Saturday, May 19, 2012

Investing in Teak

A recent story about Tropical American Tree Farms in the Tico Times and reports of unhappy investors, has prompted me to write about the risks associated with investing in teak or agricultural commodities in structures where you do not own the land.

A plantation manager inspects a stand of teak trees
in the northern region of Costa Rica.
Many teak and other agricultural commodity investments are structured under deals where the investor owns the crop and leases the land for a period until the crop is harvested.

This appears to have been the Tropical American Tree Farms model and according to the report in the Tico Times, many investors are unhappy as they have not received their promised returns.

There are a number of risks associated with this type of investment structure:

- Teak maintenance is essential and you may be restricted to using the promoters teak maintenance company. As a "captive audience" investors may be forced to pay excessive teak maintenance charges.

- You may be required to renew the lease during the growing period and again may have to pay "over the odds".

- In the event the landowner / promoter encountering problems you may end up in the invidious situation of owning a crop growing on an "unwilling participants" land.

- Fundamentally, land is more valuable than crops and is the most potentially valuable part of the investment. That is why, in these structures, the promoters retain land ownership.

So the best advice, if you are considering an agricultural investment, ensure you own the land. This gives you full control.

To read the full story on the Tico Times click here

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