Posted by: Martin | November 13, 2011

The Chicken and the Egg

New Crazy Project

Back in May I bought two plots of land in Bingerville just outside Abidjan.  I figured it was a good investment and a safe store of value, but hadn’t quite decided what to do with it. Now I have!

It’s going to become a chicken farm.  I got somebody I trust who can set it all up, it’s a product for which there will always be demand, and well, it’s a 10 minute drive from a fast growing city with 4 million people.

The numbers on paper are as usual too good to be true.  In the taxi case the real numbers turned out to be not as fantastic as budgeted, but still very good, so I’m betting it’s the same thing here.  Not counting the land, the whole thing costs about as much as buying and sending a taxi from Europe to Abidjan,  and it does look like a better investment.

It also has the additional advantage that it just keeps going, whereas a taxi needs to be replaced sooner or later.

As to concerns or worries, one is that I’ll be competing with imported frozen chickens produced on an industrial scale with EU subsidies.  The Ivory Coast is planning to lower the import duty on chickens with 70%, which probably is a good move for the Ivory Coast as a whole, but less so for chicken farmers.  It’s a weird feeling to be on the side that benefits from protectionism.

The other concern is that I have lived my whole life in cities, and even the countryside at home in Sweden is exotic to me. My knowledge of agriculture and breeding is pretty nonexistent, so I’m pretty much depending on specialists, at least at the start.

The outskirts of Bingerville - the area of the planned chicken farm

“Go and Get a Farming Degree!”

The timing seems to be good, as for the first time in, well, centuries agriculture seems to be “in” and described as a business for the future. Hedge funds are buying farmland in the US and China buys farmland in Africa.

Legendary investor Jim Rogers makes a pretty clear case for agriculture. Here’s an interview with BBC from August this year:

Jim Rogers: At some times in history, the financials types have been in charge; at other times in history the people who produced real goods have been in charge. It’s the way the world has always worked. The key of course is to figure out what’s coming next and go there. Become a Chinese farmer, that’s what you should do, Justin.

Justin Rowlatt (BBC): You say farming, why do you think farming will be such a crucial sector in the next couple of decades?

Jim Rogers: Farming has been a disaster for 30 years, Justin. The average age of farmers in America is 58 because it’s been such a horrible business. The average age of farmers in Japan is 66. In Australia, it’s 58. I could go on and on. In 10 years, those farmers are going to be 68 if they are still alive.

Justin, we have huge shortages developing in agriculture and great fortunes are going to be made by the people who address those problems.

Justin Rowlatt: And commodities is the other sector you said we should look up. Now hold on a second. If the world economy is entering a period of slow growth that you think is going to last not one decade but a number of decades, why on earth would you put your money in commodities?

Jim Rogers: Because you asked where the best areas of the world economy are going to be, that’s where the shortages are developing. In the 1970s, most of the world’s economies were in the tank, but commodities boomed.

Justin, we had one of the great world markets of history in commodities for about 15, 20 years in the ’70s, between the ’60s and the early ’80s in commodities, because we had huge shortages everywhere and because governments everywhere printed money.

Well, governments are printing money again. It’s a wrong thing to do Justin, but that’s all they know to do. So between shortages of supply and money printing, if you want to be in the dynamic parts of the world economy, don’t get an MBA and go to Wall Street, go and get a farming degree and move to Asia.

Better Than Gold

Rogers talks about money printing, and to protect from inflation (and other reasons) many people seem be into buying gold lately.  Doing a hypothetical comparison between buying gold and putting the same amount into the chicken farm in Bingerville, it seems the chickens win hands down:

  • The chicken farm provides a return, and hopefully quite a good one, whereas gold incurs a storage cost (at best, usually it’s a hefty ETF fee of which the storage cost is only a small part).
  • It could happen that central banks don’t print as much as the market expects, and in that case the gold price could plummet.  The chicken farm’s value is likely to hold up much better.
  • The chicken farm is a business that can expand and can be improved and that provides experience. Gold just kind of sits there, and going long gold is a bit like going short human ingenuity.

Responses

  1. Great stuff. Keep us informed. This looks like your biggest adventure yet. In theory most of the money from the lower import tax has been promised to the sector, so maybe there’s a way of getting your hands on this money as some sort of subsidy.


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