ECI Hemispheres Publishing

A High Return Investment in Neem
by James Duckworth

The single most important principle in investing is Modern Portfolio Theory (MPT), which states that while aiming to achieve an expected or desired return, investors should protect themselves and minimize risk by choosing a range of un-related products. The higher the level of diversification, the lower the risk profile, the lower the beta and the more assured and attractive the eventual returns.

Liquid Investments' comprehensive investment strategy builds on MPT and allows investors to benefit from diversification across the core variables underlying an investment product. Liquid specializes in Alternative Investments focusing on agricultural produce. This newsletter concentrates on our multi-use, high return and fast growing Neem Tree plantation in Brazil where the level of multilayered diversification achieved is high. 20% IRRs and ROIs of 40% are achievable on this basis, and embrace the following MPT variables:

  1. Asset Class
    Agricultural land is becoming an increasingly popular asset because of its distinctive investment characteristics. As a tangible finite resource in a world where the supply of arable land is shrinking rapidly, agricultural land prices continue to experience ongoing price appreciation.
  2. Commodities
    Investing in physical commodities such as Neem provides an attractive natural hedge against rising inflation, as well as against the volatility and low visibility across bond and equity markets. Inflation and commodities are natural bedfellows, and as commodities tend not to be correlated with any other asset class, they have an on-going attraction at times of market uncertainty. As with crude oil, the demand for agricultural commodities is being driven by a rapidly growing global population, especially in emerging markets, which enjoy economic growth far in excess of economies in the West. With an increasing demand for food, organic pesticides and pharmaceutical products, the price of agricultural commodities, including Neem is likely to remain on an upward trajectory.
  3. Currency
    Unlike many of the non-mainstream global currencies, the Brazilian Real is not pegged to the US Dollar, Euro or Sterling, making it truly free-floating and independent. Furthermore, Brazil is the second largest exporter in Latin America, with central bank reserves equivalent to the rest of the continent combined, and it is also the recipient of the highest Foreign Direct Investment (FDI) across the continent.
  4. Geopolitics
    Brazil remains fresh as an international investment story, and by 2015 it is forecast to be the world's fifth largest economy. The inherent strength throughout the Brazilian economy set against the uncertainty and volatility elsewhere in key emerging markets (primarily China and India) makes us very confident in the prospects for the country. A stable democracy, Brazil is beginning to assert itself on the global stage as both an economic and political powerhouse.
  5. Product
    Originally we had considered Neem just as an organic pesticide and fertilizer on our coconut plantations. Yet the more we looked at the possibilities, the more we became excited by the commercial applications of the tree and its crop.

 

The Neem tree (Azadirachta Indica) is an evergreen tree, indigenous to South Asia, and grown across SE-Asia. It lives for between 150-200 years, and at two years  the tree will start to produce seeds. Within ten years, each tree can produce up to 50kg. As well as the seeds, leaves and bark have long been used to make various pest control substances. 'Neem cake' is made by mixing the pressed fruit and seeds , and this acts as an effective fertilizer. The cake is also fed to cattle to protect them from pests, both internal and externally. As an organic fertilizer, Neem will benefit from the fertilizer contact needs of the organic foodstuffs market; between 2010-2015 this market is forecast to double to $105bn.

The tree has multiple medicinal properties. New York University's Langone Medical Centre reports that the Neem tree has been referred to as 'the village pharmacy' for its antibacterial, antiviral, antifungal, antiseptic and antiparasitic properties. Of even greater potential significance is Neem oil's effects on diabetes, and interest here is growing rapidly. Over the past 20 years more than 2,000 research papers have been published on its medicinal properties.

Neem is grown on an industrial scale in only a handful of locations worldwide and therefore competition remains very limited, presenting investors with a unique opportunity to make significant returns. Cutting edge farming techniques will be deployed throughout the plantations, ensuring the maximum yield is generated. Neem grown on our plantations will be sold to both local and export markets in order to generate a regular income for investors.

As a summary, we provide on the checklist below the ways Neem provides comprehensive diversification. Last weekend's shock move to penalize private citizens in EU member Cyprus for holding funds in local banks as part of a wider bank restructuring in the country highlights how important it is to be disciplined and diversify one's wealth.

Asset Class

An investment in a Neem plantation is far removed from one in the traditional and more commonly held bond and equity asset classes. Investor ownership of the plantation land and the assets is secure. In addition, agricultural land worldwide is experiencing ongoing price appreciation due to the available supply shrinking y-o-y. Originally utilized to allow producers and manufacturers guaranteed production and delivery, agricultural investments (be it land, or the means of production) are increasingly popular, being a finite resource in a world while demand continues to rise.

Commodities

Investing in physical commodities such as Neem is highly attractive at times of global uncertainty. It provides an attractive natural hedge against rising inflation, and while there is a high degree of speculation, more of this is being driven through Exchange Traded Funds (ETF), not the physical delivery of Neem or other products. Ownership of the means of production is not only good capitalism; it makes sense in a world seeking to supply more food for an exponentially growing population. As with the need for oil, the demand for agricultural commodities is being fueled by a fast growing global population, and this is likely to push up the price of food related commodities.

Currency

Our Neem plantations are in Brazil, the strongest and most powerful economy in the Southern Hemisphere. The Brazilian Real is not pegged to the US Dollar, Euro or Sterling, making it a truly free-floating and independent currency. Its strength is reinforced by central bank reserves of $380bn, and an industrial and commodity export base, supplying both emerging and developed markets.

Geopolitics

Brazil continues to be a major international investment story, and by 2015 it will be the world's fifth largest economy according to the IMF. Investors must remember that by their nature, emerging markets can be riskier, either politically or economically. This is not the case with Brazil, which is a stable democracy, and contrasts markedly with China and India, the other key emerging markets, which are more opaque, and higher risk.

Product
Neem, like coconuts, has exciting possibilities in the pharmaceutical field for a range of ailments. Simultaneously, its use as an organic pesticide and fertilizer feeds into the demand for organic foodstuffs, estimated to be worth $105bn by 2015.

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