GLOBALGREENCHERRY PLC INVESTING IN AGRICULTURE GLOBALGREENCHERRY
Mar 23, 2016
GLOBALGREENCHERRY PLC
INVESTING IN AGRICULTURE
GLOBALGREENCHERRY
INTRODUCTION
Making investment decisions has never been
an easy feat. This is true now more than
ever with the complex, fascinating, and often
confusing dynamic of the current global
economic environment.
Increased market volatility has led to reduced
investor interest in more traditional equities in
favour of alternative investment options. And
what could be more productive than farmland?
We all need food to survive, and virtually all
food originates from a farm.
THE PRACTICALITY OF AGRICULTURE INVESTMENTEmerging Markets and Overall Population Growth
Emerging markets are developing at an extraordinary pace. More and
more countries are offering their citizens the chance to live a middle-
class lifestyle. This is clearly a positive step in terms of well-being, but
does not come without consequences. There is suddenly an increase in
not only demand for quantity of food, but also for its higher quality. As
income increases more citizens are able to enjoy a more balanced diet,
and the demand for fruit and proteins will continue to grow.
Further complicating food supply is overall world population growth,
which estimates that the world population will rise from around 6.9 billion
people currently to between 9 and 10 billion people by the year 2050.
This becomes even more startling when we consider that this increase
amounts to approximately 200,000 more people on our planet everyday.
The Food Predicament – Prices and Production
In order to sustain this elevated population, it will become necessary to
produce nearly twice as much fruit and grain as is currently being grown,
clearly a difficult challenge to be faced in the near future. Even assuming
optimal agricultural production at or above average levels, it will clearly
be difficult to maintain a sufficient supply of fruit and grain for future
population levels. In fact, over the last 30 years, production has not been
able to keep up with population as the ratio of kg of fruit and grain per
year per person has begun to decrease.
Unfortunately, these are not the only factors that are complicating and
will continue to complicate the world food supply. Food prices have
been increasing at an exponential rate in recent years. By mid-2008,
international food prices had skyrocketed to their highest levels in 30
years. In December 2010, the FAO food price index rose above its 2008
peak. Not only commodity traders are affected by this trend, but also
each and every one of us when paying our daily shopping.
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Source: United Nations
10
8
6
4
2
0
World Population
1950 1970 1990 2010 2030 2050
Less developed regions
More developed regions
Source: Food and Agriculture Organisation
* The real price index is the nominal price index deflated by the World Bank Manufactures Unit Value Index (MUV)
250
210
170
130
90
50
FAO Food Price Index
1990 1995 2000 2005 2010
Nominal
Real*
Bill
ions
Urban Drift
In 1900, worldwide, there were 6.7 rural dwellers to each urban dweller;
now there is less than one and projections suggest there will be nearly
three urban dwellers to two rural dwellers by 2025. Cities of the world
have continued to grow until urbanisation has begun threatening the
very food supply that enabled their existence in the first place. This
has been underpinned by the rapid growth in the world economy and
in the proportion of gross world product and of the economically active
population working in industry and services. Currently, not only the
highly valuable resource that is land, but also water, is being irreversibly
destroyed by urbanisation and pollution.
Loss of Arable Land
Land that is especially suitable for growing crops, or arable land, with
its fragile top 15cm of fertile soil, determines the productivity of our
food system. Most land is either too dry, wet, steep, or cold for crop
production, and urbanisation is further complicating this situation. Not
only does population expansion reduce available cropland per capita, but
also on-going soil erosion and expanding urbanisation continually result
in the slow but continuous loss of cropland. Annually, millions of acres of
prime cropland are lost to erosion, salinisation, and waterlogging. Millions
more are lost as arable land as urbanisation, transportation networks and
industries take over croplands. The Food and Agriculture Organisation
of the United Nations (FAO) reports that already close to 200,000 km2 of
fertile soil have been destroyed by urbanisation. This will cause further
increases in food prices, and farmland will become more valuable.
Climate Change
Food commodity prices are extremely sensitive to even modest climate
change impacts on world agriculture. In a recent study, researchers
found that climate change is expected to dramatically alter global fruit
and nut production, as tree crops like pistachios and cherries struggle
in the rising temperatures. The study, published in the scientific journal
PLoS ONE, predicted that the fruit and nut industries in California,
the southeastern U.S., China’s Yunnan province and southern and
southwestern Australia would be highly affected by global climate
changes in the coming years. The study added that the areas that have
already been affected include Israel, Morocco, Tunisia and the Cape
region of South Africa. The results would of course cause commodity
prices to rise drastically.
