182007-8 5.8 2.79

2006-7 4.71 2.27

2005-6 4.41 1.69

2004-5 5.04 1.33

2003-4 4.39 1.72

2002-3 5.1 1.99

2001-2 4.42 2.21

2000-1 4.17 0.35

1999-2000 4.19 0.25

1998-99 2.62 0.56

Source- Solvent Extractors Association

1.4 India will face a growing gap between demand and domestic

production of edible oils, pulses as well as sugar in the coming years. The

situation is alarming according to a ICRIER report submitted to the Planning

Commission (working paper no 209, March 2008- demand and supply trends and

projections of food in India by Surabhi Mittal).


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Demand-Supply gap in million tons

2021 2026

Edible oil 17.68 26.99

Pulses 24.92 39.31Sugar 39.67 74.13

The above projection is based on 9% annual GDP growth rate.

1.5 In any case, the annual growth rate of consumption is much higher than therate of supply, as seen below.

Annual Growth Rate of Projected Demand and SupplyDemand Supply

Edible oil 5.95 2.13Pulses 6.51 0.91Sugar 8.22 0.41

1.6 In 1958-59 the country produced 13.15 million tons of pulses. The

production after five decades in 2005-6 was just 13.11 million tons. While

the production of pulses had stagnated in this period of fifty years, the

population of India has doubled.

Annual production figures in million tons

Year Pulses oilseeds Sugarcane

2009-10 15.7 29.8 253

2008-9 14.7 28.2 271

2007-8 14.76 28.83 340.56

2006-7 14.20 24.29 355.52

2005-6 13.11 27.98 281.17

2004-5 13.13 24.35 237.08

2003-4 14.91 25.19 233.86

2002-3 11.13 14.84 287.38

2001-2 13.37 20.66 297.21

2000-1 11.08 18.44 295.96

Source- Planning Commission and SEA

1.7 India cannot hope to match the demand for edible oil, pulses and sugar by

domestic production due to several constraints. It cannot significantly increase the

area under cultivation. The population is increasing by 15 million every year but

the land available for agriculture is diminishing due to increasing use of land for

industrial, commercial, infrastructural and residential purposes. The water


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problem is becoming serious since the ground water table is going down at

alarming rates. Cyclical monsoon failures will cause shortfall in agro production

from time to time, as witnessed last year. The small holdings and subsistence

nature of cultivation by most farmers means that large scale investment and

innovation are difficult.

1.8 The yield per hectare in India is much less than that of South America. For

example, Argentine soya yield per hectare is three tons while that of India is 1.2

tons. The yield of sunflower is 0.76 ton in India and 1.8 tons in Argentina.

1.9 Besides the increase in the quantity gap in the edible oil demand and

domestic production, what is more worrying is the steep increase in the prices of

edible oils in the last ten years. The international prices of soy and sunflower

oil have increased seven times and that of palm oil almost four times, as seenfrom the table below.

International prices of edible oils in US Dollars (CIF Mumbai)

2000 2005 2008 2009

Soy oil 339 522 1204 838

Sunflower oil 371 645 1442 846

Palm oil 199 392 936 673Source- SEA

1.10 The prices reached record levels in 2008 due to the global food insecurity

alarm and have come down since then. But given the inexorable increase in global

consumption, especially in India and China, it is logical to expect steady increase in

prices. It is worth noting here that the world was facing the highest food price

levels and fears of shortages in the first half of 2008 which triggered a global

concern on food security. In view of the growing population and increasing food

consumption of the world, agricultural land and availability of water are going tobe issues of concern in the future for the world and especially India, which will

have to feed the largest population in the world.

1.11 Besides the growing population, another challenge to food availabilty

and prices have come from the increasing use of food materials such as corn

and soy to produce biofuels, which are being encouraged many governments to

reduce carbon emission and dependence on imports of crude oil. According to an

estimate, 1.5% of the worlds arable land is currently used for the production of


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raw materials for biofuels. This has created a new link between food and energy

prices. Any increase in energy prices will influence the food prices too.

1.12 In view of the above, India needs to explore all the options to fill up the

supply-demand gap. One of the options is acquisition of farm land overseas for itsfood security strategy following the same logic under which India is investing in oil

and gas fields abroad, as part of the energy security strategy. Indian companies

have already invested over a billion dollars in the acquisition of oil fields in Brazil,

Colombia and Venezuela (besides larger investments in Russia, Sudan etc) and

more investment is expected in the coming years.

2. South America offers opportunities for Indian acquisition of farmland2.1 India has been importing from South America edible oil (soy and sunflower

oils) to the tune of over a billion dollars annually. Argentina is the major supplier

followed by Brazil and Paraguay. In the period January- May 2010, India has

already imported from Argentina soya oil worth 770 million dollars. The total

imports of edible oil from Argentina in 2010 is expected to reach 1.7 million tons

costing around 1.5 billion dollars. It may be noted here that Argentina is the

largest exporter of soy oil in the world and the second largest exporter of

sunflower oil.

2.2 In 2009, India imported sugar from Brazil for more than a billion dollars. In

2008 India had imported wheat from Argentina. South America has the potential

to grow and supply pulses to India.

