Tierra Cafetera Summary V20 1 3
Tierra CafeteraTM Opportunity Summary Own a piece of your own Latin American Coffee Farm!
WHO IS TIERRA CAFETERA? Tierra CafeteraTM provides individuals the opportunity to own fractional titled parcels of land in coffee-producing farms in Latin America. Each property owner may opt-in for his parcel to be managed on a turnkey basis by Tierra Cafetera which provides end-toend property-management and farm-operation services for each owner´s property. Hence, Tierra Cafetera provides the potential of a long-term, lowrisk and moderate return for each property owner. We operate Latin American coffee farms using agronomically and economically sustainable farming techniques to improve the yield and quality of coffee on the farms we manage. Tierra Cafetera, in co-operation with the sister company Coffee LatinAmerica (CLA), ensures a steady supply of coffee is produced and sold, allowing the farm parcels managed by Tierra Cafetera to generate income annually for distribution to both the property owners and tenant farmers.
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Tierra CafeteraTM Opportunity Summary
WHAT IS THE OPPORTUNITY? The opportunity is physical, titled ownership of one or more parcels of an existing, coffeeproducing, income-generating coffee farm. Most of the parcel in the first phase are located in some of the largest coffee growing-regions of Colombia; the Departments of Antioquia, Caldas, and Risaralda in the general area of Medellín. Each owner may opt-in to have Tierra Cafetera manage their parcel by using coffee science and optimized sustainableagriculture best practices to improve both the yield and quality of the coffee crop. In general terms, Tierra Cafetera buys ¨fixer-upper¨ farms with great unrealized potential and transitions the farm´s coffee from commercial grade to that of specialty grade. Specialty coffee receives a much-higher price premium over the New York market price for commercial coffee. Farm parcels are available in increments of 0.5 acres or larger. Multiple parcels may be selected to be either contiguous or distributed among various farms (owner´s preference), on a first-come, firstserved basis. Each year, property owners will receive coffee from their coffee farm during the principal harvest seasons. You can also visit and stay on ANY of the coffee farms in our entire network that are suitable for tourism.
HOW MUCH IS THE OPPORTUNITY? Each 0.5 acre parcel is currently available for $10,000 USD. Prices in the future may be adjusted for specific parcels based on location, tourism potential, etc. Parcels will be made available on a first-come, first-served basis. Owners of parcels from prior offerings will be given first right of refusal on subsequent offerings.
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Tierra CafeteraTM Opportunity Summary
WHAT IS THE RETURN ON MY PROPERTY & WHEN DO I RECEIVE IT? In general, if the owner opts-in to have Tierra Cafetera manage and operate the property, the owner can then choose to either receive proportional distributions from the pooled net coffee crop earnings of all the coffee crop parcels in the parcel owner’s farm managed by Tierra Cafetera, or receive distributions only from your own individual parcel(s). This pooled approach will significantly decrease the level of risk due to weather or pestilence (see the section ¨IS THE OPPORTUNITY SAFE—WITH LOW RISK?¨ below). 80% of the net earnings of coffee crop operations of all farms in the network will be paid quarterly to the parcel owners in proportion to the number of parcels owned of the total. The balance of 20% of the net earnings from all coffee crop operations will be paid to the tenant coffee farmers (above their base compensation and benefits already paid by Tierra Cafetera) as an incentive to continuously increase the yield and quality of the coffee produced. The owner of a parcel will normally start to receive quarterly profit distributions two quarters after the coffee farm parcel is purchased and integrated into Tierra Cafetera operations. On a pro-forma basis, it is expected that each 0.5 acre parcel will generate sufficient earnings to breakeven the first year and provide an income increasing annually to 18% by year 5. Once the full effects of the capital invested in additional trees, organic farming and sustainable agriculture practices take effect during the first 5 years, it is expected the rate of return on invested capital for years 6-10 will increase from about 18% up to 43% annually. Further increases in annual return may be possible beyond these figures in years 11-20. The average annual return projected over a 20 year period is 19%. The annual return is expressed as the IRR, or internal Rate of Return. For those unfamiliar with the meaning of the term IRR, the following applies:
“The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of an investment…it is an indicator of the efficiency, quality, or yield of an investment…the IRR is also called the effective interest rate.” (Wikipedia edited for brevity)
Please note that the annual return of 19%, stated as the internal rate of return (IRR), is very conservatively estimated as it does not include a projection of the increased value of the parcels on an eventual sale. Often investment models include this speculative figure to increase the IRR. Had this value been included in this projection, the total rate of return may be increased substantially above 19%, depending on the timing and amount received for the property.
