Uruguay Farming Overview for Investors

About Uruguay : 

Allied Venture 0 About Uruguay July 2009 Farming & Agriculture in Uruguay General characteristics

Summary of the agricultural market : 

Allied Venture 1 Summary of the agricultural market Planting Area is growing year after year; Harvest records are broken year after year; Big groups plan to continue expanding; Newcomers are expected; All this, despite the drought and the plunge in commodity prices – starting late 2008; Some groups with expansion plans have been in country for more than five years now. In Uruguay:

Country Outlook : 

Allied Venture 2 Country Outlook Geographically sandwiched between Argentina and Brazil Population: 3.4 million Capital: Montevideo (1.4mil) Area: 176,220 km2 Area: 10% smaller than the Indian states of Gujarat and Karnataka

Country Outlook : 

Allied Venture 3 Country Outlook 86% land area is arable only 1/8th of which is utilized Abundant freshwater reserves Low population density: 19 per sq. km (excluding Montevideo, less than 8.5 per sq. km) Population: 35 lakhs; 70% that of Ahmedabad; ½ of Bangalore 4 cows for each citizen; each cow has 2 soccer fields of grazing area Satellite image of Uruguay Brazil Argentina Uruguay

Country Outlook : 

Allied Venture 4 Country Outlook Political, economic and legal conditions Land titles/ownership clear; legislation well-developed Land transactions among private parties Politically stable country Government encourages agricultural investments Uruguayan Parliament

Country Outlook : 

Allied Venture 5 Country Outlook Professionals and labor force Good standard of basic education (literacy rate: 98%) High standard of university education Forestry majors offered in public and private universities Average life expectancy: 76 years

General Investment Highlights : 

Allied Venture 6 General Investment Highlights The Uruguayan Constitution and investment law Nº 16.906 clearly state that there can be no discrimination or unequal treatment between local and foreign investors. There is free movement of capital and dividends (in and out of the country) for any individual, institution or corporation. All corporations and individuals are free to acquire any asset and operate any businesses in any sector (including agribusiness) except for oil distilling, electricity distribution, railroad, basic wired line telephony and piped water distribution which are operated by governmental companies. Corporate Tax on profits is 25% for all activities (except for forestry and software which is 0%) and can be lowered on certain types of projects (not agriculture).

Macroeconomic data : 

Allied Venture 7 Macroeconomic data Note: 2009 GDP growth estimated at 1%

Agricultural sector’s share of GDP : 

Allied Venture 8 Agricultural sector’s share of GDP

Total/Agro GDP growth (1990 = 100) : 

Allied Venture 9 Total/Agro GDP growth (1990 = 100) Growth 2002-2008: 66.5% Annual cumulative growth: 7.6%

Other macroeconomic variables : 

Allied Venture 10 Exchange rate S/US$ Inflation Note: the majority of agricultural commodities in Uruguay are traded in US dollars Other macroeconomic variables

Evolution of Uruguay's total products export : 

Allied Venture 11 Evolution of Uruguay's total products export Source: Uruguay Central Bank, 2008, 36% increase compared to 2007

Uruguay Exports breakdown : 

Allied Venture 12 Uruguay Exports breakdown Beef products: 20% Cereals: 8.3% Dairy products: 8% Cattle furs 6.7% Wood: 5.7% Wool: 5.1% Oilseeds: 4.9% Agricultural exports represent almost 60% of total exports !!

Uruguay export markets (in %) : 

Allied Venture 13 Uruguay export markets (in %) Source: BCU, Uruguay XXI, INE E.U.

