Ninety-five percent of Uruguay is rural and Uruguay is roughly the same size as England and Wales combined. Juan Federico Fischer, managing partner at Andersen, advises multinationals and individuals about investing in Uruguay and has created frameworks for large-scale investments in agriculture, timber, and real estate investment in Uruguay. He’s regularly quoted in the international press on Uruguay’s investment climate.
In this interview, Karen A Higgs, founder of Guru’Guay, and Federico discuss why investors choose Uruguay, and specifically the attraction of farmland. We talk about yields and how to get started investing. Karen asks about the benefits to Uruguayan society of so much foreign investment and how the land is protected. Federico answers Guru’Guay readers’ questions about carbon-neutral beef, subsidies for organic farming and whether setting up a boutique winery is a good investment.
This article is based on the interview and has been edited for brevity and clarity.
Federico, before we get into farmland, why do your clients choose to invest in Uruguay?
I think Uruguay has become well known over the decades. Often called the Switzerland of South America, there’s stability and predictability—you don’t see swings in the economy. It’s that stability and predictability that investors look for. It’s a place where the legal system works, the courts work and enforce contracts. Private property is strongly protected—there’s no history of expropriations. It’s the country with the lowest level of corruption in Latin America, on par with most OECD countries and European countries.
It’s a place where investors are protected, and foreign and local investors are treated equally. So it’s a country that’s very friendly and very open to investors, which it has shown consistently through its regulations and the way investors are treated. It’s a country one can rely on.
So why invest in farmland in Uruguay?
The commodity boom of the early 2000s changed Uruguay. Today Uruguay is the fifth biggest exporter of beef, the fourth exporter of rice, and the sixth exporter of soybeans in the world. When a third pulp mill opens next year, Uruguay will become the second exporter of short fibre for pulp for paper in the world after Brazil. So it’s a powerhouse in producing things from the land. When I say things from the land, I would say food plus wood.
That has made it a big attraction for foreign investors. Over the last 15 years, there’s been a huge inflow of investment in this sector from all over the world, giving it a competitive advantage. We’re very involved with investors of all sizes and profiles getting involved—from institutional companies to individuals—looking to diversify.
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.
Forestry does have its issues. Tree plantations have been criticized for different issues, from lowering the water table to changing the character of the Uruguay landscape. What protections does Uruguay have in place?
I’m glad you asked that because first of all, I mentioned that this started with a promotional law in the mid ’80s. The law led to the mapping and classification of the entire country by soil type and aptitude. This productivity index of each soil type is a first barrier which protects the terrain for best use. You can see the soil productivity index online. So to start with, you cannot plant forestry wherever you want.
Secondly, environmental permits are required when you’re going to plant trees. So there are checks to ensure there’s no soil depletion and over-forestation.
If somebody wants to invest in farmland in Uruguay, how do they get started?
One can buy five acres or five thousand acres of land, but in our experience you need a minimum scale for things to be efficient.
Farming is not labor intensive and at scale it can be a passive hands-off investment. We have a consulting unit to help individuals understand the A to Z of agriculture and investing in farmland. Based on what their investment amount is, as we know the market, we can help them find properties that meet their criteria, and then do a closing audit. We can structure an LLC (see our article on ‘Setting up a company in Uruguay’) if necessary or the land can be owned by an individual. We can do their bookkeeping which is very straightforward. After all, you’re not selling 100 units every day: you sell crops twice a year; cattle are sold at certain stages; and trees are sold every nine years. We can also find a tenant or farm management firm to run things.
Thousands of investors from all over the world own farmland in Uruguay, as a hands-off passive investment.
Farming is also a very transparent market. The soil index map mentioned before means that when someone wants to invest, say half a million dollars, the properties are categorised by land type. Land prices correlate pretty much with the productivity index of a specific unit. So $500,000 will buy you about 200 acres of prime agricultural land.
I’ve got some questions from readers, from Guru’Guay readers. Here’s one on sustainable beef.
“I’ve seen the Uruguayan government is planning certification of carbon neutral beef. I’d love to learn how widespread this will be in the coming years and what farmers think about it.”
There’s a trend towards this—because of the benefits and consumer demand. The government usually stays hands off and lets companies and people do business.
There are already two or three groups doing this. A couple of them through cattle grazing per se and another using the cattle-forestry combination for carbon capture certification. So this is already underway and I think we’re going to see a growing number of investors.
Another reader asks, “I’m interested in buying land and planting a vineyard. Do I need special permits and is this a good investment?”
First of all, the permit process is easy. Anybody can plant grapes, set up their operation, and when they’re going to sell or bottle the wine they need to get a registration number at INAVI, the wine board. So from a regulatory point of view, it’s not complicated.
There are a lot of investors in wine in Uruguay—including a few big established wineries with very solid export markets and then a lot more smaller wineries.
To be honest, I don’t think many make a lot of money—here or anywhere in the world. You generally hear of small wineries that people start as more of a hobby than anything else.
There’s very good quality wine here. Uruguay’s the third producer in South America after Argentina and Chile. The challenge of small wineries is actually getting it out there to the world, exporting it in quantities and in an efficient way that makes money.
“Does the government offer financial incentives for anyone interested in regenerative agricultural projects or organic farming?”
I’m glad you asked, because I think we are talking about two different worlds here. In the US and Europe there are farm subsidies.
Pretty much throughout the rest of the world, there are no farm subsidies. Uruguay doesn’t offer subsidies or general support in terms of outlays to agriculture, including for organic production.
Now one thing we use a lot in Uruguay is the investment promotion law [See our tax episode]. Meaning that for most types of investment, be it a movie theater you build, to a factory with 500 employees, to a barn on a farm, you get some form of tax break because of what you’re investing.
About a quarter of all investments in Uruguay—and 80% of new investments—have received some form of tax break—and that includes farmland.