Make it your homepage |   E-mail: Subscribe Unsubscribe

Citi has helped provide $365 million to 40 microfinance institutions in 22 countries


Thursday, April 24, 2014
News Making Money

Becoming a Farmer

Written by Daan Harmsen, FINANCIAL MANAGER, GEOCAPITAL MICROFINANCE ORGANIZATION

14/04/2013 21:45 (374 Day 05:01 minutes ago)

istock_farmer-and-laptop.jpg

The FINANCIAL -- “Why would I want to be a farmer,” I hear you ask. “I am not interested in working the land and  living a life of poverty.”

ADVERTISEMENT

 

If you read my previous article about the state of farming in Georgia, you know that unfortunately that is exactly the fate of many Georgian farmers. But the world is changing. “The stock brokers are going to be driving taxis. The smart ones will learn to drive tractors so they can work for the smart farmers. The farmers are going to be driving Lamborghinis. I’m telling you”, says billionaire investor Jim Rogers in a Forbes interview. In this article we will go on a journey, to see what insights stock trading can give us about Georgian farming, and to find out how to go about starting a farming business.

As someone who worked on a trading floor at a major bank, I know that there are two ways to make money on a trade. The first method is relatively simple: you buy a security, such as a stock, that has been going up, because you think it will continue going up, or you sell (“short”) something that has been going down, because you think it will continue going down. These trades are called “momentum trades”, because you are following the momentum of the market. Most amateur investors think in terms of momentum.

“Gold has been doing really well over the last year, you should buy it!” is something that you would hear from your cousin at a birthday party. “Apple has been doing terrible, you should really buy its stock,” is something that he would be less likely to say but it is in fact the second way to make money on a trade: going against the trend. This is called “being contrarian”, because you believe something else than the majority of the market: you think the market is irrational, and you believe that when it becomes rational and realizes its folly, it will move your way.

Being contrarian can make you a lot of money when you are right. However, you also need to be right at the right time, because, as my Capital Markets professor used to say, “the market can be irrational for much longer than you can be liquid.” Take the housing market in the United States, which started to crash in 2007. Anyone who had bet on the collapse of the housing market, would have made a lot of money. However, had you done the same thing in the late nineties, you would have probably lost all your money before the housing collapse a decade later, thus not being able to reap any profits from that.

“Great,” you say, “but what does this have to do with farming?” Georgian agriculture is a market, and you can choose to buy into that market or not. The main way to buy into the Georgian agricultural market is either to become a farmer or to start a business that is in some way related to agriculture.

Let’s approach the agriculture market like a stock trader. The agricultural sector in Georgia collapsed after independence. “Sell,” says the momentum trader. That would have probably been a good idea in the nineties. What would the contrarian trader say? “Buy”? Had you entered the Georgian agricultural market in the early or mid-nineties, you would have had a very hard time. Yes, a sector that has been beaten down so severely, and can’t go down much further, will probably go up, but when? Fifteen years is a long time to wait, and you might lose all your money while you wait for the government to build roads, for electricity to start working, and for export markets to open up.

Instead, a good contrarian trader looks for signs that the trend is about to change that something will happen that will turn around the market. Maybe this is a small bounce in the market, or maybe these are external conditions that are improving. You want to get into the market right before trend changes.

This time has come now in Georgian agriculture! The contrarian trader screams BUY BUY BUY! Buy land, lease machinery, and start farming! Georgian agriculture is still very undeveloped, but external conditions are now such that we will see rapid growth in the future: the sector is about to take off.

First, there is a lot of available land, and many small farmers would love to sell their land and move to the cities. This allows serious farmers to cheaply buy multiple small plots of land, and consolidate these plots, in order to reap returns to scale.

Second, there is an influx of foreign farmers, with knowledge and capital. This will significantly increase private investment in the agricultural sector, and knowledge of new farming practices will spread rapidly. Indian and South African farmers are not just adventurists: they are experienced farmers and have capital, and knowledge they can share with the local population, and with you.

Third, we have seen a decade of strong investment in infrastructure, which has significantly increased access to markets. The Tbilisi - Samtskhe Javakheti road for example, a $203MM project which was financed by Millennium Challenge Georgia, decreased time-to-market for agricultural producers in Southern Georgia.

Fourth, there has been a lot of support for agriculture by nonprofits and multilateral organizations, which will pay off in the long term. Projects by USAID, Care, and others have invested significant amounts of money in training farmers and improving infrastructure. This means that for you, as an aspiring farmer, there will be more qualified staff to help you build your farming empire.

Fifth, international firms are taking an interest in Georgia, and their investments in new technology will increase agricultural productivity. US-based Perdue Farms for example, recently set up a manufacturing facility in Poti. These new firms don’t just bring money: employees who work for them for a period of time also leave with a much better understanding of modern farming techniques.

So we have established two essential preconditions: first, if you think like a contrarian trader, you should get in right before the trend changes, and second, the trend is about to change. Ergo, simple logic says: get in! But how?

First, don’t waste your time on small plots of land. Agriculture only really becomes profitable if you do it on a large scale. Try buying several small plots of land to consolidate them into a larger piece of land. If you drive around the countryside, you will see lots of land for sale. Another good place to look is www.eauction.ge, where you will often find pieces of land auctioned off for very low prices.

Second, know what you want to grow or breed, and make sure that the land you are buying is well-suited for that purpose. Georgia has many microclimates, and types of soil. If you’re looking at breeding animals, you want good grassland. If you’re looking at growing something, talk to the locals about the climate and the soil: they usually know a lot about the place. Also, don’t be afraid to take some soil samples to bring to a laboratory. Doing a soil analysis is not very expensive, and will give you a much better idea of the quality of the soil.