International Views on Uruguay : 

Allied Venture 14 International Views on Uruguay Mr. John K. Veronaeau (Deputy Director of USTR): “..receiving such a compelling briefing on Uruguay and the economic strengths of this country and the strengths of the human capital of this country and the educational attainment; it was very impressive, up to the point that I remarked that if Uruguay were a stock I would go out and buy it “ April 2008 “For the US, Uruguay is a safe country for investments.” http://uruguay.usembassy.gov/usaweb/2008/08-196EN.shtml “Uruguay: South America’s Best Kept Secret” http://www.us-television.tv/programs/uruguay-south-americas-best-kept-secret http://www.associatedcontent.com/article/1465/uraguay_ssssh_south_americas_best_kept_pg2.html?cat=16 http://whatwouldalpanadrink.blogspot.com/2008/12/uruguay-best-kept-secret-in-world.html From the US & UK Government: http://uruguay.usembassy.gov/usaweb/2009/09-015EN.shtml http://uruguay.usembassy.gov/usaweb/2009/09-119EN.shtml http://www.state.gov/r/pa/ei/bgn/2091.htm http://www.commerce.gov/NewsRoom/PressReleases_FactSheets/PROD01_004210 http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/uruguay?profile=all Other Comments: http://www.heritage.org/research/latinamerica/em1003.cfm http://www.internationalliving.com/Countries/Uruguay http://www.prlog.org/10184987-uruguay-investment-property-one-to-watch.html

International Companies in Agriculture : 

Allied Venture 15 International Companies in Agriculture Corporations and individuals (locals and foreigners) can acquire and operate agricultural projects in Uruguay http://www.thompsonhine.com/publications/publication1778.html Some Examples: El Tejar (paragraphs 9 & 10) : http://www.ft.com/cms/s/0/6428e204-338d-11de-8f1b-00144feabdc0.html?nclick_check=1 Adeco Agro (Main shareholder: George Soros (UK)) with three farms in Uruguay. http://www.adecoagro.com Metsa-Botnia (Finland) - Stora Enso (Sweden) - ENCE (Spain) - Portucel (Portugal) http://www.farminguk.com/news/Uruguay-Timber-plantations-attract-European-investors.13260.asp New Zealand Farming - PGG Wrightson http://www.nzfsu.co.nz/page.pasp?pageid=55 Weyerhaeuser (US) http://www.weyerhaeuser.com/Businesses/International/Uruguay D’Aremberg Group (Germany), ADP (Grobocopatel ARG), several others.

AGRICULTURE : 

Allied Venture 16 AGRICULTURE

Agricultural land in Uruguay : 

Allied Venture 17 Agricultural land in Uruguay Total of at least 3 million hectares suitable for agriculture Uruguay 2007: around 1 million ha in agriculture There is 1 to 1,5 million hectares to be planted in the next 8-10 years

Agriculture in Uruguay : 

Allied Venture 18 Agriculture in Uruguay High growth of planted area in the last 9 years High yields compared to international standards Highly mechanized and technology based operations Continuous appreciation of land prices, but still significantly lower that other agricultural areas in the world (even than Argentina, neighbour across the river). Strong inflow of foreign investors for 7 years in a row (30% of agricultural land in Uruguay is owned by foreign companies).

Agriculture in Uruguay : 

Allied Venture 19 Agriculture in Uruguay Source: Uruguayan Ministry Of Agriculture

Fundamentals of Profitability : 

Allied Venture 20 Fundamentals of Profitability 1. Excellent Agricultural Land and abundance of fresh water Soybean plantation in a typical uruguayan landscape with no irrigation systems.

Fundamentals of Profitability : 

Allied Venture 21 Fundamentals of Profitability 2. Excellent weather conditions and water availability through rain. Source: www.meteorologia.com.uy

Fundamentals of Profitability : 

Allied Venture 22 Fundamentals of Profitability 2. Excellent weather conditions and water availability through rain. Annual Average = 1300 mm

Fundamentals of Profitability : 

Allied Venture 23 Fundamentals of Profitability 3. Large Areas + Technology + Logistics All agricultural land is satellite-mapped and soil types and conditions detailed for every hectare of the country. Planters, Sprayers and Harvesters are satellite linked with high precision GPS systems (<10 cm error) and can work on automatic pilot even at night. Precision systems in planters, sprayers and harvesters allows for seed by seed planting at exact distances, homogeneous spread of fertilizers and herbicides with no overlapping, dampness and yield maps when harvesting, etc. resulting in less use of materials (seeds, fert., herb., diesel, etc), optimization and so, lower costs and higher yields. Highly developed logistics infrastructure for agriculture (trucks, silos, specialized ports) results in additional lower costs. Distances to ports are low (< 300 km) All big international players are established: Cargill, Monsanto, Dreyfus, ADP, Bunge, etc.

