Sustainable Ag: Some numbers you need to know about Rubber Plantations.
In the previous article I talked about the cost of land. Obviously land cost varies and farm land suitable for Rubber is not readily available everywhere. Further the cost of labor may or may not make it a practical proposition in many countries. Most of my own experience is limited to India, when it comes to natural rubber.
The first and foremost obstacle I hear to Rubber Plantation is the gestation period of nearly 7 years. The farmer will have to invest his nearly non-existent capital with no new revenue coming for 7 years. Your average farmer cannot afford this.
The other argument is, the competing opportunities available for investors with sufficient capital. I have been talking to others in corporate India who consistently look for 45% annual return on their capital. Now, as a passive investor you will be hard pressed to create that type of return, but it’s quite possible for individuals very active in managing their own business portfolios. So the power of compounding at 45% is a formidable barrier to entry into sustainable Ag with its very long gestation period.
Sustainable Ag Rubber Plantations require great deal of patience as it takes nearly 7 years to create cash flow from operations. However, professional management of plantation operations can routinely create cash flow from the very first year using complementary intercrops during the first few years, but that will require additional investments beyond the scope of this article.
One acre of land in the ideal world is about 209 x 209 Square Feet. Spacing seedlings about 10 feet apart and each rows about 20 feet apart is an acceptable practice in Rubber planting resulting in approximately 218 trees in an Acre.
Various clones of Rubber exist with varying level of productivity based on various environmental qualities. Even many Rubber farmers do not understand this phenomenon. For instance, when I was a youngster the most modern clone was the RRII-105 which in ideal conditions yielded less than 1500 Kg/Hectare. Well, everyone who planted one hoped for ideal production, but that just cannot be. Then the price dropped and they cut down the trees to move on to the next opportunity.
Professional farmers understand that modern clones such as the USM-1 can yield nearly double the rate of RRII-105 in average conditions and rubber market price closely follow Crude Oil. Synthetic rubber is a byproduct of petroleum and the reason why Rubber follow Crude pricing. Further, knowledgeable farmers know things like a curved stem on a modern clone is a feature and not a defect of the plant. In the past, they would cull such seedlings.
Crude Oil is a commodity with limited supply and therefore, the future of natural Rubber is to my understanding better than being an Oil Barron. So if you missed out on the Dakota oil boom, you can create your own fortune in natural rubber and compete successfully with Oil. If you don’t believe that money grows on trees, you haven’t learned about Rubber Plantations.
Many would be farmers look for the cheapest land to plant Rubber, and then complain about the yield. Like any business, you get from Rubber what you put into it.
A $100K investment in small scale sustainable Ag of Rubber Plantations with yields like mentioned in USM-1 clone can well exceed $50K annually after the plant maturity period of 7 years or so. In addition, the underlying real estate asset doubles in value every 2 to 3 years while producing farms are priced at 3 to 4 times as much. I am not even using inflation adjusted numbers and I believe you will be hard pressed to find a better investment than Sustainable Ag.
Bottom line is, if you care about the environment and want to do something about issues such as Global Warming or making sure your kids have clean air to breathe, then you owe it to yourself to understand opportunities that exist in sustainable Ag. Consider Ag, the next time pollutionary investment opportunities comes calling.