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Tierra CafeteraTM Opportunity Summary
IS THE OPPORTUNITY SAFE—WITH LOW RISK? First and foremost, long-term ownership of land has proven to be the most-reliable and traditional path to long-term gains in wealth. The famous investor Will Rogers reportedly once said, “Buy land, they aren’t making any more of it.” Sage advice. Additionally, the retention of income-producing land over long periods of time, with the careful-and-constant management of the land to improve yield and quality, adds to the wealth-generating benefits of agricultural-land ownership. Finally, if the agricultural land produces a crop that is in high-and-increasing demand, with proven channels to market for those crops already in-place, and with sustainable high-profit margins consistently available, a high-probability formula for success is assured. A basic price and market is always available for coffee. Coffee is a $40 billion market in the United States alone, with specialty coffee demand growing at an astounding annual rate of 20%. Should that trend only continue, the demand for specialty coffee in the United States will double every 3.6 years, making a 20-year plan to own parcels of specialty-coffee producing farms an incredibly attractive opportunity. Further, Tierra Cafetera’s focus on the rapidly increasing worldwide demand for specialty coffee is a low-risk strategy. This is due to the fact that if at any time in the future should demand for highquality and specialty coffee decrease, all the coffee produced by these properties can be immediately sold on the $90 billion international commercial coffee market as a commodity offering. Doing so may not obtain the incremental specialty premium desired, but will certainly minimize any downside financial risk of producing a crop that can’t be sold. Adding to the safety of the income forecast associated with owning coffee-producing parcels is Tierra Cafetera’s business strategy of pooling all revenues earned from coffee crop operations on each individual farm and distributing 80% of those combined profits to parcel owners. This diversified crop
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Tierra CafeteraTM Opportunity Summary
strategy lowers the risk of the impact on earnings on an individual parcel from lower crop yield and quality due to such factors as weather and pestilence issues, as these individual-parcel issues are mitigated by the geographic diversity.
CAN I SELL MY PARCEL? Yes. You can sell your parcel at any time after a 1-year holding period which allows Tierra Cafetera the time to integrate the parcel into its network of farms; to apply its sustainable agriculture and organic farming techniques to achieve increases in both yield and quality; and to increase your property´s resale value for you. Tierra Cafetera reserves the option to purchase your parcel on a first-rightrd of-refusal basis, at a price and on terms at least equal to any other 3 -party offer you may receive at the time of sale of your parcel. Tierra Cafetera will confirm its intention to exercise this right or decline the option within 30 days after written notice from the owner. Any purchaser must agree to the terms and conditions of the standard property ownership agreement in effect at the time of the sale. Of course, purchasers are cautioned that the optimum strategy is not to be a ”farm-flipper” for small short-term gains in value of the parcel. Rather, the best strategy is to hold the parcel to allow the power of increasing demand for specialty coffee to continuously increase the annual income and underlying value of your parcel. A longer hold period also gives Tierra Cafetera a chance to deploy its capital and resources to use sustainable agricultural processes to vastly improve yield and quality over time. All of these benefits of long-term ownership add up to a “higher-and-better use” of your capital to increase your family’s wealth.
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Tierra CafeteraTM Opportunity Summary
WHO MANAGES AND OPERATES MY PARCEL? If you elect to opt-in, Tierra Cafetera will be responsible for the complete operations of all of the parcels in the network. Farms in the network will have full-time resident (tenant) farmers to conduct daily operations (ideally the same families that have worked the farm for decades). The farmer and his family will be paid a standard monthly salary with the appropriate health and retirement benefits. Of course, living conditions will be significantly improved for these families with the involvement of Tierra Cafetera, as they will have been paid fair-market value for the property and will also be gainfully employed with significantly higher total incomes as well. For those farmers that want to keep their family heritage intact and retain the land and buildings in which they live, we will happily accommodate them by acquiring only the coffee lands that they wish to sell. As a further incentive to continue to maximize yield and quality, 20% of the net profits from coffee farm operations will be paid to the tenant farmers, above and beyond their base compensation. This program easily exceeds any “fair trade” practices offered by others in the industry. Management fees vary based upon property size and actual expenses, and will adjust annually based on the actual expenditures of the collective farms in the Tierra Cafetera network. Initially Tierra Cafetera will manage the farms in the network for an average management fee of 8% of the value of each annual coffee crop. Again, this 8% management fee is already built into the cost estimates used to calculate the 19% average annual return to the property owner. The total cost of such services will never exceed the reasonable arm’s-length market-value of such services. Services paid for by the management fees include: farm acquisition research, selection and purchase/sales services; farm administration and operations (e.g. wages for tenant farmers and temporary workers); farm logistics (maintenance, transportation, milling, etc.), hedging of coffee positions (to provide crop price protection), investor communication, coffee fulfillment and on-site vacation management for investor-owners, etc.
