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See how a hedge fund agrees with our Ecuador agricultural alternatives.

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Ecuador farmland is rich.

Messages at this site have recommended investing in agriculture in Ecuador and the US since the 1990s.

Excepts from a recent article at landgrab.org entitled “Hedge-fund millionaire Diggle bets on farms, life sciences”  by Netty Ismail reinforces this thinking:   After buying farms in Uruguay and Illinois, as well as a kiwi-and-avocado orchard in New Zealand, hedge-fund millionaire Stephen Diggle plans to pour money into Africa and eastern Europe as global food prices soar.

Stephen Diggle, who co-founded a hedge fund that made $2.7 billion in 2007 and 2008, plans to open his personal farmland portfolio to investors and start a fund that will trade life-sciences companies.

“The one thing I didn’t want to do was to spend the rest of my life talking about how great 2008 was,” Diggle said. “You have to move on and find new challenges. That’s what gets you up in the morning.”

LAVA seeks to produce returns that aren’t correlated with the market by trading instruments that thrive on volatility, such as options, warrants, and convertible bonds. The fund uses strategies such as arbitraging or profiting from disparities in the price of similar securities simultaneously traded on more than one market, and tends to work well when markets go down.

“The cost of being long volatility on a daily basis as a buy and hold strategy is not going to make money in the next few years,” Diggle said. “You have to be more deft in your timing and more selective in what you own.”

Farmland Transfer

Diggle plans to transfer ownership of his farmland into a holding company, in which outside investors can hold shares, he said. Vulpes, which currently manages about $200 million, will own and operate the company. After buying farms in Uruguay and Illinois, as well as a kiwi-and-avocado orchard in New Zealand, he plans to pour money into Africa and eastern Europe as global food prices soar.

The value of farmland in the U.S. has probably gained 20 percent to 30 percent in the last two years, while Diggle’s investments in Uruguay may have risen 50 percent as sheep and cattle prices almost doubled in Latin America this year, he said.

Agriculture would be the “single most interest opportunity over the next 10 to 20 years,” Diggle said.

Vulpes favors investments in metals, energy and food, and “dislikes” government bonds, he said.

“Being long stuff in the ground is going to be a better place to be than holding pieces of paper,” Diggle said.

‘Biggest Risk’

Governments and their policies represent the biggest threat to investors, he said. “The biggest risk will come from governments: government interference in markets, government debt and government manufacturing of paper money to pay off the debt,” he said.

We do act on what we wrote about and have invested in agriculture in North Carolina…  Florida and Ecuador.

This is why the first property we purchased in Ecuador was our 962 hacienda a former sugar cane plantation.  This is also why this is the only of our Ecuador porerties we would not sell.

 

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Front yard at Hacienda Rosaspamba.

This is why we purchased our 252 acre farm in North Carolina where we introduced the idea of Sustainable Draftwood.

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The Blue lines are the roads we have added to the land.

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Our Florida groves. See more at Florida Gold

This is also why we have been promoting Ecuador agricultural tours conducted by Jean Marie Butterlin.

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Ecuador farmland.

Jean Marie recently sent me this note.

Ecuador Agriculture Business Summary

A- Introduction :

We were all taught that Investing is all about relationship between risk and reward.

But the most important point is, that we are always looking FIRST for the return of THE money (safety) before  SECOND the return ON the money (yield)

When investing, we am asking ourselves these 3 questions :

–       How safe is the asset and how much does it yield ?

–       How liquid is the asset we are buying i.e. how quickly can we sell it for cash ?

–       What happens if the USD drops or goes up ? Ecuador is a dollarized country.

We have been studying the Ecuadorian agriculture business for some time now and have found out good opportunities for making some nice returns ; we re investing right now our money in Ecuadorian land as we have in the past invested in Ecuadorian real estate esp. in Bahia, which is the cheapest coast in the world.

