20-F 1 s000878x1_20f.htm 20-F

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
  OR  
þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2014
  OR  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
  OR  
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Date of event requiring this shell company report  

 

COMMISSION FILE NUMBER: 001-35052

Adecoagro S.A.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Grand Duchy of Luxembourg

(Jurisdiction of incorporation or organization)

Vertigo Naos Building, 6, Rue Eugène Ruppert,

L - 2453 Luxembourg

Tel: +352.2644.9372

(Address of principal executive offices)

Abdelhakim Chagaar

Vertigo Naos Building, 6, Rue Eugène Ruppert,

L - 2453 Luxembourg

Email: abdelhakim.chagaar@intertrustgroup.com

Tel: +352.2644.9372

(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class Name of Each Exchange on Which Registered
Common Shares New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

The number of outstanding shares of each of the issuer’s classes of capital stock

as of December 31, 2014:

  120,978,527 Common Shares, par value $1.50 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes ☐    No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐     No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (*)                                            Yes ☐   No ☐

 

(*) This requirement does not apply to the registrant in respect of this filing.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): 

     
Large accelerated filer ☐ Accelerated filer þ Non-accelerated filer ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 ☐  Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

 

 

 

 
 

 

TABLE OF CONTENTS

       
FORWARD-LOOKING STATEMENTS iv
   
PRESENTATION OF FINANCIAL AND OTHER INFORMATION v
   
PART I     1
       
Item 1. Identity of Directors, Senior Management and Advisers 1
     
Item 2. Offer Statistics and Expected Timetable 1
     
Item 3. Key Information 1
  A. SELECTED FINANCIAL DATA 1
  B. CAPITALIZATION AND INDEBTEDNESS 9
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS 9
  D. RISK FACTORS 9
       
Item 4. Information on the Company 39
  A. HISTORY AND DEVELOPMENT OF THE COMPANY 39
  B. BUSINESS OVERVIEW 44
  C. ORGANIZATIONAL STRUCTURE 84
  D. PROPERTY, PLANTS AND EQUIPMENT 85
     
Item 4B. Unresolved Staff Comments 85
     
Item 5. Operating and Financial Review and Prospects 85
  A. OPERATING RESULTS 88
  B. LIQUIDITY AND CAPITAL RESOURCES 119
  C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. 126
  D. TREND INFORMATION 126
  E. OFF-BALANCE SHEET ARRANGEMENTS 126
  F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 127
  G. SAFE HARBOR 127
       
Item 6. Directors, Senior Management and Employees 127
  A. DIRECTORS AND SENIOR MANAGEMENT (traer de Annual Report) 127
  B. COMPENSATION 131
  C. BOARD PRACTICES 132
  D. EMPLOYEES 134
  E. SHARE OWNERSHIP 135
       
Item 7. Major Shareholders and Related Party Transactions 138
  A. MAJOR SHAREHOLDERS 138
  B. RELATED PARTY TRANSACTIONS 139
  C. INTERESTS OF EXPERTS AND COUNSEL 140
       
Item 8. Financial Information 140

 

i
 

 

       
  A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 140
  B. SIGNIFICANT CHANGES 142
       
Item 9. The Offer and Listing 142
  A. OFFER AND LISTING DETAILS 142
  B. PLAN OF DISTRIBUTION 143
  C. MARKETS 143
  D. SELLING SHAREHOLDERS 143
  E. DILUTION 143
  F. EXPENSES OF THE ISSUE 143
       
Item 10. Additional Information 143
  A. SHARE CAPITAL 143
  B. MEMORANDUM AND ARTICLES OF ASSOCIATION 143
  C. MATERIAL CONTRACTS 153
  D. EXCHANGE CONTROLS 153
  E. TAXATION 156
  F. DIVIDENDS AND PAYING AGENTS 163
  G. STATEMENT BY EXPERTS 163
  H. DOCUMENTS ON DISPLAY 163
  I. SUBSIDIARY INFORMATION 163
       
Item 11. Quantitative and Qualitative Disclosures About Market Risk 163
     
Item 12. Description of Securities Other than Equity Securities 163
  A. DEBT SECURITIES 163
  B. WARRANTS AND RIGHTS 163
  C. OTHER SECURITIES 163
  D. AMERICAN DEPOSITORY SHARES 164
       
PART II     164
       
Item 13. Defaults, Dividend Arrearages and Delinquencies 164
     
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 164
     
Item 15. Controls and Procedures 164
     
Item 16.     165
Item 16A. Audit Committee Financial Expert 165
Item 16B. Code of Ethics 165
Item 16C. Principal Accountant Fees and Services 165
Item 16D. Exemptions from the Listing Standards for Audit Committees 166
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 166
Item 16F. Change in Registrant’s Certifying Accountant 166
Item 16G. Corporate Governance 166
Item 16H. Mine Safety Disclosure 169

 

ii
 

 

       
PART III 169
     
Item 17. Financial Statements 169
     
Item 18. Financial Statements 169
     
Item 19. Exhibits 169
     

 

iii
 

 

FORWARD-LOOKING STATEMENTS

 

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “would,” or other similar expressions. The forward-looking statements included in this annual report relate to, among others: 

     
  our business prospects and future results of operations;
     
  weather and other natural phenomena;
     
  developments in, or changes to, the laws, regulations and governmental policies governing our business, including limitations on ownership of farmland by foreign entities in certain jurisdiction in which we operate, environmental laws and regulations;
     
  the implementation of our business strategy, including our development of the Ivinhema mill and other current projects;
     
  our plans relating to acquisitions, joint ventures, strategic alliances or divestitures;
     
  the implementation of our financing strategy and capital expenditure plan;
     
  the maintenance of our relationships with customers;
     
  the competitive nature of the industries in which we operate;
     
  the cost and availability of financing;
     
  future demand for the commodities we produce;
     
  international prices for commodities;
     
  the condition of our land holdings;
     
  the development of the logistics and infrastructure for transportation of our products in the countries where we operate;
     
  the performance of the South American and world economies;
     
  the relative value of the Brazilian Real, the Argentine Peso, and the Uruguayan Peso compared to other currencies; and
     
  the factors discussed under the section entitled “Risk Factors” in this annual report.

 

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially different from our expectations. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

 

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

iv
 

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

Certain Defined Terms

 

In this annual report, unless otherwise specified or if the context so requires: 

     
  References to the terms “Adecoagro S.A.,” “Adecoagro,” “we,” “us,” “our,” “Company” and “our company” refer to, Adecoagro S.A., a corporation organized under the form of a société anonyme under the laws of the Grand Duchy of Luxembourg, and its subsidiaries.
     
  References to “IFH” and “IFH LP” mean the former International Farmland Holdings, LP, a limited partnership (previously International Farmland Holdings, LLC, or IFH LLC) organized under the laws of Delaware, and its subsidiaries.
     
  References to “Adecoagro LP” mean Adecoagro, LP SCS, a limited partnership organized under the form of a société comandite simple under the laws of the Grand Duchy of Luxembourg (previously Adecoagro, LLC) organized under the laws of Delaware, and its subsidiaries.
     
  References to “$,” “US$,” “U.S. dollars” and “dollars” are to U.S. dollars.
     
  References to “Argentine Pesos,” “Pesos” or “Ps.” are to Argentine Pesos, the official currency of Argentina.
     
  References to “Brazilian Real,” “Real,” “Reais” or “R$” are to the Brazilian Real, the official currency of Brazil.
     
