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Farmland investment as inflation hedge in times of quantitave eaforest land as REDD investment

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offers farmland Uruguay

Peer Voss

Rappstr.2420146 HamburgGermanytel +49-40-457121pvoss@pvoss.de

Uruguay mobile099-590922Paraguay mobile0981-543158

farmer andfarmland realtorin southernSouth America

since 1997

Hamburg / Montevideo August 2011

In these times, with money being printed on a global scale like never before in the last hundred years, it is eveconsider what assets have a truly intrinsic value, what assets are and will allways be of limited supply. So wefarmland.This is a brief and aproximate overview of the market from my point of view as a realtor for farmland in South

Peer Voss

Latin AmericaIn the central american and andean countries fertile farmland has never been too abundant, and some of thoshave restrictions in place re larger land holdings by foreigners.Foreigners have bought large tracts of land over the last two decades, due to low valuations and absence of r- Brazil, the inner, or Cerrado states like Mato Grosso do Sul, Mata Grosso, Goais, Tocantins, western Bahia- Argentina- Uruguay- Paraguay- Bolivia, the eastern lowlands

August 2011 market situation.

- Bolivia might be the country with the nominally cheapest land, due to leftist populist Evo Morales governmepolitical violence and measures against large landholdings. Few people buy there currently and it is indeed ainvestment.

- The second lowest land valuations are found in Paraguay, and at decent price/value and chance/risk ratios.profitable farms (soya, sugar cane), intensivly operated and close to posessing plants currently cost US$3000cattle ranch land US$500-1500, virgin land forest covered in the semi arid Chaco region with good soil fertilityper hectare.Most important buyers of land in the Paraguay Chaco are Agri Investors / farmers from Brazil and Uruguay follbuyers and western european investors.Uruguayan cattle rancher bought 700.000 hectare in the Paraguay Chaco until 2010 ( En 2010 se llevan vendi100.000 hectreas a extranjeros

Paraguay has the regions most favorable tax regime, 10% personal income tax, 10% VAT. On the down siderather low when it comes to transparency, quality of public services, rule of law. In other words it has many of tthat characterise a third world country.

- Uruguay is in many aspects the opposite case. A mature civic society with strong rule of law and a distinctivJust it is not cheap any more. With US$5000-10000 per hectare for prime crop land (soya, corn, wheat), US$2hectare for good cattle pasture (which would include some minor fraction suitable for cropping) it is difficult tooperational return above 4 or 5% anually as of 2011. Virgin land does not exist anymore in Uruguay.Income is taxed in the 15-25% range, VAT being 22%Political issue of foreign land holdings : Estimates of share of foreign hold land in Uruguay vary between 25 anexist or are projected as of August 2011 to restrict it.

- Argentina is geographically and hence agriculturally very diverse. The heartland, the humid Pampa is compso is the price/value for farmland (though in Argentina some top fertility crop lands rank higher still in both pricthen anything in Uruguay, costing up to US$15000/ha).Cropland in the tropical north, Formosa Province etc, costs around US$3000, cattle pasture land of medium p

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anywhere between US$1000 and 3000, best pasture lands (fattening) up to US$5000/haVirgin land, with potential for profitable future farming/ranching start at US$300/hectareWhile argentinian income tax and VAT is within the regions typical rates, it levies an additional tax of around 2exports like soya (not on the profit but on the revenue!), which weighs very heavy on producers. Some are leaof that reason.Political issue of foreign land holdings : Estimates of share of foreign hold land in Argentina vary between 10 a(Dec 2011) a law passed parlament that limits the maximum of land a foreigner can purchase to 1000 hectareheartland, somewhat larger sizes in less fertile areas, and the maximum share of the nation's entire land to 15

single province, and to 15% of a single municipality. (existing land holdings are not effected)

- Brazil without wanting to discuss Brazil's land market, due to its sheer size and regional variations - legal prsignificantly in 2010, restrictions now limiting the size of farm land foreign entities can buy. Limits range from 2densely populated intensively farmed regions like Sao Paulo to 5000 hectare in sparsely populated region likeSince law also puts a limit on total share of foreign owned land for each district, some district level governmenpermit, due to lack of knowledge how much land is foreign owned already. Again, as in Argentina, establishednot effected.The law actually dates from 1971, just until recently there was not the political will to exercise it.