Third, look at the infrastructure in the region. Are you close to major trading centers? Do the roads allow you to get your goods to market relatively easily? Is the electricity reliable (if you need it)? Are there any cold or dry storages facilities available that you could possibly use to store your produce?

Fourth, be patient. If trading is about fast money, farming is about slow money. It is not about making money within the next few days or seconds, but within the next few years. The returns are there, especially in Georgian agriculture, but you need to put in hard work and time.
 
We discussed when to enter a market, why Georgian agriculture is such a good market to enter now, and how to do so. Now it is up to you to get your feet wet (or muddy) and your hands dirty. Let me know how it goes, and when you have built your farming empire, feel free to send me some fresh vegetables.

 

Daan Harmsen, FINANCIAL MANAGER, GeoCapital MICROFINANCE ORGANIZATION

 

 

 

Make Your Comment

Add NewSearchRSS
Only registered users and facebook social network members can write comments!

This text is replaced by the Flash movie.
This text is replaced by the Flash movie.
Politics
“The former Yugoslav Republic of Macedonia”: presidential election and early parliamentary elections

23/04/2014 16:38 (10:08 minutes ago)

The FINANCIAL -- A 14-member delegation of the Parliamentary Assembly of the Council of Europe (PACE), led by Stefan Schennach (Austria, SOC), will travel to “the former Yugoslav Republic of Macedonia” from 25 to 28 April to observe the conduct of the presidential election (2nd round) and the early parliamentary elections, alongside observers from the OSCE’s Parliamentary Assembly and Office for Democratic Institutions and Human Rights (ODIHR), according to PACE.

Read more...
TRAVEL BIZ
American Express Reports First Quarter EPS of $1.33, Up 16 Percent from a Year Ago

19/04/2014 14:24 (4 Day 12:22 minutes ago)

The FINANCIAL -- American Express Company reported first-quarter net income of $1.4 billion, up from $1.3 billion a year ago. Diluted earnings per share rose 16 percent to $1.33, from $1.15 a year ago, according to the American Express Company.

Read more...



World News
Helping Bulgarian farmers to become landowners

19/04/2014 11:39 (4 Day 15:07 minutes ago)

The FINANCIAL -- The EBRD is providing a €5 million to loan to Elana Agrocredit AD to co-finance the development of Bulgaria’s agricultural land market.

The World Bank Supports Small and Medium-sized Businesses in Tunisia

19/04/2014 10:29 (4 Day 16:17 minutes ago)

The FINANCIAL -- The World Bank approved an additional loan for US$100 million for Micro, Small and Medium Enterprises (MSMEs) in Tunisia.

EBRD loans to boost energy efficiency and support competitiveness of Macedonian companies

16/04/2014 16:42 (7 Day 10:04 minutes ago)

The FINANCIAL -- The EBRD has teamed up with Macedonian bank, NLB Tutunska banka, to increase the competitiveness of the Macedonian private sector and to promote energy efficiency in the country with a €6 million financing package, according to EBRD.      

EBRD helps modernise Baltic freight handling

16/04/2014 16:29 (7 Day 10:17 minutes ago)

The FINANCIAL -- A €32.5 million loan from the EBRD to Klaipedos Smelte, the company operating the container terminal at Klaipeda port in Lithuania, helped modernise its freight handling capacities and upgrade the whole Baltics region as a transit hub, according to EBRD.

CityLife
Africans among the most morally opposed to contraception

19/04/2014 08:33 (4 Day 18:13 minutes ago)

csi_2.jpg

The FINANCIAL -- Speaking to bishops from Tanzania last week, Pope Francis praised church workers in Africa “who strive diligently to educate people in the area of sexual responsibility and chastity” with the aim of preventing HIV and AIDS.

TRAVEL BIZ »
PRESS RELEASES »
FINANCIAL »
UKRAINE »
GEORGIA »
WORLD »
BANKS »
BUSINESS »
TECH »
MARKETS »
B SCHOOLS »
SPECIAL REPORTS »

Markets
Major Cloud Service Providers Slash Prices; Threaten Smaller Players’ Existence: IDC Warns

19/04/2014 13:40 (4 Day 13:06 minutes ago)

The FINANCIAL -- In the last week of March, major Cloud Service Providers (CSPs) in Asia dropped their prices for core services dramatically and IDC believes that this will make it very difficult for smaller CSPs to remain in business if they continue to rely on provision of basic, undifferentiated services, according to International Data Corporation (IDC).

Jobs
Philippines: Further reforms to strengthen growth, create more and better jobs

11/04/2014 12:00 (12 Day 14:46 minutes ago)

The FINANCIAL -- The Philippines is likely to remain as one of the fastest growing economies in the East Asia and Pacific region in the next two years.

Oil&Auto
Toyota Takes Out the Trash

23/04/2014 17:10 (09:36 minutes ago)

The FINANCIAL -- Imagine lugging more than 1.9 million trash cans to the curb on trash day. That’s what Toyota Motor Sales, U.S.A., Inc. (TMS) has avoided doing over the last four years. Since 2009, Toyota has reduced or avoided 1.9 million trash cans worth of waste at its sales and logistics facilities across the country, according to Toyota Motor Sales, U.S.A., Inc.

Read more...
INSURANCE
Zurich identifies seven cyber risks that threaten systemic shock

23/04/2014 17:00 (09:46 minutes ago)

The FINANCIAL -- The recently published Zurich Cyber Risk Report, created in collaboration with the international think tank Atlantic Council, argues that cyber-risk management professionals need to look beyond their internal information technology safeguards to interconnected risks which can build up relating to counterparties, outsourced suppliers, supply chains, disruptive technologies, upstream infrastructure and external shocks, according to Zurich Insurance Company.

Read more...






Developed by Aleksandre Chiabrishvili

Design built by Creo Group