  Unless stated otherwise, references to “sales” are to the consolidated sales of manufactured products and services rendered plus sales of agricultural produce and biological assets.
     
  References to “IFRS” are International Financial Reporting Standards  issued by the International Accounting Standards Board (“IASB”) and the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), together “IFRS.”

 

Financial Statements

 

Background

 

  As part of a corporate reorganization (the “Reorganization”), Adecoagro, a Luxembourg corporation under the form of a société anonyme, was formed as a holding company for IFH for the purpose, among others, of facilitating the initial public offering (the “IPO”) of our common shares, completed on January 28, 2011. Before the IPO, Adecoagro had not engaged in any business or other activities except in connection with its formation and the Reorganization. For an additional discussion of the Reorganization, see “Item 4. Information on the Company—A. History and Development of the Company—History.”

 

During 2011, we contributed the net proceeds of the IPO to increase our interest in IFH from 98% to 98.64%. During 2012, we issued, in a series of transactions, 1,654,752 shares to certain limited partners of IFH in exchange for their residual interest in IFH, totaling 1.3595%, thereby increasing our interest in IFH to approximately 100%.

 

On March 27, 2015, Adecoagro commenced a series of transactions for the purpose of transfering the domicile of Adecoagro LP to Luxembourg. In connection with the Adecoagro LP redomiciliation, Adecoagro merged IFH LP into Adecoagro LP with Adecoagro LP as the surviving entity and Adecoagro GP S.a.r.l., a societe responsibilitie limitee organized under the laws of Luxembourg, became the general partner of Adecoagro LP on April 1, 2015. Also on April 1, 2015, Adecoagro completed the redomiciliation of Adecoagro LP out of Delaware to Luxembourg and Adecoagro LP, without dissolution or liquidation, continued its corporate existence as Adecoagro LP S.C.S., a societe en commandite simple organized under Luxembourg law, effective April 2, 2015. For a detailed description of the Adecoagro LP redomiciliation please see “Item 4. Information on the Company—A. History and Development of the Company—History.

 

v
 

 

The consolidated financial statements as of December 31, 2014, 2013 and  2012,  and for the years then ended (hereinafter, the “Consolidated Financial Statements”) included in this annual report have been prepared in accordance with IFRS. All IFRS  effective at the time of preparing the consolidated financial statements have been applied.

 

Non-IFRS Financial Measures

 

We present Adjusted Consolidated EBITDA, Adjusted Segment EBITDA, Adjusted Consolidated EBIT and Adjusted Segment EBIT in this annual report as supplemental measures of performance of our company and of each operating segment, respectively, that are not required by, or presented in accordance with IFRS. Our Adjusted Consolidated EBITDA equals the sum of our Adjusted Segment EBITDA for each of our operating segments. We define “Adjusted Consolidated EBITDA” as (i) consolidated net profit (loss) for the year, as applicable, before interest expense, income taxes, depreciation and amortization, foreign exchange gains or losses, other net financial expenses and unrealized changes in fair value of our long-term biological assets, primarily our sugarcane and coffee plantations and cattle stocks; and (ii) adjusted by profit or loss from discontinued operations; and (iii) by gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland which are reflected in our Shareholders Equity under the line item “Reserve from the sale of non-controlling  interests in subsidiaries.” We define “Adjusted Segment EBITDA” for each of our operating segments as (i) the segment’s share of consolidated profit (loss) from operations before financing and taxation for the year, as applicable, before depreciation and amortization and unrealized changes in fair value of our long-term biological assets; and (ii) adjusted by profit or loss from discontinued operations; and adjusted by gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland, which are reflected in our Shareholders Equity under the line item: “Reserve from the sale of non-controlling interests in subsidiaries.”  We believe that Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are important measures of operating performance for our company and each operating segment, respectively, because they allow investors and others to evaluate and compare our consolidated operating results and to evaluate and compare the operating performance of our segments, respectively, including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences (income taxes), unrealized changes in fair value of biological assets (a significant non-cash gain or loss to our consolidated statements of income under IAS 41 accounting), foreign exchange gains or losses and other financial expenses. In addition, by including the gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland, investors can also evaluate the full value and returns generated by our land transformation activities. Other companies may calculate Adjusted Consolidated EBITDA and Adjusted Segment EBITDA differently, and therefore our Adjusted Consolidated EBITDA and Adjusted Segment EBITDA may not be comparable to similarly titled measures used by other companies. Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are not measures of financial performance under IFRS, and should not be considered in isolation or as an alternative to consolidated net profit (loss), cash flows from operating activities, segment’s profit from operations before financing and taxation and other measures determined in accordance with IFRS. Items excluded from Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are significant and necessary components to the operations of our business, and, therefore, Adjusted Consolidated EBITDA and Adjusted Segment EBITDA should only be used as a supplemental measure of our company’s operating performance, and of each of our operating segments, respectively. We also believe Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are useful for securities analysts, investors and others to evaluate the financial performance of our company and other companies in the agricultural industry. These non-IFRS measures should be considered in addition to, but not as a substitute for or superior to, the information contained in either our statements of income or segment information.

 

vi
 

 

Our Adjusted Consolidated EBIT equals the sum of our Adjusted Segment EBITs for each of our operating segments. We define “Adjusted Consolidated EBIT” as (i) consolidated net profit (loss) for the year, as applicable, before interest expense, income taxes, foreign exchange gains or losses, other net financial expenses and unrealized changes in fair value of our long-term biological assets, primarily our sugarcane and coffee plantations and cattle stocks; and (ii) adjusted by profit or loss from discontinued operations; and adjusted by gains or losses from disposals of non controlling interests in subsidiaries whose main underlying asset farmland. We define “Adjusted Segment EBIT” for each of our operating segments as the segment’s share of (i) consolidated profit (loss) from operations before financing and taxation for the year, as applicable, before unrealized changes in fair value of our long-term biological assets; and (ii) adjusted by profit or loss from discontinued operations; and (iii) adjusted by gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland, which are reflected in our Shareholders Equity under the line item: “Reserve from the sale of non-controlling interests in subsidiaries.”  We believe that Adjusted Consolidated EBIT and Adjusted Segment EBIT are important measures of operating performance, for our company and each operating segment, respectively, because they allow investors and others to evaluate and compare our consolidated operating results and to evaluate and compare the operating performance of our segments, from period to period by including the impact of depreciable fixed assets and removing the impact of our capital structure (interest expense from our outstanding debt), tax consequences (income taxes), unrealized changes in fair value of biological assets (a significant non-cash gain or loss to our consolidated statements of income under IAS 41 accounting), foreign exchange gains or losses and other financial expenses. In addition, by including the gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland, investors can evaluate the full value and returns generated by our land transformation activities. Other companies may calculate Adjusted Consolidated EBIT and Adjusted Segment EBIT differently, and therefore our Adjusted Consolidated EBIT and Adjusted Segment EBIT may not be comparable to similarly titled measures used by other companies. Adjusted Consolidated EBIT and Adjusted Segment EBIT are not measures of financial performance under IFRS, and should not be considered in isolation or as an alternative to consolidated net profit (loss), cash flows from operating activities, segment’s profit from operations before financing and taxation and other measures determined in accordance with IFRS. Items excluded from Adjusted Consolidated EBIT and Adjusted Segment EBIT are significant and necessary components to the operations of our business, and, therefore, Adjusted Consolidated EBIT and Adjusted Segment EBIT should only be used as a supplemental measure of the operating performance of our company, and of each of our operating segments, respectively. We also believe Adjusted Consolidated EBIT and Adjusted Segment EBIT are useful for securities analysts, investors and others to evaluate the financial performance of our company and other companies in the agricultural industry.

