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Boldy Go Where No Man Has Gone Before

A green field investment is when you build a plant where none have been before. The term “green field” is exactly descriptive of the actual geography and contrasts with the “brown field” which is when you rebuilt or build on an old industrial site.   

Which is better depends on what you plan to do. Existing buildings and infrastructure can be worth a lot, but they can also be worth nothing and sometimes they even have negative value because existing structures must be demolished and the new owners have to take responsibility for perhaps years of pollution to ground water, soil etc. This can be a major liability and is a big reason why it is so hard to redevelop old industrial areas. Nobody wants to take on the liability. The green field has none of the baggage, but of course you have to build all the necessary infrastructure to support the investment. Circumstances dictate whether or not this is an advantage.

New transportation patterns, markets and changing technologies can make old locations obsolete and create opportunities for new ones. The raw geographical distance doesn’t matter. What matters is the practical distance, which depends on the quality of infrastructure and technologies of transport. A few dozen miles away on an unreliable dirt road can be farther away – practically – than a few thousand miles by sea transport.   A load of wood sitting at the Brazilian port of Santos might well be closer in the practical sense to a construction site in New York than the same wood stacked in a hollow in the hills of West Virginia. Geographical distance doesn’t change, but practical distance changes all the time, creating and destroying business opportunities.

Fortunes are made when somebody recognizes a new practical distance. For example, I have been reading about the Maggi brothers, growers of soy in the Brazilian state of Mato Grosso. It is worth pointing out that soy production in Mato Grosso became possible only within the last decades because of advances in agricultural techniques and plant science. They could not have done what they did fifty years ago. Nobody could, since the technologies were unavailable. But their business was almost killed by logistics. The Maggi family came from Southeastern Brazil and everybody continues to look in that direction to sell their products internationally through the Ports of Santos and Paranaguá. But the overland transport was too expensive. So they looked in the other direction and moved their product north west to the river port of Porto Vehlo in the state of Rondônia, where the products are put in barges, a very inexpensive way to transport bulky commodities, and shipped down the Madeira River, which eventually flows into the Amazon from which the products can be put onto ocean transport. Most of the soy ends up in China, a market that was unavailable twenty five years ago. 

So what we have here is a product that had not yet been developed twenty-five years ago, grown in a place that would not have supported it, sent over a transportation system that didn’t exist or was “undiscovered” and finally sold to a market that only recently came into existence. And you wonder why the world is a surprising place. 

Markets and productive capacity are created by human ingenuity. They are not "out there" waiting. 

What got me thinking about green fields was another story about Brazil; this time about a little city called Tres Lagoas, in Mato Grosso do Sul, the state next to Mato Grosso. I was surprised to learn today that Tres Lagoas is the world’s biggest producer of cellulous.  Who knew? I didn’t believe it, so I researched it and sure enough it is true. It only happened within the last couple of years because of a partnership between a big Brazilian firm called Fibria and International Paper. The reason they chose Tres Lagoas is because it was the classic greenfield investment, with a great capacity in the neighboring area to grow eucalyptus trees. Paper/pulp/fiber mills have trouble if the forests that supply the fiber are more than 60-80 miles away. This is not a problem in Tres Lagoas.   

Look at the slide show of the fiber plant at this link

Of course, once you get the wood to the mill, you still have to move the product to markets.  No problem again. Tres Lagoas is located in a region that is flat as a board. It presents no building challenges.  But the infrastructure is already there. The city sits astride rail, highway and canal infrastructure and is even on the right of way of a pipeline that brings Bolivian natural gas to Brazil. This has attracted other industries.   Petrobras is locating there to build a fertilizer operation. Natural gas is a feedstock and the growing areas (remember the Maggi brothers et al) are nearby. There are also steel mills expanding, among other things.

So how about that? People not very old can remember when there was nothing much in these places. Who knows how many other places in the world are languishing, waiting for a change in technology of a paved road. It is amazing how fast wealth can be created and how the practical landscape can change in years or months. Sometimes all it takes is a paved road and some imagination and vision. We sometimes think the heroic age of innovation is over. We are wrong … again. As long as there are humans, they will create opportunities and – to steal the phrase – boldly go where no man has gone before.  


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