A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
Recent meetings between high-level representatives from India and Uruguay have produced a number of positive results, including plans to increase cooperation in the agriculture, pharmaceuticals, textiles, automobiles, machineries, IT (link). Cooperation is also being negotiated for the renewable energy sector with a focus on wind energy (link).
“For Uruguay in its international insertion strategy, links with India are crucial since it is one of the emerging powers with a growing influence in the global context; this is why it is so important to increase trade, both ways, because currently it is insignificant and negative for Uruguay.” – Vice President of Uruguay, Danilo Astori (link).
Talk about Latin America’s rising stars and the focus is often on Peru or Colombia. But don’t overlook the little countries: Paraguay and Uruguay are punching above their weight – and both have just been upgraded by rating agency Standard’s & Poor’s.
That’s a tribute to their economic performance: Uruguay rode out the global crisis without recession, while Paraguay is growing at its fastest rate in 30 years. Both are also catching the attention of some foreign corporate investors.
After 2.9 per cent growth in 2009, Uruguay is now on course for 6.5 per cent this year. S&P has moved its sovereign debt rating to double B minus. That’s within two notches of investment grade, which is what Uruguay lost in 2002 during an economic crisis that spilled over from neighbouring Argentina. Its president, José Mujica, wants to regain [investment grade] status before his term ends in 2014.
Uruguay last month hosted a business promotion seminar organised by the Council of the Americas, whose president, Susan Segal, said US investors were looking with interest at agriculture, biotechnology and technology exchange opportunities in the Atlantic-coast country. Uruguay sees natural resources as key to future growth: it is already exploiting a gap in the market left by declining Argentine beef production, and is seeking to develop what it believes are large offshore hydrocarbons resources. But Mujica has also appealed for young people to “fall in love with maths and scientific analysis” to lay the foundations for a tech-savvy future.
Paraguay, a landlocked country whose population is unique in Latin America by still speaking the language of its Indian ancestors, Guaraní, is also emerging as a promising investment destination. Rio Tinto Alcan is planning to invest $2.5bn in an aluminium smelter. To give a sense of the project’s scale, the investment is equal to virtually half the reserves of the central bank. What’s more, Paraguay’s economy is on fire – set to grow at around 9 per cent this year, a 30-year-high according to Gabriel Torres, analyst at Moody’s Investor Service.
Central bank reserves have doubled in the last three years and political stability has increased under the presidency of Fernando Lugo, who took office in 2008 after 61 years of one-party rule.
Jim speaking at an event – “Investment strategies in an emerging financial lanscape”. Funny to see the Indian interviewer’s (probably an MBA!) WTF reaction to Jim’s comments on agriculture. In trying to sell the attractiveness of the farming business in South America to potential investors, I’ve found the going rough in India. People cannot imagine farming as a lucractive proposition, like it is in South America. No Indian middle class family would want their kids to get into farming. Heck, even Indian farmers – almost half of whom want to quit farming, don’t want their kids to be farmers! Farming and agribusiness gets a bum rap in India, because it is a disastrous business there – afflicted with a nexus of misdirected subsidies, price support, import and export controls, collapse of extension services, absence of an agricultural land market and pervasive corrupt bureaucratic intervention across the entire range of the rural economy, as Dr. Rajiv Kumar of ICRIER so eloquently states.
One of the CEOs of an Indian agrochemical company shared a story with me last month. One of his employees approached him asking for his help in finding a job for the employee’s 25 year old nephew back in the village. When the CEO asked what the son was doing, the employee replied “Nothing” The CEO said “How can he be doing nothing, he is 25 years old?” The employee replied, “He is dabbling in farming, that is like doing nothing!”
Agriculture in my view, is one of the best places to be in the next 30 Years , I mean all these people getting MBAs are making terrible mistakes as far as I’m concerned , they should be getting farming degrees.
Agriculture has been a disaster for 30 years…Agricultural products are gonna be the best investments over the next several years. I think farming…agriculture is gonna be one of the best industries in the world. Like I said, all people who got MBAs made a mistake, they should have been getting agriculture degree.
Note: an abbreviated version of this article titled “India’s Interest in Latin America must go beyond World Cup” was syndicated by Indo-Asian News Wire Service. A few portals that ran the article include: SIFY, TradeIndia, IndiaNewsPost, ThaIndian, SouthAsiaMail, ProKerala, Gulf Times, Qatar and the Ministry of Overseas Indian Affairs.
Over the next few weeks, millions of Indians, like their compatriots around the world, will be glued to the television, cheering for their favorite World Cup teams. Among the South American teams are traditional favorites, Brazil and Argentina. But other teams from the region include Uruguay, Paraguay and Chile. All these countries are football superpowers, with a long history of producing players who dazzle with their stylish play: eyes-in-the-back-of-the-head passing, bicycle kicks, dancing and dribbling past three or more defenders before scoring. The names of Messi, Kaká, Tévez and Forlán will echo off fans’ lips well after the finals.