 

Fiscal Year and Harvest Year

 

Our fiscal year begins on January 1 and ends on December 31 of each year. However, our production is based on the harvest year for each of our crops and rice. A harvest year varies according to the crop or rice and to the climate in which it is grown. Due to the geographic diversity of our farms, the planting period for a given crop or rice may start earlier on one farm than on another, causing differences in their respective harvesting periods. The presentation of production volume (tons) and product area (hectares) in this annual report, in respect of the harvest years for each of our crops and rice, starts with the first day of the planting period at the first farm to start planting on that harvest year and continues to the last day of the harvesting period of the respective crop or rice on the last farm to finish harvesting that harvest year, as shown in the table below.

 

(GRAPHIC)

 

vii
 

 

Product area for cattle is presented on a harvest year basis given that land utilized for cattle operations is linked to our farming operations and use of farmland during a harvest year. Production volumes for dairy and cattle operations are presented on a fiscal year basis. On the other hand, production volumes and product area in our sugar, ethanol and energy business are presented on a fiscal year basis.

 

The financial results for all of our products are presented on a fiscal year basis.

 

Certain Weight Units and Measures in the Agricultural Business

 

Weight units and measures used in agriculture vary according to the crop and producing country. In order to permit comparability of our operating data with operating data from the international markets, the following table sets forth key weight units and measures used in the agriculture industry: 

 

Agricultural weight units and measures        
1 metric ton   1,000 kg   1.102 U.S. (short) tons
1 cubic meter   1,000 liters    
1 kilogram (kg)   2.20462 pounds    
1 pound   0.45359 kg    
1 acre   0.40469 hectares    
1 hectare (ha)   2.47105 acres    
Soybean and Wheat        
1 bushel of soybean   60 pounds   27.2155 kg
1 bag of soybean   60 kg   2.20462 bushels
1 bushel/acre   67.25 kg/ha    
1.00 U.S. dollar/bushel   2.2046 U.S. dollar/bag    
Corn        
1 bushel of corn   56 pounds   25.4012 kg
1 bag of corn   60 kg   2.36210 bushels
1 bushel/acre   62.77 kg/ha    
1.00 U.S. dollar/bushel   2.3621 U.S. dollar/bag    
Cotton        
1 bale   480 pounds   217.72 kg
1 arroba   14.68 kg    
Coffee        
1 bag of coffee   60 kg   132.28 pounds
1.00 US$ cents/pound   1.3228 U.S. dollar/bag    
Dairy        
1 liter   0.264 gallons   2.273 pounds
1 gallon   3.785 liters   8.604 pounds
1 lbs   0.440 liters   0.116 gallons
1.00 U.S. dollar/liter   43.995 U.S. dollar/cwt   3.785 U.S. dollar/gallon
1.00 U.S. dollar/cwt   0.023 U.S. dollar/liter   0.086 U.S. dollar/gallon
1.00 U.S. dollar/gallon   0.264 U.S. dollar/liter   11.622 U.S. dollar/cwt
Sugar & Ethanol        
1 kg of TRS equivalent   0.95 kg of VHP Sugar   0.59 liters of Hydrated Ethanol
         
1.00 US$ cents/pound   22.04 U.S. dollar/ton    

 

viii
 

 

Presentation of Information — Market Data and Forecasts

 

This annual report includes information provided by us and by third-party sources that we believe are reliable, including data related to the economic conditions in the markets in which we operate. Unless otherwise indicated, information in this annual report concerning economic conditions is based on publicly available information from third-party sources which we believe to be reasonable. The economic conditions in the markets in which we operate may deteriorate, and those economies may not grow at the rates projected by market data, or at all. The deterioration of the economic conditions in the markets in which we operate may have a material adverse effect on our business, results of operations and financial condition and the market price of our common shares.

 

Rounding

 

We have made rounding adjustments to reach some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

ix
 

 

PART I

     
Item 1. Identity of Directors, Senior Management and Advisers
     
Not applicable.
     
Item 2. Offer Statistics and Expected Timetable
     
Not applicable.
     
Item 3. Key Information
     
  A. SELECTED FINANCIAL DATA

 

The following data, insofar as it relates to each of the years 2010-2014, has been derived from our annual consolidated financial statements, including the consolidated balance sheets at December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income and cash flow for each of the three years in the period ended December 31, 2014, and notes thereto included elsewhere in this annual report (the “Consolidated Financial Statements”).

 

The financial statements are prepared in accordance with IFRS . All IFRS effective at the time of preparing the Consolidated Financial Statements have been applied.

 

You should read the information contained in the following tables in conjunction with “Item 5. Operating and Financial Review and Prospects”, “Item 8. Financial Information”, “Item 18. Financial Statements” and the Consolidated Financial Statements and the accompanying notes included elsewhere in this annual report.

 

1
 

  

    As of December,  
                               
    2014     2013     2012     2011     2010  
    (In thousands of $)  
Statement of Income Data:                              
Sales of manufactured products and services rendered     513,127       425,307       379,526       365,857       294,529  
Cost of manufactured products sold and services rendered     (335,442 )     (272,261 )     (263,978 )     (237,404 )     (219,201 )
Gross profit from manufacturing activities     177,685       153,046       115,548       128,453       75,328  
Sale of agricultural produce and biological assets     209,839       219,317       225,174       182,227       131,738  
Cost of agricultural produce sold and direct agricultural selling expenses(l)     (209,839 )     (219,317 )     (225,174 )     (182,227 )     (131,738 )
Initial recognition and changes in fair value of biological assets and agricultural produce     27,145       (39,123 )     16,643       86,811       (30,528 )
Changes in net realizable value of agricultural produce after harvest     3,401       12,875       16,004       10,523       7,999  
Gross profit/(loss)  from agricultural activities     30,546       (26,248 )     32,647       97,334       (22,529 )
Margin on manufacturing and agricultural activities before operating expenses     208,231       126,798       148,195       225,787       52,799  
General and administrative expenses     (52,695 )     (53,352 )     (57,691 )     (65,142 )     (56,562 )
Selling expenses     (78,864 )     (68,069 )     (58,602 )     (59,404 )     (52,528 )
Other operating income, net     11,977       49,650       31,097       24,581       18,224  
Share of loss of joint ventures     (924 )     (219 )     -       -       -  
Profit /(loss) from operations before financing and taxation     87,725       54,808       62,999       125,822       (38,067 )
Finance income     7,291       7,234       11,538       9,132       16,559  
Finance costs     (86,472 )     (98,916 )     (66,654 )     (62,341 )     (39,496 )
Financial results, net     (79,181 )     (91,682 )     (55,116 )     (53,209 )     (22,937 )
Profit / (Loss) before income tax     8,544       (36,874 )     7,883       72,613       (61,004 )
Income tax (expense) / benefit     (6,106 )     9,277       5,436       (14,662 )     16,263  
Profit / (Loss) for the year from continuing operations     2,438       (27,597 )     13,319       57,951       (44,741 )
Profit / (Loss) for the year from discontinued operations (1)     -       1,767       (4,040 )     (1,034 )     (50 )
Profit / (Loss) for the year     2,438       (25,830 )     9,279       56,917       (44,791 )
                                         
Attributable to:                                        

Equity holders of the parent

    2,518       (25,828 )     9,397       56,018       (43,904 )
Non-controlling interest     (80 )     (2 )     (118 )     899       (887 )
Earnings/(Loss) per share from continuing and discontinued operations attributable to the equity holders of the parent during the year:                                        
Basic earnings per share                                        
From continuing operations     0.021       (0.226 )     0.111       0.488       (0.548 )
From discontinued operations     -       0.014       (0.034 )     (0.009 )     (0.001 )
Diluted earnings per share                                        
From continuing operations     0.021       (0.226 )     0.111       0.484       (0.548 )
From discontinued operations     -       0.014       (0.034 )     (0.009 )     (0.001 )

 

(1) Our joint venture (equity method) investment in La Lacteo,  was disposed on June 2013 and it was reflected as Discontinued operations.

