August 26th, 2019

Special Update: Fruit and Timber Now Open for Business

Dax CookeAs we approach our third month of harvests, we have turned our focus to efficiency and pricing during the next quarter. As previously reported, Farmfolio recently purchased an 88.5% stake in La Dona Fruit Co, which is the globally known alter ego of Edna Vergara. Since the acquisition, the Farmfolio team has been working to open subsidiary companies in the US, Europe, and Asia. The objective of these subsidiaries is to grow closer to customers and capture additional margin by having ready-to-purchase fruit available at La Dona distribution facilities throughout the world.

We have chosen Rotterdam as the starting location to launch this initiative. Why Rotterdam? Once the world’s largest port, Rotterdam still imports the bulk of fresh produce into European markets and has an excellent logistical framework in place once the fruit is in country. Rotterdam is also most commonly the first stop on trans-Atlantic shipping routes from Panama, which is important when shipping fresh produce like pineapple, as time is critical. Once the fruit clears customs, it will enter our warehouse and our team will be able to deliver fruit to Paris, Madrid, Barcelona, Zurich, Berlin, and Frankfurt within one day of order time. As with most products, the smaller the order quantity the higher the price. The network of transportation companies accessible in Rotterdam will allow us to ship smaller orders as well, giving us higher prices. This also opens the door to additional opportunities, as most wholesale buyers do not like to order container-size loads.

Oscar and I arrived Monday on an overnight flight from Cartagena via KLM
Oscar and I arrived Monday on an overnight flight from Cartagena via KLM
our agenda
First on our agenda was connecting with Rotterdam Partners, a publicly funded consultancy for new businesses wishing to establish in Rotterdam.

We learned about the processes involved in incorporation, taxation, and importation, most of which we already knew, but our purpose was to connect with local service providers to initiate the process. All in all it was a very informational meeting; the group at RP provides great resources for foreign entities and was very helpful.

Next up was our meeting with customs brokers to understand the importation costs, bottlenecks, and registration process. We established that the key is having Dutch registration and incorporation, plus applying for certain expediting with the local port authority. During the first months of shipment, some of our non-Dutch originated orders have experienced delays, so we wanted to address these issues. By identifying these impediments and better understanding the process we will be able to prevent future issues.
Next door to the customs brokerage we met with a local accountant to dive into shipping-related tax law. Our biggest question was related to the VAT tax when fruit is imported and if this tax would affect our efforts to go more vertical. Holland does have a 9% VAT tax on fruit entering the country, however, as long as the product is not sold locally in Holland, the tax is refundable with the appropriate request filings. This makes having a seasoned accountant in the area a very important aspect of doing business here.
Jet-lagged and caffeine-fueled we hit the warehouse districts to locate storage options and freight forwarding operators. We visited several locations, some full-service and others independent space. This was probably our most important mission while in Rotterdam. Locating the right space is critical. It not only entails evaluating the specific location within the port area, but also ensuring the details are being handled with care—things like temperatures within certain cold rooms, ensuring your fruit is separated from certain ethylene-producing fruit which can cause a ripening effect on pineapple, and of course, the inspection operations. Like most things in agriculture, quality comes down to the operator.

This due-diligence can only be done in-person. A case in point, the facilities we thought would be best ultimately turned out to be the worst; but at the end of the day, we walked away with 2-3 very solid options and we will make a final decision in the coming weeks.

Our trip objective was to narrow down our options in order to target a July-August opening date. We will be starting the incorporation process and going through the typical startup tasks, like staffing, banking, and legalization. We are very excited about entering this market and feel this is another game-changing milestone in the Farmfolio story and for our partners.

 Our trip objective was to narrow down our options in order to target a July-August opening date. We will be starting the incorporation process and going through the typical startup tasks, like staffing, banking, and legalization. We are very excited about entering this market and feel this is another game-changing milestone in the Farmfolio story and for our partners.

The Teak Road

As the Burroteka sawmill prepares to ramp up production this summer, our team is focused on establishing diversified distribution channels, hence our visit to India this week. Since we began with Burroteka two years ago, we have been continuously studying the market and identifying the supply chain and all of its players. India has long been one of the largest consumers of teak wood in the world. Accounting for approximately $2-3 billion USD of imports annually, India is high on our list of distribution locations. After almost six months of preparation, our agenda this week was jam-packed and adrenaline was powering us through the jet lag.

 We arrived at Delhi around 6AM on Aeroflot, with a quick stop over in Moscow.

With no time for a shower, we headed straight to the embassy to meet with our old friends ProColombia, which houses an office inside the embassy.

Our parcero Juan gave us a quick crash course in Indian culture and the business climate of the region. We were also informed that the largest Indian exporter of teak wood in Colombia has closed their office in Cartagena in order to focus on other core businesses in Mexico. This presents a huge opportunity for Burroteka to fill the void in the supply of Colombian timber to the Indian market.

Later that afternoon, armed with our new timber marketing materials, Oscar and I hopped into a taxi and headed straight to meetings with distributors in Delhi. Our goal was to better understand the types of dimensions supplied in the market as well as the final product uses. We did just that. Our contact gave us a full breakdown on the cut sizes needed and regional preferences of quality, which was another one of our biggest questions coming in—what was going to be the standard of quality?

meetings

After a few more meetings that day, we quickly grew more comfortable in our approach. In India, there are a few practices that can be a little confusing in business meetings if you aren’t accustomed to the culture, one of which caught Oscar a little off guard. Indian culture employs body language a little differently from much of the western world. The shaking of the head is a sign of approval. You can imagine Oscar’s first impression when we were describing our processes and quality standards and the customer is sitting shaking his head the whole time. I watched with a smile as he was initiated into the culture. This became one of the running jokes of the week.

