maximizing brazil`s farmland real estate potential

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Agricultural Asset Managers.
Globally.
Westchester was founded on integrity and excellence and
works towards a singular goal: to help you achieve the
highest possible return on your agricultural investments.
Fruits of Employment
Increasing Global Demand
White Hills is well-located just inland from the
Pacific coast in the Central Coast region of California, a highly- regarded wine grape region. Overall,
the property has high quality soils with a nearly
level to fairly steep topography...
The rapid change and economic growth experienced across emerging markets in recent years
has had a significant impact on US agricultural
demand and exports. Over the past 10 years over
one billion people..
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Visit our newly redesigned website (WGIMglobal.com) where you
can read about our approach to managing agriculture assets globally,
plus gain insight into how the changing demographics of the rising
global population
are increasing the demand
for
high-quality foods.
Why Westchester?
Investing in Global
Agriculture
Westchester CEO Randall Pope writes about those changes and
other factors influencing agricultural real estate’s
competitive return for
Historically Strong Returns
investors in the feature article for the Fall 2011 issue of PREA Quarterly.
You can now download the article from our website where you can also
Attractive Risk-Return Characteristics
register to receive our Global Thoughts newsletter.
Investing in agricultural land is a fundamental way to benefit from the
growing worldwide demand for food. The case for investing in this asset
class is not only strong now, but becoming stronger.
Agricultural land has outperformed both domestic
stocks and bonds on an annualized basis over the
past 18 years, with particularly strong results since
2001.
Westchester provides a complete range of agricultural real estate and
management services to help maximize farmland yields and ensure that
land is kept in the best condition to maintain asset values. Our
approach includes:
• Crop diversification
When measured on a risk-return basis, farmland compares extremely favorably to other asset classes,
demonstrating strong returns per unit of risk
• Row crops
• Permanent crops
04 . Global Thoughts . WINTER 2011 . VOL 1, NO 2
• Value-added investments
Diversification Potential
Over time, agricultural investment performance has
moved in very different cycles from traditional asset
classes, allowing for enhanced diversification and
lower volatility in a portfolio.
NEW LOOK.
SAME PRINCIPLES.
The newly redesigned Westchester
logo signals the rebranding of the
company to better reflect our exclusive
connection with agriculture. But what
hasn’t changed is Westchester’s
commitment to excellence, integrity
and the goal of achieving the highest
possible return on our client’s
investments. We are very proud of
Westchester’s history and traditions,
and we intend to continue to build
on those traits while leading the
agricultural investment industry into
the future.
Global
Thoughts
WINTER 2011 . VOL 1, NO 2
INSIDE THIS ISSUE: 01 . COMMENTARY / 02 . MAXIMIZING BRAZIL’S FARMLAND REAL ESTATE POTENTIAL /
03 . TAKING AUSTRALIAN OPERATIONS TO THE NEXT LEVEL / 04 . REVAMPED WEBSITE
COMMENTARY
BY RANDALL POPE
G’day and bom dia! I expect you’re wondering why I
begin this column with the greetings of our Australian and
Brazilian colleagues. Well, it’s to reinforce that Westchester
Group Investment Management is a global organization
with rapidly growing operations and affiliations in those
countries.
As we expand our global reach, we’re working
with and adapting the successful United States model
that guided Westchester’s growth during the past two
decades. Even though the company and all our business
relationships were based in Champaign when we first
began, that changed as we grew within the U.S. As we
acquired different crop types in different areas, we learned
that it was more efficient to
centralize our support functions
in Champaign, but to position
our investment management
professionals where the
properties are located. That
led to Westchester offices in
California, Arkansas, Tennessee,
and Mississippi in addition to
our Champaign office. Our
regional employees are as fully
engaged in their agricultural
communities identifying
investment opportunities and managing relationships with
our operators as our employees in the Champaign office
have been for years.
