The Case for Frontier Farmland

from Capitalist Exploits..

June 18, 2013

By Scott Baker

The following post ran just recently over at Pathfinder Ventures blog, an investment advisory and asset management firm focused on select Frontier Markets. Our own Scott Baker provided the dialogue.

FrontierAg5

The following content is provided courtesy of our colleague Scott.  As Scott is passionate about the case for investment in frontier agriculture – a point in which we share much common ground – we asked him to share some of his insight:

“Last week I had lunch with an executive of a Mongolian real estate firm, where the conversation turned to the topic of how difficult it is to find real estate in city centres around the world at attractive yields. The hunt for such an opportunity brought back fond memories of the early 2000’s, when prices in many developing countries were undervalued and before dovish monetary policy created a stampede of investors seeking yield in developing world real estate.

We agreed that Ulaanbaatar’s downtown core is one of the world’s last real opportunities, where cap rates in excess of 10% are not uncommon. However, yield compression is underway as Mongolia transitions from a country where money was put into the ground to one where wealth is generated from assets coming out of the ground (mining). Further, on 17 June of this year the government initiated a program offering 8.0% mortgages for 20 years, a trend that is already gaining significant traction and if sustained will soon provide upward pressure on both commercial and residential property prices.

Though, if you’re not going to come to UB to compete with the Mongolia Growth Groups and MAD’s of the world, where else can you turn? You certainly can’t look frontier market hotspots like Phnom Penh, Luanda, Yangon or Maputo, as real estate is already overpriced. For example, shop houses in Phnom Penh are selling for $500,000+ and you’re lucky if you can garner a cap rate of 4.0%. Unfortunately, for the time being the real opportunity in city centers has come and gone. In our opinion, today’s real opportunity lies in farmland.

A global re-balancing of agricultural demand is well underway as a rising middle class of two billion people in the developing world demands larger per-capita quantities of everything from cereals to proteins. As countries seek food security there are two trends, among others, that I expect to accelerate: acquisitions of western brands (e.g. Shuanghui’s recent acquisition of Smithfield Foods), and increased demand for frontier agricultural land.

Why frontier farmland? Land in developed economies is no longer attractive to investors seeking a respectable cap rate, as Iowa farm prices confirm. In the mid-2000’s land prices went parabolic (see chart below) for what I term “Grade A” farmland (defined as land with rich soils, ample water supply and nearby important infrastructure). Though the uptrend has continued since 2010 through increased leverage from debt financing, a stage of maturity is likely nearing. So, rather than jumping on the bandwagon at this point and receiving a harsh thrashing (pun intended) I am upbeat about “Grade B” farmland (That which has a higher perceived risk due to its location and relative lack of development, causing it to be undervalued) as the potential upside is enormous.

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Earlier this year I spent six months in Cambodia where market rates for agricultural concessions rank among the lowest in the world on a per-hectare basis, in some cases for as little as $500. The country’s red, loamy soils are ideal for growing rubber (a major cash crop in the region) and the market rate for operating plantations ranges between $10,000 to $20,000 per hectare. Investment in Cambodia is predicated on mean reversion between its two larger and more developed neighbors Thailand and Vietnam; that is, prices will have more significant upside due to higher prices in those countries. According to one of my local contacts, rubber plantations in those countries currently sell for as high as $50,000 per hectare.

Pathfinder Capital’s focus is on frontier markets where we see that significant upside still exists. Farmland and agribusiness, in select African and Asian nations, are two areas ripe with inefficiencies and lacking value-added services, resulting in sub-par yields and profits. Combined with the fact that the global agricultural community faces a demographic time bomb of aging farmers and slowing yield growth, the risk of both commodity and land values rising substantially continues to increase.

Therefore, we believe that capitalizing on this trend through aiding the increase of crop yields will lead to elevated cap rates and additional foreign investment.“

We’ll be discussing this subject more frequently in the near future, and tying it into an upcoming post on our current activities in southern Africa.

– Scott

The first farmer was the first man. All historic nobility rests on the possession and use of land. Ralph Waldo Emerson

Link to the article: admin@capitalistexploits.at

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Ailing Bouteflika’s return fails to reassure Algerians

from the Financial Times..

July 17, 2013

By Borzou Daragahi in Cairo

Algeria’s ailing president has returned home after 80 days in a Paris hospital, but questions remain about his health and the country’s political future ahead of 2014 presidential elections.

…….

Mr Bouteflika’s absence following the April 27 stroke has raised concerns about the oil and gas-rich country’s political future, particularly the balance of power between the entrenched armed forces and a new class of commercially well-connected civilian leaders.

It has also left many projects at a standstill, including the signing of a supplementary budget act for 2013.

An attempt to amend the country’s constitution to create a position of vice-president has also been put on hold, as well as a cabinet reshuffle the president was contemplating.

…….

“The muted images [on television] showed the president having a hard time moving his upper body,” wrote a commentator for the daily newspaper, El Watan.

“This staged scene has the opposite effect of what the powers expected. It has strengthened doubts about his capacity to run the country and undermined the calming talk of officials who kept saying every day that the president manages the affairs of state and follows the daily action of government.”