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Tierra CafeteraTM Opportunity Summary
Every 0.5 acre parcel of farm ownership is professionally managed by Tierra Cafetera and is treated like every other parcel in terms of profitability, unlike what you might encounter if you were to independently invest in a single-location farm property.
WHY SUSTAINABLE FARMING? At Tierra Cafetera, we integrate sustainable farming methods in all of our managed farms. In essence, sustainable agriculture enables healthy soils. In turn, healthy soils contribute significantly to great-tasting and highdemand coffee! Your farm will be expertly managed using the latest processes to maximize the quality of the coffee produced on your farm. We transition all our farms from the typical mono-culture (where the only thing planted is coffee) to a rich, bio-diverse environment with shade trees, cover crops, with livestock and other animals. Wherever possible, Tierra Cafetera uses organic farming techniques to include composting, green manure, natural pest control and crop rotation. We also offer an organic-farm certification sponsorship program for those coffee buyers who require organic-certified coffee.
HOW DO ALL THE PARTS OF THE LLA ORGANIZATION WORK TOGETHER TO ENHANCE MY RETURNS? The complete coffee operations were developed by the venture capital incubator, Logistics LatinAmerica (LLA). Tierra Cafetera (TC), the coffee farm management company is a sister company to Coffee LatinAmerica (CLA), the coffee logistics, sales and distribution company. Each component, Tierra Cafetera and CLA, is integral to the success of this business model - acquiring and operating underperforming coffee farms (TC) and adding modern day
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Tierra CafeteraTM Opportunity Summary
business practices, capital and sustainable agriculture (CLA), to significantly increase yield, quality and profitability throughout the value chain, “from seed to cup.” Tierra Cafetera sells the parcel owner’s coffee to CLA at existing market prices, including a fair “specialty” premium. CLA then in turn sells the coffee to professional and home roasters, specialty supermarkets, and other end-users. CLA also provides coffee scientists, organic farming specialists, and all-natural fertilizers, pesticides etc. to Tierra Cafetera properties to improve quality and yield of coffee. The magnitude and costs of these services is highly dependent on the existing yield efficiency and immediate and future needs of each specific property. A reasonable estimate of these collective costs is already accounted for in the costs estimates that result in the forecast 19% return to the farm owners. The bottom line is that all the component parts of this business model (Coffee LatinAmerica and Tierra Cafetera) contribute to make money, from the farm all the way upstream in the value chain to the ultimate consumer. The value chain’s success is what ensures the continuous and increasing income stream to the TC coffee parcel owners and increases the inherent underlying value of the shareholder´s equity in CLA.
ARE THERE ADDITIONAL COSTS RELATED TO THE PURCHASE OR OPERATION OF MY PARCEL? No. There are no additional capital costs for each owner who opts-in regarding the purchase of the parcel or the ongoing operations of the parcel. The purchase price and annual crop revenues provide the funds necessary for these various administrative property-improvement costs, including:
Property registration, legal fees and closing costs Property management fees Annual property taxes and other assessments Business management of all farms in the network, including tenant farmer training in modern sustainable agriculture practices, coffee grading, etc. All necessary upgrades and improvements to the physical property All additional production inputs, such as organic fertilizers and pesticides, additional coffee tree planting, irrigation, farm machinery, etc.
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Tierra CafeteraTM Opportunity Summary
CAN I OWN THESE COFFEE PARCELS IN MY IRA? Yes. Your ownership of the parcels offered by Tierra Cafetera can be held by your IRA through a combination of a selfdirected IRA account and an offshore LLC (Limited Liability Company). It is a simple matter to establish a new self-directed IRA account with an appropriate custodian. This new self-directed IRA will own an offshore LLC, a transaction fully authorized by the IRS, which will in turn hold your properties on behalf of your IRA. Once the new IRA account and the LLC are established, usually a 2 week process, the LLC will complete the transaction for the purchase of the parcel(s) on behalf of the self-directed IRA. The funds to accomplish this are transferred, in a completely tax neutral manner, from your current IRA account, through the newly established self-directed IRA account to the seller of the products being purchased. The standard cost to accomplish all this is usually less than $3000.00 USD for the services of the providers establishing the new IRA account, the offshore LLC and the offshore bank account. All related costs are usually included in this turnkey fee, including the costs to set up the new selfdirected IRA account, the LLC name reservation fee and incorporation costs of the LLC, the opening of an offshore bank account in the name of the LLC, all legal documentation and courier services. Tierra Cafetera will recommend a qualified manager, a “concierge” if you will, to handle this transaction. This financial expert will advise you, prepare with you all the paperwork necessary, and manage the entire process for you, if you wish.
