Farming Meets High Technology

Greenhouse farming is the modern way of growing fruits and vegetables in an artificially controlled environment that ensures reduced susceptibility to diseases and pests, decreased inputs and increased crop yields.  Plants are fed nutrients through a drip irrigation system, grown in the most suitable conditions which allow each plant to maximize production.  The result?

• Higher produce yields
• Reduced threat of pests and disease 
• Reduced labor costs 
• Increased water conservation 
• Consistent crop production regardless of the season and weather conditions
• More controlled environment
• Produce grown close to the point of consumption, reducing transportation costs

The plants are grown in a reusable coconut husk medium.  The irrigation system not only supplies the water but the natural fertilizers are also delivered via the irrigation lines.  This process is called fertigation.  Excess water is collected and reused so that there is no waste.

          Implementation of Smart Farming

From the beginning, the greenhouse complex has used the SupPlant irrigation technology.  This state-of-the-art system employs sophisticated plant, soil and environmental sensing technology combined with cloud computing and artificial intelligence algorithms to provide precise, automated irrigation.  This enables a real-time response to each plant’s individual needs.

The company’s CEO told me that they don’t buy land, they buy water.  Unless the land has had excessive use of chemicals and artificial pesticides, it can probably be supplemented with organics and made fertile again, especially with the fertigation system they use.  However, the best land in the world without an adequate source of clean water is nearly useless.

Multiple water sources are used for this project including retention ponds to impound rainy season runoff, capped wells and water pumped from a local tributary of the Rio Grande.  A new $10 million high-tech pumping system was completed in 2020 during the pandemic.  The system includes automatic back-wash filters so that there is never any downtime for maintenance.

Coupled with the artificial intelligence-run irrigation system you have the epitome of Smart Farming. 

          Demand and Marketing

Over 75% of food consumed in Panama is imported.  These greenhouses are located less than 100 miles from Panama City, so transporting crops to market is quick and inexpensive. That’s a nice market of 4.4 million people who are dependent on imports and nearly half live in the Panama City metro area. 

Panama City is also home to Merca Panama, the country’s primary produce market that supplies hotels, cruise ships, mom-and-pop bodegas and restaurants. 

Much of the greenhouse produce is sold to local retail stores:  Riba Smith, Reyes, Super 99 and PriceSmart (the Sam’s Club of Central America).  Selling direct to retailers yields stronger revenue by cutting out the wholesaler middleman. 

The company also developed a produce home delivery company during Covid.  Working with other farms in the area, they continue to offer a wide variety of fruits and vegetables to Panamanian households. 

An important advantage of growing in a greenhouse is that you are harvesting crops every 3 to 4 months, so if demand goes down for one crop, you can easily switch to another after the next harvest.  Or, more likely, there is a shortage of or high demand for a specific crop and the greenhouse operations can quickly change to capitalize on changes in market demand.

          Crops

The company-owned greenhouses have been growing cucumbers, mini-cucumbers and melons.  Your greenhouse will grow the same products with the addition of strawberries. 

The company has also applied for several of the limited number of medical cannabis licenses in Panama.  As with everything related to Panamanian bureaucracy, it could be quite some time before licenses are issued but could prove to be quite lucrative if they finally get authorized.

          Risk and Inflation Hedge

One of the primary focuses of industry literature on the greenhouse process is inherent risk or the lack thereof.  Risks are seen as significantly reduced in a greenhouse because of the tightly controlled environment.  Damage from storms, fires and excessive rain are all but eliminated.

Because greenhouse growing is more labor-intensive than growing field crops, problems are noticed more quickly and can be addressed just as quickly, leading to significantly less crop failure and higher quality produce, which has a premium in the marketplace.

Produce sales closely follow inflation.  As a result, inflation typically has little effect on produce profits and can even increase margins.

          An Environmentally Responsible Investment

As already mentioned, water use is dramatically reduced using hydroponic systems.  In addition, the organic fertilizers used in the greenhouse are developed on-site.  Neem leaves and fruit are pulverized, combined with water and used in a misting system to control pests.

The farm management company has implemented the Global G.A.P. international agricultural and smart farming standards throughout all of their operations worldwide; a set of farm management practices that ultimately create positive social and environmental impacts.

UN studies have shown that this system’s production is 2 to 5 times higher than traditional agriculture, due to an increase in yield by 20-25%.

          The Company

This project is managed by one of the premier farm development and management companies in Panama.  The company is vertically integrated and prides itself on being a “seed-to-table” company; they develop the land, grow the seedlings, make their own organic fertilizers, do the planting, manage the crop, conduct the harvest, do the processing/packing and manage the sales.

They have been around since 2012, own processing facilities in Peru, manage field crops in Panama (limes, avocados, guava, dragon fruit, plantains and mangos), built their own cold storage facility at the port of Rotterdam and have multiple cooperative agreements with local farmers in Panama, Mexico, Costa Rica and Peru to sell their produce to retailers and wholesalers around the world.

The company already has greenhouse experience with the first 10 acres of greenhouses unveiled in 2017 and they have been building more greenhouses ever since.  In addition, they manage nearly 3,000 hectares of existing farmland.

          The Offer

The all-in price per nave (250 square meters) is $49,500.  There is an annual crop care fee of $8,500.  The crop care fee is deducted from your annual harvest payment, yielding an estimated net revenue payment to you of $8,130 to $11,450. 

Because of the nature of greenhouse farming, average income and the IRR may fluctuate based on the crops being grown.  I tend to be conservative when considering an investment offer so I would assume the 13% IRR and annual returns of $8,130.  If the higher numbers are generated it will be a pleasant surprise.

Harvest payments are made annually in the 1st quarter of the year.  Your first payment comes after year 2, but be aware that the first payment may be less than projections depending on when your greenhouse is built and put into production.  In other words, if you purchase in November, don’t expect a full year’s harvest in year 2.

I would anticipate that there may be equipment updates required at the end of the 20-year term, but then you’re back in the game.

One of the important aspects of the offer is that the farm management company participates in the income generated from your property.  This means that management has skin in the game; the better the overall income the more that they make, so they have a real interest in maximizing the yield from your greenhouse.  In this offer, the management company gets 30% and you get 70% of the net revenue.

You also need to be aware that even if the year’s crop is way below expectations, you still owe the crop care fee.  This is likely a rare event because the company also doesn’t get paid if there is a revenue shortfall.  However, this happened with other crops in 2020 because of Covid; the near-total lockdown in Panama prevented routine maintenance and even harvesting.  However, rather than ask that the crop care contribution be paid, the management company proactively offered to deduct it from the next year’s harvest proceeds.

          The Bottom Line

This has the potential to be a solid investment.  Even at the bottom-end 13% IRR, that is well above average stock market returns. 

I think the fact that you and the farm management company share an interest having a profitable operation makes it more likely that they will do everything possible to make it happen.

The ability to quickly change crops to meet changing consumer demand makes a greenhouse purchase a unique investment.  This market agility alone makes having a greenhouse in your portfolio a smart move.

          This opportunity is perfect for people:

• Who understand the value and importance of sustainable farming
• Who are forward-thinking investors focused on their long-term financial health
• Building a portfolio that is not correlated to the stock and bond markets
• Looking to create a hedge against inflation while minimizing financial risk
• Seeking off-shore investment opportunities
• Who want payments to begin earlier than permaculture investments
• Seeking a recurring passive income revenue stream