Top Producer Magazine, January, 2017, Q&A with Matthew Kruse

Background: Raised on a corn and soybean farm in northwest Iowa, Matthew Kruse moved to Brazil in 2004. There, he managed a 30,000-acre cotton, corn and soybean operation for 10 years. He sold the operation in 2015 and is starting the Brazil Farmland Development Fund. As CEO of Genesis Investimentos, Kruse finds and evaluates high-quality properties in Brazil for investors.

Education: Bachelor of Science in political science and international relations from IowState University; graduate of The Executive Program for Agricultural Producers (TEPAP) from Texas A&M University; executive MBfrom Walden University

Books every leader should read: Good to Great, by James C. Collins, and Unbroken, by LaurHillenbrand.

Leaders you admire: Theodore Roosevelt. My father has room filled with memorabiliof Roosevelt, who spent time charting Brazilian tributaries after his presidency.

Favorite quote on leadership: It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.Theodore Roosevelt

How did you get started in Brazil?

When my father and I went there in 2001, the growth in agriculture in Brazil was starting to take off and move the markets here in the U.S. He had heard about all this cheap land that was available at roughly one-fifteenth the cost of what was in our arein Iowa. Also around that time, ethanol was really booming in the U.S. Farmers were putting together these investments to build an ethanol plant.

We liked that ideand took it and said, We’re going to do the same thing. We’re going to sell shares in an LLC, but instead of buying an ethanol plant, we’re going to buy farm. We hired an attorney who had lot of experience and had put together companies for ethanol plants in Iowand the Midwest.

When we started coming together with this ideof this investment, my father didn’t want to do it without anyone down there he could trust. He wanted me to move down there, so I said, Okay, I’ll give it five years. I ended up living down there year-round for over 10 years, and I’m still involved in Brazilian agriculture.

I like it lot. I like cheap land; I suppose lot of farmers do. There’s just lot of potential and opportunities there that are hard to find any more in the U.S.

What potential do you see in Brazil and beyond?

lot of people talk about how the global population is going to surpass 9 billion people by the year 2050. Where’s all that food production going to come from? Obviously, the U.S. is going to continue to improve food production over the long run, but the Food and Agriculture Organization of the United Nations produced report saying most of the food production increase is going to come not from developed countries but from emerging countries such as Brazil, Eastern Europe and Africa.

There’s so much potential in Brazil. There’s something like 180 million acres under pasture that could be converted into farmland. Not all of that is high-quality, but even if half of that was converted to farmland, that still matches the corn production in the U.S.

What challenges will you face when converting undeveloped land into farmable state?

We have pretty high bar in terms of what we’re willing to purchase. We have to take several factors into consideration such as location, soil quality, topography, rainfall and land deeds. It also takes certain level of vision because you’re buying these assets that are not producing anything. You have to buy ones that will turn into the best-producing farm. We will focus on buying the high-quality land that is going to have the best return on investment.

How have your experiences in Brazil affected the way you manage your business?

In our previous fund, we operated the entire farm ourselves. This gave us some unique insight and experience, but we decided to go with buy-and-lease structure to reduce unnecessary risk. Brazil is tough operating environment, especially without risk management tools that we have here in the U.S. The land appreciated well for us in our previous venture, and so that is what we want to focus on again. Most of our capital will be going into appreciating assets like land. We won’t be buying equipment that depreciates, and we avoid lot of the weather and climate risks.

How do you foresee your business continuing to grow?

We eventually plan to purchase and lease 150,000 acres in Brazil. When land owners in the U.S. lease out farm, their main question is How big will the rent check be?” In this project, rental income is secondary to the appreciation of the land. Land values in Brazil are very sensitive to their state of development. The more we develop the farm through fertility, the more value can be added. There are things you can do to add value to U.S. farms, but this type of land appreciation dynamic does not really exist to the same degree in the U.S.

People might ask, Why is this land available? Why aren’t other people doing it?” It just takes so much cash to buy and develop this land, and in Brazil, there’s really no financing as we know it in the U.S. When there’s no land financing available, farmers can only buy land and expand out of their existing profits.

I know farmers that have 20,000- acre properties, and it took them 20 years to develop because they’re doing it out of their cash flow. That’s why this opportunity exists. It takes large capital to do this.

Is there anything else you’d like to share about the Brazil Farmland Development Fund?

If there are land investors out there that have little bit of cash but are trying to decide, Should I buy land at $8,000 an acre or $10,000 an acre? I’m going to earn 3% back on my money, and it’s going to take me lifetime to pay for it,” those are the people I’m targeting.

They can expand by buying land in Brazil at $1,000 an acre, which is more cost-effective. I believe they can earn better rate of return on their capital compared to what they’d get here otherwise. Emily Berger