WHAT IS MY CURRENCY RISK? Your purchase is being made in US dollars and the proceeds of any sale will be in the local country´s currency where you own your parcel. In either case, the currency risk is related to the value of the US dollar versus the local currency at the time your currency is actually exchanged, compared to the exchange rate paid at the time of purchase.
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Tierra CafeteraTM Opportunity Summary
Your profit distributions quarterly will be made in the local currency of the property (e.g., in Colombian pesos for farms located in Colombia). Depending on the circumstances at the time, you may enjoy a currency exchange rate “bump up” in value if the dollar declines against the foreign currency, or a decrease in the US dollar value if the opposite occurs. Tierra Cafetera will use its best efforts to maximize any exchange by choosing near-term market conditions that best benefit the property owners. Remember, your sale proceeds do not have to be converted to US dollars. You can take the proceeds of your sale, for example paid initially in Colombian pesos, and exchange that currency for any other currency you like at the time. That could be any currency that has appreciated against the US dollar like the Chinese renminbi, Singapore dollar, Canadian dollar, Swiss franc, etc. All foreign exchange costs are borne by the property owner.
ARE THERE ANY ADDITIONAL BENEFITS TO ME? Yes. First, at each annual harvest time, for each parcel owned, you will receive 5 pounds of the highest quality coffee produced by the Tierra Cafetera network of farms, including YOUR farm. This specialty coffee will be provided to you from among the coffee receiving the highest scores using formal evaluation criteria that crop year. Just like a specialty wine produced from a high-quality grape by a famous vintner, you will be the owner and recipient of your own world-class specialty coffee, produced from your very own farm! Share your coffee with friends and neighbors and watch them enjoy. Additionally, you will be able to personally enjoy your ownership of these parcels by staying on any tourist-suitable coffee farm in the network of farms operated by or associated with Tierra Cafetera. For a small daily stipend to the host family, you can enjoy a hands-on experience participating firsthand in the daily operations, or you can just kick-back and watch the coffee grow. Just like a timeshare, only better!
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Tierra CafeteraTM Opportunity Summary
WHY THE FOCUS ON COLOMBIA? Tierra Cafetera is currently focused on offering outstanding coffee properties in Colombia due to the significant untapped opportunity for providing Colombia´s specialty coffee to the international market. With almost 46.9 million inhabitants, Colombia is the third largest country in Latin America, 24th in the world in terms of population, and the second largest Spanishspeaking nation in the world. The GDP per capita has doubled in the last six years, reaching almost $10,000 USD in 2011. According to the Economist Intelligence Unit, Colombia is currently positioned as the 28th largest economy in the world. The average GDP growth in Colombia has been significantly greater than the world average in the last decade. In 2011, the Colombian GDP experienced a 5.9% growth compared to the previous year, reaching $249.9 billion USD. In 2009, while the global GDP fell, Colombia's economy continued to grow, and in 2010 it exceeded the growth expectations of the entire world economy. Moreover, the top three global risk rating firms - Standard and Poor’s, Moody’s, and Fitch – have indicated that Colombia is a safe place to invest, ranking the country as investment grade. According to JP Morgan, Colombia is and will be the second most appealing country for investment in Latin America over the next three years. Additionally, in a comparison of 183 countries, the World Bank described Colombia as the fifth country in the world and the first in Latin America in protecting investors. The International Institute for Management Development (IMD) classified Colombia in second place in Latin America in terms of personal safety and adequate private property protection. Colombia
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Tierra CafeteraTM Opportunity Summary
has designed a progressive policy for the Commercial Development of Biotechnology employing a sustainable use of biodiversity. The Food and Agricultural Organization of the United Nations, ranks Colombia 22nd out of 223 countries with a potential in farmland expansion area that can be exploited without affecting the natural forest area. Colombia's farmland potential growth is an estimated 14,5 million hectares. Yet, Colombia has one of the lowest arable land usage rates in Latin America. Barely 8% of the potential arable land is effectively used. Colombia is one of the seven tropical countries with a potential to expand the world's agricultural frontier, without affecting the natural forest. Colombia is the third Latin American country in terms of annual precipitation rates and the eleventh worldwide with 2,612 mm/ year. As Colombia is located on the Equator, there are limitless agricultural alternatives possible due to the country's privileged geographic location as a tropical country with a variety of different kinds of soils and an excellent potential for further natural resources. Colombia is also an ideal export platform with 11 free trade agreements (FTA) in place, allowing preferential access to over 1.50 billion consumers. There are also tax incentives such as an exemption from income tax for long term crop production. All of this data suggests that Colombia offers an attractive and stable environment for foreign investment—especially in the domain of highly differentiated agricultural products such as specialty coffee.