2.3 South America and specifically Mercosur (Brazil, Argentina, Uruguay and

Paraguay) is emerging as an Agricultural Powerhouse in the context of the

global concern on food security. They produce more foodgrains and oilseeds than

what is required for the consumption of their small population and have been

exporting them. They have the potential to produce and export even more in thecoming years. Realising the historic opportunity arising from the global concern on

food security, they have started systematically increasing crop area, yield,

production and exports and are positioning themselves as a leading global food

supplier.

2.4 South America offers favourable climatic conditions. There is also diversity

of weather conditions and soil types to grow different types of crops. The warm

climate of Brazil is good for sugarcane while the cooler weather conditions of

Argentina and Uruguay are ideal for wheat and other crops.


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2.5 The infrastructure and logistics for agribusiness in South America are

world-class. Silos, trucks and specialised ports have been developed for efficient

movements of agro-products. The Parana-Paraguay-Uruguay rivers connect

Argentina, Brazil, Uruguay, Bolivia and Paraguay through river transportation and

reduce the cost of freight. For example, grains from Paraguay are transported inbarges upto Rosario, the riverport in Argentina for 1250 kms. From there, they are

put in oceangoing ships. Rosario is the major hub not only for transportation but

also for oilseeds crushing, processing and storage.

3. South America has been increasing the area of cultivation3.1 South America has very large area of arable land and fertile soil and has the

potential to bring in more land under cultivation.

(figures in million hectares)Country Area under

cultivationAdditional land which canbe brought undercultivation

Land used forgrazing

Brazil 47 80 172Argentina 32 20 142Uruguay 3 1.5 16Paraguay 3.4 1 2 35

3.2 The South Americans have been increasing the land under cultivation inrecent years. This is illustrated by the increase in area under Soya cultivation,

given below in millions of hectares:

Country 2000-1 2008-9

Brazil 13.9 23.3

Argentina 10.4 18.8

Uruguay 0.12 0.9

Paraguay 1.35 2.75

3.3 Brazil can increase the crop area by 80 million hectares without touching

the Amazon and the nerves of the environmentalists. No other country has such

large additional acreage which can be brought under cultivation. With ample sun

and abundant fresh water resources, Brazil has the largest surge capacity in

food production and is set on a new trajectory to becoming the next great

global bread basket. The temperate climate of Brazil is favourable to grow two-

three crops a year unlike many parts of USA and Europe which grow one crop ayear.


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4.4 The fastest growing agricultural area in Brazil is the Mato Grosso state,

which has an area of a million sq kms and is the Brazilian savanna. The Brazilians

call this region as Cerrado, which means closed/inaccessible. In the sixties, the

region was considered as sterile wasteland and scientists and farmers who soughtto develop agriculture in the region were advised that they were wasting their

time. But the agricultural scientists of Embrapa (government agri research agency)

discovered that heavy applications of lime and phosphate-rich fertilisers could

convert the acidic soil suitable for cultivation. With this development of soil,

appropriate technologies and infrastructure, Mato Grosso has now become the

leading producer of soya, cotton and cattle and the second largest producer of corn

in Brazil. Yield per hectare has gone up from about 1.8 tons in 1987 to 2.8 tons in

2007 and agricultural output from 17 million tons to 58 million tons. Norman

Borluag had described the development of Cerrado as one of the greatachievements of agricultural science in the 20th century. The crop yield of Mato

Grosso has reached the levels of Iowa and Minnesota. While the average

midwestern farmer owns 1500 to 2000 hectares, the typical holding in Mato

Grosso is 20,000 hectares.

3.5 The next frontier of agriculture being opened up now in Brazil is the

western Bahia region and Tocantins, Maranhao and Piaui states. A Brazilian

newsreport has quoted the state government of Piaui saying that there are eight

million additional hectares available for cultivation in the state.

3.6 In the past, many large landowners in the Mercosur region had used the

land for cattle ranching and did not think it was worthwhile investing in farming.

But after seeing the new global trend of demand and high prices for food, they are

converting the fertile parts of the pastures into cropland. They find crop cultivation

easier and more profitable thanks to the innovations in agricultural technologies,

outsourcing business model and development of infrastructure.

3.7 The Santa Cruz province in Bolivia has been increasing the area ofcultivation and agricultural output. Foreign companies are already farming there.

Some Indian farmers had emigrated to Santa Cruz in the sixties and took up

farming. After having made money, they had reemigrated to North America.

4. Abundance of water resources4.1 South America has abundance of fresh water and accounts for 26% of the

water resources of the world. There is adequate rainfall, large perennial rivers andhuge lakes. In any case, about 90 percent of the agriculture in the region is


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rainfed. The rain fall ranges from 700 to 1000 mm per year and the rainfall is

adequately spread covering the crop season.

4.2 The Guaran Aquifer, located beneath the surface of Argentina, Brazil,

Paraguay and Uruguay, is one of the world's largest aquifer systems and is animportant source of fresh water. It covers 1,200,000 km, with a volume of about

40,000 km, a thickness of between 50 m and 800 m and a maximum depth of

about 1,800 m. It is estimated to contain about 37,000 km of water and is

considered as the largest single body ofgroundwater in the world with a total

recharge rate of about 166 km/year from precipitation. It is said that this vast

underground reservoir could supply fresh drinking water to the world for 200

years.