In India, meanwhile, fever for those South American fútbol stars tends to fade once the games are over. Yet there is an important reason why enthusiasm for South America should persist beyond the World Cup: The Mercosur trade bloc of countries – Brazil, Argentina, Uruguay and Paraguay are the world’s emerging agriculture superpowers. They are already shipping their tremendous surpluses worldwide and, as agriculture outsourcing hubs, have the potential to meet India’s food needs in the coming decades.
South American surpluses, especially in oilseeds, pulses and sugar, will feed the growing food deficits in much of Asia, with shrinking arable land and expanding populations.
First some geographical context, since South America – unlike Canada and the United States – generally doesn’t appear on the Indian radar. Brazil is three times the size of India. It is even larger than the continental United States. Yet its population is about that of Uttar Pradesh and Uttarakhand. Argentina is nearly the size of India, with a population equivalent to New Delhi, Mumbai and Kolkata. Uruguay, sandwiched between Brazil and Argentina, is about the size of either Karnataka or Gujarat, three and a half times the size of Punjab, yet it holds less than half the population of Bangalore or Ahmedabad.
Flying from India to cities like Buenos Aires, Montevideo or Sao Paulo, located in the South Atlantic seaboard, is quicker than getting to California. All these Mercosur countries lie in the tropical and temperate latitudes where a wide range of crops can be grown, outside the zones of hurricanes, earthquakes or volcanoes.
What makes the agribusiness fundamentals so great in these countries?
With these advantages, the Mercosur countries enjoy large agriculture export surpluses and ship 60 to 90 percent of their annual production to such countries as China, Vietnam, Korea and Japan. India imports their grains, edible oils and sugar.
On the socioeconomic front, Mercosur countries are democracies, with relatively little ethnic, religious or racial conflict. Cultural values, such as emphasis on family and relationships, resemble those in India. Indians will find a good business fit while operating in these countries. The Mercosur governments are dedicated to attracting responsible foreign investment and industry.
In South America, various combinations of buy/lease farming options are available, and annual financial returns can exceed 20 percent or more. In addition, farm portfolio managers in South America (akin to financial portfolio managers) can manage an agriculture operation for a fixed fee per hectare, plus a share of the profits. This would suit those Indian investors who know nothing about farming but do care about output and returns, and don’t want to deal with purchasing equipment or hiring personnel. Indian agrochemical companies like United Phosphorus and Excel Crop Care, and farm equipment players like Mahindra are reaping rewards from the South American agriculture market.
It is a fact that India’s domestic production cannot keep pace with the growing demands for more and better-quality food. It is time that Indian companies and investors look at South America for “backward integration” into farming operations. To use a World Cup analogy, it’s time to score goals for India’s food needs.
Uruguay is a country few outside Argentina and Brazil know about – each Dec-Feb rich Brazilians and Argentines flock to the fashionable resort of Punta del Este, the Riviera of Latin America. I am convinced it offers excellent opportunities for Indian investors in corporate farming and forestry – not to mention IT services and serving as a final assembly/logistics hub for product distribution in Mercosur countries.
My business partners at Allied Venture put together a 3 minute video showing some of the country’s highlights.
[Matias] Campiani, CEO says the financial turnaround is proof Pluna’s new strategy of turning Montevideo into a hub for the Southern Cone of South America is working. Over the last year the carrier has added frequencies to key business centres such as Buenos Aires, Santiago and Sao Paulo while launching new thin routes such as Asuncion in Paraguay, Rosario in Argentina and Curitiba in Brazil.
Pluna previously was primarily an origin and destination carrier with less than 10% of its traffic connecting. Campiani says Pluna has already succeeded at increasing its transfer business to 40%.
The new network strategy was made possible by switching to smaller aircraft. Pluna last year placed an order for seven Bombardier CRJ900 NextGen regional jets plus eight options. The carrier over the last six months has already taken delivery of six CRJ900s with the seventh due to be delivered next month. “In a crisis situation I think we have the right size aircraft,” Campiani says.
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In barely three years, New Zealand Farming Systems Uruguay, Wrightson’s stockmarket-listed investment vehicle, has acquired 36,500 hectares of land and leases a further 3500ha. It has spent heavily on new pasture grasses, irrigation, roads, fencing, reticulated water supply to each paddock, milk sheds, staff accommodation, training and the other infrastructure needed to bring New Zealand-style pastoral dairying farming to the country.
It reckons it is already the largest dairy farmer in South America, and by the second quarter of next year, it plans to be milking 23,000 cows. Competition has forced up land prices. The cost of buying and converting land to dairying is nearly double that of the first purchases. But a cost of, say $10,500 per hectare, is less than 25% of New Zealand prices.
Wrightson is hopeful prices will stabilise at less than 50% of farm income, say US17-18c on a milk price of US35c.
Wrightson has already spread its climate risk by buying in three regions of Uruguay. It’s now looking across the border in southern Brazil where land is cheaper and more plentiful. Kiwis are also investing elsewhere in Brazil but the adaptation challenges are greater as they head north.
You can find similar stories of gutsy investments by Kiwi farmers in Chile. One day that will be likely true of Argentina. It has plenty of land and agricultural infrastructure to support a big increase in dairying.
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