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WHO IS TIERRA CAFETERA? Tierra CafeteraTM provides individuals the opportunity to own fractional titled parcels of land in coffee-producing farms in Latin America. Each property owner may opt-in for his parcel to be managed on a turnkey basis by Tierra Cafetera which provides end-toend property-management and farm-operation services for each owner´s property. Hence, Tierra Cafetera provides the potential of a long-term, lowrisk and moderate return for each property owner. We operate Latin American coffee farms using agronomically and economically sustainable farming techniques to improve the yield and quality of coffee on the farms we manage. Tierra Cafetera, in co-operation with the sister company Coffee LatinAmerica (CLA), ensures a steady supply of coffee is produced and sold, allowing the farm parcels managed by Tierra Cafetera to generate income annually for distribution to both the property owners and tenant farmers.
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Tierra CafeteraTM Opportunity Summary
WHAT IS THE OPPORTUNITY? The opportunity is physical, titled ownership of one or more parcels of an existing, coffeeproducing, income-generating coffee farm. Most of the parcel in the first phase are located in some of the largest coffee growing-regions of Colombia; the Departments of Antioquia, Caldas, and Risaralda in the general area of Medellín. Each owner may opt-in to have Tierra Cafetera manage their parcel by using coffee science and optimized sustainableagriculture best practices to improve both the yield and quality of the coffee crop. In general terms, Tierra Cafetera buys ¨fixer-upper¨ farms with great unrealized potential and transitions the farm´s coffee from commercial grade to that of specialty grade. Specialty coffee receives a much-higher price premium over the New York market price for commercial coffee. Farm parcels are available in increments of 0.5 acres or larger. Multiple parcels may be selected to be either contiguous or distributed among various farms (owner´s preference), on a first-come, firstserved basis. Each year, property owners will receive coffee from their coffee farm during the principal harvest seasons. You can also visit and stay on ANY of the coffee farms in our entire network that are suitable for tourism.
HOW MUCH IS THE OPPORTUNITY? Each 0.5 acre parcel is currently available for $10,000 USD. Prices in the future may be adjusted for specific parcels based on location, tourism potential, etc. Parcels will be made available on a first-come, first-served basis. Owners of parcels from prior offerings will be given first right of refusal on subsequent offerings.
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Tierra CafeteraTM Opportunity Summary
WHAT IS THE RETURN ON MY PROPERTY & WHEN DO I RECEIVE IT? In general, if the owner opts-in to have Tierra Cafetera manage and operate the property, the owner can then choose to either receive proportional distributions from the pooled net coffee crop earnings of all the coffee crop parcels in the parcel owner’s farm managed by Tierra Cafetera, or receive distributions only from your own individual parcel(s). This pooled approach will significantly decrease the level of risk due to weather or pestilence (see the section ¨IS THE OPPORTUNITY SAFE—WITH LOW RISK?¨ below). 80% of the net earnings of coffee crop operations of all farms in the network will be paid quarterly to the parcel owners in proportion to the number of parcels owned of the total. The balance of 20% of the net earnings from all coffee crop operations will be paid to the tenant coffee farmers (above their base compensation and benefits already paid by Tierra Cafetera) as an incentive to continuously increase the yield and quality of the coffee produced. The owner of a parcel will normally start to receive quarterly profit distributions two quarters after the coffee farm parcel is purchased and integrated into Tierra Cafetera operations. On a pro-forma basis, it is expected that each 0.5 acre parcel will generate sufficient earnings to breakeven the first year and provide an income increasing annually to 18% by year 5. Once the full effects of the capital invested in additional trees, organic farming and sustainable agriculture practices take effect during the first 5 years, it is expected the rate of return on invested capital for years 6-10 will increase from about 18% up to 43% annually. Further increases in annual return may be possible beyond these figures in years 11-20. The average annual return projected over a 20 year period is 19%. The annual return is expressed as the IRR, or internal Rate of Return. For those unfamiliar with the meaning of the term IRR, the following applies:
“The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of an investment…it is an indicator of the efficiency, quality, or yield of an investment…the IRR is also called the effective interest rate.” (Wikipedia edited for brevity)
Please note that the annual return of 19%, stated as the internal rate of return (IRR), is very conservatively estimated as it does not include a projection of the increased value of the parcels on an eventual sale. Often investment models include this speculative figure to increase the IRR. Had this value been included in this projection, the total rate of return may be increased substantially above 19%, depending on the timing and amount received for the property.