We have assembled a team of experts in agriculture i.e. agri-engineers , business management, sales and marketing, accounting, legal areas, but most importantly we have setup a network of locals in many parts of Manabi, who we call « spotters », that help us find the available properties at the best possible price ; these spotters live within the community and know the history, owner of each property ; they help us to sort out the deed issues and we get the also all the info : « good » and « bad », i.e. potential problems with water, neighboors etc…

Our team allows us to minimize the risks associated with agri-business from knowing all about potential pest problems in an area to the date of last drought or flooding etc…

When buying an asset class, one has to ask also, how desirable that asset will be in the foreseable future ; mankind just passed the 7 billion mark and arable land is decreasing every year ; China is buying all over the world big tracks of land to secure enough food production for their own people ; more and more land is allocated to making biofuel, which is one of the area we are working also in Manabi.

Ecuador has still one of the best and cheapest land available in all South America.

What I have found in Ecuador is a nice RISK/REWARD combination :

–       land will never go down in price like housing has done in the past; no bubble yet

–       Ecuador law is pro-foreign ownership

–       land is still cheap : $500/hectare to $5,000/hectare depending on water availability.

–       Good labor : qualified and cheap

–       on site management by Ecuadorian experts supervised by a team of business people that have experience in managing businesses.

 

B- Profit potential in Ecuador Agriculture :

How much can you expect to make in Ecuador agri business ?

It depends on 3 factors :

–       price of the land

–       combination of crops

–       quality of management

We have our own team of experts  that work for us. These experts have their own farms and teach at agri-engineers schools ; for example, one of the was born in Israel (Israel knows how to grow food in the desert…) and has managed a 15,000 acre cacao farm in Ecuador ; he now manages his own farms….

Here are the 2 big questions we are always being asked : If the agri-business is so good, why are not more people getting into it and why are most Ecuadorian farmers so poor ?

The answer to Question 1 is simple : It is not easy to find good available property, with deeds etc…. as Ecuadorian hold to their properties and do not sell easily. That is why I have setup a network of locals that roam the countryside where they live and where they are respected.

The answer to Question 2 is a bit more complex but has a lot to do with access to funding for poor Ecuadorian farmers, as well as business education of these farmers and mostly the famous « middlemen », that are one of the problems of Ecuadorian agriculture.

There are also a lot of rich Ecuadorian farmers….. and they are making a lot of money even by US standards.

When we talk about management :

•We choose to bring crops to the market at the ideal time of the year when prices are at the highest= timing of the planting.

•We chose crops where there is less competition and lots of demand

•We choose crops that are ideal for the soil, water and sun

•We choose crops that have clients ready to purchase before we plant

•We choose crops that are least disease prone

•We choose crops that are not too labor intensive

•We choose crops that have big potential in the future

•We select a combination of crops for each finca that will maximize income/cash flow and minimize risks

•We think « outside the box » = innovation!

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The net income per ha is about $2,700 ; we plant a minimum of 4 ha in a specific area ;

Cost of acquisition of the land is about $3,000/ha

This shows that initial land cos twill be paid back in about just over a year.

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Balsawood has a 4 year crop cycle ; the wood is very much in demand worldwide as there only a few countries that can produce this kind of wood.

Acquisition cost per ha is about $2,500 on average ; can be a hilly type farm ;

On a minimum 10 ha farm net income for 4 years is $139,000 ;

When acquisition cost of the land are deducted total cash flow on a typical 4 year period is : $114,000 and you still own the land :

For a typical $25,000 original land investment and a $17,120 investment in planting and growing (total $42,120) you will get $156,250 gross income fr the sale of the wood for a net cash flow of $114,000.

For the second 4 year cycle, the cash flow will be $139,000 as the land has aleady paid for itself.

We also can elect to farm other short cycle crops like Aji, (the red Pepper) that is sold exclusively to the Tabasco Company ; Tabasco pre-buys the whole crop at a fixed price.

Cacao is another longer cycle crop as it takes 4 years to really start harvesting ; the Ecuadorian Cacao has a good réputation and sells well.

Papaya is also a vey profitable short cycle crop.

An area that will see a big development is the bio-fuel and bio-diesel ; Ecuador produces already a lot of palm oil but pinon and linseed oil are extremely profitable crops as well ; the whole harvest is also pre-sold to companies that produce bio-fuel ; the price is a linked to the oil market price.

Bamboo production is also a good option on any farm and the Manabi climate is well suited for the constant growth of bamaboo production.

