Investmentanalysis as of 13.03.2019

Agri Terra KG Greenhouses in Paraguay Offer

Agri Terra has been established in cattle farming in Paraguay for years. Since 2015 orange plantations have been developed for small-scale investments. Greenhouses for different types of organic vegetables are to be built now on a plantation section. The very down-to-earth concept is very convincing due to the exorbitant profit opportunities in a simultaneously attractive market environment.

The issuer

Agri Terra KG, Grasbrunn near Munich, was founded in December 2012 in Bielefeld (registered in April 2013) and moved to Grasbrunn in 2017. The Pfau brothers are the persons responsible for the issuer – which is part of a group of companies, consisting, according to their own statement, of 19 companies in different parts of the world. Carsten and Michael Pfau follow a family tradition of entrepreneurship. According to their own declaration, the brothers have been investing in cattle and real estate in Paraguay for around 25 years. The Pfau family (together with around 200 investors) is now one of the largest cattle farmers in Paraguay. For about 5 years, the Pfau brothers have also been investing in orange cultivation in southeastern Paraguay. After 2 completed plantations, the third plantation is currently being prepared for planting. On the same plot the greenhouses on offer will be built, in addition to a fruit juice factory. Parallel to the Pfau family, investors have been able to invest in orange cultivation since the end of 2015 through a parcel-purchase. The complete purchase and the plantation operation is carried out by subsidiaries of the Pfau Group. As of today, a volume of USD 10 million has been realised through the Pfau family. 250 investors from Germany, Switzerland and Austria as well as the USA and Central America have invested.

The Pfau brothers are, according to their own statements, always substantially invested in all concepts themselves. This is understandable as land development must be pre-financed, and ongoing management has excellent potential for returns.

The issuer responded to questions in the context of the analysis very promptly and comprehensively.

Strenghts – The issuer has been active in Paraguay for some 25 years. Thanks to preparatory work in plantation development, the idea of greenhouses represents a logical, optimised building block.

The investment

Paraguay, with its sub-tropical climate, provides an ideal base for organic greenhouse cultivation: Heating costs during the winter months are marginal; at most, mechanical cooling is necessary during the rest of the year. Labour is relatively cheap while the purchase price for the product is reasonably high. Thanks to decades of local experience, the Pfau brothers were able to identify and acquire attractive agricultural land. The areas are subdivided and surrounded by protective plants. Currently, an area of 10 ha has been reserved for a fruit juice factory on plantation 3 (orange cultivation) with a total area of about 300 ha, in addition to a “country club,“ and 40 greenhouses are planned for another 20 ha. The first greenhouses are currently being ordered. After the acquisition of the lots, the components are ordered from abroad and after about 6 to 8 months, the seedlings can be planted. 6,000 plants are planned for each greenhouse of 2,500 sqm. Irrigation is easily possible thanks to the collection of rainwater or the use of a groundwater well; in addition, a stream runs through the area and water may be taken from it. All in all, such an investment is decidedly conservative: The land becomes the buyer's property; the preparation of the land and the installation of the greenhouse lies in the responsibility of capable employees; and the harvest is carried out by permanent employees, who receive partly performance-based compensation. The current year's harvest supposedly is already completely sold (purchase guarantee by renowned wholesalers), and the largest national market in the country is only about 20 km away. Thanks to the provisions of indexed USD 10,000 p. a., another cycle of 10 years can be initiated after the first 10 years. The harvesting assumptions are extremely conservative; a surplus yield is to be expected, thus generating a profit clearly above the prognoses.

The acquisition of the lots is registered on the basis of a notarised purchase contract in the land register in Paraguay. Thus comprehensive property protection is a given fact. It is particularly positive that the vegetables (sweet peppers and tomatoes are planned) already bring a rich harvest in the first year. The break-even point should already be reached after about 5 years – conservatively calculated. The buyer invests either directly (individual purchase) or indirectly via a German investor group in the form of a limited partnership (for smaller investments). A maximum of 20 limited partners may participate. Carsten Pfau is fully liable as a general partner with his private assets. Any difference to the maximum possible amount of EUR 900,000 per limited partnership will be filled by the Pfau brothers, who are thus substantially invested in each KG project.

