Becoming a Farmer

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.”

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