For the last decade, Colombia has been attracting a large amount of foreign investment and is now recognised as one of the most sustainable growing economies of Latin America. Colombian coffee is an important and internationally recognised product which, combined with European demand, high-quality coffee beans, and the new post-FARC era, is all providing a fascinating context for investment opportunities in the Colombian coffee business. Foreigners can buy a coffee farm or plantation in Colombia.
The process of buying a farm in Colombia is possible due to foreigners being allowed 100% ownership of Colombian real estate. However, there are complications when it comes to making sure the land you are buying belongs to the seller as well as other difficulties such as negotiation and bureaucracy. In order to smoothen the process, it is important to gather information or ask council from someone who is knowledgeable about the matter.
How to Buy a Coffee Farm or Plantation in Colombia?
The price of land in Colombia varies greatly. The closer to larger cities you are, the more expensive the land is. However, farms which are close to cities tend to have better infrastructure in the area (roads, access to equipment), provides a safer environment (less isolation, hospitals etc.) as well as a higher availability of labour. The prices of this premium and easy accessible real estate will range between 10 and 15 million Colombian Pesos (3-5 thousand USD) per hectare. However, you can also risk buying cheaper more isolated land which was previously under the control of the FARC, ELN or other terrorist groups, these prices tend to range between 5-10 million pesos($1.6-$3.3 thousand USD) per hectare. Essentially it is very hard to put a price down per hectare due to the land usually being sold as a package, usually including a farmhouse a processing plant (beneficio) and other outbuildings.
Many other factors will vary prices such as the condition of the farm, if it is functional or not, if it is virgin land and if it isn’t what was the crop, etc. The key is to define your needs such as altitude and needed climate before starting your search. It is also important to decide if you want to have your personal “single origin” coffee, if you want it to be specialty or if you want to use the services of a cooperatives beneficio. The questions need to be asked before you search for the land because different altitudes are suitable to different coffee types and qualities. The most recent science has shown the factors which are the most responsible for cup quality are shade trees and altitude (Avelino et al., 2005).
Location, Location, Location; Where Should you Buy a Coffee Farm in Colombia?
Colombia has gained a worldwide reputation as a coffee producer. The most famous provenance is from the coffee triangle which has become a World UNESCO Site due to some of the most stunning and dramatic landscapes which the planet has to offer. Its popular reputation means tourism, infrastructure and good levels of security. Recently GMO’s have gained popularity which makes the coffee plant much more resistant to the sun and disease.
Traditionally, coffee is grown in forested areas which offer shade for the coffee leaves. The tree roots and trunks also retain humidity for longer which encourages a better biodiversity (bird droppings are a great natural fertiliser). The roots, in turn, retain the humus which keeps the soil fertile. Arabica is a natural sun sensitive coffee plants (compared to other such as robusta), this means they need shade to protect themselves from the midday head. So, when searching for your perfect farmland you should take into account that shade trees take a long time to grow and if you want to use the traditional method, you will need shade bearing trees. Sadly, places like the Coffee Triangle have been partly ruined since the apparition of GMO’s which are resistant to the taught sun rays as well as focusing on yield rather than quality. This means that the best quality and priced land is often in isolated areas or tend to be overpriced. Learn more about the popular Coffee growing locations in the upcoming article about “Geographic factors influencing production and quality”.
It’s not easy to buy a coffee farm or plantation in Colombia. Many foreigners who have entered the market tend to say that is was a very time and energy consuming process. Many of the families you might be buying from have had the land for a long time and although you are offering them money, they find it hard to part with their homes (or ego). It is strongly recommended that you employ professionals such as estate agents or lawyers who will be able to guarantee the quality and price of the land you are buying.
Property Taxes in Colombia
Property tax is a municipal tax and is imposed depending upon the nature and usage of the property, and generally, the rates range between 0.4% and 1.2%. Interestingly these rates are usually based on the purchasing price of the house. This means that for a long time, it has been common practice to undervalue property when officially selling it. The idea is that the paperwork is signed with, let’s say, half the property value and the seller will expect you to transfer money into a separate private account. Although this is common practice, make sure you meet up with a Colombian lawyer before you strike a deal.
What are the Risks When Buying Property in Colombia?