ANNUALLY, MILLIONS OF ACRES OF PRIME CROPLAND ARE LOST TO EROSION, SALINISATION, AND WATERLOGGING.
The Urban and Rural Population of the World – 1950 to 2030
9876543210
Bill
ions
1950 1970 1990 2010 2030
World rural populationWorld urban populationWorld total population
Source: UN Population Division
Source: FAO
5
4
3
2
1
0
Arable Land per Capita
1960 2005 2030
Met
res
2
AGRICULTURE AS A LUCRATIVE INVESTMENTLand Appreciation and Cash Flow
When investing in agriculture, there is solid potential for healthy returns
from various sources. Increases in the price of farmland have been
steady over recent years. Europe has seen prices double, triple, and
even quadruple per acre of farmland since 2004. Productive agricultural
land, with water rights and everything else, wherever in the world you
look, has, over time, outperformed CPI inflation. Cash flow that stems
from leased farmland or from the commodities themselves can also
provide a substantial return. Investors can reduce risk by renting land to
local farmers who manage the land and make monthly lease payments
to owners/investors. Alternatively, cash flow can be augmented by
contracting land managers or investing in funds that manage farms
themselves. This latter option increases risk, but the benefit of higher
returns in cash flow makes this a lucrative option.
A Haven Against Inflation
It’s no secret that in recent years, lavish lending practices and over
leveraging has led the global economy into crisis. Part of the solution to
this crisis has been for governments around the world to increase the
supply of money. Additionally, interest rates have been brought near zero.
The near future will most likely, hence, bring higher inflation. Farmland
pricing has performed extraordinarily well during high inflationary
periods. In the 1970s, fruit prices reached astounding levels during high
inflation. Considering the fact that food inflation leads overall inflation in
many countries reflects the elevated demand for soft commodities. So
agricultural investment not only offers protection from inflation, but also
even pays you for it.
Diversification
Agricultural land also affords investors the chance to diversify away from
stocks and bonds, as farmland is not highly correlated with these more
volatile asset classes. This provides portfolio stability during volatile
markets while enhancing a portfolio’s risk adjusted return.
...AGRICULTURAL INVESTMENT NOT ONLY OFFERS PROTECTION FROM INFLATION, BUT ALSO EVEN PAYS YOU FOR IT.
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Inflation vs. Farmland Price
Rate of inflationFarmland prices
FACTORS FOR INVESTMENT ASSESSMENTPolitical Situation
In weighing out where and how to invest in agriculture, one must take into
consideration the political situation in any given country and how specific
property laws may restrict investment. Some countries may not permit
direct foreign ownership of farmland whatsoever.
Strength and stability of a country’s government should also be analysed
especially when considering investment in emerging markets. Factors
for evaluation include political risk, economic performance, structural
assessment, debt indicators, credit ratings, and access to bank finance
and capital markets.
Local Human Factors
Local public sentiment toward foreign investment, as well as cultural
differences and matters of language are all crucial issues that need
careful consideration.
To make sure foreign investments run smoothly, local residents must see
these ventures in a positive light. If there were any feeling of being taken
advantage of or of intrusion on their territory, the success of any foreign
investment would be fighting an uphill battle from the very beginning.
The consequences of not carefully managing local sentiment could
include the reduction or even the total abandonment of the investment. It
is crucial, therefore, that locals fully comprehend that the combination of
their region-specific understanding and expertise along with the influx of
foreign funds can clearly improve their livelihood.
From construction companies to hair salons, law firms to restaurants,
no matter how much ingenuity, funding, and ability provided by
owners, finding responsible and productive employees is always vital
for successful business operations. Finding, communicating with, and
comprehending the perspective and inclinations of workers in a foreign
country is a challenge that confronted with patience and sensibility, can
and must be overcome.
STRENGTH AND STABILITY OF A COUNTRY’S GOVERNMENT SHOULD ALSO BE ANALYSED...
