Press Releases

“Uruguay is a country with the potential to become the Qatar of milk”   07/05/2008

“Uruguay is a country with the potential to become the Qatar of milk” – Hugh Hendry of Eclectica Asset Management comments on the agricultural opportunities in South America after a recent investment trip.

Unloved and forgotten by everyone, Uruguay has endured its bear market and yet the country looks highly prospective for agriculture, says Hugh Hendry, chief investment officer at Eclectica Asset Management which runs the CF Eclectica Agriculture Fund.

The country has much potential. The west is competitive for soybean production; further east, the gently rolling terrain and mild climate are perfect for raising dairy cattle. Furthermore, the political environment is far more attractive than Argentina for potential investors.

With a population of only 3 million people sandwiched between the two regional superpowers of Brazil and Argentina, Uruguay benefits mostly from liberal policies of free trade with its neighbours. As such, farmers are able to export as much as they like without tariffs, duties or quotas.

A history of the Uruguayan stock market shows that Uruguay booms when agriculture booms. The golden years were in the late 19th century and the early 1950s. But now things have changed. Apparently we were the first foreign investors our stockbrokers had seen in a decade.

One of the investments we are very interested in is New Zealand Farming Systems Uruguay, a listed vehicle that plays into the theme of entrepreneurial dairy farmers from New Zealand looking at broadening their operations into Uruguay, where land trades at a tenth of the price back home. Managed by a division of PGG Wrightson, the New Zealand-based agricultural services conglomerate, they have taken an early lead in acquiring dairy pasture in Uruguay. The current stock price values their land package at around US$6,500/ha. With profits of US$1,900/ha, this equates to a 30% pre-tax earnings yield. This is too cheap; the stock should double from here even without further moves in the milk price.