Interview with Matthew Kruse from Genesis Investimentos.
Genesis Investimentos help institutional and high-net worth investor source and evaluate agriculture investment opportunities in Brazil.
The market opportunity for agriculture investments in Brazil vs. other markets
According to a report done by the UN, world population is expected to surpass 9bn people by 2050. It garnered a lot of attention from investors from around the world. The question was, that if we are going to have this massive population growth, how are we going to be able to feed them? The fact is, that if we are going to be able to feed all these people by 2050, global food production will have to increase by 70%.
Looking at the largest bread baskets across the world, the US is the global power house in agricultural production. The second largest bread basket is Brazil. Whilst the US is very competitive, has a low cost of production and excellent infrastructure, the market is rather saturated. It is also a lot more expensive to buy farmland. In Brazil, on the other hand, there is a lot more land available at more attractive prices because the level of development is several decades behind that of the US.
Brazil features roughly 75mn ha of underused pasture that can be converted into high grade farmland. Additionally, if foreign exports in the Trump administration become entangled in the trade wars, Brazil is a logical replacement for that.
How did Genesis Investimentos came into the picture?
We are looking to raise US$ 150mn in a fund to purchase and develop high grade farmland in Brazil.
Right now, we are at the initial stages of raising capital for our general partner, we want to raise a minimum of US$ 4.5mn. With that we will look to raise money from our limited partners. We have already been approached by institutional investors that have showed an interest in this kind of project, something which is a pure play investment in Brazil. There has been an increased interest in investing in agriculture and farmland from institutional investors, private equity groups and family offices.
With the US$ 150mn we will look to purchase approximately 160.000 acres of undeveloped farmland. We would invest in the fertility, develop the land, lease it out to local operators and look to experience a gain in the appreciation of the farmland.
What sets this project apart?
We have done this before. I’m a fifth generation farmer from Iowa. Back in 2001, we started an investment fund in Brazil. We invested in farmland in the western state of Bahia. I moved there and I lived in Brazil for over 10 years, earing dual citizenship (Brazil and USA). I gained a lot of experience and we did well with our previous investment. We showed a healthy rate of return, but of course we also made some mistakes along the way. We consequently learnt a lot and we are now capitalizing on all that we learnt in this new fund and we expect a lot of our previous investors to invest with us again.
The exchange rate right now is very favourable. From a long term perspective, the currency has weakened quite a bit. The dollar will purchase a lot more in local currency in Brazil than what it could a few years ago. This is an important aspect when investing in a foreign country.
Another aspect is the infrastructure development in Brazil. It is slow, but it is getting better. There have been developments in terms of ports and roads, something that makes transportation cheaper. This increases the market prices at the farm. It has a slow, but steady, process. Five years ago, they hardly sent any grain production through the Amazon. Today they are shipping several million tonnes.