 

2
 

 

    For the Year Ended December 31,  
    2014     2013     2012     2011     2010  
Cash Flow Data:                              
Net cash generated from operating activities     133,133       102,080       67,823       56,586       60,221  
Net cash used in investing activities     (313,454 )     (161,536 )     (300,215 )     (140,493 )     (111,725 )
Net cash generated from financing activities     73,289       104,671       133,508       360,792       46,545  
Other Financial Data:                                        
Adjusted Segment EBITDA (unaudited)(2)                                        
Crops     36,671       36,720       34,313       42,563       33,613  
Rice     14,198       12,902       4,943       6,652       7,121  
Dairy     8,536       9,801       (2,402 )     3,426       2,649  
All Other segments     333       1,347       4,280       5,971       1,515  
Farming subtotal     59,738       60,770       41,134       58,612       44,898  
Ethanol, sugar and energy     153,532       115,239       97,505       109,507       51,735  
Land transformation     25,508       28,172       27,513       8,832       20,837  
Corporate     (23,233 )     (23,478 )     (25,442 )     (26,885 )     (22,353 )
Adjusted Consolidated EBITDA     215,545       180,703       140,710       150,066       95,117  

 

 
(1) Consists of two components: (i) the cost of our agricultural produce and/or biological assets sold as appropriate plus (ii) in the case of agricultural produce, the direct costs of selling, including but not limited to, transportation costs, export taxes and other levies. The cost of our agricultural produce sold represents the recognition as an expense of our agricultural produce held in inventory valued at net realizable value. The cost of our biological assets and/or agricultural produce sold at the point of harvest represents the recognition as an expense of our biological assets and/or agricultural produce measured at fair value less costs to sell, generally representing the applicable quoted market price at the time of sale. Accordingly, the line item “Sales of agricultural produce and biological assets” is equal to the line item “Cost of agricultural produce plus direct agricultural selling expenses.” See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies and Estimates—Biological Assets and Agricultural Produce.”

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBITDA and Adjusted Consolidated EBITDA and the reconciliation in the table below.
                               
    As of December 31,  
    2014     2013     2012     2011     2010  
    (In thousands of $)  
Statement of Financial Position Data:                              
Biological assets     341,232       292,144       298,136       239,600       186,757  
Inventories     104,919       108,389       95,321       96,147       57,170  
Property, plant and equipment, net     776,905       790,520       880,897       759,696       751,992  
Total assets     1,639,322       1,711,476       1,777,955       1,700,695       1,320,444  
Non-current borrowings     491,324       512,164       354,249       203,409       250,672  
Total borrowings     698,506       660,131       539,133       360,705       389,472  
Share Capital     183,573       183,573       183,331       180,800       120,000  
Equity attributable to equity holders of the parent     762,796       854,304       1,025,978       1,079,876       708,532  
Non-controlling interest     7,589       45       65       14,993       14,570  
Number of shares (1)     122,382       122,382       122,221       120,533       80,000  

 

(1) After giving effect to the Reorganization and related transactions.

 

3
 

 

The following tables show a reconciliation of Adjusted Segment EBITDA to our segments’ profit / (loss) from operations before financing and taxation, the most directly comparable IFRS financial measure, and a reconciliation of Adjusted Consolidated EBITDA to our net profit (loss) for the year, the most directly comparable IFRS financial measure.

 

    As of December 31, 2014  
   

 

 

Crops

   

 

 

Rice

   

 

 

Dairy

   

 

 All other

segments

   

 

Farming

Subtotal

   

Sugar,

Ethanol

and

Energy

   

Land

Trans-

formation

   

 

 

Corporate

   

 

 

Total

 
    (In thousands of $)  

Adjusted Segment EBITDA (unaudited)

                                                     
Profit/(Loss) from                                                      
Operations Before Financing and Taxation     34,745       10,937       8,112       477       54,271       56,687       -       (23,233 )     87,725  
Profit from discontinued operations     -       -       -       -       -       -       -       -       -  
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)     -       -       (1,127 )     (542 )     (1,669 )     14,325       -       -       12,656  
Adjusted Segment EBIT (unaudited)(2)                                                                        
Depreciation and amortization     1,926       3,261       1,551       398       7,136       82,520       -       -       89,656  
Reserve from the sale of non-controlling interests in subsidiaries  (3)     -       -       -       -       -       -       25,508       -       25,508  
Adjusted Segment EBITDA (unaudited)(2)     36,671       14,198       8,536       333       59,738       153,532       25,508       (23,233 )     215,545  

Reconciliation to Profit

                                                                       
Profit for the year                                                                     2,438  
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                                                                     12,656  
Income tax expense                                                                     6,106  
Interest expense, net                                                                     47,847  
Foreign exchange, net                                                                     9,246  
Other financial results, net                                                                     22,088  
Reserve from the sale of non-controlling interests in subsidiaries (3)                                                                     25,508  
Adjusted Consolidated EBIT (unaudited)(2)                                                                     125,889  
Depreciation and amortization                                                                     89,656  
Adjusted Consolidated EBITDA (unaudited)(2)                                                                     215,545  

 

(1) Long-term biological assets are sugarcane, coffee, dairy and cattle.

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

(3) This corresponds to an equity line item in our balance sheet. See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

4
 

 

    As of December 31, 2013  
   

 

 

Crops

   

 

 

Rice

   

 

 

Dairy

   

 

 

All other

segment

   

 

Farming

Subtotal

   

Sugar,

Ethanol

and

Energy

   

Land

Trans-

formation

   

 

 

Corporate

   

 

 

Total

 
    (In thousands of $)  

Adjusted Segment EBITDA (unaudited)

                                                     
Profit/(Loss) from                                                      
Operations Before Financing and Taxation     34,549       8,171       6,714       (7,238 )     42,196       7,918       28,172       (23,478 )     54,808  
Profit from discontinued operations     -       -       1,767       -       1,767       -       -       -       1,767  
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)     -       -       234       8,121       8,355       47,341       -       -       55,696  
Adjusted Segment EBIT (unaudited)(2)     34,549       8,171       8,715       883       52,318       55,259       28,172       (23,478 )     112,271  
Depreciation and amortization     2,171       4,731       1,086       464       8,452       59,980       -       -       68,432  
Adjusted Segment EBITDA (unaudited)(2)     36,720       12,902       9,801       1,347       60,770       115,239       28,172       (23,478 )     180,703  

Reconciliation to Profit

                                                                       
Loss for the year                                                                      (25,830 )
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                                                                     55,696  
Income tax benefit                                                                     (9,277 )
Interest expense, net                                                                     42,367  
Foreign exchange, net                                                                     21,087  
Other financial results, net                                                                     28,228  
Adjusted Consolidated EBIT (unaudited)(2)                                                                     112,271  
Depreciation and amortization                                                                     68,432  
Adjusted Consolidated EBITDA (unaudited)(2)                                                                     180,703  

 

(1) Long-term biological assets are sugarcane, coffee, dairy and cattle.

