Returns through a Structured and Timed Operation
Agriculture is not like every other asset, particularly when you have different kinds of crops or animals within your farm or portfolio. In the case of Farmfolio and Farmshare holders, our investors benefit from a diversified operation that includes cattle with turn around several times a year, recently planted green coconuts, and a maturing teak forest that has been growing for over a decade. In this regard, Farmolio’s Ganaderia Pietrasanta (GP) generates short-term, medium-term, and long-term revenue through its distinct and complementary components. This system allows for a consistent cash flow as well as medium and long-term peaks in terms of returns for our investors.
Returns through a Structured and Timed Operation
In technical terms, Return on Revenue (ROR) is a financial indicator that refers to the net income of a company divided by its revenue. In this equation, net income is calculated as total revenue minus the company’s expenses. ROR is an important financial metric because it determines the profitability of an investment as well as the recurrent earnings per share (EPS). Farmfolio’s GP project has an ROR that is marked by upfront costs in terms of machinery, infrastructure, and settling of new crops, while depending on the income generated by our short-term element, which is organic grass-fed cattle. However, as the operation in GP normalizes its new activities and one-time expenses are written off, the everyday of farm operations go down substantially. Simultaneously, GP’s medium and long-term elements, organic green coconuts and high quality teak, will substantially boost returns and EPS when the farm is already at its peak efficiency through economies of scale.
The conservative models developed for Farmfolio’s GP project estimated that organic green coconuts will overtake cattle as the farm’s main source of revenue by 2020. Likewise, during the harvest years for GP’s high quality teak forest, which are projected as 2022 and 2028, teak will be one of the largest revenue sources as well as substantially boost ROR and EPS for investors. Because of this careful asset design, investors and stakeholders can expect a short-term return of approximately 3% annually during the first three years; a medium term return between 12% and 20%; and a long-term return of over 20% after the seventh year of investment.
(Read more about Farmfolio and Investments in Latin America)