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Tierra CafeteraTM Opportunity Summary
IS THE OPPORTUNITY SAFE—WITH LOW RISK? First and foremost, long-term ownership of land has proven to be the most-reliable and traditional path to long-term gains in wealth. The famous investor Will Rogers reportedly once said, “Buy land, they aren’t making any more of it.” Sage advice. Additionally, the retention of income-producing land over long periods of time, with the careful-and-constant management of the land to improve yield and quality, adds to the wealth-generating benefits of agricultural-land ownership. Finally, if the agricultural land produces a crop that is in high-and-increasing demand, with proven channels to market for those crops already in-place, and with sustainable high-profit margins consistently available, a high-probability formula for success is assured. A basic price and market is always available for coffee. Coffee is a $40 billion market in the United States alone, with specialty coffee demand growing at an astounding annual rate of 20%. Should that trend only continue, the demand for specialty coffee in the United States will double every 3.6 years, making a 20-year plan to own parcels of specialty-coffee producing farms an incredibly attractive opportunity. Further, Tierra Cafetera’s focus on the rapidly increasing worldwide demand for specialty coffee is a low-risk strategy. This is due to the fact that if at any time in the future should demand for highquality and specialty coffee decrease, all the coffee produced by these properties can be immediately sold on the $90 billion international commercial coffee market as a commodity offering. Doing so may not obtain the incremental specialty premium desired, but will certainly minimize any downside financial risk of producing a crop that can’t be sold. Adding to the safety of the income forecast associated with owning coffee-producing parcels is Tierra Cafetera’s business strategy of pooling all revenues earned from coffee crop operations on each individual farm and distributing 80% of those combined profits to parcel owners. This diversified crop
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Tierra CafeteraTM Opportunity Summary
strategy lowers the risk of the impact on earnings on an individual parcel from lower crop yield and quality due to such factors as weather and pestilence issues, as these individual-parcel issues are mitigated by the geographic diversity.
CAN I SELL MY PARCEL? Yes. You can sell your parcel at any time after a 1-year holding period which allows Tierra Cafetera the time to integrate the parcel into its network of farms; to apply its sustainable agriculture and organic farming techniques to achieve increases in both yield and quality; and to increase your property´s resale value for you. Tierra Cafetera reserves the option to purchase your parcel on a first-rightrd of-refusal basis, at a price and on terms at least equal to any other 3 -party offer you may receive at the time of sale of your parcel. Tierra Cafetera will confirm its intention to exercise this right or decline the option within 30 days after written notice from the owner. Any purchaser must agree to the terms and conditions of the standard property ownership agreement in effect at the time of the sale. Of course, purchasers are cautioned that the optimum strategy is not to be a ”farm-flipper” for small short-term gains in value of the parcel. Rather, the best strategy is to hold the parcel to allow the power of increasing demand for specialty coffee to continuously increase the annual income and underlying value of your parcel. A longer hold period also gives Tierra Cafetera a chance to deploy its capital and resources to use sustainable agricultural processes to vastly improve yield and quality over time. All of these benefits of long-term ownership add up to a “higher-and-better use” of your capital to increase your family’s wealth.
5
Tierra CafeteraTM Opportunity Summary
WHO MANAGES AND OPERATES MY PARCEL? If you elect to opt-in, Tierra Cafetera will be responsible for the complete operations of all of the parcels in the network. Farms in the network will have full-time resident (tenant) farmers to conduct daily operations (ideally the same families that have worked the farm for decades). The farmer and his family will be paid a standard monthly salary with the appropriate health and retirement benefits. Of course, living conditions will be significantly improved for these families with the involvement of Tierra Cafetera, as they will have been paid fair-market value for the property and will also be gainfully employed with significantly higher total incomes as well. For those farmers that want to keep their family heritage intact and retain the land and buildings in which they live, we will happily accommodate them by acquiring only the coffee lands that they wish to sell. As a further incentive to continue to maximize yield and quality, 20% of the net profits from coffee farm operations will be paid to the tenant farmers, above and beyond their base compensation. This program easily exceeds any “fair trade” practices offered by others in the industry. Management fees vary based upon property size and actual expenses, and will adjust annually based on the actual expenditures of the collective farms in the Tierra Cafetera network. Initially Tierra Cafetera will manage the farms in the network for an average management fee of 8% of the value of each annual coffee crop. Again, this 8% management fee is already built into the cost estimates used to calculate the 19% average annual return to the property owner. The total cost of such services will never exceed the reasonable arm’s-length market-value of such services. Services paid for by the management fees include: farm acquisition research, selection and purchase/sales services; farm administration and operations (e.g. wages for tenant farmers and temporary workers); farm logistics (maintenance, transportation, milling, etc.), hedging of coffee positions (to provide crop price protection), investor communication, coffee fulfillment and on-site vacation management for investor-owners, etc.
