Renewed interest in investing in land and sustainable projects.
Revista Verde
March 2022 N°99
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.
Written by
Revista Verde
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© Marc Faber, 2021
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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Reinforcing our commitment with Global Sustainable Farming Systems.
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.