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

5
 

 

 

    As of December 31, 2012  
   

 

 

Crops

   

 

 

Rice

   

 

 

Dairy

   

 

 

All other

segments

   

 

Farming

Subtotal

   

Sugar,

Ethanol

and

Energy

   

Land

Trans-

formation

   

 

 

Corporate

   

 

 

Total

 
    (In thousands of $)  

Adjusted Segment EBITDA (unaudited)

                                                     
Profit/(Loss) from                                                      
Operations Before Financing and Taxation     32,240       1,120       857       889       35,106       25,822       27,513       (25,442 )     62,999  
Loss from discontinued operations     -       -       (4,040 )     -       (4,040 )     -       -       -       (4,040 )
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)     -       -       (115 )     2,615       2,500       24,783       -       -       27,283  
Adjusted Segment EBIT (unaudited)(2)     32,240       1,120       (3,298 )     3,504       33,566       50,605       27,513       (25,442 )     86,242  
Depreciation and amortization     2,073       3,823       896       776       7,568       46,900                       54,468  
Adjusted Segment EBITDA (unaudited)(2)     34,313       4,943       (2,402 )     4,280       41,134       97,505       27,513       (25,442 )     140,710  

Reconciliation to Profit

                                                                       
Profit for the year                                                                     9,279  
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                                                                     27,283  
Income tax benefit                                                                     (5,436 )
Interest expense, net                                                                     16,423  
Foreign exchange losses, net                                                                     26,080  
Other financial results, net                                                                     12,613  
Adjusted Consolidated EBIT (unaudited)(2)                                                                     86,242  
Depreciation and amortization                                                                     54,468  
Adjusted Consolidated EBITDA (unaudited)(2)                                                                     140,710  

 

(1) Long-term biological assets are sugarcane, coffee, dairy and cattle.

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

6
 

 

    As of December 31, 2011  
    Crops     Rice     Dairy    

All other

segments

   

Farming

Subtotal

   

Sugar,

Ethanol

and

Energy

   

Land

Trans-

formation

    Corporate     Total  
    (In thousands of $)  

Adjusted Segment EBITDA (unaudited)

                                                     
Profit/(Loss) from                                                      
Operations Before Financing and Taxation     41,094       3,547       5,363       3,821       53,825       90,050       8,832       (26,885 )     125,822  
Loss from discontinued operations                 (1,034 )           (1,034 )                       (1,034 )
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                 (1,503 )     1,394       (109 )     (8,797 )                 (8,906 )
Adjusted Segment EBIT (unaudited)(2)     41,094       3,547       2,826       5,215       52,682       81,253       8,832       (26,885 )     115,882  
Depreciation and amortization     1,469       3,105       600       756       5,930       28,254                   34,184  
Adjusted Segment EBITDA (unaudited)(2)     42,563       6,652       3,426       5,971       58,612       109,507       8,832       (26,885 )     150,066  

Reconciliation to Profit

                                                                       
Profit for the year                                                                     56,917  
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                                                                     (8,906 )
Income tax expense                                                                     14,662  
Interest expense, net                                                                     25,998  
Foreign exchange, net                                                                     12,683  
Other financial results, net                                                                     14,528  
Adjusted Consolidated EBIT (unaudited)(2)                                                                     115,882  
Depreciation and amortization                                                                     34,184  
Adjusted Consolidated EBITDA (unaudited)(2)                                                                     150,066  

 

(1) Long-term biological assets are sugarcane, coffee, dairy and cattle.

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

7
 

 

    As of December 31, 2010  
   

 

 

Crops

   

 

 

Rice

   

 

 

Dairy

   

 

 

All other

segments

   

 

Farming

Subtotal

   

Sugar,

Ethanol

and

Energy

   

Land

Trans-

formation

   

 

 

Corporate

   

 

 

Total

 
    (In thousands of $)  

Adjusted Segment EBITDA (unaudited)

                                                     
Profit/(Loss) from                                                      
Operations Before Financing and Taxation     31,902       5,041       5,886       (1,753 )     41,076       (77,627 )     20,837       (22,353 )     (38,067 )
Loss from discontinued operations                 (50 )           (50 )                       (50 )
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                 (3,610 )     2,486       (1,124 )     96,795                   95,671  
Adjusted Segment EBIT (unaudited)(2)     31,902       5,041       2,226       733       39,902       19,168       20,837       (22,353 )     57,554  
Depreciation and amortization     1,711       2,080       423       782       4,996       32,567                   37,563  
Adjusted Segment EBITDA (unaudited)(2)     33,613       7,121       2,649       1,515       44,898       51,735       20,837       (22,353 )     95,117  

Reconciliation to (Loss)

                                                                       
(Loss) for the year                                                                     (44,791 )
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)                                                                     95,671  
Income tax benefit                                                                     (16,263 )
Interest expense, net                                                                     33,028  
Foreign exchange gains, net                                                                     (7,324 )
Other financial results, net                                                                     (2,767 )
Adjusted Consolidated EBIT (unaudited)(2)                                                                     57,554  
Depreciation and amortization                                                                     37,563  
Adjusted Consolidated EBITDA (unaudited)(2)                                                                     95,117  

 

(1) Long-term biological assets are sugarcane, coffee, dairy and cattle.

 

(2) See “Presentation of Financial and Other Information” for the definitions of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted Consolidated EBITDA.

 

8
 

 

     
  B. CAPITALIZATION AND INDEBTEDNESS
     

Not Applicable.

     
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS
     

Not Applicable.

     
  D. RISK FACTORS

 

Investing in our common shares involves a high degree of risk. Before making an investment decision, you should carefully consider the information contained in this annual report, particularly the risks described below, as well as in our Consolidated Financial Statements and accompanying notes. Our business activities, cash flow, financial condition and results of operations could be materially and adversely affected by any of these risks. The market price of our common shares may decrease due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.

 

Risks Related to Our Business and Industries

 

Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on agricultural production and may reduce the volume and sucrose content of sugarcane that we can cultivate and purchase in a given harvest.

 

The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost or diseases are unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply and price of the agricultural commodities that we sell and use in our business. Adverse weather conditions may be exacerbated by the effects of climate change. The effects of severe adverse weather conditions may reduce yields of our agricultural activities. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of pest and insects that may adversely impact our agricultural production.

 

We experienced drought conditions during the first half of 2013 in the countries where we operate, which resulted in a reduction of approximately 21% to 31% in our yields for the 2012/2013 harvest, for corn and soybean, compared with our historical averages. The actual yields following the drought generated a decrease in Initial Recognition and Changes in Fair Value of Biological Assets and Agricultural Produce in respect of corn, soybean and the remaining crops of $5.9 million, $16.6 million and $2.7 million, respectively, for the year ended December 31, 2013. See “ See Item 5 - Operating and Financial Review and Prospects - Trends and Factors Affecting Our Results of Operations - (i) Effects of Yield Fluctuations.”

 

The occurrence and effects of disease and plagues can be unpredictable and devastating to agricultural products, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Our agricultural products are also susceptible to fungus and bacteria that are associated with excessively moist conditions. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs have been incurred. Although some diseases are treatable, the cost of treatment is high, and we cannot assure you that such events in the future will not adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plague or disease and our production is threatened, we may be unable to supply our main customers, which could affect our results of operations and financial condition.