The good news is that Foreigners can freely buy property in Colombia yet you will need to comply with the Colombian legal system. It is also very important to hire a lawyer in Colombia of a trustworthy company to go over the titles you are buying in order to make sure that they actually belong to their previous owner. This is especially difficult due to a number of displaced farmers during the conflict with the FARC, the worst case scenario is you paying a lot of money for a fake real estate title which would involve losing your investments. Therefore it is important to follow the guidelines below.
- All transfers of title on real estate as well as all encumbrances must be done through the use of a public document.
- All taxes must be paid in order for a transfer to be legally effective. Any document of transfer or judicial decision pertaining to property must be recorded with the Real Property Registry.
- The following registration procedures need to be carried out
- Obtain a certificate or Certificado de Tradición about the history of the property for COP7,000 (US$3) from the Registry Office.
- Your lawyer will study the property titles, which takes around 5 days to complete and costs around COP1,113,000 (US$385). A certificate from the municipality should be obtained certifying that all municipal taxes on the property have been paid (Paz y Salvo Predial and Paz y Salvo de Valorización.)
- Obtain the following tax certificates: “certificado de paz y salvo predial” that states municipal property taxes have been paid from “Secretaría de Hacienda del Distrito”, and the “certificado de paz y salvo de valorización” which contains taxes related to increases in the value of the property due to constructions, roads, etc.
Common Sizes of Coffee Plantations in Colombia
Most farms are family owned and don’t surpass 2 hectares; only 5% of farms are bigger than 5 hectares and some of the biggest can be up to 1000 hectares. The larger ones tend to benefit from economies of scale which makes them more competitive, however, from a quality perspective they clearly suffer from managerial diseconomies of scale as well as really struggling to get enough labour in for the pickings. The large-scale also creates a lack of incentive from the picker to carefully choose the ripe cherries. The ideal farm size is thought to be of approximately 5 to 7 hectares, they are small enough for quality to be carefully monitored while being large enough to stay competitive. The minimum investment you should consider when you buy a coffee farm or plantation in Colombia is around 100 million Colombian Pesos ($34,000 USD as of April 13th, 2017)
The numbers mentioned above refer to agricultural land. It is possible to buy non-functional farms as well as virgin land for less money, yet the setup costs will then need to be taken into account. The cost of transformation from forest to agricultural land isn’t very expensive and bears some advantages such as higher average fertility. Prices tend to range around $200USD for the deforestation of 1 hectare. The main disadvantage is that the land and farm will be non-yield bearing for a minimum of 3 years and a maximum of 5 years. It also has to be noted that many farms in isolated parts of the country don’t even have road access.
The restoration of an old farmhouse can be very time-consuming and expensive, especially if there is a lack of infrastructure in the area. It is therefore recommended you take the state of the buildings, roads and land into account when buying a property.
What are the Best Ways to Invest in a Colombian Coffee Plantation?
If you are clever, rather than bringing large sums of money in as FDI you can “disguise” the investment as a loan. With a Foreign bank loan, you can easily get money into Colombia. The real benefit of this is security since the money is tied to an overseas bank, this means you can retract it in the case of rapid political change. It is a safer and legal way of action which can be easily done with the help of a team of financial advisors, lawyers and accountants. The alternative is to enter the money as Foreign Direct Investment.
Colombia Promises Large Investment in Infrastructure
Although the government is investing a hefty 35 billion USD into infrastructure (notably highways) it needs to be noted that the current roads available in Colombia are not sufficient in quality nor quantity. It also needs to be noted that many of the isolated (or not so isolated) areas don’t even have any concrete roads at all. When choosing your farm you should make sure road access is sufficient because once the product is produced, it’s easier to use lorries than mules. It might also be worthwhile doing research on where the government is planning to put those roads. This could substantially facilitate trade as well as increase your property price substantially.
Overall it is very important to take your time when choosing to buy a coffee farm or plantation in Colombia. The logical steps to follow would be to start by figuring out your marketing strategy, whether you want to plant quality or quantity. Once you have set a list of criteria which need to be met, it is recommended to ask an estate agent to help with the hunt. When a farm which fits your needs is found, ensure the property titles are checked by a lawyer and make sure you have high accessibility and ample labour availability.
If you want to learn more about investing in Colombian coffee, the Biz Latin Hub team can help, our group specialises in the provision of Market Entry and Back Office services. Our experienced team of lawyers, accountants and market analysts are able to carry out targeted market research. Learn more by contacting us here here. If you want more information from this author about investing in coffee in Colombia, click here.