4.3 There are no irrigation canals or ground water pumping as is the case withIndia. The South Americans raise two crops a year without irrigation.

4.4 South America does not suffer from extreme cold or heat. The climate is

mild and two crops can be raised unlike the farming regiions of USA and Europe

which can grow only one crop due to the severe winter.

5. South America is increasing agricultural production and exports5.1 The Mercosur countries are steadily increasing the agricultural production.

An example is the soya production, as seen below:

Soya production (in million tons)

Country 1970 2000-1 2009-10

Brazil 15 39.5 68Argentina 0.027 27.8 55Uruguay - 0.28 1.62

Paraguay - 3.5 6.5Total 15 71 133

5.2 A quarter of a century ago USA dominated the global soya production. But

now South America has surpassed USA. Brazil and Argentina together account for

50% of the global production while USA accounts only for one third. Paraguay, the

small country has emerged as the fourth largest exporter of soya in the world. The

US Department of Agriculture (USDA) expects that by 2018, 80% of soybean

international trade will have its origin in Mercosur.
http://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Paraguayhttp://en.wikipedia.org/wiki/Uruguayhttp://en.wikipedia.org/wiki/Aquiferhttp://en.wikipedia.org/wiki/Fresh_waterhttp://en.wikipedia.org/wiki/Waterhttp://en.wikipedia.org/wiki/Groundwaterhttp://en.wikipedia.org/wiki/Precipitation_%28meteorology%29http://en.wikipedia.org/wiki/Drinking_waterhttp://en.wikipedia.org/wiki/Drinking_waterhttp://en.wikipedia.org/wiki/Precipitation_%28meteorology%29http://en.wikipedia.org/wiki/Groundwaterhttp://en.wikipedia.org/wiki/Waterhttp://en.wikipedia.org/wiki/Fresh_waterhttp://en.wikipedia.org/wiki/Aquiferhttp://en.wikipedia.org/wiki/Uruguayhttp://en.wikipedia.org/wiki/Paraguayhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Argentina


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5.3 The exportable surplus of Mercosur is increasing corresponding to the

production since local consumption is limited. In the case of Argentina, only 5% of

the total production of 55 million tons of soya is consumed while the rest is

exported as grains, oil and soymeal.

5.4 While Mercosur countries are the main agricultural players, the other South

American countries are also increasing their production and exports. The Santa

Cruz province of Bolivia has been increasing its agricultural area, production and

exports and has been attracting foreign investment. Chile has already established

itself as a major exporter of fruits and vegetables and is already exporting fruits to

India. Colombia and Venezuela have the potential to increase agri production.

6. Best practices

6.1 The farming in the region has undergone a paradigm shift. It is no longer the

traditional farming in which an owner works his fields with his own machinery

and few workers and selling the products based on his needs and limited

knowledge. Agriculture is now done in a professional and commercial manner

using the latest IT and agricultural and communication technologies and done for

maximum profit as a corporatised business. Every farming company employs

professional agronomists who make decisions and monitor the agricultural

operations. For example, the Non-Resident Indian company Olam which cultivates

30,000 hectares in Argentina employs seven full-time agronomists and four

agronomy consultants. The agronomists are well paid. They exchange best

practices and experience through networking.

6.2 In the system ofPrecision Farming practised in the region, monitors are

used to control input distribution ( seeds and different fertilisers) on the basis of

information generated by software calculating the dosage needed, depending on

satellite location of the seeding and sprayer machines. Geodesic navigators provide

precise knowledge of the characteristics of the piece of land and the systemcustomises input application for each parcel of land . The precision system 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 maximises yield while minimising production cost.

6.3 Farming in the region is fully mechanized with the latest equipments and

technology. Planters, sprayers and harvesters are satellite linked with high

precision GPS systems and can work on automatic pilot even at night.


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6.4 All operations are outsourced. There are a large number of service

providers who provide the planting, spraying, harvesting, transport and

warehousing services on per hectare basis.

6.5 The Mercosur countries practise No-Till farming (direct seeding) in 80percent of the land under cultivation. This method avoids ploughing of the land

and exposing it to sun and wind and erosion and degradation. The crop residues

are left to decompose and enrich the organic matter and maintain soil moisture.

The land is always covered by straw and residues. This method improves physical

and chemical soil structure, reduces carbon emission and adds to productivity and

helps in the conservation of soil. No-till farming also requires less labor and fuel

than traditional methods, reduces soil compaction, and introduces fewer chemicals

into the environment. Seeding is done directly through special machines. No-till

products and practices actually improves the quality of farmland over time. As aresult, a landowner could rent his fields to a no-till farmer and have confidence

that at the end of the rental period the fields would be improved rather than

harmed.

6.6 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 caused by single crop plantation.

6.7 Yield per hectare in Argentina and Brazil are among the highest in theworld. For example national average of soya production is 3 tons per hectare ( inthe Pampa region it goes upto 4.5 tons) while the yield of soya in India is 1.20 tonsper hectare.

