Brazil outback lures Argentine farm giant

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DTN | 20 July 2010

El Tejar Brazil manager Javier Angio and production manager Juan Pablo Di Giacomo oversee the winter corn harvest in Mato Grosso. (Photo: Kieran Gartlan/DTN)

Kieran Gartlan, DTN South America Correspondent

PRIMAVERA DO LESTE, BRAZIL (DTN) -- Brazil's frontier state of Mato Grosso is no stranger to farming on a grand scale: The once-proclaimed king of soybeans, Blairo Maggi, planted 415,000 acres this season, while his cousin Erai Maggi farmed more than a half-million acres.

There's a new player in town, though -- one that has left both the Maggis in its wake. Argentina-based El Tejar will plant more than 1 million acres in Mato Grosso this upcoming season and nearly 2.75 million acres across South America, making it the largest farm company in the world.

There's more to come. The company says it intends to grow to 4 million acres by 2015 -- as long as it can guarantee positive returns on each extra acre.

Fueling growth is the company's ability to keep overhead low: It owns no farm machinery and prefers to lease the vast majority of its farmland holdings. "This is a new model of farming that has been very successful in Argentina and may be even more suited to Mato Grosso," said Maria Amelia Tirloni, grains analyst at the Mato Grosso Agricultural Economic Research Institute, known as Imea.

Access to global financial markets and professional marketing also are key to success in Brazil's frontier, she said.

El Tejar, which means "the roof" in Spanish, expanded into Brazil in 2003 amid political and economic uncertainty in its native Argentina. The company leased 17,000 acres in Mato Grosso, which turned out to be a tough lesson in tropical farming.

"There was a boom in Brazilian soybean farming at the time and developed land was difficult to come by," said El Tejar's Brazil Production manager Juan Pablo Di Giacomo. "The land we rented was very sandy and didn't produce very well, but it was good experience."

The Argentines were quick learners, and through professional management and capital infusions, the company expanded at breakneck speed.

"The soybean crisis in Mato Grosso from 2004 to 2005 meant many farmers found themselves in financial trouble and this helped those who were more efficient and organized to expand," said Tirloni.

El Tejar's rapid growth has been aided by increased interest from investment funds in the agriculture sector, providing much needed capital.

The company is backed by London-based hedge fund, Altima Partners, with a 40 percent stake, and private equity firm, Capital Group, with 13 percent.

Founding partners still control around 40 percent of the company, but their share could be reduced in the near future with plans to list on the New York stock exchange to further boost capital for expansion.

LOW OVERHEAD MODEL

El Tejar, or "O Telhar" as the company is known in Brazil, was founded 23 years ago by a group of cattle breeders in the Salado river basin, in the heart of the La Pampa region.

"It started off as five friends who had a similar vision and wanted to expand operations," said Luis Kasdorf, El Tejar's international director.

El Tejar initially focused on livestock farming, but in the early '90s moved into grain production as a wave of soybean fever took over Argentina and Brazil.

The company's early growth was based on leasing land, a common practice in Argentina, and outsourcing machinery and services.

"The main idea was to get out of risk and reduce overheads to a minimum," said Kasdorf. "Leasing land and outsourcing machinery freed up capital for further expansion."

The model has changed slightly in recent years with the capital influx from investment funds.

"Buying some property has allowed us to take advantage of strong land appreciation in recent years, but the bulk of our activities will continue to be on leased areas," said Kasdorf. He added that the company currently owns around 20 percent of its farmland.

The model also differs slightly from region to region, depending on local conditions. For example, in Argentina, there is minimal contact with the land owner, as independent contractors carry out fieldwork.

"In Brazil, there was no established market for contractors, as most producers have their own machinery," said Brazil manager Javier Angio.

As a result, the landowner is usually the one hired by El Tejar to plant and harvest crops.

"It has been a good deal for farmers who were heavily in debt and otherwise would have had to sell out," said Joao Ribeiro a farmer near Rondonopolis, in southeast Mato Grosso. "Instead, they exchanged risk for a guaranteed return until they get back on their feet."

ADAPTING TO THE TROPICS

Moving from Argentina's temperate climate to farming in Mato Grosso's tropical environment provided a steep learning curve for El Tejar.

"Conditions were very different to what we were used to in Argentina," said Ajejandro Bustamante, El Tejar planning director. "Everything moves faster in Mato Grosso. There is excellent growth, but also high disease and weed pressure, which means you have to be very alert."

One big advantage in Mato Grosso is the availability of large tracts of land and long-term leasing contracts that averaged five years in duration.

"Leasing contracts in Argentina are normally just for one year," said Bustamante, "so it is more difficult to develop and invest in production."

The company puts strong emphasis on no-till farming, crop rotation and double-cropping. This season, it double-cropped 68 percent of the area with winter corn, much higher than the state average of just 30 percent.

FUTURE EXPANSION

El Tejar also diversifies geographically, with 35 percent of this in Brazil, 30 percent in both Argentina and Uruguay and some small holdings in Paraguay and Bolivia.

"Our plan is to keep growing and hopefully reach around 4 million acres by 2015," said Bustamante. "We will need very good organization and management in order not to lose efficiencies when producing on such a large scale, but we are confident it can be done."

The model is not without risk, especially with heavy dependence on custom operators. The company is confident, though, it has the right incentives to ensure an efficient operation.

"In El Tejar's case, they are excellent managers, very professional and efficient, and this is the main differential," said Luiz Nery Ribas, technical director at the Mato Grosso soybean producers association Aprosoja.

Ribas added that there is room for all sizes of producers in Mato Grosso's expansive outback, where still only 7 percent of the area is used to grow soybeans.

"There is a growing tendency to work in groups. Small operators are joining together in pools to buy inputs and sell produce," said Ribas. "There is room for all types of operations as long as they are well organized and efficient."

With world food demand expected to double by 2050, El Tejar sees a bright future ahead for the agricultural sector.

"Brazil will be the world's bread basket in the future," said Kasdorf, "and we want to be a big part of that."

Kieran Gartlan can be contacted at [email protected]
Original source: DTN
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