Asset Class Fundamentals.

Farmland and farming investments as an asset class have a unique set of characteristics:

• Long-term fundamentals: To meet the growing demand for food, supply must grow at 1.7% YOY while facing the challenges of limited arable land, degrading soils, climate change, and growing dependency on irrigation.Both demand and supply side factors pressure farmland values.
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• Resilient cash yields: Unlike gold, Farmland produces consistent annual returns from cash income (Eg: Land rents) and land appreciation with relatively low volatility providing attractive risk-adjusted returns.
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• Natural hedge against inflation: Historically farmland has been regarded as an effective inflation hedge thanks to its positive correlation with inflation.
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• Portfolio Diversification: farmland holds a low correlation to other traditional asset classes providing portfolio stability during volatile times.
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• Climate Action: farmland through climate-smart practices provides an unparalleled opportunity to fightclimate change, mitigate GHG emissions, promote biodiversity, and achieve various SDGs.

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Farmland in South America.

Farmland investments, including cropland, grassland, and timberland have consistently outperformed other asset classes over the last 20 years. Over the same period, returns of farmland investments in South American countries, such as Uruguay, have consistently outperformed those in the US.

The forces driving farmland prices, create attractive opportunities for investors in the region where prime farmland is worth a fraction of the cost of comparable farmland around the globe producing clear arbitrage opportunities with attractive risk-adjusted returns.

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A Thriving Agribusiness Sector.

Argentina, Brazil, Paraguay and Uruguay are key players in the global food markets ranking among the top world producers and exporters for crops such as soybeans, corn and wheat as well as beef among other.

The region`s soils and climate allow for producing more than one crop per year helping diversify risk into various crops as well as generating revenue more than once a year.

In addition, these countries have the lowest costs of production per ton of crop produced positioning these South American countries among the most competitive crop and beef producers in the world.

The competitive edge of the region's agricultural productivity has sparked a significant influx of investments into fostering a thriving agro-industry and expanding infrastructure.

Despite the ongoing expansion and enhancement of farmland development and productivity, there remains ample room for strategic investments in agribusiness.

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Pulp Wood Forestry Boom.

In addition to grains, oilseeds and beef, in the last 20 years, the region has witnessed the rising of its pulpwood and timber industry consolidating as the world's leading producer of short fiber.

The regions natural conditions favor fast-growing and high-quality timber with short harvest cycles and low production costs standing out as one of the best places to grow trees.

The thriving forestry sector has consolidated a strong local industrial demand with various state-of-the art-pulp mills and saw mills.

Polinizadores Web

Abstract

Interview to Martin Otero

March 2023

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Introduction

Martin Otero is founder and CEO of Bedrock and a farmer. Featuring extensive experience in the rural sector, he has founded his own company with a focus on enabling investments in sustainable, regenerative, and impact agriculture where various activities such as agriculture, livestock, forestry, and management of natural ecosystems are combined. Its team has been operating since 2005 and has the experience of having participated in the design and execution of strategies for more than 260,000 hectares in South America.

We share the interview that Martín gave to Polinizadores.com

What is regenerative agriculture?

It is definitely a very new term, very trendy, and with many and varied definitions. We do not define regenerative agriculture. We focus on the objective of regenerating the soil, and that single objective has opened up endless questions, teachings, and rethinking of everything we have been doing. Today we are very happy with the short and medium-term agronomic and economic results, but we firmly believe that the great gain is in the long-term resilience of agroecosystems. Little by little, studies are beginning to appear that validate that the greater the biodiversity, the better the management of nutrients, carbon, water, etc.

“We understood that Biodiversity was nothing other than the heart of regeneration.”

What are the actions in pursuit of sustainable agriculture?

On a global scale we see soils that have been mistreated for centuries, but, even so, nature gives us the possibility of regenerating them and generating new virtuous circles. In our region we have three great advantages: on the one hand, soils with less agricultural history than the old continent, on the other, about thirty years of massive management of agriculture without soil plowing or direct sowing and, lastly, but not least than the above, we have a very vibrant agricultural business community with a young and entrepreneurial mentality, which does not hesitate to reformulate its production models or reinvent itself.

We have drawn on the advice of the pioneers and the first is...go slowly, with clear objectives, believing in the fundamentals and taking firm steps without looking back after five minutes. The second is to see what tools we have on hand. Clearly, it is not going to be the same to travel the path with livestock than without livestock. We believe, and our experience validates it, that livestock greatly accelerates nutrient recycling processes. In the absence of livestock, we undoubtedly seek to incorporate carbon and nutrients through cover crops, in that sense, we try to make them as polyphytic as possible. Each plant with its function, whether it is incorporating nitrogen, generating biomass, producing a flower, or generating roots to explore the soil at different levels and improve infiltration.