Link to the entire article: http://www.ft.com/intl/cms/s/0/b18d783e-eed2-11e2-98dd-00144feabdc0.html#axzz2ZQ45F93U

 

 

Bulgaria’s ‘Generation F’ leads protests against corruption

from the Financial Times..

July 15, 2013

By Theodor Troev in Sofia and Neil Buckley in London

A protestor, dressed up as a zombie, takes part in an anti-government protest on July 14, 2013 in Sofia. Just five months after massive anti-poverty rallies brought down the government, Bulgarians are back on the streets, marching this time for an overhaul of a "corrupt" political system.

They come every morning at about 8am, knots of demonstrators outside Bulgaria’s parliament building, for a “protest coffee” as parliamentarians arrive for work.

Then every evening, after 6pm as Sofia’s offices close, they come again, in their tens of thousands this time, to the communist-era council of ministers building. They call for Bulgaria’s barely two-months-old government to stand down and hold new elections under new rules.

Ostavka!” (Resign!) they chant, or “Mafia!” – referring to what they see as a corrupt political and business establishment.

These protests, which have taken place daily for a month, are not just about discontent with a particular government, but with a whole political class, perceived cronyism and economic stagnation. Some young protesters have come dressed in prison uniforms; another day they carried four large coloured brooms, to sweep away all four political parties in Bulgaria’s parliament…

Link to the entire article: http://www.ft.com/intl/cms/s/0/75920b00-ec0d-11e2-bfdb-00144feabdc0.html#axzz2ZQ45F93U

 

Dr Dambisa Moyo talks about her journey in Emerging Markets

from Fund Forum International (Monaco)..

July 16, 2013

Interview with Baldwin Berges of Silk Invest

FundForum International was delighted to have Dr Dambisa Moyo as a Keynote Speaker at this years event in Monaco.  Dr Moyo gave a presentation on China and Global Resources, examining who is going to control the world’s growth in the future.

Dr Moyo joined us on FundForumTV after her Keynote Address to talk more with Baldwin Bergesabout the Emerging Markets, and her journey within that space as a leading businesswoman and author.

VIDEO

http://youtu.be/QyRV8iipmAM

McDonald Plans To Enter Vietnam

from Business Times (Vietnam)..

July 16, 2013

(VOV) – The US leading fast-food corporation, MacDonald’s has announced that it will have its first franchise store set up in HCM City.

The corporation recently granted franchise to a Vietnamese- American entrepreneur Henry Nguyen to develop MacDonald’s trademark in Vietnam.

The President of MacDonald’s, Dave Hoffmann, emphasized that with an impressive knowledge of business, Henry Nguyen is an ideal partner to run the new joint venture in Vietnam.

The main menu for McDonald’s in Vietnam includes Big Mac sandwich, fried tomato and cheeseburger.

Vietnam’s becoming the 38th country in Asia where McDonald’s has established business proves itself as one of the most attractive consumer markets in South Asia.

There is a chain of US fast food restaurants operating in Vietnam including Subway, KFC, and Pizza Hut.

Source VOV.

Link to the article: http://businesstimes.com.vn/mcdonald-plans-to-enter-vietnam/?goback=%2Egde_2505081_member_258575472

YOUTH TAKING ACTION

from Transparency International..

July 17, 2013

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Across the Transparency International movement young people are coming together to learn about how to fight corruption. This ranges from one-day workshops to week-long study programmes that can earn university students academic credit. In each situation the goal is the same: educate young people to become leaders in the fight against corruption in their daily and professional lives.

In January, Transparency International Cambodia brought together 130 young people from across the country for one of its anti-corruption youth camps. The event brought the young people together with representatives from the Cambodian Anti-Corruption Unit, an anti-corruption specialised law firm, media producers, prominent youth leaders, motivational speakers and many more to discuss the effects of corruption and what they can do to stop it.

In addition to the training and experience-sharing sessions with these professionals, participants also took part in interactive learning sessions and role play. They were encouraged to transmit the anti-corruption message widely and share the learning experiences in their home towns acting as role models to others and engaging people on the fight against corruption.

The Summer School on Integrity in Vilnius, Lithuania is now in its fourth year. It is organised byTransparency International Lithuania in cooperation with Mykolas Romeris University and the Transparency International Secretariat. In July, 140 students from 60 different countries, many on scholarships, come together to spend a week learning about both the philosophical and the practical sides of fighting corruption.

Guest speakers shared their knowledge and experience on a wide range of issues including:

  • How to campaign for and monitor anti-corruption legislation.
  • How to measure corruption.
  • The importance of access to information and whistleblower protection laws.

In Ershovo, a resort near Moscow, Russia, the Laboratory for Anti-Corruption Policy (LAP) at the Higher School of Economics brought together 25 students in July. Students ranged in age from 17 to 30 years old and came from cities all around Russia.

Members of Transparency International Russia and other experts helped design the programme and present the lectures which included presentations on civic activism and conflict of interest. There were guest lectures from José Ugaz, a lawyer from Peru and member of Transparency International’s international board, on the experience of a no impunity campaign in Peru and there was also a presentation from Greenpeace Russia.

The summer school, which is in its third year and is free for participants will be repeated again next year.

Link to the article: http://www.transparency.org/news/feature/youth_taking_action