We’ve implemented a similar operational structure
in Australia (see article page 3), home to approximately
140,700 farms concentrated primarily in six of its eight
states. This country-continent is one of the largest
exporters of agricultural products and has seen dramatic
“
growth in exports of grains, beef, wine, and dairy products
in the last 20 years. With its ideal proximity to China, Japan
and the Association of Southeast Asian Nations — which
includes the emerging economy countries of Indonesia,
Philippines, Thailand, Vietnam and several others —
Australia appears poised for additional export growth.
Our operating structure is different in Brazil (see
article page 2). We are affiliated with Radar Propriedades
Agricolas S.A., or more simply, RADAR, an entity created
through a partnership between Westchester’s parent
company and Cosan, the world’s largest grower of
sugarcane and producer of ethanol. RADAR identifies and
acquires agricultural properties with strong investment
potential across Brazil, while also assisting agricultural
operators and farmers in growing their operations, making
land improvements, conserving resources and acquiring
new technology.
Second only to the U.S. in soybean exports, Brazil
also grows 34 million acres of corn and 19 million acres of
sugarcane. It’s also the fifth-largest producer of cotton. With
the global demand for ethanol increasing, Brazil’s sugarbased ethanol is the lowest cost produced ethanol in the
world, making it the second largest producer.
I invite you to read more about our Australian and
Brazilian operations and the leaders of these businesses
in this issue of Global Thoughts. We also discuss these
countries’ similarities to and differences from the U.S.
agriculture industry. As we look forward to future issues,
we expect to introduce you to our staff in each of these
countries and to bring you interesting case studies on real
properties and projects that underscore how Westchester
adds value for its institutional investors, regardless of
property location.
As we acquired different crop types in different areas, we learned that
it was more efficient to centralize our support functions in Champaign,
but to position our investment management professionals where the
properties are located.
MAXIMIZING BRAZIL’S FARMLAND REAL
ESTATE POTENTIAL
Brazil’s vast land area, its
moderate climate, its existing
focus on biofuels, and its status
as an agricultural exporting
country made it a logical choice
for expansion in our global
agricultural investment program.
It didn’t take long to learn,
however, that we could not
effectively grow our business
Ricardo Mussa
there without a Brazilian partner
to deal with the environmental,
labor, and title issues we would face when investing in
Brazilian farmland. We needed someone local who was
active in the agricultural sector, understood the nuances of
the Brazilian legal system and the culture to help guide us
in the investment process.
“It was decided at the outset that RADAR would focus
on investing in Brazil’s major export crops of sugarcane,
cotton, soybeans and corn,” said CEO Ricardo Mussa,
based in Sao Paulo. An industrial engineer who spent
more than a decade with Unilever in the United States,
Sweden, and China, Ricardo contributes critical expertise
in managing the acquisition and leasing process in Brazil.
Just as important is his work with the technology required
for identifying and completing the due diligence on the
assets to be included in our farmland investment portfolios.
SUPPORTING ACQUISITION DECISIONS
Ricardo is joined by a staff of 20 at RADAR, including
experts in technology, legal issues, and agronomy. Critical
differences in Brazil’s agriculture
policies and practices from those
of the U.S. require such in-house
expertise. Unlike the U.S., Brazil
has few historical records and poor
information regarding soil to help
make the acquisition decisions. In
addition, the country’s traditionally
weak title structure (possession is
more important than ownership)
demands thorough research to
minimize the risk associated with
purchasing land.
“Analyzing a farm’s potential
can mean the difference in value of
$500 per acre or even $3,000 per
acre,” Ricardo said. So RADAR’s
thorough evaluation of land
underscores the investment capacity
in a nation with 390 million hectares of available arable land
— almost one billion acres of potential farmland.
FOOD AND FUELS CROPS
Today, soybeans are Brazil’s largest crop, positioning
Brazil as the world’s second largest producer and exporter
of the oilseed. Soybeans are grown in the country’s
Midwest in the Mato Grosso and Mato Grosso do Sul
states, as well as the Rio Grande and Parana areas of
the South and, more recently, in the North, clustered near
Maranhao and Piaui. Like the U.S., corn and soybeans
are rotated, so corn is grown in the same areas. Cotton
production is concentrated in Mato Grosso and Bahia due
to climatic constraints. Brazil can grow two and often as
many as three crops on the same acreage in the same year
in many parts of the new frontiers in the North region.
