A Profitable Agricultural Investment

Cash flow from a hard asset is the ultimate investor objective right now, and the best case I’d say is when that hard asset produces an agricultural product to feed a growing market demand.

The challenge is to find an agricultural investment opportunity that doesn’t require you to get your hands dirty. I’ve been investigating one such opportunity here in Panama for the past four months and am ready now to bring it to your attention.

I’m talking mangos.

Mangos are either the first or the second (depending on the source you believe) most eaten fruit in the world, either before or after tomatoes (which aren’t a vegetable but, indeed, a fruit). Undebatable, though, is that mangos are the most popular tree fruit in the world, with the United States importing more than 40% of the world’s mango exports.

The U.S. market demand is great, despite the fact that many Americans don’t really know what a mango is. This is changing…creating even greater market demand.

In Panama, mangos are in every grocery store both as raw fruit and as juice in boxes. We always have several boxes on our pantry shelves; mango juice is my son’s best friend’s drink of choice and we try not to disappoint him.

The point is, mangos are simply everywhere in this country, growing wild, growing in back gardens, growing in enormous groves in the Mango Village section of my Los Islotes development, and growing in more and more plantations all the time. Still, the supply can’t keep up with the demand. Panama imports a big percentage of the mangos it requires annually for processing (by Del Monte’s plant here, among others).

No question, mangos in Panama are an interesting agricultural investment opportunity right now. All plantations, though, are not created equal. Just planting any type of mango tree on any piece of land isn’t going to get you the return you’re after as an investor. As with any agricultural undertaking, the species of the product, the type of land, and the team managing the plantation are critical factors.

Mangos are sold both as fruit and as pulp for juice processing, and they produce seeds that are ground into a paste (called mango butter) used in pharmaceutical and cosmetic products. The butter has qualities similar to cocoa butter and, like cocoa butter, is good for protecting and moisturizing your skin.

The plantation developer in Panama who I’ve been getting to know these past four months is working with a local horticulturalist who has been cross-breeding mangos to produce improved species. What he’s come up with is a mango with a thicker skin that helps to protect it against insects and that produces a higher percentage of meat versus seeds. Less loss to insects and more meat both translate to higher returns. It’s this improved species that the developer in question is using in the plantations he’s currently cultivating.

The management company involved is run by a fourth-generation agriculturalist (farmer) who knows more about soil types, fertilizer, fruit species, weather patterns, and everything else that affects farming in Panama than anyone I’ve met. I think these mango trees are in good hands.

With any agricultural investment, two key factors to profitability are the management company and the sales outlet. Anyone can plant trees and watch them grow, but without proper maintenance (trimming the trees, using the right fertilizer, monitoring irrigation, etc.), the yield per tree will be less than optimal. As I said, I don’t think that’s a concern here. The management company in this case knows what it’s doing.

However, optimal crop production is pointless if you don’t have a ready buyer for your product.

As I mentioned, Panama currently imports the majority of the mangos processed in the country by Del Monte and others. These processors would prefer an increased supply of local mangos rather than having to import in the quantities they are, meaning the local market is a big potential sales outlet for any Panama farmer producing quality mangos.

It’s also the low-hanging fruit, so to speak, and, certainly, this is where this plantation developer is going to focus to start. However, with some effort, he could potentially make connections with outlets in the United States. His mangos would sell for more there than they will here.

The projections, though, for this plantation’s return are figured based on selling the mangos produced only locally. Specifically, the projected 15-year annualized ROI (IRR) is 16.55%. However, mango trees can live for 60 to 80 years, meaning your cash flow will continue long past 15 years. A 15-year timeline, though, is reasonable for projecting revenue; beyond that, the projections become too speculative. That said, as mangos grow only in tropical climates, the options for where to farm the trees are limited, so, unless the world’s appetite changes dramatically and everyone goes off mangos, demand should continue to push prices up.

A general risk for any agricultural undertaking is lack of irrigation. Mangos, though, are deep-root trees that don’t need irrigation once established. Their roots go deep into the ground searching for water, making the trees drought resistant, meaning that, even during an extended Panama dry season, mangos should pull through with little stress…as long as they are planted on good land.

The developer in question does deep soil studies on each piece of property he buys to make sure the land is suitable to mango trees and maximum harvest yields.

I don’t recommend agricultural investments that have you investing in shares of a plantation or a harvest. I prefer agricultural investments where you take title to the land the crop is planted on. That’s the case here. Investors get titled land planted with 40 to 46 mango trees per hectare.

As the distance between trees must be relatively big (because mature mango trees are broad), the developer is intercropping with grasses to harvest for cattle feed. Like the revenue from the mango harvests, the revenue from the intercropping will be shared with the investor, as you, the investor, own the land.

The management company earns its money from revenue splits after a set crop-care fee. Therefore, the management company earns more as the investor earns more. Again, I prefer agricultural investments structured this way, so that the developer/management company is incentivized to maximize the investor’s return.

The minimum investment is 1 hectare. The price is US$33,500 per hectare.

For more details, you can inquire here.

Lief Simon

“Lief, my wife and I own five rental properties in Canada that generate solid cash flow above $10K monthly.

“We are in our early 40s, and our Social Security income is low. Can the rental income properties be enough to qualify us for the pensionado visa of Panama?”

–M.L.

Unfortunately, it can’t. The Panamanian government (like most governments offering these kinds of retiree visa programs) considers only pension income from an official entity that is guaranteed for life when qualifying applicants.

However, as Canadian citizens, you could apply for the Specific Countries visa that is currently available in Panama (but that might go away after the election in May). To qualify for this, you simply set up a Panama corporation or buy a piece of real estate that you hold in your own name.

Certainly the income from your rentals would afford you a nice lifestyle in Panama, but if you want to live in this country full-time, you’ll have to qualify for some visa other than the pensionado. The Specific Countries program is your current best bet.