3- Cash Flow management :

In our development strategy, we aim to maximize regular cash flow i.e. combining on specific one fram short cycle crops like plantain or passion fruit and longer cycle crops like balsawood or cacao. This enables to minimize capital outlay to acquisition costs and first year production costs ; income from short term crops will pay for cost of longer cycle crops.

4- Management Package :

We offer a management package that we provide to our clients, who know nothing about agri-business ; and it is all based on shared net revenues.

The client invests in a farm that he owns outright himself; minimum is $100,000 in order to have a nice size farm and operating cash flow.

5- Our vision

•Chemical free agriculture :

We only use organic and sustainable agriculture ; organic pest control is a lot cheaper and healthier of course, the key being the ability to monetize the « organic » side of the business.

•Help the local economy and local communities in Ecuador.

6- FAQ :

Why are not more people investing in Ecuador agriculture ?

a)    Ecuadorian campesinos are not business people ; they are not entrepreneurs as they lack basic skills outside their trade and they do not have easy access to cheap crédit to finance their production costs ; they often prefer a low income lifestyle than high stress work….

b)   A lot of Ecuadorian farms are highly successful when run by smart educated people.

c)    The big investors are just finding out about how cheap and how fertile Ecaudor land is.

What is the rate of return on the investment ?

On a 10 year average,  a good managed farm can produce between 20 and 30% return ; cash flow is generated at the end of each crop cycle ; this takes into account 2 bad years of production every 10 years, due to unpredictable weather pattern like a strong el niño.

What are you providing ?

We provide the following services :

– Selection of the land: with pros and cons

– Selection of the crops for maximum cash flow and lowest risks

– Management of the farm including sales of the crops

What is our business model ?

We only make money when our client/Partner makes money. We take a percentage of gross sales payable only when money is received from the crop buyer.

Appendix 1 :Balsawood

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The balsa wood tree, scientifically named Ochroma lagopus, is a relatively fast growing plant found primarily in Central and South America. Balsa wood trees grow best under the conditions found in rainforests, ideally in mountainous terrain between rivers. The country of Ecuador is perhaps the largest exporter of balsa wood, although many local farmers consider the plant to be little more than a weed.

Balsa wood is one of the lightest varieties of wood available, but not the absolute lightest. It is remarkably strong for its weight, however. Originally, the US military sought out balsa wood as a substitute for cork during World War I, but it soon proved more useful as a lightweight construction material for gliders and shipping containers. Hobbyists also began to work with balsa wood because it could be carved easily with standard woodworking tools and bent into a number of shapes without sacrificing strength.

Balsa tree (Ochroma pyramidale, or O. lagopus) of the bombax family (Bombacaceae), native to tropical South America and noted for its extremely light wood, which resembles clear white pine or basswood. Because of its buoyancy (about twice that of cork), balsa has long been used for making floats for lifelines and life preservers. Its resilience makes it an excellent shock-absorbing packing material. Its insulating properties make it a good lining material for incubators, refrigerators, and cold-storage rooms. Because it combines lightness and high insulating power, it is a valuable construction material for transportation containers for dry ice (solidified carbon dioxide). It is also used in the construction of airplane passenger compartments and in model airplanes and boats.

The main farmers’ motivation to establish small balsa plantations (between 10 and 30 hectares) has been the demand by a local balsa handicrafts producer company that sells its products in the national and export market. On the other hand, the fast growth of the species allows obtaining economic benefits after approximately 4 – 5 years and also allows demonstrating its advantages to farmers, what is difficult to achieve in the case of species which require much longer time.

It is important to note that, to establish a plantation diminishing management costs the first year, farmers associate balsa with an agricultural crop (e.g. cassava, bananas, orito, and maize); they plant 625 to 830 balsa plants per hectare. An important point to considerer is that the plantation has to be near a road, or by a road, since this would facilitate exploitation activities and diminishes the operation’s costs, increasing in this way economic benefits.

The opportunity to supply the demand of a local market and the of crop’s quickness of returns are the features that make this case relevant. This is a practice that contributes to the development of a forestry culture with small initiatives such as those detailed in the case study.