Fundamentals of Profitability : 

Allied Venture 24 Fundamentals of Profitability 4. Research and Knowledge This region has a numerous group of internationally recognized agriculture research centres. Qualified professionals are available to manage agricultural operations. Agricultural Technology is being produced locally (Argentina and Brazil) and exported to Europe and the US. The region is considered to be the most efficient grain cluster in the world. USDA projects that in ten years, 80% of world’s international trade of grain will be provided by this region (Brazil, Argentina, Paraguay and Uruguay).

Economics of the Business : 

Allied Venture 25 Economics of the Business Operations and Management All operations are outsourced. There are a high number of service providers who provide the planting, spraying, harvesting, transport and warehousing services. Management and Administration is also outsourced to specialized firms (such as Allied Venture). The company owned by the investor will have no more than 1 employee (the lot watchman). Planting, spraying and harvesting services are provided on an USD amount per hectare price. Transport and logistics on a USD per ton price. Legal issues for human resource claims, etc. are thus diminished or inexistent. Investment in expensive machinery is un-necessary (85% of agricultural operations work this way; only producers with more than 40.000 hectares acquire machinery). Contracts with operational parties are done on a one operation at a time (planting for this season), with no other ties existing, so one can easily switch operating service providers based on price and quality of services. It is a highly competitive market.

Economics of the Business (contd.) : 

Allied Venture 26 Economics of the Business (contd.) Planting and Harvesting windows by Crop ft: fortnight

Economics of the Business (contd.) : 

Allied Venture 27 Economics of the Business (contd.) Production Techniques: Almost all agricultural operations are based on crop rotations. Land and climate allows for crop switching or combination from season to season. Rotation is also a good practice to avoid land degradation produced by single crop plantation. Typical productive schemes are based on selecting (or combining planted areas) of soy, maize, sunflower and/or sorghum in the summer with wheat or barley in winter. Diversification is adopted also to control weather risks and commodity price risks. Project Numbers are presented selecting a summer crop (Soy) and a winter crop (Barley) but it could be done with almost any combination of the above.

Economics of the Business (contd.) : 

Allied Venture 28 Economics of the Business (contd.) Basic Agricultural Operations Plan Considerations: Two crops a year (occasionally three crops can be achieved). Non-speculative approach (i.e. secure costs and prices through contracts at the beginning of each season and do not speculate with obtaining better prices on the spot market at the end of the season). Outsourcing of services (no investment in machinery unless scale makes it a profitable economic option.) Ownership of land, although additional area can be leased to enhance Operational ROI.

Economics of the Business (contd.) : 

Allied Venture 29 Economics of the Business (contd.) RISKS and RISK Control: Weather: Undoubtedly the most important risk for agriculture. Can be hedged by insurance policies, location diversification, crop diversification and crop planning. Commodity Prices: Usually volatile. Control actions include, contract farming (prices and costs set at the start of operations), crop selection and diversification. Margins tend to have a much more stable behaviour given the high correlation between price of grains and production costs. Prices are international prices with no tax distortions. Operations Risks: Medium impact on financials. Nevertheless, selecting appropriate service providers, close supervision of operations and good planning considerably diminishes this risk. Country Risk: All operations, prices and costs are US Dollar based, so there is no significant exchange rate risk. Uruguay, together with Chile are the ‘safest’ business environments in the region with a long standing tradition of respect for law, contracts and the most stable

A thriving agricultural market : 

