The history of investments in agriculture
For many centuries, the only way to invest in the food industry was through land ownership. Whether for livestock or crops, landowners were the only ones who could invest in this industry, and when they needed to invest in their own land, they had to sell some of it, or borrow against the land. This type of loan was first considered the main type of private agricultural investment in the 19th century in the U.S. When the newly settled immigrants began to expand into the vast territory with merely symbolic prices (less than 20 dollars for 50 Hectares) the main investment became the technology and resources necessary to exploit the land (more than 700 dollars for the same extension of land). It was at this time that the agribusiness profits were transferred to the banks who lent the money for the tools they needed, which in some cases they supplied themselves, and the landowners were left with the sometimes impossible task of repaying these loans. Today this is still the case in many places.
The 20th century witnessed the first global altruistic investment funds. Agriculture was one of the most important industries in which these investments materialized. The funds raised by the United Nations were managed by the FAO.[1] and allocated to many investments in developing countries seeking to achieve food security as their first objective. With the maturation of this industry, private funds from first world countries began to track their profitability and became players in the same movement. They reduced their risk by using mixed investments[2] which became the new standard for agricultural investments in developing countries. These structured investments achieved the objective of introducing private investors into the agricultural industry in developing countries, but did not achieve true independence from the public sector. This generated a duplication of expertise, having on the one hand companies that were expert producers in first world countries and on the other hand experts in dealing with developing countries (governments and population), but they never managed to work in true symbiosis.
It was not until agribusiness enterprises began to grow and become large enough to play a role in financial markets that efficient financial products were made available to them, but even then these products were only for the big players. Today, small producers are still dependent on public resources in many countries to subsist, including the United States and the European Union. Thus, for emerging market producers, the only way to finance their growth, or even their regular operations, is through land-backed loans that, depending on the sponsor, are limited to a fraction of the value of the land, and fall short of the need to grow for economies of scale. This is an inconsistency, as there are many high yielding agricultural products that can give better returns with less risk (most risks can be mitigated or eliminated) than almost any other industry. What explains this situation is that most of these high-yield products reside in countries where financial markets are not yet developed and generally do not have a large enough market to attract large investments other than loans.
How to invest in avocados?
This context is what fertilized Avo Oro Verde, and helped it emerge into what it is now; the premier investment structure for avocado production. We have channeled the need for higher returns in the financial markets into an industry where investments are very difficult to come by, but which generates substantial excess returns when managed intelligently. Our job is to create value for both farmers and investors, and to use the resources invested to make larger, more efficient orchards that generate more returns for both new investors and the original owners. For farmers who want liquidity, we offer them the opportunity to sell part of their land at a good price or to partner with us. For investors we give them the unique opportunity to invest in avocado production without the need to do the exploration and land search work and wait more than 5 years to receive the first returns on their investment.
Avocados, unlike most crops, have a value chain in which producers have the most power. Exporters, distributors, and marketers are many and none have sufficient power to force a price on producers. Therefore, producers can sell their product to the highest bidder taking into account the spot price.[3]. This is the reason why Avo Oro Verde invests mainly in this link of the value chain.
We provide investments with a compelling risk-return profile. The risk of loss is limited by the price of land and avocado trees. Avocados are permanent crops that are more tolerant to extreme weather conditions than cyclical crops. While limited supply and increasing demand for avocados create shortages and drive up prices. The high margins and price spikes of avocados provide a high IRR without the need for leverage in the 20-30% ranges, and since most of the market is in U.S. dollars, the rising dollar price can only help the bottom line returns.
[1] Organización de Comida y Agricultura de las Naciones Unidas (por sus siglas en inglés)
[2] Blended investment (o inversiones mixtas) viene de Blended Finance, que es un término usado para inversiones en que el sector público invierte en proyectos del sector privado y deja que inversionistas privados tengan ventajas a la hora de invertir en ellos, usualmente con menores riesgos y mayores ganancias.
[3] La APEAM tiene una plataforma publica en que los precios del aguacate son publicados dependiendo del precio de Mercado. Estos precios dependen del tamaño del aguacate y el país de destino.