7. No agricultural subsidies7.1 While farmers in USA and EU are heavily subsidized, there are no such

subsidies in Mercosur region. On the contrary, the Government of Argentina

imposes an export tax of 15% to 35%. Even with this, the Argentine commodities

are competitive. If and when the Americans and Europeans reduce or eliminate

their subsidies, South America will become even more competitive in the global

agricultural space.

8. Agriculture is big business.. and going multinational8.1 Farming has been corporatised as a multinational business in South

America, with large landholdings, huge investment and innovation. Landholdingsare in thousands of hectares. In Argentina, the minimum land considered as viable


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for cultivation is 2000 hectares. Companies and individuals cultivate thousands of

hectares in their own land as well as in land leased from others. There are about

1000 companies in Argentina who cultivate over 20,000 hectares each. These are

run by enterpreuners and agronomists.

8.2 There are some large companies which cultivate more than 200,000hectares each including their own as well as leased land. El Tejar, the Argentine

company cultivates one million hectares in Argentina, Brazil, Paraguay, Uruguay

and Bolivia. Cresud, another Argentine company owns 450,000 hectares and

leases from others 160,000 hecatres and they operate in Mercosur countries and

Bolivia.

9. El Tejar Worlds largest farming company9.1 The Argentine company El Tejar is cultivating in the 2010-11 season about

a million hectares! yes 2.47 million acres !. This is the largest farming operation

by a single company in the world. There is no company even in US and Brazil which

comes close to this. El Tejar cultivates 400,000 hectares in Argentina another

400,000 hectares in Brazil and 200,000 hectares in Uruguay, Paraguay and Bolivia

together. The target of the company is to reach 2 million hectares in the next five

years. Their plan includes entry into other countries such as Colombia and

Ukraine.

9.2 El Tejars model is innovative. They do not own a single agricultural

machinery. They outsource the work to contractors who own the machines. They

own 200,000 hectares and lease 800,000 hectares from other owners, big and

small. Their operation is managed by just 700 employees. They outsource all the

operations of planting, fertiliser application, weeding and harvesting to

contractors. They farm scientifically by satellite mapping of every hectare of the

land they cultivate. They monitor the quality of the soil every season and decide

what crop to grow and what kind of fertilisers to use. Agronomists make the

decisions, based on satellite images, risk simulation models and a database of

agricultural metrics including historic weather registers. They use financialinstruments to hedge against price fluctuations and insure against crop failures. In

February 2010, they had already presold their soya crop to be harvested in

November 2011 through Chicago Commodities Exchange.

10. Los Grobo pioneer of APO -Agricultural Process Outsourcing10.1 Los Grobo Group, the Argentine company stands out as pioneer of a new

model of what can be called as APO ( Agricultural Process Outsourcing ) similar tothe BPO and KPO model of business of Indian IT companies. Los Grobo cultivates


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270,000 hectares in Argentina, Brazil and Uruguay. They do not own a single

hectare. Everything is leased land. They dont own any agrimachinery either.

Besides outsouring all their operations they also provide services to other

agroproduction companies.

10.2 The company defines itself as a knowledge-based one working in a network

format making use of the latest IT, communications and agricultural innovations

and creating value for all those connected in the network. Los Grobo connects the

farmers, agronomists, the managers and those in marketing and lets them interact

with enough oversight and control. This is the new model of agribusiness in this

era of Knowledge Society.

10.3 The entire operations of the company is managed by a group of about 100

people in the headquarters located in the middle of soya and wheat fields nearCarlos Casares, a small village 300 km from Buenos Aires city. Their office looks

like a BPO of Infosys with young people in casual dress glued to their computer

screens monitoring agricultural operations in the three countries, getting feedback

from agronomists, giving instructions to the fieldstaff in mobile phones on

application of fertilisers and checking the prices in Chicago.

10.4 The agronomists who work with the company are not employees but

contractors. They get about 2.5% of the crop they raise. This total consist of a base

of 1% and an additional variable amount. The variable portion is linked to severalfactors, including crop yields and the timely sharing of information on planting and

harvesting with headquarters. This system makes the agronomists as stake holders

in production.

10.5 The landowners keep an account with Los Grobo and check their account

balances anytime by entering their username and password at the Los Grobo

website. They are paid through electronic funds transfer to their bank account.

10.6 Like the Indian IT companies, the main asset of Los Grobo is their human

resource. The founder and CEO of the company is a visionary called as Gustavo

Grobocopatel( no connection to Gujrat he is of East European origin) . He

founded the company in1984 and has achieved a turnover of 700 million dollars in

2009-10. His target is 1.5 billion dollars in the next five years. He is planning to

visit India in December for tourism. He has agreed to give talks in India on his new

business model and also meet Indian companies who want to invest in South

America.


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10.7 The pioneering success stories of both El Tejar and Los Grobo have been

studied and commended by Harvard University, among others.

10.8 The same business model of El Tejar and Los Grobo, is adopted by most

international investors in South America. Foreign investors buy the properties andoutsource the farm operations to local companies. This has freed the international

investors from the liability of having employees and investing in machinery and

storage and transport facilities.