That night, running on fumes, we headed back to the airport destined for Cheenai in the southeast of the country. I had the pleasure of sitting in old 23D on the 1980’s version of an Airbus 320, complete with recycled seats from PanAm’s old smoking section. With curry spices filling the air, we took off on the next leg of the Teak Road.

About halfway into the trip, we took a hard right turn and the Captain indicated we would be flying around “The Storm.” Curious, I asked the person next to me if he knew of the weather situation and he informed me of the Category 4 cyclone (a clockwise-spinning hurricane) that was just hitting the southeastern coast—quite a surprise! Luckily the storm eventually turned east and missed our destination, Chennai, by about 400 miles.
We had a packed agenda in Chennai, which is the largest city in the Tamil region. As we walked out of the air-conditioned Hilton that morning, we were greeted with a 100+ degree temperature and a very high humidity level. May and June are the hottest months of the year in India, which quickly diluted our opinions of the heat in Monteria.
The market there is mainly focused on the importation of bulk supply—blocks and whole logs—as opposed to finished products. Although blocks are not the highest margin product, the global demand is consistent and will provide a stable cash flow for the mill in the early months. Finished products like dried boards and decking begin in Q4. We will be selecting our partner distributors in India and officially launching exports by the end of June.


On to Oscar
written by Oscar Baracaldo Co-founder

Slowly but surely, we continue to further validate the information shared with our investors and partners along this journey. I’m writing this leg of the update as we fly across India, gaining miles as we approach Gujarat, the northwest region of the country. For the past week we have toured the country, flying around Cyclone Fani, the recent storm that devastated northeast India. Our thoughts are with the people of India who have been nothing but welcoming to us during our first visit to their country.

As we keep advancing down the Teak Road, we continue to encounter welcoming faces that wish to gain direct access to the teak source. Although the margins are not much higher, the prices we encountered in the market are spot-on with the original projections of our GP financials for rough blocks. Again, the key in this market is consistency, and in order to maximize our success, it is crucial for us to understand the local quality requirements—a constant goal as we meet more and more buyers in the country. Understanding and adapting to local quality requirements is sort of like adapting to local cuisine. Remember how everybody tells you to watch out for spicy food in India? Well, they are not exaggerating! When you ask your waiter, “Is this a spicy dish?” and he says, “No sir, it is not spicy at all,” what he really means is: “This will be the spiciest food you’ve ever had!” I’m usually known for eating spicy food, but I have yet to ask for a very spicy dish here as I can only imagine how hot it must be.

Just as differences in the local “spiciness range” can create misunderstandings, understandings of quality and specs can be lost in translation, and like an unexpectedly fiery dish, the misunderstanding can be very costly.

Thankfully, we are educated, prepared, and have taken all the precautions necessary during the last three years—meeting with experts worldwide regarding this space. Like the dark heartwood center of teak trees grows and mature with the passing seasons, our minds continue to expand as we continue on this journey. We can only imagine what we’ll learn in the next three years.

Friends in Unexpected Places

There are moments in life that define us more than others and that ultimately alter or affirm the course we have taken.

As we descend into Delhi after over a week traveling across the country, we gaze upon the city and I can’t help but think of Colombia’s slogan: “Together for a New Country.” As Dax has shared in previous updates, this phrase spearheads the transformation that already has and continues to take place in our country.

Traveling across India, we encounter a similar message: “Building a Nation”—a message that resonates with every amigo we have made along the Teak Road. India is developing at an accelerated pace all over the country, and the Indian people are hungry to show what they are made of! We have encountered very smart individuals, groups, and families that have been trading in timber for centuries. Seeking out these connections and relationships in India furthers the mission we’ve set out to achieve at Farmfolio: “to connect stakeholders across the agribusiness supply chain.”

As our trip comes to an end, we’ve successfully targeted the regions, specifications, and partnerships necessary to deploy our go-to market strategy across India. To all of you who so kindly opened your doors and provided us with your hospitality: we thank you. We tell you that we will see each other again very soon and that you can count on our continuous support to promote Colombia’s products in your country. Here’s to a long and successful relationship and what we believe is just the start to trade relationships with newfound Indian friends.

Conclusions

Delhi – Moscow – Amsterdam – Bogotá – Medellin

We have what appears to be little ground left to cover after what we’ve gone through, and we are filled with purpose as we attend follow-up meetings in the Netherlands and continue to report to our team back home about the newfound opportunities in both the continents we’ve just visited.

Over the last three and half years, we have been laying the groundwork we now build upon, encountering and overcoming all sorts of obstacles to successfully create a solid foundation. We continue to erect the pillars that will positively shape the future and long-term results of our companies. The seed has been planted and now it is time to push the envelope and show what we are made of!

Paul Vergara, COO of PGP, our pineapple operation in Panama, and Adelbert Ludwig Lazay, GM of Burrotekka, our teak sawmill in Colombia, play a tremendous role in the quality and standardization of processes that our products require from our target markets which directly impact our bottom line. As we continue to venture into the market, we continuously shape our offer with the invaluable help of Adelbert and Paul.

In the coming weeks, Paul and Adelbert will be hosting webinars highlighting the progress that is taking place at both operations. If you are already an investor, you will receive a private invitation. If you are not an investor but would like to become more acquainted with the agricultural business opportunities we are creating, please reply to this email and a Farmfolio representative will be in contact with you shortly after.


Please stay tuned and reach out to us if you have any questions or ideas!

Sincerely,
The Farmfolio Team

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