6
Tierra CafeteraTM Opportunity Summary
Every 0.5 acre parcel of farm ownership is professionally managed by Tierra Cafetera and is treated like every other parcel in terms of profitability, unlike what you might encounter if you were to independently invest in a single-location farm property.
WHY SUSTAINABLE FARMING? At Tierra Cafetera, we integrate sustainable farming methods in all of our managed farms. In essence, sustainable agriculture enables healthy soils. In turn, healthy soils contribute significantly to great-tasting and highdemand coffee! Your farm will be expertly managed using the latest processes to maximize the quality of the coffee produced on your farm. We transition all our farms from the typical mono-culture (where the only thing planted is coffee) to a rich, bio-diverse environment with shade trees, cover crops, with livestock and other animals. Wherever possible, Tierra Cafetera uses organic farming techniques to include composting, green manure, natural pest control and crop rotation. We also offer an organic-farm certification sponsorship program for those coffee buyers who require organic-certified coffee.
HOW DO ALL THE PARTS OF THE LLA ORGANIZATION WORK TOGETHER TO ENHANCE MY RETURNS? The complete coffee operations were developed by the venture capital incubator, Logistics LatinAmerica (LLA). Tierra Cafetera (TC), the coffee farm management company is a sister company to Coffee LatinAmerica (CLA), the coffee logistics, sales and distribution company. Each component, Tierra Cafetera and CLA, is integral to the success of this business model - acquiring and operating underperforming coffee farms (TC) and adding modern day
7
Tierra CafeteraTM Opportunity Summary
business practices, capital and sustainable agriculture (CLA), to significantly increase yield, quality and profitability throughout the value chain, “from seed to cup.” Tierra Cafetera sells the parcel owner’s coffee to CLA at existing market prices, including a fair “specialty” premium. CLA then in turn sells the coffee to professional and home roasters, specialty supermarkets, and other end-users. CLA also provides coffee scientists, organic farming specialists, and all-natural fertilizers, pesticides etc. to Tierra Cafetera properties to improve quality and yield of coffee. The magnitude and costs of these services is highly dependent on the existing yield efficiency and immediate and future needs of each specific property. A reasonable estimate of these collective costs is already accounted for in the costs estimates that result in the forecast 19% return to the farm owners. The bottom line is that all the component parts of this business model (Coffee LatinAmerica and Tierra Cafetera) contribute to make money, from the farm all the way upstream in the value chain to the ultimate consumer. The value chain’s success is what ensures the continuous and increasing income stream to the TC coffee parcel owners and increases the inherent underlying value of the shareholder´s equity in CLA.
ARE THERE ADDITIONAL COSTS RELATED TO THE PURCHASE OR OPERATION OF MY PARCEL? No. There are no additional capital costs for each owner who opts-in regarding the purchase of the parcel or the ongoing operations of the parcel. The purchase price and annual crop revenues provide the funds necessary for these various administrative property-improvement costs, including:
Property registration, legal fees and closing costs Property management fees Annual property taxes and other assessments Business management of all farms in the network, including tenant farmer training in modern sustainable agriculture practices, coffee grading, etc. All necessary upgrades and improvements to the physical property All additional production inputs, such as organic fertilizers and pesticides, additional coffee tree planting, irrigation, farm machinery, etc.
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Tierra CafeteraTM Opportunity Summary
CAN I OWN THESE COFFEE PARCELS IN MY IRA? Yes. Your ownership of the parcels offered by Tierra Cafetera can be held by your IRA through a combination of a selfdirected IRA account and an offshore LLC (Limited Liability Company). It is a simple matter to establish a new self-directed IRA account with an appropriate custodian. This new self-directed IRA will own an offshore LLC, a transaction fully authorized by the IRS, which will in turn hold your properties on behalf of your IRA. Once the new IRA account and the LLC are established, usually a 2 week process, the LLC will complete the transaction for the purchase of the parcel(s) on behalf of the self-directed IRA. The funds to accomplish this are transferred, in a completely tax neutral manner, from your current IRA account, through the newly established self-directed IRA account to the seller of the products being purchased. The standard cost to accomplish all this is usually less than $3000.00 USD for the services of the providers establishing the new IRA account, the offshore LLC and the offshore bank account. All related costs are usually included in this turnkey fee, including the costs to set up the new selfdirected IRA account, the LLC name reservation fee and incorporation costs of the LLC, the opening of an offshore bank account in the name of the LLC, all legal documentation and courier services. Tierra Cafetera will recommend a qualified manager, a “concierge” if you will, to handle this transaction. This financial expert will advise you, prepare with you all the paperwork necessary, and manage the entire process for you, if you wish.