Transport of Crops
Once crops have been successfully harvested, the quality of regional
infrastructure comes directly into play. Caring for the land and its crops
is a crucial part of any farm’s operations, but up to the point of reaping
the harvest from any season, on a financial level, only expenses have
been incurred. The potential for profit making begins when grains, fruits,
vegetables, or livestock leave a farm. Therefore, quality roads will be
necessary for transportation of goods. Larger farms use hefty equipment
that will also need to be brought to and from the farm.
Once it is clear that the local network of roads and highways is
sufficiently effective, the issue of who will be transporting the harvest
comes to the foreground. Sufficient options are necessary for a farm
to ensure adequate quality and correct prices at this stage of the profit
making process.
The Essential Element - Water
Around 97% of the Earth’s water is salt water from oceans and seas, and
unfortunately desalinisation is a very expensive process. Close to 2% of
the earth’s water is frozen in polar ice sheets and glaciers. This leaves
only a miniscule amount for drinking, irrigation, and industrial use. This
already small amount of freshwater is being dangerously depleted. All
over the globe, water is being pumped out of the ground faster than it
can be replenished. China’s Yellow River, which is siphoned off by farmers
and cities, has failed to reach the sea most years during the past decade.
The green revolution in India was only possible by the installation of 20
million irrigation wells. Additionally, India must now dig wells 150 meters
into the earth, compared to just 30 meters 4 decades ago.
THE POTENTIAL FOR PROFIT MAKING BEGINS WHEN GRAINS, FRUITS, VEGETABLES, OR LIVESTOCK LEAVE A FARM.
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...WATER IS BEING PUMPED OUT OF THE GROUND
FASTER THAN IT CAN BE REPLENISHED.
THE NEW BREADBASKET OF EUROPELocated in Southeastern Europe, Bulgaria is bordered by Romania to the
north, Serbia and the Republic of Macedonia to the west, Greece and Turkey
to the south and the Black Sea to the East. With a territory of 110,994
square kilometres, Bulgaria ranks as Europe’s 15th-largest country. It has
huge agricultural potential thanks to its fertile soil, temperate climate and its
key geographical position, with crucial access to the Black Sea and the key
markets in the European Union, Commonwealth of Independent States (former
Soviet Republics), the Middle East and Asia. The rural regions in Bulgaria
occupy 84% of the nation’s total land area while the 2.7 million people living in
rural areas account for 32.3% of its total population.
Bulgaria joined NATO in 2004 and the European Union in 2007, after the
country moved from central planning to a more market-driven system with free
movement of capital and the liberalisation of agricultural markets. Bulgaria
enjoys both political and economic stability, and the decentralised government
is very accommodating to overseas investors. In 2007, the Bulgarian
government launched a five-year, €3.2 billion modernisation and development
program, aimed at strengthening the agricultural sector.
The country is blessed with rich farming and forestry resources. The extremely
fertile soil (containing a moderate PH) and temperate climate, particularly
around the Black Sea, provide exceptional, high yielding, top quality crops,
and make Bulgaria an ideal producer of the most in-demand and lucrative
fruit: sweet cherries. The hot season arrives at just the right time for cherry
production and the humidity also makes for perfect growing conditions.
The season very rarely suffers from frost or other major weather hazards. If
properly handled, crops will suffer a very low production loss of 5 to 10%.
Cherries are a fruit that travels well, and once refrigerated, taste and flavour do
not deteriorate easily.
Although it is one of the newest sources of land for cherry production,
neighbouring Turkey is already one of the world’s leading producers. Bulgaria
is widely recognised as the country with the highest potential for growth as a
cherry producer.
The price for farmland and labour costs in Bulgaria are also considerably lower
than the rest of Europe, with farmers of the same skill set earning an average
of €200 in Bulgaria, compared with €1,000 in Western European countries.
The operating expenses are also considerably lower than orchards based in
other European countries. As a result, the return on investment is much higher
in a Bulgarian-run orchard.
Farmland average price per acre
€3.2BILLIONMODERNISATION AND DEVELOPMENT PROGRAM
BULGARIA
BULGARIA
RURAL REGIONS
OCCUPY 84% OF THE NATION’S TOTAL LAND AREA
BULGARIA
RICH FARMING AND FORESTRY RESOURCES, EXTREMELY FERTILE SOIL AND TEMPERATE CLIMATE
$23,6
84
$19,119
$14,8
66
$14,076
$6,9
23
$6,0
53
$5,0
61
$4,8
71
$2,6
96
$1,966
$1,263
Bul
garia
Fran
ce
Bel
gium
Pol
and
Engl
and
Irel
and
Rom
ania
Spa
in
Net
herlan
ds
Ger
man
y
Dem
ark
Nat
ional
ave
rage
20
04 t
o 20
07
Source: blackseaagriculture.com
Bulgaria also boasts an exceptional corporate environment. Historically,
Bulgarian farmland investment has achieved returns that outperform most
traditional investment assets.
