Investing in Uruguay: Farmland

What kind of yields are investors seeing?

When we’re talking farmland there are several different options. The most standard ones are agriculture, mostly row crops:, soybeans, wheat and corn. Next is cattle grazing as Uruguay is a big cattle and beef producer, and the third is timberland which supplies pulp from eucalyptus trees for production of paper. So I’ll focus on those three.

To keep it simple, generally from row crop agriculture, you’re looking at yields of about 4 to 7% annually on the amount invested in the land.

In cattle, it’s more stable—there are less weather-related risks—so you’re looking at 2 to 4%. Some very efficient and scalable productions may bring in a little more.

Timberland forestry—mostly eucalyptus—yields are highest. The spread is from 7 to 11% on an annual basis. Unlike cattle or row crops where you’re receiving income every year, in forestry, you’re planting and cutting trees generally every nine years. So the difference to keep in mind is that you receive a lump sum every nine years, although larger investments may scale and pay out annually.

What percentage of land in Uruguay is rural?

About 95%. The best soil is in south-west Uruguay and is dedicated to row crops. In the rest of the country the land is only good enough to support mostly grazing or forestry. One thing that’s very neat is that forestry and cattle raising work together very well, with cattle grazing around and in between the trees.

And there are new agricultural projects such as small-scale producers cultivating mushrooms in the eucalyptus forests.

There’s a lot of niche things being done there of all types, including organic beef raising.

What are the actual benefits for Uruguayan society of this investment?

Let me take it a step back. Who invests in farmland? People looking for a stable asset class with good appreciation. Farmland and timberland globally have been one of the better performing asset classes in the world. Second of all, they’re looking at something that will have increasing demand. We are having more and more people eat better food every day in the world.

Third, it’s a store of value, a hedge against inflation. And basically it’s an asset that will give you a good store of value of good appreciation and arguably a decent yield. Some people call it ‘gold with a yield’ because it has some of the characteristics of gold in terms of store of value, and in addition it has a yield.

Uruguay is very open to investment. As a small country, throughout its history, it has made itself attractive to foreign capital. Our governments, of every political stripe, have consistently been very friendly in their treatment and regulation of foreign investment.

When you’re open to foreign investors, money is invested in new technologies, equipment, hiring, and improvement of different crops. There’s a whole external drip into different parts of the economy. Plus you’re getting genuine investment—land improvements, the building of barns, silos, storage and ports.

A third of the land here is owned by foreign investors. We used to be mostly a cattle country up until 20 years ago. In 2002 Uruguay had 100,000 hectares of row crops; now it has 1.5 million.

Why did it change? Because the big agricultural groups from other countries—primarily Argentina—were seeking better places to invest with less volatility, particularly in taxes. Argentine producers are very efficient and they came to Uruguay bringing their expertise and technology.

In pulp, Uruguay passed legislation in the mid ’80s promoting the plantation of trees of forestry and that kicked off the sector. There was very little forestation before. Nowadays we have three of the biggest and most modern pulp mills in the world with the world’s cleanest and most advanced technology installed in Uruguay. So that is another example of how this openness to foreign investment and good regulation brings technology and growth.