The turmoil inflicted on markets by the COVID-19 crisis has forced those in the agriculture investment space to reevaluate one crucial aspect of their portfolios: diversification. Across the world, global investors of all profiles are taking a strong look at their holdings and trying to determine if their assets are too correlated.
The need for diversification is a lesson that many investors have recently learned the hard way. As the search for non-correlated assets intensifies, many investors are looking to an industry that has proven incredibly resilient during this time of crisis: agriculture.
For many investors, the decision to diversify into agriculture comes as the result of a simple question: when the going gets tough, which industries keep going? With all the recent talk of essential and non-essential businesses, many have found that the food & agriculture industry perhaps the most essential of them all.
Of course, agriculture investment is an immeasurably vast and varied space. The more conventional options for ag investing, such as ETFs and futures, don’t always offer the attractive returns many investors are searching for. This search for higher yields has led many investors to pursue opportunities in emerging markets, where less-established ag sectors exhibit more growth potential.
This brings us to the latest agriculture investment opportunity by Farmfolio: CANs, or Collateralized Agribusiness Notes. CANs are an innovative debt instrument that will provide investors with exactly the type of diversification that so many are looking for. The high-yield, non-correlated note structure of CANs will provide investors with a type of niche access to the ag space that has, until now, been extremely difficult to achieve.
“We’ve had our eye on this opportunity for a long time,” says Dax Cooke, Farmfolio’s founder and CEO. “There are a huge amount of trade finance opportunities across the agricultural supply chain, but the institutions just don’t have the ability to identify them, vet them, or develop them. Farmfolio’s boots-on-the-ground presence allows us to do just that,” added Cooke.
“In agriculture, like in many businesses, cash flow is essential. Long shipping routes and accounts receivables schedules can be a major obstacle,” Cooke continued. “CANs are our solution to that problem. We’re offering growers the chance to really build their businesses, while also providing investors with exposure to the agriculture sector in emerging markets through a high-yield, collateralized debt instrument.”
“This first series of CANs will be a tax credit finance opportunity in Panama. Panama’s Ley 105 program issues tax credits to agriculture exporters in order to promote the growth, but there’s a lengthy application process involved. Exporters would rather get the funds for their credits in advance, which creates an opportunity to buy the rights to the credits at a discount. Then, once the credits are issued, Farmfolio’s company in Panama can sell them to third parties.”
“Since we also manage a pineapple farm in Panama, we know first-hand just how important this opportunity is, not just for investors, but for growers like us. Having access to funds from our tax credits will be a tremendous help to growers who are looking to expand their operations in the short term and need capital on-hand to do so,” said Paul Vergara, Operations Manager of Farmfolio’s Panama Golden Pineapple project and advisor to Finca Funds, the issuer of the notes.
“In the COVID era, investors are looking for diversification and lower exposure to risk. Being able to invest in government-backed securities, especially in the debt space, is a very attractive option at this stage, and we’re very excited to present this offering. It’s a win-win situation for investors and growers alike,” said Mr. Cooke.
Panama certainly seems an ideal place to start. The Panamanian government recently issued $2.5 billion in sovereign bonds, which were quickly gobbled up by institutional investors, including Deutsche Bank and Credit Suisse. Orders reportedly tripled the amount of the offering, and the bonds sold out within 24 hours. Panama’s dollarized economy, as well as its strong relationships with international financial institutions, have made the country an attractive target for Foreign Direct Investment.
As a major toll booth for global trade, Panama is uniquely positioned to continue its strong growth in the years ahead. As with virtually all other countries, Panama’s GDP growth rate has slowed due to COVID-19, but the IMF notes that the Panamanian economy has proven especially resilient during the crisis, and the World Bank predicts not only a swift recovery, but a timely return to former growth rates.
Indeed, Panama has been one of the fastest-growing economies of the last decade, according to the World Bank. Posting an average annual growth rate of 4.5% over the last five years, Panama has developed into one of the leading economies of the Latin American region. Strong sectors include finance, heavy industry, services, and, of course, agriculture.
Farmfolio’s first foray into the debt space has many attractive features. For many, the chance to diversify into agriculture investment has never been more welcome, and the collateralized nature of the product opens the offering to a wider range of risk profiles. Thanks to CANs, investors now have a unique access point to non-correlated assets in the emerging market agriculture space. For agriculture investing, CANs are a huge step forward.
To learn more about CANs, please visit farmfolio.net/cans/