Annual yield from Bulgarian cherry investments vs. traditional investments
THE ADVANTAGES OF PRODUCING CHERRIESCherries are one of the most succulent and sought after fruits on the
market. Due to the premium price they command – with revenues more than
doubling those of most other fruits – cherries have also quickly become one
of the most exciting and lucrative green investment opportunities available
today. From early May to late June, average retail prices for cherries are in
excess of €10 per kilo. Cherries also attract far higher prices at production
levels – more than double that of grapes and almost quadruple that of
apples. Unlike the volatility that is associated with commodities, which
is subject to a lot of futures trading, cherry prices are set locally by the
producers and supermarkets.
Although global cherry production has been rising in recent years, it has
failed to keep pace with the fruit’s ever-increasing demand. According to
Belrose, Inc., the world’s leading fruit producing analysts, sweet cherries
have become the most popular fruit within the U.S. and European markets.
Beyond their delicious flavour, cherries have become widely recognised for
their numerous health benefits. They have a high content of antioxidants,
making them excellent agents in helping to fight diseases such as cancer
and other cell degradation-related illnesses.
Cherries are also very low in calories and have become an important weight
loss and weight management tool. A serving of cherries only contains 50-70
calories making it an ideal mid-day snack. In addition, the red pigment in
cherries has a tremendous amount of anthocyanins, making the fruit an
outstanding natural anti-inflammatory. Cherries have been proven to offer
natural relief from headaches and joint pain caused from gout, arthritis and
joint inflammation. People suffering from these symptoms are encouraged
to drink cherry juice, eat fresh or dried cherries or consume cherry pills.
Cherries also contain melatonin, which helps against insomnia and slows
down the aging process. They are also a rich source of nutrients, vitamins
and minerals, such as potassium, iron, zinc, and copper.
CHERRIES ARE ONE OF THE MOST SUCCULENT AND SOUGHT AFTER FRUITS ON THE MARKET
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Source: blackseaagriculture.com* Estimate of the Directors
30%
25%
20%
15%
10%
5%
0%Farmland 10 year
TreasuryS&P 500
Index5 Year
CDMoney Market
GoldBulgarian Cherry*
6.50% 3.52% 2.82% 2.59% 1.23% 0.00%30.42%
CHERRY PRODUCTIONOver the last ten years there have been major breakthroughs in
cultivation techniques utilising a method known as high-density hydro
orchard production (also known as “high density root stock”). Orchards
using this groundbreaking technique increase plant density by growing
cherries directly on the base of the tree itself and not on the branches.
This results in higher volume crops with greater production efficiency and
larger cherries. Through the utilisation of the aforementioned production
technique coupled with sophisticated handling and transport systems
used to mitigate product perishability, a well-run cherry orchard is
capable of generating a return on investment of over 30% per year!
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A WELL-RUN CHERRY ORCHARD IS CAPABLE OF GENERATING A RETURN ON INVESTMENT OF
OVER 30% PER YEAR!
Shares in GlobalGreenCherry Plc are unquoted securities and may be considered to have more risk than quoted securities and shares. The value of investments can go down as well as up and you may not get back the money you originally invested.
The information contained in the document does NOT form a part of any offer for sale or subscription to or solicitation to buy or subscribe for any securities or investment product(s). The document is not a prospectus and/or Information Memorandum and contains no offer to the public for the purposes of the Prospectus Regulations 2005. The formal terms of this offer are set out in the Information Memorandum and applications for shares are made solely for that basis.
Any forward looking statements set out herein involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements implied by such statements.
LET’S TALK To find out more and download the Information Memorandum with Application Form, please visit:
www.globalgreencherry.com
If you have specific enquiries, please e-mail us at:
If you want to talk, call us on:
+44 (0)203 137 6920
GLOBALGREENCHERRY
May 2012
GLOBALGREENCHERRY PLC
Lloyd’s Building
12 Leadenhall Street
London EC3V 1LP
United Kingdom
T +44 (0)203 137 6920
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