A Stampede On The Pampas

George Soros leads a horde of investors buying Argentine land

The Argentine pampas possess some of the world's most fertile farmland. In the first quarter of this century, commodities such as beef and wheat made the country one of the world's 10 richest. But by the 1930s, exorbitant export taxes, inadequate infrastructure, and economic and political instability had scared away most investors.

Not anymore. Led by U.S. financier George Soros, deep-pocketed investors are returning to the Argentine heartland, where land sales have quadrupled since 1991, according to Madero Lanusse Belaustegui, a real estate company in Buenos Aires. Encouraged by rising world commodity prices, the buyers believe Argentina will help fill Asia's fast-growing demand for foodstuffs. Lower inflation, reduced taxes on exports, and improved roads and telecommunications are once again making farming a lucrative business.

As agricultural subsidies and trade barriers fall worldwide, Argentina's annual farm output is expected to rise from 52.8 million tons now to 80 million by 2000. "The competitiveness of Argentine land is the best in the world for price and yield," says Bruno Barbier, the Belgian president of Agro-Invest, which manages a $20 million fund investing in Argentine land acquisitions. Says Eduardo Elsztain, Soros' partner in Argentina: "The sector is experiencing a dynamism it hasn't had for years."

Soros' purchases of farmland and commercial real estate have unleashed a wave of interest in Argentine properties. For the Hungarian-born philanthropist, who is one of the country's largest landowners, it's a long-term commodity play. Soros is betting prices of grain and beef will rise while agricultural subsidies decrease, says ING Barings analyst Tadd Chessen. With a 27% stake, Soros' Quantum Industrial Partners is the top shareholder in grain and livestock producer Cresud.

Although some of the land Soros acquired in the past three years has as much as doubled in value, analysts say rural Argentine land remains a third to a half the price of comparable properties in the U.S. and Europe. Soros also owns 30% of commercial real estate developer IRSA Inversiones y Representaciones, which has spent $165 million recently for several urban properties.

Soros is not alone. Italy's Benetton family raises sheep on a swath of Patagonia larger than Delaware. U.S.-based Cargill has invested $200 million since 1994 to expand activities from soybean crushing to building grain elevators. And Agrium of Canada, along with Argentine oil company YPF and the Perez Companc conglomerate, is building a $600 million fertilizer plant in Bahia Blanca expected to be the world's largest when finished in the year 2000.

"SECOND REVOLUTION." Argentine business leaders from media mogul Eduardo Eurnekian to former cracker company owner Carlos Reyes Terrabusi are also getting into the act. Eurnekian is using $40 million from the 1996 sale of his local cable company to U.S. giant Tele-Communications Inc. to buy land to harvest cotton in the northern province of Chaco. Terrabusi, who sold his own company to Nabisco Inc. in 1994, has teamed up with Jorge Blanco Villegas, president of appliance maker Philco Argentina, to open a 45,000-hectare seed pool, an arrangement in which investors rent land for one season.

Encouraged by economic stability and the declining cost of credit, Argentine farmers have put more money into their land--and are reaping the benefits. Bumper crops of rice, corn, wheat, and beans contributed to this year's record 52.8 million-ton harvest. Tractor sales have increased 43%, and pesticide sales have tripled since 1991, to an estimated $838 million this year. Meanwhile, production capacity is about to soar. For example, investors are expected to spend about $500 million to process oil seed such as sunflower and soy.

Of course, bad weather, a drop in commodity prices, or a rise in borrowing costs are all risks. But for many observers, the recent land grab is the start of a positive long-term trend. "This is the second revolution of the pampas--the conquest of technology," says Hector Huergo, a Buenos Aires-based agricultural consultant. With the likes of Soros leading them, it's a battle investors are likely to win.

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