11. Advantage Argentina11.1 Argentina is ahead of other countries including Brazil and USA in the new

age agriculture. This is attested by the pioneering business models of the twocompanies mentioned above. The Argentine companies are establishing their

model in Uruguay, Brazil, Paraguay and Bolivia. Most of the Brazilian farmers are

even now cultivating the land in a traditional manner with their own machinery

and operations. It is the Argentine companies which have introduced the

outsourcing model there. Some Argentine companies such as Los Grobo Group are

being sought as consultants in other countries.

11.2 The cost of production in the fertile Pampa region of Argentina is lower in

comparison to the rest of South America. The fertile Pampa land yields more andrequires less fertiliser and virtually no chemicals. The US state of Utah, Ukraine

and the Argentine Pampa are considered as the most fertile land in the world. But

Utah and Ukraine can grow only one crop a year due to the severe winter, while

Pampa grows two crops since the winter in Argentina is milder. The Argentine

Pampa has got the distinction of yielding the highest agricultural output per

hectare in the world.

11.3 Argentina has another advantage in transportation. There is river

navigation facility from the heart of Pampa to Atlantic ocean ( 600 km) which hasmade the freight comparatively cheaper. The best farmlands in Argentina are

within a radius of 400 kms from Rosario ports on the river Parana. Besides the

grain silos, the oil processing facilities are also located on the banks of the river

through which the products are shipped. This has given Argentina the advantage

as the most efficient producer of soy oil among other agroproducts.

11.4 Argentina has developed a new disposable system of storage of grains

called as Silobag. These are polyurethane bags which can hold upto 200 tons. The

bags are laid out in the open fields and blown up like baloons and grains arepumped into them with machines. At the time of taking out the grains, the bags are


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torn out. This method is good for preservation of grain quality and colour and since

the bag is airtight, no chemicals are required for conservation. It has saved from

the need for costly permanent storage structures made of steel and concrete and

has reduced the cost per ton of stored grain. Argentina is now exporting this

technology to other countries. This has been brought to the knowledge of theCentral Warehouse Corporation of India.

12. Local regulations on foreign Investment in farmland12.1 There are no restrictions on foreign investment in farmland in Argentina

and Paraguay. Land can be bought and sold and also leased by foreigners.

12.2 Foreign companies own about four million hectares in Brazil. But in June,2010, the Brazilian Agriculture Ministry spokesperson announced that there was a

plan to move a constitutional amendment to restrict foreign ownership of land.

According to the current Brazilian law, only Brazilian nationals or residents can

purchase rural properties. But foreigners can set up local companies in Brazil who

can buy properties. According to another legislation pending in the Senate,

foreigners are not permitted to own more than 1140 hectares in the Amazon

region.

12.3 In Uruguay, there is no general restriction. About one third of the farmlandis owned by foreigners, who are mostly Argentines. However, the land acquisition

by foreigners need to get approval from the government. Also there is a law

according to which the government will have the first option to buy when an

Uruguayan wants to sell farmland. These have not come in the way of acquisition

of land by foreigners in most of the cases.

12.4 In Bolivia, foreigners are allowed to hold a maximum of 5000 hectares.

Foreign companies set up many local entities and manage to have more land.

13. Foreign companies in South America13.1 There are a number of foreign corporations, private equity firms and

individuals who own hundreds of thousands of hectares of land in the region.

George Soros, Ted Turner, Benetton and Arumugam (from Malaysia) own

thousands of hectares of cropland and cattle ranches. Some of the companies are

public-listed. The company of Soros Adeco Agro owns 270,000 hecatres in

Argentina, Brazil and Uruguay. They produce and export grains, oilseeds, dairyproducts, sugar, ethanol, coffee, cotton and meat. Mr Arumugam owns in Argentina


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a 220,000 hectares property which includes a ski resort and its surrounding

valleys, lakes and mountains in the Mendoza province, besides a 10,000 hectare

farm in Buenos Aires province. Foreigners, mainly Brazilians and Argentines own

one third of the land under cultivation in Uruguay. In Brazil, 4 million hectares of

farmland is owned by foreigners. Most of the soya cultivation in Paraguay is in thehands of Brazilians.

13.2 According to a news report of April 2010, the Chinese company Chongqing

Grain Group is planning to invest 300 million dollars to buy 100,000 hectares in

Western Bahia region of Brazil to produce 250,000 tons of soya. In the second

stage, they want to increase the land to 200,000 hectares with a total investment of

842 million dollars. This project is being financed by the Chinese Development

Bank. Five more Chinese companies are said to be interested in buying land in

Brazil.13.3 Another Brazilian newsreport of June 2010 says that the South Korean

group Hyundai is planning to buy 10,000 hectares in Piaui state of Brazil to grow

soya and export it to South Korea.

