Agroforestry / June 23, 2017

Agroforestry and Opportunities in Latin America

Agroforestry is a technique that maintains biodiversity by planting trees alongside crops. Even though agroforestry dates back to ancestral civilizations, it has only recently started to gain traction worldwide. Trees fight erosion, enrich the soil, and provide protection against the elements and potential crop predators. In addition, Agroforestry has been proven to promote long-term sustainability and soil productivity, as well as improve the short-term yield of the primary crop. USDA studies and other research have shown that the main challenges preventing the widespread adoption of modern agroforestry techniques are unfamiliarity with technologies and a lack of training, funding, and awareness. It is in this struggle that investors can play a vital and compelling role. By funding agroforestry initiatives, investors not only generate profits but also help build momentum for the sustainable agroforestry movement. The success of agroforestry projects will attract even more publicity and investment. This way, an investment in modern timber and agroforestry can lead to better practices across the industry. Investors and businesses often feel they need to choose between generating a profit and making the world a better place. With modern timber and agroforestry initiatives, the two are not mutually exclusive.

Agroforestry and Opportunities in Latin America

North America remains the leading destination for investors, while other regions of the world are gaining importance. Latin America is one of the most pursued markets, despite the recent headwinds from lower commodity prices and weaker macroeconomic conditions. Likewise, Europe is consistently attracting interest from both institutional and private investors. Agricultural assets across Eastern European countries that are part of the EU27 are in high demand and the regional private equity and venture capital sectors continue to grow. Similarly, Australia and New Zealand are also growing destinations for agribusiness investments as these countries capitalize on their low-risk institutional profile and their strategic position as suppliers to the Asia Pacific markets.

With strong fundamentals and historically attractive risk and return characteristics, agricultural investments have become increasingly compelling for investors in recent years. Still, developing an exposure to this relatively new institutional asset class requires an understanding of certain basic characteristics, because the agribusiness investment universe is constituted of a range of assets of different styles. In order to design an investment allocation in this sector, it is critical to understand its characteristics and nuances.

When it comes to capitalizing competitive advantages, we can affirm that each country in Latin America has attractive sectors to consider. For example, exotic tropical fruits coming from Colombia and Peru as well as cattle raising in Uruguay represent intensive production alternatives which are economically efficient and which are focused on high-value products oriented towards high-income consumers in developed markets. Land development in Latin America has attracted much attention in recent times. Converting the frontiers into arable land saw notable growth in Brazil and Argentina during the early 2000s and, in recent years, there has been an ongoing expansion in Bolivia and Paraguay, among other nations. Vertical integration along the value chain is not a new theme in agribusiness. However, even when it makes economic sense, many producers prefer to stay focused on the primary production. Nevertheless, there continues to be potential for integration in those areas that have synergies. Another example of value addition suiting foreign investors is the development of branded organic fruit portfolios, targeting the growing markets in North America and Europe. This strategy can include different production and supply schemes with local producers, and has the potential to capture value in logistics and commercial processes.

(Read more about International Food and Agriculture Day)

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