 

Our sugar production depends on the volume and sucrose content of the sugarcane that we cultivate or that is supplied to us by growers located in the vicinity of our mills. Both sugarcane yields and sucrose content depend primarily on weather conditions such as rainfall and temperature, which vary. Weather conditions have historically caused volatility in the ethanol and sugar industries. Future weather patterns may reduce the amount of sugarcane that we can harvest or purchase, or the sucrose content in such sugarcane, and, consequently, the amount of sugar we can recover in any given harvest. Any reduction in the volume of sugar recovered could have a material adverse effect on our operating results and financial condition.

 

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As a result, we cannot assure you that future severe adverse weather conditions or pest infestations will not adversely affect our operating results and financial condition.

 

Fluctuation in market prices for our products could adversely affect our financial condition and results of operations.

 

Prices for agricultural products and by-products, including, among others, sugar, ethanol, and grains, like those of other commodities, have historically been cyclical and sensitive to domestic and international changes in supply and demand and can be expected to fluctuate significantly. In addition, the agricultural products and by-products we produce are traded on commodities and futures exchanges and thus are subject to speculative trading, which may adversely affect us. The prices that we are able to obtain for our agricultural products and by-products depend on many factors beyond our control including:

     
  prevailing world commodity prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand and supply;
  changes in the agricultural subsidy levels of certain important producers (mainly the U.S. and the European Union (“E.U.”) and the adoption of other government policies affecting industry market conditions and prices;
  changes to trade barriers of certain important consumer markets (including China, India, the U.S. and the E.U.) and the adoption of other governmental policies affecting industry market conditions and prices;
  changes in government policies for biofuels;
  world inventory levels, i.e., the supply of commodities carried over from year to year;
  climatic conditions and natural disasters in areas where agricultural products are cultivated;
  the production capacity of our competitors; and
  demand for and supply of competing commodities and substitutes.

 

For example, we reported a $71 million loss in 2014 compared to a $23 million loss for 2012 for our sugarcane business segment in the line item “Initial recognition and Changes in Fair Value of Biological Assets and Agricultural Produce”. This loss was generated mainly by a decrease in price estimates used in the discounted cash flow (“DCF”) model to determine the fair value of our sugarcane plantations. In the DCF model, the price of future harvested sugarcane is calculated based on estimates of sugar price derived from the No. 11 futures contract (“NY11”) quoted on the ICE-NY. Sugar price estimates decreased due to lower sugar market prices. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Year ended December 31, 2014 as compared to year ended December 31, 2013.

 

Further, because we may not hedge 100% of the price risk of our agricultural products, we may be unable to have minimum price guarantees for all of our production and are, therefore, exposed to risks associated with the prices of agricultural products and their volatility. We are subject to fluctuations in prices of agricultural products that could result in our receiving lower prices for our agricultural products than our production costs.

 

In addition, there is a strong relationship between the value of our land holdings and market prices of the commodities we produce, which are affected by global economic conditions. A decline in the prices of grains, sugar, ethanol, or related by-products below their current levels for a sustained period of time could significantly reduce the value of our land holdings and materially and adversely affect our financial condition and results of operations.

 

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Ethanol prices are correlated to the price of sugar and are becoming closely correlated to the price of oil, so that a decline in the price of sugar will adversely affect both our ethanol and sugar businesses, and a decline in the price of oil may adversely affect our ethanol business.

 

A vast majority of ethanol in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their product mix in response to the relative prices of ethanol and sugar, this results in the prices of both products being directly correlated, and the correlation between ethanol and sugar may increase over time. In addition, sugar prices in Brazil are determined by prices in the world market, resulting in a correlation between Brazilian ethanol prices and world sugar prices.

 

Because flex-fuel vehicles, which have become popular in Brazil, allow consumers to choose between gasoline and ethanol at the pump rather than in the showroom, ethanol prices are now becoming increasingly correlated to gasoline prices and, consequently, oil prices. We believe that the correlation among the three products will increase over time. Accordingly, a decline in sugar prices would have an adverse effect on the financial performance of our ethanol and sugar businesses, and a decline in oil prices might have an adverse effect on our ethanol business.

 

The expansion of our business through acquisitions poses risks that may reduce the benefits we anticipate from these transactions.

 

As part of our business strategy, we have grown through acquisitions. We plan to continue growing by acquiring other farms and production facilities throughout South America. We believe that the agricultural industry and agricultural activity in the region are highly fragmented and that our future consolidation opportunities will continue to be significant to our growth. However, our management is unable to predict whether or when any prospective acquisitions or strategic alliances will occur, or the likelihood of a certain transaction being completed on favorable terms and conditions. In addition, we are unable to predict the effect that changes in Argentine or Brazilian legislation regarding foreign ownership of rural properties could have in our business. See “—Risks Related to Argentina— Argentine law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina” and “—Risks Related to Brazil— Recent changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.” Our ability to continue to expand our business successfully through acquisitions depends on many factors, including our ability to identify acquisitions or access capital markets at an acceptable cost and negotiate favorable transaction terms. Even if we are able to identify acquisition targets and obtain the necessary financing to make these acquisitions, we could financially overextend ourselves, especially if an acquisition is followed by a period of lower than projected prices for our products.

 

Acquisitions also expose us to the risk of successor liability relating to actions involving an acquired company, its management or contingent liabilities incurred before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Any material liability associated with an acquisition could adversely affect our reputation and results of operations and reduce the benefits of the acquisition.

 

To support the acquisitions we hope to make, we may need to implement new or upgraded strategies, systems, procedures and controls for our operations and will face risks, including diversion of management time and focus and challenges associated with integrating new managers and employees. Our failure to integrate new businesses successfully could adversely affect our business and financial performance.

 

Adverse conditions may create delays in or the suspension of the construction of our Ivinhema mill and/or significantly increase the amount of our expected investments.

 

As part of our strategy to increase our production and increase our competitiveness through economies of scale, during 2012 we began the construction of the Ivinhema mill in Mato Grosso do Sul, increasing nominal crushing capacity by 5.0 million. The construction of Ivinhema was performed in two phases: phase I, of 2.0 million tons of crushing capacity was completed during March 2014; while the construction of phase II, with 3.0 million tons of crushing capacity, commenced during March 2014, and as of the date of this report is essentially complete. Assembly and commissioning of minor equipments will continue until the end of May 2015. See “Item 4. Information on the Company—B. Business Overview.”

 

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On January 2, 2014, we entered into a syndicated loan with ING and Rabobank in an amount equal to USD $160.0 million, with a 4-year tenor, a 1.5 year grace period and bearing an interest rate of 3-month LIBOR +4.40%. The loan was collected throughout the first quarter of 2015 to finance the final tranche of the expansion of the Ivinhema mill and roll over of debt maturing during the year.

 

The completion of the Ivinhema project involves various risks, including engineering, construction and regulatory risks, such as obtaining necessary permits and licenses as well as other significant challenges that can suspend the construction of the Ivinhema mill, hinder or delay the project’s scheduled completion date and successful operation or that can result in significant cost increases as well as foreign exchange risks associated with incurring costs in Brazilian Reais. In addition, the Ivinhema mill may not operate at projected capacity or may incur higher operating costs than estimated, and we may not be able to sell the ethanol and sugar produced by the Ivinhema mill at competitive prices. If (i) construction is delayed or suspended, (ii) we are required to invest more than the budgeted amount to complete the project, (iii) we fail to operate the mill or operate it at a lower capacity than we anticipate or (iv) we are unable to sell all of the ethanol and sugar produced by the mill, our results of operations and financial condition will be materially adversely affected.

 

A significant increase in the price of raw materials we use in our operations, or the shortage of such raw materials, could adversely affect our results of operations.