14. Advantage of South America over other regions14.1 Farmland is available for acquisition and leasing in the regions such as

Africa and Asia and Eastern Europe too. However, South America offers the

following competitive advantages over the others:

14.2 In the case of Africa and Asia, the land belongs to the Government. This

means that the decisions are political. When the governments change, they may

reverse the decisions of the previous government which gave away the land, as it

happened in the case of Daewoo land in Madagascar. But in South America, the

land is in the private sector and purchase and lease are done as private sector

transactions on commercial basis.

14.3 Large land acquisitions by foreigners is politically and socially a

sensitive issue in Africa. NGOs from developed countries are already creating

controversies alleging that rich foreigners take away the best land and food while

the local populations starve. The opinion makers in Africa also perceive the

acquisition of land by foreigners as neo-colonialism. There is a website

http://farmlandgrab.org on the theme of food crisis and global land grab with

details of land grab by foreigners in Africa.

14.4 In South America, there is no political or social controversy attached toacquisition of farmland by foreigners. The region has huge surplus land and
http://farmlandgrab.org/http://farmlandgrab.org/http://farmlandgrab.org/


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production. Most of the population is in urban areas and the rural population is

small. A foreigner holding a large farmland of thousands of hectares in Africa will

be an object of attention, jealousy and target of criticism. In South America no one

bats an eyelid since the land is plenty and there are lots of locals and foreigners

with large landholdings.

14.5 In Africa, one has to start from scratch since there is no local expertise,

machinery, technology and logistical facilities. But in South America there already

exists the best technologies, machinery, practices, human resources and business

model besides world class infrastructure and logistical facilities. In Africa it will

take about ten years to adapt high-yielding seeds to local soil and climate

conditions and achieve the kind of yields already reached in South America.

14.6 It is not argued here that Indian companies should focus on South Americaand give up on Africa and Asia. It is recognised here that a number of Indian

companies have entered Africa in a big way where virgin land is available for a few

dollars a hectare and also on long term lease. It is recommended that the Indian

companies should look at South America too besides Africa and Asia. They should

spread on all the three regions making use of the competitive advantages of each

region and reducing business risks through geographic diversification.

15.

Costs and returns

15.1 The cost of agricultural land in South America is half of the cost in

Punjab. The most productive farmland in Argentina and Brazil are in the range of

10,000 15000 US dollars per hectare. In Uruguay, the cost is 7,000 US dollars

(the productivity of land is lower than in Argentina). In Paraguay, it is cheaper at

the rate of 4,000 US dollars because of lesser productivity and logistical issues.

Paraguay is a land-locked country and taking grain to ports in Uruguay and

Argentina increases their costs. The prices of land and real estate are generally

quoted in US dollars in the region.

15.2 Cost of fallow land (which can be brought under cultivation) is very cheap

starting from 200 dollars a hectare. This will need initial investment to prepare the

land for crop cultivation after which the land can fetch from 2000 dollars upwards.

There are a few companies which do these projects , like real estate development.

Such fallow land in large quantities is available in South America.


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There are two kinds of leases:

Variable lease- which entitles the landowner to about one third of the of thecrop harvested, in cash or kind. In this system, the owner shares the risk

with the farming company. Fixed lease - preestablished amount ( around 300 dollars) is paid for the

use of the land. In this, the landowner is not exposed to crop price or

weather risk.

15.3 Based on five year averages, the rate of return on investment in farmland is

around 5%. The annual appreciation of land value is over 10%. In the case of

leasing, the return is over 15% and could be as high as 30%.

16. How can Indian companies invest in South America16.1 The Indian companies can buy land outright in the private sector. Minimum

investment should be 50 million dollars to buy 10,000 hectares of high yielding

land.

16.2 The second option is leasing of land as Olam does. It may be noted here that

over 60 percent of the farmland in Argentina is leased out for cultivation. The

Indian companies can also do a combination of buying and leasing as the Argentinecompanies like El Tejar do. Ideally, one-third of the land could be owned and

two-third leased.

16.3 The third option is to buy stakes in the agribusiness companies of

South America such as El Tejar and Los Grobo. Funds from Europe, USA and Brazil

already have bought stakes in these companies. Even if it is not a controlling stake,

the share in the local company will give access to agricultural production and

establish a strategic partnership. The farming companies of South America are

keen to develop partnership with Indian edible oil companies and importers sothat they can have direct access to the markets rather than through foreign

commodity multinationals such as Cargill and Bunge.

16.4 The Indian companies can start at a small scale with about 10,000 hectares

and then scale it up based on experience. They can start agriculture production in

Uruguay, and Argentina to start with since the agrisector of these countries are

better organised. Therafter the operations can be extended to Brazil and other

countries such as Paraguay and Bolivia.


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16.5 The Indian companies do not need to have any farming expertise or invest

in machinery. They need not bring even managers from India. Just one Indian, as

the country manager is enough to take care of the whole operation. They can

outsource all the operations to local contractors. South America has competent and

experienced agronomists, managers and service providers and has an Agribusinessecosystem similar to the IT ecosystem in India. The agronomists of South America

and especially Argentina are not only competent but are also passionate about

their work. They are well paid and have a social status like the IT experts of India.

17. Agroproducts of interest to India17.1 The Indian companies can grow oil seeds such as soya and sun-flower and

get them crushed in the region itself (Argentina and Brazil have huge crushing

plants with the latest technologies) and take them back to India as edible-oil,

needed badly in India.