Other world regionsOther countries exist where fertile farmland is cheap. Just foreigners can not be legal landowners (Russia, UkSasketchewan and Manitoba of Canada). In Romania and Bulgaria fertile land was rather cheap for a brief pe

but not so any more. In the vast majority of asian and african countries foreigners can not own farmland (just lexception, and with low prices, would be South Africa but the the race and crime issue there is to be kept in miwestern industrialised nations (including Australia and New Zealand) is too expensive to be discussed in this c

Buyers of land have a basic decision to make- buy farmland and operate it oneself, disadvantage being a farmer is a profession not to be taken lightly anemployer of local farm workers is not an easy task either, or- buy farmland and hire a management company to run it, disadvantage management fees may eat up signifprofits, or- buy farmland and rent it out, rental return typically being in the 3% range, advantage requires less attentionabove, and income being rather (though not 100%) predictable, or- buy raw land that has potential to be converted into farmland (land banking), advantage least attention reqdisadvantage no operational return.

Land is the ultimate limited asset, more so then gold, where more of it is continously extracted from mines. Thland investment would be to buy raw (virgin) land where you pay no premium for anything man-made (like builoperational farm set up).But here the real analysis just starts. Over 90% of the worlds raw, idle lands will for ever stay that way, withoubeing deserts, semi deserts, montain ranges, or lands that should be left untouched due to environmental conVirgin land with potential to be productive agricultural land soon, would have a favorable combination of climatfertility, environmental viability. If one looks for recreational potential, obviously scenery counts more.Land that is still virgin nowadays is so usually due to being remote, difficult to reach, so the extent of remotenanother factor to constitute the value of raw land.

Virgin forest as carbon credit investment

A new aspect would be the holding of forest land as a REDD assetDiscussing REDD carbon credits at this point is still highly hypothetical, but to do it anyway -The global market for carbon credits (carbon offsets) is well established, liquid, with daily quotations, 1x metricequivalent (tCO2e) costing US$15-20. It is however limited to projects that sequestercarbon. It is being discuthe future measures of "REduction of Deforestation and Degradation" (REDD). It basically means to grant crecutting forests.A difficult issue will be how to quantify the value of not doing somethingOne hectare of higher growth types of forest in the Paraguay Chaco might store 200t carbon. What might thenenvironmental value of not cutting it ? 1/50 of that figure, equaling 4t CO2e ? Difficult to state. In such a casemight generate a gross income of US$60 or 80 per hectare per year through carbon credits. That is for an asscosts US$250.

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Costs for certifying and marketing would still need to be deducted to calculate net income. Also countries whelocated might be inclined to tax such incomes substantially.

View here a June 2009 ECONOMIST article "money grows on trees"

Gentleman Farmer's lifestyle and agriculture investment combin

The Pampa of Argentina and Uruguay with its benign moderate climate has for the last 150 years been a placlandowners have built estate houses of both latin architecture with courtyards and open galleries or at times fonorth western european manor style, their pastime being polo, horse races, hunting and at the same time oftetheir field, introducing a new cattle race to the new world or a new crop variety. Their estates, the estancias mthousand hectares.On and off, to this day a property, an estancia enters the market that allows for just that, a Gentleman Farmer'agriculture investment combined.

This would be one :

Uruguay - Estancia of the 1880s, 167 hectare cropland/rangeland - US$ 2,000,000

September 2011 : Investor's interest is far from having peaked yet, rather the opposite seems to be true :"Turmoil sends investors scrambling for havens - Farmland and gold seen as alternatives to Swiss franc" - a a

article on 10th.Sept.2011

(reset 06.07.2009)

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