Strenghts – Comprehensive property protection. Short transport routes for the already sold harvest. Extremely positive opportunity-risk profile with high potential for additional income.

The concept

The wealthy investor buys half a hectare of land in Paraguay, on which a greenhouse (2,500 sqm) is built for the cultivation of tomatoes and sweet peppers. In addition to direct acquisition by individual investors, smaller tickets from EUR 15,000 are possible. The acquisition is made by joining “Hortaliza Paraguay KG“. The personally liable partner is Carsten Pfau. As of year 1, the planned 6,000 fast-growing plants will produce significant yields. Thanks to reasonable provisions of USD 10,000 per annum, parts of the greenhouses in need of repair can be replaced after 10 years of use. These provisions could also be dissolved after 10 years, should the management end. Taxes are due in Paraguay for the first time after 5 years and are already deducted in the concept.

The return on investment (IRR) at 20 years of use is over 20 % p. a., calculated conservatively. If one compares the predicted crop yields of 10 kg/plant with the yield of organic vegetables in greenhouses, for example on Lake Constance (around 35 kg/plant), the extra yield potential is obvious. Due to the climatic differences, a second annual yield cycle could be possible, at least as a goal. If acceptance in the local and national market takes place in the long term – according to Agri Terra, about 70 % of such vegetables are imported – the investor can virtually “mine gold“ with such an investment. After just 10 years, the investment may have more than doubled. If the owner extends by another 10 years by investing in the greenhouse parts to be replaced, the investment would be tripled after a total of 20 years. Added to this are the land value and the chance of further use.

The concept actually represents an exceptional offer in my experience. Rarely does a private investor have the chance to acquire such an investment jewel as an outsider. I see a concept here that is normally only available for close family and a close circle of friends, or for professional investors who themselves can influence and shape the entire value chain. The mere fact that an investor actually becomes master of his own piece of land bears witness of this extraordinary investment opportunity. The risks of such an investment are completely transparent and manageable: The microclimate, the nutrient and water supply are controllable. The risk of damages can be avoided thanks to the entry lock and monitoring. Only the market risk remains. Here, the investor has to rely on the Pfau brothers' experience. Since they themselves, in their own words, are investors in their own greenhouses and are generally very interested in optimal success, the starting point here is also very good. In any case, an interested investor will want to get to know the situation on the spot, since such an investment deserves an appropriate appraisal.

Strenghts – Very conservative concept with exceptional potential returns. Very attractive market environment. Buyer becomes the actual owner for long-term multiple use. Supervision and sales are carried out by qualified local sales staff. The sellers are also invested. High performance motivation for planners and employees on site thanks to crop yield participation

The target group

Agricultural holdings are more likely to appeal to conservative and experienced investors. The concept is basically designed for investors worldwide. The investment offer is, thanks to its minimum size of EUR 15,000, actually possible for any reasonably interested investor. Wealthy people will choose to invest directly or fill-up a complete investment group. Investors may rejoice about this absolute pearl. In my 15 years as an analyst, I have never seen an offer like this. If an investor is open to investing outside of troubled Europe and to diversifying globally, and accepts investing in USD, he should definitely send a trusted local representative in situ to consider the investment. A risk from the perspective of would-be investors currently lies, above all, in the small number of greenhouse parcels available.

All summed up

I consider the offer "Greenhouses in Paraguay" by the Agri Terra KG, Grasbrunn near Munich, to be excellent. The opportunity to generate extraordinary long-term returns while being master of your own land should appeal to any affluent and experienced investor. In my opinion, the concept earns a rating of "excellent" (1+).