While production of the more traditional U.S. crops
has grown dramatically during the last 30 years, sugarcane
remains an important crop. It is now capable of producing
sugar and ethanol, but also offering what’s left over from
processing as biomass to produce electricity. Mills are
constructed with the flexibility to produce sugar or ethanol,
offering an ideal investment hedge based on each product’s
market conditions.
“One of the key differences in Brazil’s agriculture
sector compared to the U.S. is that our infrastructure is
much less developed,” Ricardo commented. “This keeps
our land prices lower since the expansion of the industry
is highly dependent on logistics — consider, for example
that most of our soybean crop is produced more than 1,000
miles from the port.”
Brazil agricultural potential - current land use
02 . Global Thoughts
TAKING AUSTRALIAN OPERATIONS TO THE
NEXT LEVEL
With a goal of owning
farmland in all the major grain
exporting countries around the
world, we have long held a firm
belief that Australia would play a
key role in the global expansion
of Westchester. As it turns out,
we were correct, and in 2007
the country down under became
Westchester’s first international
Matt Bull
farmland investment venture.
Prior to 2010 Westchester had operated its
businesses in Australia under contractual arrangements
with service providers and through partnerships.
In September 2010 we formalized the activities of
Westchester Group of Australia (WGA) and hired Matt Bull
as its CEO. Prior to joining Westchester, Matt spent over
a decade with the Rabobank Group in a variety of roles,
divisions, and countries. This international experience has
been critical for our organization. Matt was able to quickly
understand and appreciate the risk appetite of institutional
investors, while staying focused on building our investment
management platform in Australia.
“After the Westchester acquisition by TIAA-CREF last
year, we started to build and integrate a regional operating
structure similar to the Westchester model in the U.S.”
Matt said. “This regional model is critical to the level of
management we are required to provide our investors.
From an investment management perspective, it allows
us to be on the ground in order to identify opportunities
that others wouldn’t see from a distance, and it also
allows us to better manage relationships with our tenants
and any prospective vendors or landowners. From an
asset management and risk management perspective, it
means that we can be more involved with our tenants and
operators.”
GROWING THE TEAM
The head office in Australia is based in Wagga
Wagga, the largest inland city in New South Wales, located
about halfway between Sydney and Melbourne. Similar in
size and other aspects to Champaign, Wagga Wagga is a
regional hub for the local agricultural industry and home to
an agricultural university.
Matt has hired three new Regional Managers
to oversee the Australian portfolio from an asset and
investment management perspective. He has also hired a
CFO, a Property Coordinator and a number of accounting
and portfolio staff members.
All team members have some form of affiliation and
family history with agriculture, and as a group the team not
only understands agriculture from a production perspective,
it also has the ability to communicate effectively with our
investors.
CHANGES BRING OPPORTUNITIES
Now, Matt and his team are taking a prudent
and sustainable approach to capture new investment
opportunities being offered by this country’s changing
demographics. With the average age of farmers in Australia
at 65, very similar to the U.S., and the next generation not
entering farming like they have in the past, this is opening
the door for opportunities to purchase quality properties
that haven’t been on the market for generations. And, it
also means that some family operators are now looking at
leasing, rather than owning, land due to the cost of large
scale properties. Considering the immaturity of the tenant
market in Australia, the move toward leasing highlights
the expertise an institutional investment manager like
Westchester can provide.
Australia has a relatively small domestic market with a
population of only 22 million people and a land area roughly
equal to the continental U.S. The country exports about
70% of its agricultural production. This provides another
fundamental driver for growth, especially with its proximity
to Asia and the world’s fastest growing countries of China
and India. Agriculture production in Australia is well located
and well positioned as these Asian economies become
hungry for more and better quality food that Australia can
export. Within a 24-hour period Australia can move a cargo
ship of grain to Asia!
So with its operational structure and team now firmly
in place, watch for Westchester Group of Australia to make
vast contributions to the Westchester organization in the
future.
Primary row crop regions and WGA properties
WINTER 2011 . VOL 1, NO 2 .
03