Latin America – the Saudi Arabia of Agriculture

May 26, 2015

The first essential in farming is that you need the right conditions to grow crops. Latin America has these in abundance.

Let’s start with South America. It’s divided between mountains, jungle, flatlands and coastal regions. This diversity is good for farmers because – aside from extremes such as Chile’s arid Atacama Desert or the frozen southern tip of Argentina – it means that almost anything can be grown there.

Argentine agriculture - soya

Argentina is a major player in the global soya market

To the south, the cool slopes of the Andes provide the perfect conditions for wine production. To the east of the mountains, the temperate prairie-like pampas give Argentina, Brazil and Paraguay excellent land for rearing cattle and growing grains. Indeed, thanks to the pampas, Argentina and Brazil are two of the world’s ‘big six’ grain growers, and major livestock producers.

As you move north, towards the equator, the four seasons merge into two. This means farmers in Ecuador, Colombia, Venezuela and northern Brazil can plant two harvests per year.

Meanwhile, countries on the west coast benefit from the warm waters of the Pacific and have strong fisheries. Chile and Peru are both in the world’s top ten fish producers.

Once you reach Central America, the tropical climate provides the perfect conditions for sugar cane, coffee and tobacco.

Tasty profits

Sometimes we investors can get blinded by statistics. The numbers can hide the truth. But in this case the stats say it all. We all know the world’s population is growing exponentially, and therefore food demand will increase. So who will supply it? Latin America.

Latin America has always been one of the world’s breadbaskets …

According to the Inter-American Institute for Cooperation on Agriculture (IICA), Latin America has 42% of the world’s agricultural ‘spare capacity’. I take these sort of exact projections with a pinch of salt. But if you look at a world map its clear that’s not far off. Latin America has less than 10% of the world’s population but almost 30% of the world’s freshwater supply and 30% of the globe’s spare farmland. In short it’s the Saudi Arabia of agriculture…

About to grow

Latin America has always been one of the world’s breadbaskets – none of the statistics above are new… but now it’s suddenly become a great time to invest.

There is a range of factors. To be honest you could stretch this out into 3 articles but let’s keep it short.

EUROPE: Latin American countries from Ecuador to Central America have fresh FTAs with the EU. Agriculture will be the biggest winner.

CHINA: Latin America’s agricultural exports to The Middle Kingdom have rocketed over the last decade.

PRODUCTIVITY: Latin American productivity growth is one of the lowest in the world, meaning that there is plenty of room for improvement.

Buying opportunity

As all investors know the most important thing is price. Right now looks like an interesting opportunity.

The world’s import bill – ie the price of traded ‘soft commodities’ – is at a five-year low. That’s backed up by the United Nations Food and Agriculture Organisation (FAO) which said its monthly food price index is at it lowest since 2010.

These low prices may hurt the region’s farmers in the short-term but it also means that it’s great time to invest in the Latin American agricultural sector.