It is very profitable business that tree is growing very fast, only 3 years old to maximum of 4 years old to be cut.

This year 2011 the domestic demand from balsa factories in Ecuador are very high, so the thousand of acres planted can not fill with the high demand from USA and China in particular. Of course the prices here have risen from $ 0.30 per bd.ft. as a balsa raw material but not dried or processed, up to $ 0.55 per bd.ft.: If before planting balsa trees was a good business, today is one of the best and fastest ways to make money with short-term forestry.

With the explosion of nuclear reactors in Japan, tendency will be for renewable energy and one of the most popular is eolic energy is applied, which are wind vanes fillings made ​​of balsa, so expect a very large demand for this wood, where our country is world leader in quality, productivity, history and extraction techniques.

Jean Marie

See a report on Jean Marie’s last Ecuador agricultural tour here.

Jean Marie Butterlin has created a new agricultural property Expedition March 26-27-28, 2012.  This is for those of you who have asked to look at property for its potential in this field.

The Agri Business Expedition fee is $1,990/single $2,990 couple.

Manabi Ecuador Agri Business Expedition

Here is an update on Jean Marie Butterlin’s Manabi Ecuador agriculture/business expedition.

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The Manabi Ecuador Agri Expendition will be in 4 wheel drive SUVs

This is the second farm outlined in our Agri business series. See the first farm at “Agricultural Tour“.

The Manabi Agri Business Expedition will show many farms… small… large… and some that can be divided.

Here are the first three farms (Jean Marie will be sending more) to be seen:

#1: Big Ecuador farm!  Here is a 1,000 acre farm that covers an entire enclosed valley.  550 acres are farmland.

This farm has water and computerized irrigation. 

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Only part has ever been farmed. The soil is very rich.  Last year 14 acres alone produced 25 tons of papayas per week.

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This property has a beautiful hacienda with a little fruit garden that includes 48 species of tress from cashew trees to coconut, citrus mango, etc….

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Cashew.

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Cashew fruit.

This property can be divided into smaller lots, 60 to 100 acres each.   There is a  private 4.5 mile road that runs through the valley. 

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There are also possibilities in the eco-tourism for the part that is hilly where you can see Howler monkeys, many species of birds.

Ideal for growing balsa wood, cashew trees as examples.  Our agri-engineers are thinking outside the box…cashew tree, especially organic, brings one of the highest incomes per acre of all.   Importers in California pay up to $7,000 per ton for dried, organic cashews.   Not many Ecuador farmers know about growing cashews in Manabi where the climate is close to optimal for some of the species. Cashew trees start producing in the 4th year and are good cash flow producing trees as is balsa wood.   Balsa trees take only 4 to 5 years to reach maturity.

There is a big demand for organic produce and we have met recently with US clients who are eager to buy exotic organic fruits from Ecuador.

This valley has easy access to a very good asphalt road and is only 1hour and 30 minutes from the port of Manta.

#2: 250 acres farm in Manabi with year round water, river and very rainy area. This farm is ideal for papaya and mango, with an off season watermelon crop.

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Papaya.

This farm can also be divided in 3 to 5 lots and has a good road and easy access.

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Hacienda.

#3: 90 acre farm close to Canoa with water.  Ideal for cattle or fruits.  This farm can also be divided.

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Farm house front porch.

There is also good opportunity for Biodiesel crops in the dryer areas with pinon or a species of flaxseed. On the Manabi Agri Expedition we include farms best suited for these types of crops.

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The prices for all these properties; range between $800 and $1,500/acre; they are all dividable so no-one needs to take the whole property.         Jean Marie

Learn how this week could be a pivotal week for the global economy and Ecuador.

Learn How to Earn in Ecuador.

Earn with Ecuador agriculture.

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Learn about 4 wheel drive Ecuador agricultural tours.

Earn with Ecuador Exports

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Ecuador exports include Ecuador produce… cocoa… chocolate.. coffee…. blackberries… and much more.

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Learn about Ecuador Export Tours

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Export Ecuador textiles

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art and…

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many other products.

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Learn about Ecuador Export Tours

Learn about 4 wheel drive Manabi Ecuador Agri Expedition.

Read Farmgrab.org article here