India's interest in Latin America must go beyond World Cup

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Dave Ramaswamy | 23 Jun, 2010
There is an important reason why enthusiasm for South America should persist beyond the World Cup: The Mercosur countries of Brazil, Argentina, Uruguay and Paraguay are global agriculture superpowers as well.

They are already shipping their surpluses worldwide and, as farm outsourcing hubs, have the potential to meet India's food needs in the coming decades.

Over the next few weeks, millions of Indians will be glued to the television, cheering their favourite World Cup teams. Among the South American teams are traditional favourites Brazil and Argentina, along with Uruguay, Paraguay and Chile. These are the football superpowers with a long history of producing players who dazzle with their stylish play. But in India, meanwhile, the fever for those South American football stars tends to fade once the games are over.

Why sould the interest persist? First, some geographical context, since South America, unlike Canada and the US generally, does not appear on the Indian radar. Brazil is three times the size of India, even larger than the continental US. Yet its population is just about that of Uttar Pradesh and Uttarakhand.

Argentina is nearly the size of India, with a population equivalent to New Delhi, Mumbai and Kolkata. Uruguay, sandwiched between Brazil and Argentina, is about the size of Gujarat, yet it holds less than half the population of Ahmedabad. And the four Mercosur countries lie in the tropical or temperate latitudes, hospitable to a wide range of crops and outside hurricane, earthquake or volcano zones.

What makes the agribusiness fundamentals so great in these countries?

Farmland is abundant, and scale farming on parcel sizes of more than 1,000 hectares is the norm. The soil quality is extremely good. Soyabean yields, for example, are 3-4 tonnes per hectare. Wheat and corn yields range from five tonnes to 12 tonnes per hectare. And rice yields total more than seven tonnes per hectare.

While crop yields are at least two to three times greater than those in India, the cost of farmland is only a fraction of Indian prices. Agribusiness is well developed and analogous to the IT sector in India. Little wonder Harvard has selected leading South American agribusiness models as case studies in its own research.

The Mercosur countries use similar cutting-edge farm machinery and technology found in the US and Australia. A network of service providers assists with planting, harvesting and other aspects of the farming process. Logistics and supporting transport infrastructure are well developed.

Agribusiness remains in private-sector hands. Governments provide no farm subsidies and farming remains a profitable activity. In some instances the government even taxes farm revenues.

All the Mercosur countries also have abundant fresh water with networks of streams, lakes and perennial rivers. Rainfall occurs predictably throughout the year, with little necessity for groundwater pumps.

South America has 26 percent of the world's fresh water and just five percent of the world's population -- which grows at below replacement rates. Accordingly, there will be little demographic pressure on water resources.

With these advantages, the Mercosur countries enjoy large agriculture export surpluses and ship to such countries as China, Vietnam, Japan and India.

On the socio-economic front, Mercosur countries are democracies, with relatively little ethnic, religious or racial conflict. Cultural values, such as emphasis on family and relationships, resemble those in India. Indians will find a good business fit while operating in these countries.

In South America, various buy or lease farming options are available and annual returns can exceed 20 percent or more. In addition, farm portfolio managers in South America - akin to financial portfolio managers - can manage an agriculture operation for a fixed fee per hectare, plus a share of the profits. This would suit those Indian investors who know nothing about farming but do care about output and returns and do not need to invest in purchasing equipment or hiring personnel.

It is a fact that India's domestic production cannot keep pace with the growing demands for more food. It is time that Indian companies and investors look at South America for backward integration into farming operations. To use a World Cup analogy, it's time to score goals for India's food needs.

* Dave Ramaswamy is a partner at South America-based investment advisory and management firm Allied Venture.
* He can be reached at dramaswamy@alliedventure.com or blog: induslatin.com.
* The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.