WHAT IS MY CURRENCY RISK? Your purchase is being made in US dollars and the proceeds of any sale will be in the local country´s currency where you own your parcel. In either case, the currency risk is related to the value of the US dollar versus the local currency at the time your currency is actually exchanged, compared to the exchange rate paid at the time of purchase.
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Tierra CafeteraTM Opportunity Summary
Your profit distributions quarterly will be made in the local currency of the property (e.g., in Colombian pesos for farms located in Colombia). Depending on the circumstances at the time, you may enjoy a currency exchange rate “bump up” in value if the dollar declines against the foreign currency, or a decrease in the US dollar value if the opposite occurs. Tierra Cafetera will use its best efforts to maximize any exchange by choosing near-term market conditions that best benefit the property owners. Remember, your sale proceeds do not have to be converted to US dollars. You can take the proceeds of your sale, for example paid initially in Colombian pesos, and exchange that currency for any other currency you like at the time. That could be any currency that has appreciated against the US dollar like the Chinese renminbi, Singapore dollar, Canadian dollar, Swiss franc, etc. All foreign exchange costs are borne by the property owner.
ARE THERE ANY ADDITIONAL BENEFITS TO ME? Yes. First, at each annual harvest time, for each parcel owned, you will receive 5 pounds of the highest quality coffee produced by the Tierra Cafetera network of farms, including YOUR farm. This specialty coffee will be provided to you from among the coffee receiving the highest scores using formal evaluation criteria that crop year. Just like a specialty wine produced from a high-quality grape by a famous vintner, you will be the owner and recipient of your own world-class specialty coffee, produced from your very own farm! Share your coffee with friends and neighbors and watch them enjoy. Additionally, you will be able to personally enjoy your ownership of these parcels by staying on any tourist-suitable coffee farm in the network of farms operated by or associated with Tierra Cafetera. For a small daily stipend to the host family, you can enjoy a hands-on experience participating firsthand in the daily operations, or you can just kick-back and watch the coffee grow. Just like a timeshare, only better!
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Tierra CafeteraTM Opportunity Summary
WHY THE FOCUS ON COLOMBIA? Tierra Cafetera is currently focused on offering outstanding coffee properties in Colombia due to the significant untapped opportunity for providing Colombia´s specialty coffee to the international market. With almost 46.9 million inhabitants, Colombia is the third largest country in Latin America, 24th in the world in terms of population, and the second largest Spanishspeaking nation in the world. The GDP per capita has doubled in the last six years, reaching almost $10,000 USD in 2011. According to the Economist Intelligence Unit, Colombia is currently positioned as the 28th largest economy in the world. The average GDP growth in Colombia has been significantly greater than the world average in the last decade. In 2011, the Colombian GDP experienced a 5.9% growth compared to the previous year, reaching $249.9 billion USD. In 2009, while the global GDP fell, Colombia's economy continued to grow, and in 2010 it exceeded the growth expectations of the entire world economy. Moreover, the top three global risk rating firms - Standard and Poor’s, Moody’s, and Fitch – have indicated that Colombia is a safe place to invest, ranking the country as investment grade. According to JP Morgan, Colombia is and will be the second most appealing country for investment in Latin America over the next three years. Additionally, in a comparison of 183 countries, the World Bank described Colombia as the fifth country in the world and the first in Latin America in protecting investors. The International Institute for Management Development (IMD) classified Colombia in second place in Latin America in terms of personal safety and adequate private property protection. Colombia
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Tierra CafeteraTM Opportunity Summary
has designed a progressive policy for the Commercial Development of Biotechnology employing a sustainable use of biodiversity. The Food and Agricultural Organization of the United Nations, ranks Colombia 22nd out of 223 countries with a potential in farmland expansion area that can be exploited without affecting the natural forest area. Colombia's farmland potential growth is an estimated 14,5 million hectares. Yet, Colombia has one of the lowest arable land usage rates in Latin America. Barely 8% of the potential arable land is effectively used. Colombia is one of the seven tropical countries with a potential to expand the world's agricultural frontier, without affecting the natural forest. Colombia is the third Latin American country in terms of annual precipitation rates and the eleventh worldwide with 2,612 mm/ year. As Colombia is located on the Equator, there are limitless agricultural alternatives possible due to the country's privileged geographic location as a tropical country with a variety of different kinds of soils and an excellent potential for further natural resources. Colombia is also an ideal export platform with 11 free trade agreements (FTA) in place, allowing preferential access to over 1.50 billion consumers. There are also tax incentives such as an exemption from income tax for long term crop production. All of this data suggests that Colombia offers an attractive and stable environment for foreign investment—especially in the domain of highly differentiated agricultural products such as specialty coffee.
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