 

Our production process requires various raw materials, including primarily fertilizer, pesticides and seeds, which we acquire from local and international suppliers. We do not have long-term supply contracts for most of these raw materials. A significant increase in the cost of these raw materials, especially fertilizer and agrochemicals, a shortage of raw materials or the unavailability of these raw materials entirely could reduce our profit margin, reduce our production and/or interrupt the production of some of our products, in all cases adversely affecting the results of our operations and our financial condition.

 

For example, we rely on fertilizers and agrochemicals, many of which are petro-chemical based. For the year ended December 31, 2014, in our Farming business, fertilizers and agrochemicals constituted approximately 24% of our cost of production for the 2013/2014 harvest year. In our Sugar, Ethanol and Energy business, fertilizers and agrochemicals constituted 10% of our cost of production for 2014. On a consolidated basis, fertilizers and agrochemicals constituted 15% of our cost of production for 2014. Worldwide production of agricultural products has increased significantly in recent years, increasing the demand for agrochemicals and fertilizers. This has resulted, among other things, in increased prices for agrochemicals and fertilizers.

 

Increased energy prices and frequent interruptions of energy supply could adversely affect our business.

 

We require substantial amounts of fuel oil and other resources for our harvest activities and transport of our agricultural products. For the year ended December 31, 2014, fuel constituted 10% of the cost of production of our Farming business during the 2013/2014 harvest year. In our Sugar, Ethanol and Energy business, fuel constituted 11% of our cost of production for 2014. On a consolidated basis, fuel constituted 11% of our cost of production for 2014. We rely upon third parties for our supply of energy resources used in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, imposition of restrictions on energy supply by government, worldwide price levels and market conditions. Over the last few years, the Argentine government has taken certain measures in order to reduce the use of energy during peak months of the year by frequently cutting energy supply to industrial facilities and large consumers to ensure adequate supply for residential buildings. For example, certain of our industrial facilities have been subject to a quota system whereby electricity cuts occur on a work shift basis, resulting in our facilities being shut down during certain work shifts. While some of our facilities utilize different sources of energy, such as firewood and liquefied natural gas, and have attempted to stock their required supplies ahead of higher demand periods, we cannot assure you that we will be able to procure the required energy inputs at acceptable prices. If energy supply is cut for an extended period of time and we are unable to find replacement sources at comparable prices, or at all, our business and results of operations could be adversely affected.

 

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We depend on international trade and economic and other conditions in key export markets for our products.

 

Our operating results depend largely on economic conditions and regulatory policies for our products in major export markets. The ability of our products to compete effectively in these export markets may be adversely affected by a number of factors that are beyond our control, including the deterioration of macroeconomic conditions, volatility of exchange rates, the imposition of greater tariffs or other trade barriers or other factors in those markets, such as regulations relating to chemical content of products and safety requirements. The European Union limits the import of genetically modified organisms, or “GMOs.” See “some of the agricultural commodities and food products that we produce contain genetically modified organisms.”

 

Due to the growing participation in the worldwide agricultural commodities markets by commodities produced in South America, South American growers, including us, are increasingly affected by the measures taken by importing countries in order to protect their local producers. Measures such as the limitation on imports adopted in a particular country or region may affect the sector’s export volume significantly and, consequently, our operating results.

 

If the sale of our products into a particular importing country is adversely affected by trade barriers or by any of the factors mentioned above, the relocation of our products to other consumers on terms equally favorable could be impaired, and our business, financial condition and operating results may be adversely affected.

 

A worldwide economic downturn could weaken demand for our products or lower prices.

 

The demand for the products we sell may be affected by international, national and local economic conditions. Adverse changes in the perceived or actual economic climate, such as higher fuel prices, higher interest rates, stock and real estate market declines and/or volatility, more restrictive credit markets, higher taxes, and changes in governmental policies could reduce the level of demand or prices of the products we produce. We cannot predict the duration or magnitude of this downturn or the timing or strength of economic recovery. If the downturn continues for an extended period of time or worsens, we could experience a prolonged period of decreased demand and price. In addition, the economic downturn has and may continue to adversely impact our suppliers, which can result in disruptions in goods and services and financial losses.

 

Our business is seasonal, and our results may fluctuate significantly depending on the growing cycle of our crops.

 

As with any agricultural business enterprise, our business operations are predominantly seasonal in nature. The harvest of corn, soybean and rice generally occurs from January to May. Wheat is harvested from December to January. Cotton is harvested from June to August, but requires processing which takes approximately two to three months. Our operations and sales are affected by the growing cycle of our crops process and the timing of our harvest sales. In addition, our sugar and ethanol business is subject to seasonal trends based on the sugarcane growing cycle in the center-south region of Brazil. The annual sugarcane harvesting period in the center-south region of Brazil begins in March/April and ends in November/December. This creates fluctuations in our inventory, usually peaking in December to cover sales between crop harvests (i.e., January through April), and a degree of seasonality in our gross profit. Seasonality could have a material adverse effect on our business and financial performance. In addition, our quarterly results may vary as a result of the effects of fluctuations in commodities prices, production yields and costs. Therefore, our results of operations have varied significantly from period to period and are likely to continue to vary, due to seasonal factors.

 

Our dairy cattle are vulnerable to diseases.

 

Diseases among our dairy cattle herds, such as mastitis, tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on the productivity of our dairy cows. Outbreaks of cattle diseases may also result in the closure of certain important markets to our cattle-derived products. Although we abide by national veterinary health guidelines, including laboratory analyses and vaccination, to control diseases among our herds, especially foot-and-mouth disease, we cannot assure you that future outbreaks will not occur. A future outbreak of diseases among our cattle herds could adversely affect our milk sales and operating results and financial condition.

 

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Our current insurance coverage may not be sufficient to cover our potential losses.

 

Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, diseases and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us, environmental contingencies and other natural phenomena. Our insurance currently covers only part of the losses we may incur and does not cover losses on crops due to hail storms, fires or similar risks. Furthermore, although we maintain insurance at levels that are customary in our industry, certain types of risks may not be covered by the policies we have for our industrial facilities. Additionally, we cannot guarantee that the indemnification paid by the insurer due to the occurrence of a casualty covered by our policies will be sufficient to entirely compensate us for the damages suffered. Moreover, we may not be able to maintain or obtain insurance of the type and amount desired at reasonable costs. If we were to incur significant liability for which we were not fully insured, it could have a materially adverse effect on our business, financial condition and results of operations.

 

A reduction in market demand for ethanol or a change in governmental policies reducing the amount of ethanol required to be added to gasoline may adversely affect our business.

 

Government authorities of several countries, including Brazil and certain states of the United States, currently require the use of ethanol as an additive to gasoline. Commencing on April, 2015, the Sugar and Alcohol Interministerial Council of Brazil (Conselho Interministerial do Açúcar e Álcool) increased the required blend of anhydrous ethanol to gasoline from 25% to 27%. The increase on the ethanol blend rate will create an additional demand for anhydrous ethanol in the order of approximately 800 thousand cubic meters of anhydrous per year.

