Patos de Minas
Agribusiness opportunity: 1,933-hectare farm, located ca 80km west of Patos de Minas in the Cerrado region of Minas Gerais, Brazil. Unique opportunity to acquire a 1,933-hectare farm, for sale directly by the owner. The family has more than 30 years’ experience in the Brazilian agribusiness, having managed and advised some of the biggest private land owners on farm management, including acquisitions and disposals, generating nearly 10,000 % ROI over 15 years. The property: • Location: 80km northeast of Patos de Minas. This is an established coffee production hub, and numerous companies based in this region are involved in coffee production, including coffee storage facilities, traders and readily available transport. • Access: by road • Total area: 1,933 hectares (HA) of farm land, which houses a 7-bedroom farmhouse with private garden, and also benefits from two rivers bordering the land. This makes the property uniquely suitable for the introduction of an irrigation system (combination of pivot and drip). Although non-irrigated land is the traditional way of coffee cultivation, irrigation increases productivity and speeds up cycles, therefore crucial for the efficiency and profitability of a commercially run farm. • Area cultivated: 700 HA (but can be increased to ca 1.100 HA (one thousand one hundred)) for soya/corn, or 700 –1.100 HA (one thousand one hundred) can be converted to coffee plantation • Legal reserve: 20% • Rainfall: 1.445 mm / year (October – May) • Soil: Latossolo vermelho amarelo and Cambissolo (typical Cerrado soils) • Topography: flat, low hills, rock / Elevation: lower 650 mt and higher 920 mt • Suitable for: The farm is currently producing soya and corn, but around 1.100 HA are suitable for conversion to a coffee plantation. • Ownership history: Privately owned and managed by the same family since 1962. • Planting history: The farm has been cultivating soya / corn for the last 30 years. Currently 732 HA are being cultivated, 369 HA Brachiaria grass land and 832 HA are covered by natural vegetation (Cerrado and Campos de Cerrado). • Productivity: For the last 10 years, the average productivity of soya per HA is 65 bags per HA (3,900 kg/ha) plus a second corn harvest (safrinha). If new technology would be used (Precision Agriculture), the harvesting has potential to go up to 75 bags/HA. • Soil history: The first crop was planted in 1972. The soils where crops are cultivated are properly chemically adjusted for. • The owner has been involved with the management of the farm for more than 46 years, and is looking to retire, although they would be open to retaining around 20% of the equity (for pro-rata adjustment to price). • There is a further investment requirement of around BR 6m in order to convert the farm to coffee production (for the purchase of machinery (harvest, etc.), seeds, installation of irrigation system, conversion to circular coffee segments, and re-application for relevant government permit to use water from the bordering rivers for irrigation); • Seller would also consider JV and retain 20% equity / contribute 20% pro rata to the investment requirement (although they are willing to sell 100% as well); • Total investment requirement and acquisition options: o Land and existing soya/corn business => USD$ 12,8 - 16m for 80 – 100% equity; or o Land and existing soya/corn business plus conversion to coffee plantation => $14,4 – 17,6m for 80-100% equity. It may be possible to take on some leverage for the investment requirement for conversion to coffee plantation, subject to discussion with local banks, for which we can provide introductions. • Conversion to coffee plantation would be a greenfield project. • Summary of coffee production financial assumptions (based on the historical performance of a comparable farm): o Year 0 – coffee seeds in nursery, and planting exercise; o Year 2 – small harvest; o Years 4 & 9 – top production; o Year 10 – proceeds from coffee would be sufficient to repay full investment; o 2 cycles (1 cycle = 12 years, therefore 24 years) would be the ideal duration of this investment, and could potentially yield a BR 160 million profit. • A local valuation and survey would be commissioned, at the buyer’s cost; • Financial analysis and detailed business plan is available subject to signing NDA. Market analysis and background: • A comparable farm is asking BR 1bn. It has ca 3000 HA of land, and is cultivating just over 1000 HA for coffee. It is located in the area of Pirapora, which ranks lower in soil quality, and is more difficult to irrigate, therefore the land is more expensive to prepare and cultivate. Average rainfall in Pirapora is 1,100 mm / year, whereas it goes up to 1,445 mm / year in Patos de Minas. Also, the average temperature is higher in Pirapora, which results in higher evaporation rates therefore a deficit in water can be an issue. • The coffee market is currently experiencing the 4th wave of coffee consumption. 1st wave was mainly private consumption of filtered coffee; 2nd wave was defined by the launch of Starbucks, etc., Italian espresso and coffee consumption without sugar; 3rd wave consisted mainly of private consumption of coffee in capsules; and 4th wave is now defined by the consumption of specialty coffees, which need to achieve an average of 82/84 points on the q grader system. • Globally, coffee consumption is steadily increasing; • 150m bags of coffee are produced globally per annum, of which 60m bags are produced in Brazil (which mainly produces the Arabica coffee bean); • Minas Gerais is located in the Cerrado region (savannah environment and produces coffee beans that have more body and flavor). The land is flat, making it suitable for mechanization of harvesting as well as the installation of water irrigation systems which increase productivity and speed up readiness for harvest. • The region has been experiencing huge interest from institutional investors, including pension funds. They normally retain a local partner in order to minimize risk; • The BR has been devalued, and a purchase may provide the buyer with an FX upside; • When the BR devalues, this leads to higher price of coffee; • The coffee sector has been resilient throughout the economic crisis, and forecast to increase by 25% in the next 10 years. • US coffee consumption is steadily increasing and there are large parts of the world where regular coffee consumption can still be achieved.