17.2 Although India does not import pulses from South America, there is good

scope for this. The South American farming companies are keen to grow the pulses

which are consumed in India. They are attracted by the large quantities required in

India and by the longterm opportunity for exports.

17.3 Brazil, with its most efficient agricultural technology for sugarcane

cultivation in the world, is of course, the best place to invest in sugarcane farms.

Brazil harvests some 500 million tonnes of sugar cane, making it the worlds

largest producer. The Tucuman province of Argentina and parts of Paraguay also

grow sugarcane. More and more sugar will be needed by the Indian market in the

future.

17.4 The Indian companies can cultivate wheat, corn and other crops which

could be sold in the local and international markets and also taken back to India.

17.5 Fuel ethanol and Bio-diesel are the other products which will be needed in

India for the programme of diversification of fuels. Brazil is the global pioneer and

leader in the production of fuel ethanol. Over 90 percent of the new automobiles

produced in Brazil are flexifuel vehicles. Brazil is the worlds largest exporter of

ethanol and the lowest-cost producer.

17.6 Brazil and Argentina are also into biodiesel production. Argentina is

becoming a significant exporter of bio-diesel produced from soya. It has built a

large capacity for production of 2.6 million tons and exports over one million tons.


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17.7 There is also scope to grow jatropha in Brazil, Paraguay and some arid areas

of Argentina and produce biodiesel, as and when this is feasible commercially and

in large scale.

17.8 Chile is already exporting fruits such as apples and pears to India. Argentinais also keen to export fruits to India. Since these countries are in the southern

hemisphere, their supply during the off-season in India will not compete with our

producers.

17.9 Olive and wines are also being exported by Argentina and Chile to India.

Indian companies can acquire olive farms and vineyards and wineries too in the

region.

18. Acquisition of forests too18.1 India is a regular importer of paper pulp and timber. The imports of these

items also keep going up in tune with the GDP growth of India. Timber imports

have gone up from 926 million dolars in 2005-6 to 1.3 billion in the period April

2009-Feb 2010. The import bill of paper pulp in 2009-10 was 3.5 billion dollars.

The Indian companies can acquire commercial forests in South America and take

back pulp and timber to India. The commercial forestry in the region is done in

accordance with environmental norms and policy of regeneration of trees.

18.2 A number of companies of Scandinavia, Europe and US own hundreds of

thousands of hectares of forests in South America. In Uruguay alone foreign

companies own half a million hectares of forests. UPM, a Finnish company owns

160,000 hectares of forest in Uruguay and has established recently a paper pulp

plant with a capacity of one million tons. Weyerhaeuser, the timber company from

USA owns a few hundred thousand hectares of forests in Chile, Uruguay and Brazil.

The Swedish-Finnish pulp and paper company Stora Enso has 200,000 hectares of

commercial forest in partnership with Arauco, the Chilean company, in Uruguay

and is planning a pulpmill to produce about one million tons of Eucalyptus pulp.

19. Has any Indian company tried farming in South America?19.1 Olam, a six billion dollar NRI company with headquarters in Singapore

cultivates 30,000 hectares of leased land in Argentina. Their main production

is peanuts which they process and export to companies like Kraft. This successful

venture was started by Simmarpal Singh, a young manager of the company in

2005. He came here to buy peanuts and discovered the opportunity to go into

farming. He started with a few hundred hectares and has scaled it up. He is now


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growing soya and beans too as part of crop rotation. He is now entering into rice

cultivation. He has plans to increase the area to 60,000 hectares by 2012-13.

Simmarpal is the only expatriate in the company and he employs 155 Argentines

including 7 agronomists.

19.2 Shree Renuka Sugars Ltd has invested over 500 million dollars in the sugar

sector of Brazil in 2009-10. They have bought a 51 percent stake in Brazil's

Equipav SA Acucar e Alcool and acquired another company Vale Do Ivai S.A. Acucar

E Alcool. Sugar mills, ethanol plants and 115,000 hectares of cane growing land

have come as part of the two deals which have placed Renuka among the top five

sugar producers in Brazil.

19.3 Sterling Group of India has acquired 2,000 hectares of olive farm in

Argentina. They have plans to expand their operations.

19.4 A 16-member consortium of the Solvent ExtractorsAssociation of

India (SEA) has a proposal to invest 50 million US dollars in Uruguay to

acquire 10000 hectares of farmland to grow oil seeds. The Consortium

includes the top edible oil companies such as Ruchi Group, KS Oils as well as STC. A

delegation of SEA visited the region in 2007 and therafter sent a technical team in

2008, after which they have prepared a Techno Economic Feasibility report. They

are planning to visit the region again in october 2010.

19.5 The prospective Indian agibusiness investors may note that Indian

companies including NRI companies have already invested 10 billion dollars in

Latin America in sectors such as pharmaceuticals, chemicals, steel, mining and IT.

The Indian IT companies employ over 10000 Latin Americans in their outsourcing

and software development operations. In most cases the local country managers

run the operations of these companies successfully to the satisfaction of the

management in India.