We believe that monitoring biological activity within our landscapes is a good indicator of the health of our productive ecosystems. We have remapped the fields to identify landscapes and define specific restoration actions. We relaunched the results measurement policy (fundamentally focusing on soil health indicators) to be able to evaluate objective and concrete indicators over time. At the landscape level, by planting materials acquired from the Directorate of Aquatic Natural Resources of Uruguay, we have reincorporated native aquatic species. Also, in collaboration with UPM, we are measuring the health of aquatic ecosystems by monitoring amphibian activity in waterways and activating a program for the identification, georeferencing, and protection of threatened native cacti.

Achievements in the implementation of biodiversity refuges.

Although our migration towards regenerative agriculture began back in 2017, throughout this journey of rethinking we understood that Biodiversity was nothing other than the heart of regeneration. Without biodiversity, without life, we were not going to get far. That's when we came across Syngenta's “Multifunctional Landscapes” project and decided to make our fields and equipment available to the project so that together we could define actions and measure results. So we decided to look for very well-distributed points within the fields, fractions that otherwise had no other function today have a specific management and a clear function. They are connection points between agricultural, livestock, and forestry sectors and their function is to act as habitat and refuge mainly for pollinators. These areas also receive grazing with a super high density of livestock, very short and punctual, and in order to promote certain species (flowers) and accelerate the recirculation of nutrients, imitating a passing herd. We are a year and a little away from the implementation of the first actions on Multifunctional Landscapes and in that short period we have already noticed achievements. First of all, there is a goal and there is management. Many that were merely Gramin patches today are multispecies meadows, with valuable species that we have broadcast sown and other highly desired ones that have emerged surprisingly and naturally. On the other hand, in the first insect monitoring (carried out by Dr. Estela Santos - Faculty of Sciences - of the University of the Republic, Udelar) valuable species of rare native pollinators have been detected, we estimate that properly managing and preserving These spaces will generate the possibility of us talking about the persistent presence of native and no longer so rare pollinators.

Martín ended the interview by highlighting the current context, “clearly spring and summer 22/23 have been some of the hardest in recent times, with an accumulated drought and historic extreme temperatures for Uruguay.” He ended by validating the work done so far and the need to continue on the same path:

“We want to see how the Multifunctional Landscapes react when the rains return. Since we believe in fundamentals we have high expectations. "We are going to continue working, documenting, and analyzing the results of the monitoring."

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We are happy to announce that Bedrock has recently signed a technical collaboration agreement with Syngenta to establish biodiversity reserves on managed properties.

These natural and re-wilded habitats provide nesting and food resources for bees, pollinators, insects and wildlife. This reserves enhance overall biodiversity & providing important ecosystem services such as pollination and pest control improving crop yields while securing sustainable farming and environmental balance.

By including selected testing areas joining Syngenta's "Operation Pollinator" we intend to work jointly to measure the impact on pollinators, biodiversity and its contribution to the whole regenerative farming system.

Revista Verde

March 2022  N°99

View original Article

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Abstract

Interview to Martin Otero

“Interest in investing in land in Uruguay has increased in recent times, Martín Otero, founder and director of Bedrock, confirmed to VERDE”. He pointed out that the covid pandemic “marked the end of a time when agricultural prices were very depressed and there was a feeling of excessive supplies in the world”, and that was an important factor that motivated investors to regain interest in this asset class. 

He added that “there is currently a strong stock recomposition policy in many countries, while there is a significant review of the productive sectors and supply chains after COVID.”

On the other hand, he pointed out that many things were rethought globally, not only in the agricultural food supply chain but also in many other industries and especially in the corporate world in its relationship with investors, society, and consumers. 

Otero is currently the founder and executive director of Bedrock, he was the founder of Hillock Capital Management and former director of Hidrovias do Brasil, a company that in Uruguay, amIntong other things –together with the Christophersen group– created TGM in the port of Montevideo.

“I do not like to do futurology but I see a tense global economy and geopolitics. There is no recessive vision, but neither a scenario of great growth, but rather of less growth for the coming years”, he analyzed. 

He pointed out that “Investors are beginning to question their current portfolios. When you begin to hear the words inflation, bubbles, interventionism, and so on, that does nothing but to remind us about land as an alternative for portfolio diversification. Historically, land was an effective hedge against inflation, and has little correlation with other financial products. He argued that "investment in land is a great option as a hedging strategy for all these uncertainties."

Bedrock promotes investments in land in the region, where "Uruguay rates very well," said Otero. He stated “Today we are very focused on impact investments. Agriculture has a very important role in this, thanks to new approaches in production. We believe that there is going to be a lot of capital directed towards impact and sustainable investments.” 

