A few days ago, we published Part 1 of our Covid-19 Investor Update, focusing on our Pineapple Farm in Panama. In Part 2 here, we are looking at multiple Agricultural investments in Colombia. Our Part 3 update will be a focus on our Multifamily investments in the US.
Let’s jump in and understand what happened to our investments in Colombia over the last month.
Our Teak Sawmill Investment in Monteria, Colombia
Colombia's Covid-19 shut-down started on Monday March 15th when the government blocked entry to the country for all foreigners and closed the schools, quickly followed the following week by a 19-day quarantine which finished on April 13th. On Monday March 23rd, the government also suspended international flights for 30 days, presumably after all citizens and residents had returned home. As part of Colombia’s nationwide restrictions, pet owners were authorized to take animals outside for 20 minutes and one person per family could leave to purchase supplies. With the closing of non-essential businesses across the nation, our Burroteka Teak Sawmill was immediately shut down alongside all non-essential road transportation services.
Upon hearing the order, our Sawmill General Manager Adelberg quickly arranged for the 28 staff to take their 2 weeks yearly paid vacation. The Sawmill normally has one or two employees per week taking vacations throughout the year to maintain a full operating staff. Thus Covid-19 lock-down restrictions just made more sense to close the entire operation and give people time to spend with their families (especially given kids were now off school). All of the employees were very supportive of the situation and were happy to help out the business by taking their vacation days in advance this year.
Of the few staff still working, our 'extraction agents' who are responsible for locating and purchasing teak logs in the forest continued to work; thus ensuring that teak extractions can continue and they could prepare for large deliveries once the highways reopened.
Whenever countries shut down non-essential businesses, there is always some confusion as to the definition of which businesses are included. Luckily the government's Ministry of Agriculture released a clarifying order a week later which included the following statement: “Article 4. Mobility. "... and the activities allowed in the previous article. Cargo transportation, storage and logistics for import and export cargo must be guaranteed. Including the mobilization of…..b) Teak wood destined for export, with the verification of the remissions issued by the ICA as the competent authority and the other legal documentation.”
All of a sudden, we were back in business! After getting on the phone with the town’s Mayor and Chief of Police, we ascertained that we could re-open the Sawmill for export purposes and continue transporting finished teak to the ports. They agreed that all employees should carry a reference letter from Burroteka and carry the clarifying decree (above) mentioning Teak transportation being allowed on the roads. There are roadblocks everywhere across Colombia to enforce the original shutdown decree so this was a necessity for our staff.
Meanwhile, customers continued to place orders and were reserving sea container space for the days immediately following the lock-down.
As staff returned to work after their 2 weeks paid leave, they had a short waiting period for restocking of raw logs in the yard. During this period, the staff were making deck tiles. This was only possible due to our capital raise earlier in the year whereby we were able to purchase new machinery to do side cuts; cross-cutting the raw log side-cuts into 2-foot long pieces allowed these durable, attractive deck tiles to be made:
This is a business opportunity that had been in discussion for a few months with a wholesaler in Florida. These deck tiles sell for $15 at the Sawmill (Ex Works pricing) but we can command between $25-30 in retail stores. This idea came from visiting a timber wholesaler in Florida who was selling similar decking in all types of wood except for Teak. See their existing brochure with prices for different types of wood decking below, but no Teak:
We are now selling this decking product for more money than the finished block wood on a per cubic meter basis! A simple processing technique to command higher prices for our finished Teak product.
The Sawmill has started bringing raw logs in since last Friday 10th April and we have an additional 3 to 5 trucks arriving this week. And we expect 8 to 12 trucks delivering raw logs next week. We obviously need to stock up on logs before getting back to full operation so as to utilize the Sawmill machinery at full capacity. Given this delivery schedule, we expect to have the sawmill back to full operation by the end of next week.
We are also able to export cut wood that was finished prior to the shutdown and are exporting a $60,000 order of cut teak from Cartagena on a cargo ship to Chennai, India today.
We expect our Sawmill to be minimally affected at this point and a V-shape recovery for Burroteka. And the management team are looking to add additional shifts to make up for lost time at some point during the remainder of the year.
Similar to our Pineapple Farm, we've experienced some disruption from Covid-19 but revenue will easily catch up to our projected returns due to prices of teak increasing over the last month. Fortunately for us, all of the Teak mills in Costa Rica and Brazil are still currently shut down. And Indian buyers who were purchasing raw timber in Colombia for export have also disappeared so we expect the purchase cost of raw Teak logs to be cheaper in the short-term.
Our Organic Coconut Plantation in Monteria, Colombia
The great thing about our Organic Coconut Plantation Investment in Monteria, Colombia is that it is off the beaten path already; 'social-distancing' is a permanent feature of the farm! We were part of an investor group who purchased 1,270 acres of majestic tropical farmland in 2017 and the farm management team have now planted what will eventually become an incredible 32,000 Tree Organic Coconut Plantation.
To comply with government regulations, we locked down the farm and continued with plantation management as per normal with our small dedicated team. This investment has suffered zero impact from Covid-19 as our first harvest isn't expected until next year 2021.
If you are curious to know why we invested in an Organic Coconut Plantation, please watch this 2 minute video that explains why? :-)
Our Valle Verde Lime Packhouse in Apartado, Colombia
Sadly, the fortune we had with transportation of our exportable Teak didn't extend to the build-out of our Lime Packhouse in Apartado, Colombia. The video above was taken the week before the lock-down occurred and even though construction is considered an essential service, we couldn't get the concrete delivered. Given the transport restrictions, the two local concrete producers closed their doors.
The good news is that our main construction company has committed to 24 hour shifts once the restrictions are lifted; not a total disaster but it will cause a few weeks slippage on our original packhouse delivery date.
From an investment perspective, we are still shipping Limes to our European customers from our 3rd-party packhouse in Medellin.
On the sourcing side, our team are still in daily contact with the Lime Farmers in the region and sourcing continues for packhouse opening as planned.
Once the country re-opens, we expect the team to ramp the project back up quickly to attempt to catch up to the original business plan. The team is expecting full-time regular lime shipments will start from our packhouse in mid-late May.
If you are wondering why we invested in a Lime Packhouse, look no further :-)
On reflection, I was thinking about what the impact could have been if Covid-19 (or Covid-22!) hit with our Coconut Plantation and Lime Packhouse already in full swing. Transportation of food is an essential service during this period so we feel we would have been able to obtain the necessary permits to continue doing business AND would have implemented similar Covid-19 'Safe Working Practices' at our farms and packhouses to ensure worker safety from catching the novel coronavirus. We therefore continue to feel confident in our agriculture investments given the need for high-quality food, no matter the crisis surrounding us.
Like many of our Alliance members, we have consistently built a stable portfolio of asset-backed cash-producing assets that can whether this downturn. And we'd like to invite you to learn how to invest in Real Estate and Agriculture so you can retain your wealth outside of the volatile stock market during future storms. If you are interested, please click here to schedule a call
All that remains is to introduce you to the Muster of Peacocks that lives on our Coconut Plantation :-)
Peter & Karen