19.6 The Latin Americans have admiration for Indian culture and philosophy and

there are many thousands of them practising yoga and meditation and following

Indian spiritual gurus and groups such as Sai Baba, Ravi Shankar, and Hare

Krishna. With this positive Latin American attitude to India, the region is comfort

zone for the Indian companies and executives to live and work here.


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20. What about risks?20.1 There are no political risks in the acquisition of land in South America since

it is not a political issue. The region has become irreversibly democratic with

strong democratic institutions, regular elections and more political stability.

20.2 The economies of the region which went through booms and busts in the

past have undergone a paradigm shift and have become more stable in recent

years. There are no more fears of hyper-inflation, excessive external debt and

volatile fluctuations of exchange rates. These past curses have been brought under

control and the macro-economic fundamentals of the markets have become

stronger and healthier. The resilience and the strength of the markets of this

region were proven during the global financial crisis. South America has withstood

the external shock with only minor adverse impact. The region is expected to growand become more prosperous in the future.

20.3 There is no foreign exchange risk in land transactions and agricultural

operations since prices of land, services and commodities are generally quoted in

US dollars. If the Indian company wants to sell the land it can do so in US dollars in

the same way it bought the land. The company is not likely to lose money while

selling, since the farmland prices are steadily going up, given the global concern for

food security. There are no restrictions on repatriation of capital, dividends and

profits.

20.4 The agricultural land prices are well organised in a transparent and

predictable way in many cases. The land boundaries are GPS-mapped with high

precision, and most titles are clean and are registered in public-access databases.

The price depends on factors such as the productivity of the soil and access to

roads, ports and storage silos. For example the Uruguayan government has soil

maps grouped in 13 categories and these can be accessed online and the prices for

these categories determined by third party experts can be found out.

20.5 The imposition of export tax on agricultural commodities in Argentina is a

negative point. However, even with this, the prices of Argentine products are

competitive, thanks to the low cost of production, use of advanced farming

techniques and higher yield.

20.6 There are, of course, the cyclical risks in agriculture such as drought and

weather conditions as well as fluctuations in commodity prices. It is said that

agriculture has a five-year cycle with good and bad years and ups and downs inproduction and prices. Since the investment is done on a long-term basis, this


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cyclical risk needs to be taken in perspective. The weather risk can be mitigated by

geographical diversification through holding land in different countries and parts

of the region.

21. Local agencies for land transactions21.1 There are a number of South American agencies which provide farm real

estate services including evaluation and operation and management. They charge

3% commission for the transactions.

21.2 In Argentina, there are ten large agencies which have a common website :

www.mercampos.com giving offers of land for sale and leasing. Below are two of

the largest agencies:

Compania Argentina de tierras www.cadetierras.com.arBelow are their sample offers :

500 50000 hectares, price: 4000 15000 US$ per hectare in Argentina100 10000 hectares, price: 6000 - 8000 US$ per hectare in Uruguay100 10000 hectares, price: 2500 - 4000 US$ per hectare in Bolivia

Nordheimer - www.nordheimer.comTheir sample offers:

- 7800 hectares uncultivated land, price 850 US dollars per hectare in Saltaprovince of Argentina.

- 50,000 hectares of fallow land at 200 US dollars per hectare in Santiago deEstero, province of Argentina

- 15,000 hectares of fallow land at 750 US dollars per hectare in Formosaprovince of Argentina.

Allied Venture of Uruguay-www.alliedventure.comThey provide consultancy for farmland acquisition and leasing and services formanagement of farms. They have given presentations in CII and Solvent

Extractors Association meetings in India on agribusiness investment inUruguay and South America.Here are some of their offers:-14000 hectares at a rate of 330 dollars a hectare in Tocantin province of Brazil-18500 hectares at a rate of 500 dollars a hecatre in Paraguay-40,000 hectares @ 300$ a hectare in Paraguay-11390 hectares @750 $ a hectare in Formosa province of Paraguay

Allied Ventures is not a real estate broker but a consultancy company.

Gateway to South America- www.gatewaytosouthamerica.com

Their sample offers- 18000 hectares @5000$ a hectare in Salta province of Argentina
http://www.mercampos.com/http://www.cadetierras.com.ar/http://www.cadetierras.com.ar/http://www.cadetierras.com.ar/http://www.nordheimer.com/http://www.alliedventure.com/http://www.alliedventure.com/http://www.gatewaytosouthamerica.com/http://www.gatewaytosouthamerica.com/http://www.alliedventure.com/http://www.nordheimer.com/http://www.cadetierras.com.ar/http://www.mercampos.com/


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- 15000 hectares @ 1800 a hectare in Bahia state of BrazilTime for acquisition is now

This is a good time for acquisition of farmland in South America since thereis less competition at this time from European and American investors whoare struggling with their own crises at home. The prices are likely toincrease in the future.

---------------------------------------------------------------------------------------------------------Note:Statistics and information for this paper have been drawn from a wide variety ofsources including governments, chambers of agriculture, FDA of USA, privatecompanies and consultants as well Indian organisations such as SEA and ICRIER.

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