He stressed that investment in land and the agricultural sector is safe and that during the pandemic it was shown that the demand for food remained unchanged. “When the world fell, the basics were needed and those investments proved to be sound.”

Interest in sustainability

He pointed out that in the business world there is greater interest in sustainability issues, and that in recent times the vast majority of companies have created departments dedicated exclusively to demonstrating processes in accordance with the demands in that matter. . 

He valued that agriculture today occupies a fundamental place and represents a great opportunity. Because it doesn’t only produce food but also fibers that can replace plastics, for example. “This was something that was out in the open and was not valued by the world. As well as the environmental services that agriculture can provide, which is something measurable, that can contribute to sustainability with great impact effects to mitigate climate change. All this adds value”, he emphasized.

Otero confirmed that "there is an important need to go towards sustainable, measurable operations, with real positive results and impacts." And that the same thing happens in the financial sector, which has the spirit of promoting projects that contribute to caring for the planet. "All the industries are going through a large re-thinking, and agriculture is doing it too," he said. 

Positioning of Uruguay

Otero is involved with agribusiness investments in Argentina, Brazil, Paraguay, and Uruguay. He said that he sees Uruguay "very well" and that "beyond being an investor-friendly country, it has shown over time strong legal certainty, which is a clear advantage in the region." 

He also highlighted the productive aspect of the country, especially in the current scenario. “Uruguay has good productivity, but it also has the characteristics to offer something diversified. In Uruguay, you can produce grains, and timber, and run world-class livestock operations on the same farm. This combination has many advantages, which do not occur in the typical approach of extensive monoculture operations, as it happens in other geographies”, he said. 

On the other hand, he pointed out the costs. He recalled that in the past capital has left Uruguay due to this issue, because "land rent in Uruguay and in almost the whole world is tight, and tax pressure ends up being a threat to investment."

In this sense, he mentioned the Wealth Tax as "an important burden in these long-term businesses, which at times made it difficult to deal with." 

In any case, he considered Uruguay "an attractive country for productivity, stability, legal certainty, for its professional and human capital and for the policies that promote investment, as occurs for example in irrigation projects." 

He also valued that “it is a country where commercial informality is zero, and that is a great thing. It is a country that has always shown a lot of openness to dialogue between the private sector and the State about the future of the industry and policies to come ”. 

Additionally, he highlighted that “in environmental policies, Uruguay is a step ahead in the region”. And he added that both the Uruguay Natural brand and the implementation of traceability systems, among other policies, “help a lot with this type of investments in which not only you have to say what you do but you have to demonstrate and certify the processes”.

The company has operations in Uruguay, and its vision is to continue in the country in the long term while expecting new investments to materialize "as long as things remain this way, and we believe that it will be so," he said. 

He also pointed out that "it must be considered that investments in farmland are closely linked to its productivity." In that sense, he pointed out that the value of land has floors and ceilings. Its value and its income are inevitably linked to what it can produce and also to the value of that production and always considers long historical series. “It is something that we are constantly monitoring in the region in general and in Uruguay in particular,” he confirmed.

He pointed out that Uruguay's local investors and pension funds “have been very active in the land market in recent years. The local investor, the producer, the Uruguayan pension funds, and the Argentine who was already operating in the country were the ones who, at the worst moment of the farmland markets, set a floor in the price of farms in Uruguay”.

He stated that the pandemic not only affected investment in Uruguay but throughout the world, mainly due to the problem of mobility. “Investors in Boston, London, or Switzerland may very much want to invest in the region, but probably won't do it until they can set foot in the country, get a sense of the people they are working with, and so on. That slowed down the market. We believe that when this normalizes there will be a favorable impact”, he analyzed.

About Bedrock

Bedrock is a company created by Otero in 2020 to deploy investments in sustainable, regenerative, and impact agriculture. His team, which has been operating in Uruguay since 2005, has the experience of having participated in the design and execution of strategies for more than 160,000 hectares in the region. 

It carried out direct operations on 35,000 hectares and designed and executed development and infrastructure plans in more than 30 properties. Operations in Uruguay include agriculture, livestock, and forestry.

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We are pleased to announce that Bedrock has entered into a scientific partnership agreement with agri benchmark reaffirming our commitment to the research of global agriculture and the development of sustainable production systems.  

The agri benchmark network brings together scientists, advisors, and farmers to share their insights and expertise on key sectors of the agricultural and horticultural value chains. The network is jointly operated by the Thünen Institute for Agricultural Economics (Braunschweig, Germany) and global networks gUG (Braunschweig, Germany).

The network uses internationally standardized methods to analyze farms, production systems, and their profitability providing scientifically consistent and soundly based answers on strategic issues to decision-makers in policy, agriculture, and agribusiness. Methods and main results are exposed to an ongoing quality assurance process and are open for public discussion.