Allied Venture 30 A thriving agricultural market with no signs of stopping… From La Nacion (Argentinean Newspaper) - March 2008: Some excerpts http://www.lanacion.com.ar/nota.asp?nota_id=992652 “Every day, more Argentinean producers are going to Uruguay …Every day more producers are crossing the river (River Plate) to plant there (Uruguay). It is estimated that between 20 to 25% of agricultural land being cultivated is in hands of Argentineans… …Uruguay multiplied by 10 its soybean production in the last 6 years… …Minister Agassi remarked the soy area passed from 78.000 hectares in 2002 to 447.000 for the 2007/08 season… …Minister Agassi also says: there are more companies (pools) coming in than individuals… …Between 2000 and 2006 more than 3,9 million hectares were sold in the country, it’s diffcult to tell how much of that went to Argentineans… …producers come to this country because there are no export tax (as in Argentina), there is economic stability, less risks and the price of land is attractive… …commented on the attractiveness, Grupo Tolvas a company that has been for 6 years in the country and is exploiting 6.200 hectares…. …Uruguay is attractive…said Manuel Santos Uribelarrea, president of MSU a firm that started in 2004 planting 3.000 hectares and planted 16.000 hectares in the 2007/08 season. The comany planted Soybeans, Wheat, Corn, Barley and Sorgum in the last year…. …In Uruguay we see a lot of potential and opportunities given that the land and weather are optimal for agriculture said Francomano, MSU’s general manager…

A thriving agricultural market (contd.) : 

Allied Venture 31 A thriving agricultural market (contd.) with no signs of stopping… From La Nacion (Argentinean Newspaper) - March 2008: Some excerpts (PART 2) http://www.lanacion.com.ar/nota.asp?nota_id=992652 “Every day, more Argentinean producers are going to Uruguay (PART 2) …El Tejar, one of the biggest Argentinean farming companies is also producing on the other side of the river. “We have been here for 6 years, we produce wheat, barley, soy, maize, sunflower and some cattle on partially owned, partially leased fields; we are operating 55.000 hectares” said Luis Kasdorf, a director of the company… …In this company (El Tejar) they are very satisfied with the venture. “It has been a valuable experience, with an excellent local team, the seriousness of the business environment, and the governments policy of fully developing the country’s agricultural potential. We have been very well received.” added Kasdorf. From Primicias Rurales (Argentinean Agribusiness internet portal) - April 2009: Some excerpts http://www.ruralprimicias.com.ar/noticia-surge-una-nueva-oleada-de-agricultores-argentinos-2437.php “Groups of big producers are moving to Uruguay and Brazil; a new wave of Argentinean farmers prepare to move” …The Argentinean Congress decided not to lower its export tax tariffs, which upset big farming groups who are now evaluating investing possibilities in Uruguay… …Given what we have talked with some big groups. They have already made the decision to reduce their activities in Argentina, right-away as of the wheat season and move most of it to Uruguay and some to Brazil” said Fodere, director of Fadisol… …The arrival of more producers together with the lowering of production costs takes us to the conclusion that Uruguay will have a new harvest record this winter… …The Director of Copagran (Mr. Nin) said that all big producers are looking for more lands to expand given the lower in land prices of the last months…we’ll probably surpass last years record production, only in wheat we are expecting half a million hectares…

Why Us? : 

Allied Venture 32 Knowledge of Latin America Knowledge of Agribusiness Knowledge of Uruguay Investment Advisors Why Us?

Executive Team : 

Allied Venture 33 Executive Team Marcos Marin (38) - EC., MBA, MFIN Corporate Finance, Private Equity, Business Strategy, Agribusiness, Food, Retail, Energy, IT Univ. de la República, Universidad Torcuato di Tella, Harvard Business School Lautaro Perez (36) - AGR., MAB, PHD(c) Agriculture, Food Processing and Distribution, Sales, Management, Business Strategy Farming, Agribusiness, Food Univ. de la República, Kansas State University, ESADE Dave Ramaswamy (37) - B.S., MBA Marketing and Sales, Mgmt. Consulting, Business Strategy, International Business Media University of Illinois (Urbana-Champaign), Kellogg School of Management - Northwestern University Ricardo Vernazza (35) - AGR., MSC, MBA, Agriculture, Business Strategy, Corporate Finance, Management Farming, Agribusiness, Food, Government Univ. de la República, University of California (Davis), University of Chicago

We are at your service! : 

We are at your service! Treinta y Tres 1334, Of. 401 Montevideo 11000 - Uruguay Tel.: +598 (2) 916.2600 From USA:  +1 (305)  722 1275From UK:    +44 (20) 3026 0037www.alliedventure.com Marcos Marin - mmarin@alliedventure.com Dave Ramaswamy - dramaswamy@alliedventure.com Lautaro Perez - lperez@alliedventure.com