The Portuguese farming hidden treasure

An article from Luis Mira da Silva (Partner at CONSULAI)

Why agriculture in Portugal can be a great opportunity for investors that are looking for a high value / low risk sector, while having a positive impact in the environment.

Four years ago I went to California with a group of Portuguese start-ups, in the context of a program developed by the Luso-American Development Foundation. We visited several companies in the agriculture sector, including farms, technology and input suppliers, innovation centers, universities, and even an agriculture investment fund. It was a great opportunity to see one of the most advanced agriculture “ecosystems” in the World!

I was impressed with many things, but the level of technological innovation was not one of them. Yes, it was clear that the average level of technology adoption by farmers was very high. But I have seen many farms, and farmers, in Portugal, that are well ahead of the “average” Californian farmer. What really impressed me was the large scale, the commercial aggregation, and the technology “standardization” of farms.

Almonds are a good example of this standardization. Sometimes we could travel for 20 or 30 km and all we could see on one side and the other of the road were almond orchards. This was amazing not only because of the scale, but also because they all looked as they belonged to the same farmer. In many cases, it was not possible to see when one farm ended and another started. The plants all looked alike, they were equally distant, the soil cover was the same, and the technologies were replicated over and over.

One of the companies we visited, an irrigation equipment provider, explained what we saw. He said that almond farmers don’t like disruptive innovation. They like validated technologies. They don’t want radical new alternatives. They want reliable equipment and technological solutions that have proved to work elsewhere. According to him, innovation was obviously needed, but farms are not research labs, and technologies should be developed and tested by the appropriate organizations, not by farmers.

To get this point clear, it is important to say that I am not arguing for any kind of monoculture standardization, or “crop massification”. Crop diversity is very important, and for several reasons, namely, but not only, to avoid “putting all eggs in the same basket”. It is true that California is the biggest exporter of almonds in the World. But it is also true that the sector was completely disrupted with severe draughts between 2012 and 2016, and is still criticized for excessive intensification and water use. What was impressive in California was the standardization of farm practices and technology.

Let´s now move forward to 2021, and from California to Portugal. Every week I travel from Lisbon to my hometown in Alentejo, near the border with Spain. I travel about 150 km through the South of Portugal, usually by myself, so I spend a lot of time looking at the landscape. Sometimes my impression is that agriculture in Alentejo, namely in the dryland areas, is a huge experimental field. The vast majority of the Alentejo region is not irrigated, and is dominated by a mixed farming system called Montado, with oak trees (often cork trees), extensive livestock (usually cows or sheep) and pastures (see the pictures for some examples).

The problem is the lack of uniformity. You can see a beautiful farm, with lively cork trees, green pastures and fat cows. And then after two kilometers you see another farm where the trees are dead, the pastures are covered by weeds, and the cows are slim. And after a few kilometers you see another beautiful farm. And so on… It is also possible to see this lack of uniformity in other farms, for example in vineyards, olive trees, or fruit orchards. You see a vineyard that could be photographed for a wine catalogue, and in the next farm you see a vineyard that seems to be abandoned. Again, the problem is not crop diversity, which by itself is a good thing. The problem is the lack of uniformity in crop management.

I might be exaggerating a little bit (to make my point), but the question is why do we have this lack of uniformity? It can be for many reasons, and most of them have been the subject of detailed analysis in several studies. The farming sector is aged (52% of farmers are older than 60; only 4% are younger than 40), the average level of education (and training…) is low, advisory services are not sufficient, the land has been in the same hands for too many years, and we could go on and on… But this is not the subject of this article.

The argument I would like to raise here is the great opportunity for investors that exists in Portugal in the agriculture sector. Land is still not very expensive – if you travel just a few miles into Spain you will find that the price of land is at least 30% to 50% higher. There is a large potential for improvement in many farms, as the lack of uniformity mentioned above shows… And there are many opportunities to innovate in agriculture, a sector that will be disrupted by the EU policy in the next few years.

And I mean improvement in the long term, sustainable way… not just getting (unsustainable) higher profits in the short term. This kind of restructuring happens all over the corporate world in other sectors. An investor buys a bankrupted company, restructure it from the bottom, and then sells it with a high profit. So why not in the agriculture sector? Most farms are not bankrupted or abandoned. But in many farms the room for improvement is huge.

Two years ago I had an interesting conversation with someone responsible for an international investment fund that had just bought 2000 hectares of irrigated land in Alentejo, with the aim of developing a large fruit project. When I asked why they choose Portugal, he said that they had all the knowledge and technology needed to develop a good business, and Portugal was a safe and stable country, so he was sure that it would be a profitable investment. And he also said that they bought the land for 20.000 euros per hectare, and they were sure that in 10 years they would sell it for at least 40.000 euros.

That was irrigated land. But can we expect this kind of valorization in dryland? For example, in a Montado farm? I think we can. In fact, what is happening in some dryland farms in Alentejo is amazing. Innovation includes new livestock breeds, smart farming technologies, forest regeneration, new pest control techniques, or the conversion to organic farming. In Alentejo there are dryland farms that “play in a complete different championship”, and they are surely beautiful…

So is it reasonable to say that if the value of land in a poorly managed Montado is 6.000 euros per hectare, the value in a well-managed Montado can be 12.000 euros per hectare?

I think it is. With good management, and with a strong focus on innovation and technology, it is possible to convert a low value farm in a high value, sustainable farm. This applies to irrigated land, although the competition for irrigated land is getting fierce in Portugal, and to dryland farms. If I had a few millions to invest, I would buy a Montado farm in Alentejo, work hard and build some partnerships to develop a good (and low risk) business plan. It would be great to see the transformation of a disrupted farm into a beautiful farm, with lively cork trees, green pastures, and fat cows!

Other News

10 de July, 2020

CONSULAI supports two applications to the system of incentives for productive innovation in the context of COVID-19

The incentive system for productive innovation in the COVID-19 context supports companies wishing to establish, strengthen or reverse their production capacities for goods and services to combat the COVID-19 pandemic. The objective of the application, which ended on May 8th, was to meet the needs of today’s society by redirecting, temporarily, the activity to this [...]

read more

10 de July, 2020

Agriculture in a time of crisis | Challenges and opportunities of supply chains

Following the first debate on “Agriculture in time of crisis” which focused on the future and how to prepare for what lies ahead, the second debate will take place on April 21 at 10am. This time, the debate focuses on the challenges and opportunities of supply chains. The speakers of this webinar will be: Eduardo [...]

read more