Every year the curated network members report on the crops harvested each year at farm level using typical farms.

Each typical farm represents a productive region in each country and all the data collected contains a full set of economic indicators and production systems that depict the farmers' business for each crop year. To date, the network has +100 typical farms in over 40 countries.

The Gloom, Boom, Doom Report

Visit: https://www.gloomboomdoom.com

August 2021   ISSN 1017-1371

© Marc Faber, 2021

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Abstract Article

[MF:] Finally, my Argentinian friend Martin Otero, founder and chairman of Bedrock Farmland Wealth Management, has been kind enough to share his views on opportunities in farmland investing.

How Investments meet meaningful farming.

Over the past year, It's been more than evident that the whole world can suddenly stop from one day to another. COVID-19 exposed many shortcomings in our economic and social systems and there is now a heightened sense of awareness and urgency to combat climate change and social inequality. 

Over the past year, we have seen assets in ESG ETFs more than double reaching U$D 80 billion (JP Morgan Global ETF handbook 2020). JP Morgan reported, 71% of investors surveyed responded positively to ESG investment momentum. Increasing governmental initiatives to promote sustainable practices, as well as the advent of sustainability-linked loans, are growing incentives fueling this trend.

In line with this awakening, the pandemic has also ignited a massive rethink around food, not only in the type of food people consume but also on how it is produced and at the expense of what. Food and food supply chains from farming to transportation and infrastructure have never been as “essential for mankind” than during the pandemic.  Our species has taken nature for granted, and there’s growing evidence that the current industrial farming model has ignored multiple factors. 

Large corporations that have been historically key players in the food and farming business have grown increasingly concerned in the development of new products, climate-smart farming practices, and tools that help them meet ESG, SDG, and climate pledge commitments to secure their own sustainability. A good indicator of that is the sudden massive creation of corporate sustainability departments and the launching of regenerative agriculture and carbon sequestration programs by the world’s leading food and trading multinational companies. 

In the farming sector, like in many other businesses, the term “sustainable”  is being revisited by farmers, consumers, investors, and stakeholders as well. Farmland development often includes practices such as land clearing, burning native forests, drilling depletable water wells for irrigation, or building infrastructure to drain wetlands. Such activities are certainly raising growing resistance from communities, reluctance and concern from responsible investors, and are getting increasingly penalized by regulators, markets, and consumers. 

On the other hand, there’s a significantly growing movement which promotes investing in regenerative framing as a clear alternative that can generate attractive returns, provide societal and environmental benefits, and build long-term resilience. Based on the premise that healthy soils are, if not the most powerful resource to mitigate climate change through carbon sequestration, the new paradigms of farmland development seem to be linked with objectives such as healing soil health and restoring ecosystems.  It’s not only about the ability to produce food but also about generating essential environmental services and long-lasting impact along the way. Regenerative farming models are sustainable, biodiverse, and extremely resilient. Far from the current specialized monoculture cash crop models, they seek to integrate diverse activities such as row crops, specialties, forestry, and livestock combined with rewilding and nature conservancy strategies. 

Developing healthy soils and resilient agroecosystems is only achieved through the application of successive consistent practices over time. For that reason, it is reasonable to expect that fully developed regenerative farmland will constitute a distinctive asset sub-class with its own supply limitations. There are strong reasons to think that the demand for healthy food and regenerative products will grow at very high rates. The current dietary trends, such as the expansion of protein demand as a whole and particularly the meteoric expansion of the plant-based alternative protein industry seem to reinforce this assumption. According to Mckinsey, investments in alternative proteins skyrocketed in 2020 with over U$D 3.1 billion invested. Those industries will be requiring way more variety of traceable crops from sustainable sources.

While the world still navigates uncertainty and intends to drive conclusions on how the post-covid economy will evolve, farmland continues to show up as an asset class with strong strategic value for investors.  Its natural long evolving drivers are the pillars of its resilience and act as an armor making it a reliable hedge against inflation. Farmland is also mostly uncorrelated with other investments. Institutional investors have incremented their investments in farmland over the past years. There are good reasons to think that in the near future impact investors will raise their exposure substantially realizing that the asset class offers a great opportunity to create long-lasting environmental and social impact while generating profit.

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DISCLAIMER: The information, tools and material presented herein are provided for informational purposes only and are not to be used
or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or
other financial instruments, nor to constitute any advise or recommendation with respect to such securities, investment products or other
financial instruments. This research report is prepared for general circulation. It does not have regard to the specific investment objectives,
financial solution and the particular needs of any specific person who may receive this report. You should independently evaluate particular
investments and consult an independent financial advisor before making any investments or entering into any transaction in relation to any
securities mentioned in the report.

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