 

Approximately 40% of all fuel ethanol in Brazil is consumed in the form of anhydrous ethanol blended with gasoline; the remaining 60% of fuel ethanol is consumed in the form of hydrous ethanol, which is mostly used to power flex-fuel vehicles. Flex-fuel vehicles have the flexibility to run either on gasoline (blended with anhydrous ethanol) or hydrous ethanol. In the United States, almost all gasoline sold contains 10% ethanol. The European Union aims for 10% of the energy used in the transport sector to derive from renewable energy sources by 2020, without specific targets for certain renewable energy sources and without intermediate targets, to be determined by each Member State. As an example, in Sweden the ethanol blending ratio is 5%, which is the same mandate for other non-European countries, such as Argentina, Canada and India. Other countries such as Colombia, South Africa, Thailand and China have a 10% biofuel blending mandate. In addition, flex-fuel vehicles in Brazil are entitled to a tax benefit in the form of a lower tax rate on manufactured products (Imposto sobre Produtos Industrializados) and therefore are currently taxed at lower levels than gasoline-only vehicles, which has contributed to the increase in production and sale of flex-fuel vehicles. Many of these policies and incentives stem from, and are mostly driven by, climate change concerns and the positive perceptions regarding the use of ethanol as a solution to the climate change problem. If such concerns or perception were to change, the legal framework and incentive structure promoting the use of ethanol may change, leading to a reduction in the demand for ethanol. In addition, any reduction in the percentage of ethanol required in fuel blended with gasoline or increase in the levels at which flex-fuel vehicles are taxed in Brazil, or any growth in the demand for natural gas and other fuels as an alternative to ethanol, lower gasoline prices or an increase in gasoline consumption (versus ethanol), may cause demand for ethanol to decline and affect our business.

 

Growth in the sale and distribution of ethanol depends in part on infrastructure improvements, which may not occur on a timely basis, if at all.

 

In contrast to the well-established logistical operations and infrastructure supporting sugar exports, ethanol exports inherently demand much more complex preparation and means of distribution, including outlets from our facilities to ports and shipping to other countries. Substantial infrastructure development by persons and entities outside our control is required for our operations, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to, additional rail capacity, additional storage facilities for ethanol, increases in truck fleets capable of transporting ethanol within localized markets, expansion of refining and blending facilities to handle ethanol, growth in service stations equipped to handle ethanol fuels, and growth in the fleet of flex-fuel vehicles. Specifically, with respect to ethanol exports, improvements in consumer markets abroad are needed in the number and capacity of ethanol blending industrial plants, the distribution channels of gasoline-ethanol blends and the chains of distribution stations capable of handling fuel ethanol as an additive to gasoline. Substantial investments required for these infrastructure changes and expansions may not be made or they may not be made on a timely basis. Any delay or failure in making the changes in or expansion of infrastructure may hurt the demand for or prices of our products, prevent our products’ delivery, impose additional costs on us or otherwise have a serious adverse effect on our business, operating results or financial status. Our business relies on the continuing availability of infrastructure for ethanol production, storage and distribution, and any infrastructure disruptions may have a material adverse effect on our business, financial condition and operating results.

 

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We may be harmed by competition from alternative fuels, products and production methods.

 

Ethanol competes in the biofuel market with other, established fuels such as biodiesel, as well as fuels that are still in the development phase, including methanol and butanol from biomass. Alternative fuels could become more successful than ethanol in the biofuels market over the medium or long term due to, for example, lower production costs, greater environmental benefits or other more favorable product characteristics. In addition, alternative fuels may also benefit from tax incentives or other more favorable governmental policies than those that apply to ethanol. Furthermore, our success depends on early identification of new developments relating to products and production methods and continuous improvement of existing expertise in order to ensure that our product range keeps pace with technological change. Competitors may gain an advantage over us by, for example, developing or using new products and production methods, introducing new products to the market sooner than we do, or securing exclusive rights to new technologies, thereby significantly harming our competitive position.

 

A substantial portion of our assets is farmland that is highly illiquid.

 

We have been successful in partially rotating and monetizing a portion of our investments in farmland. During the last thirteen years, we have executed transactions for the purchase and disposition of land for over $652 million. Ownership of a significant portion of the land we operate is a key part of our business model. However, agricultural real estate is generally an illiquid asset. Moreover, the adoption of laws and regulations that impose limitations on ownership of rural land by foreigners in the jurisdictions in which we operate may also limit the liquidity of our farmland holdings. See “—Risks Related to Argentina—Argentine law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina” and “—Risks Related to Brazil— Recent changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.” As a result, it is unlikely that we will be able to adjust our owned agricultural real estate portfolio promptly in response to changes in economic, business or regulatory conditions. Illiquidity in local market conditions may adversely affect our ability to complete dispositions, to receive proceeds generated from any such sales or to repatriate any such proceeds.

 

We have entered into agriculture partnership agreements in respect of a significant portion of our sugarcane plantations.

 

As of December 31, 2014, approximately 93% of our sugarcane plantations were leased through agriculture partnership agreements, for periods of an average of six to twelve years. We cannot guarantee that these agriculture partnerships will be renewed after their respective terms. Even if we are able to renew these agreements, we cannot guarantee that such renewals will be on terms and conditions satisfactory to us. Any failure to renew the agriculture partnerships or obtain land suitable for sugarcane planting in sufficient quantity and at reasonable prices to develop our activities could adversely affect our results of operations, increase our costs or force us to seek alternative properties, which may not be available or be available only at higher prices.

 

We may be subject to labor disputes from time to time that may adversely affect us.

 

Our employees are represented by unions or equivalent bodies and are covered by collective bargaining or similar agreements which are subject to periodic renegotiation. We may not successfully conclude our labor negotiations on satisfactory terms, which may result in a significant increase in the cost of labor or may result in work stoppages or labor disturbances that disrupt our operations. Cost increases, work stoppages or disturbances that result in substantial amounts of raw product not being processed could have a material and adverse effect on our business, results of operations and financial condition.

 

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We may not possess all of the permits and licenses required to operate our business, or we may fail to, renew or maintain the licenses and permits we currently hold. This could subject us to fines and other penalties, which could materially adversely affect our results of operations.

 

We are required to hold a variety of permits and licenses to conduct our farming and industrial operations, including but not limited to permits and licenses concerning land development, agricultural and harvesting activities, seed production, labor standards, occupational health and safety, land use, water use and other matters. We may not possess all of the permits and licenses required for each of our business segments. In addition, the approvals, permits or licenses required by governmental agencies may change without substantial advance notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. If we fail to obtain or to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we could offer. As a result, our business, results of operations and financial condition could be adversely affected.

 

We are subject to extensive environmental regulation, and concerns regarding climate change may subject us to even stricter environmental regulations.

 

Our activities are subject to a broad set of laws and regulations relating to the protection of the environment. Such laws include compulsory maintenance of certain preserved areas within our properties, management of pesticides and associated hazardous waste and the acquisition of permits for water use and effluents disposal. In addition, the storage and processing of our products may create hazardous conditions. We could be exposed to criminal and administrative penalties in addition to the obligation to remedy the adverse affects of our operations on the environment and to indemnify third parties for damages. Environmental laws and their enforcement are becoming more stringent in Argentina and Brazil increasing the risk of and penalties associated with violations, which could impair or suspend our operations or projects and our operations expose us to potentially adverse environmental legislation and regulation. Failure to comply with past, present or future laws could result in the imposition of fines, third party claims, and investigation by environmental authorities and the relevant public attorney office. For example, the perceived effects of climate change may result in additional legal and regulatory requirements to reduce or mitigate the effects of our industrial facilities’ emissions. Such requirements, if enacted, could increase our capital expenditures and expenses for environmental compliance in the future, which may have a material and adverse effect on our business, results of operations and financial condition. Moreover, the denial of any permit that we have requested, or the revocation of any of the permits that we have already obtained, may have an adverse effect on our results of operations.

 

Some of the agricultural commodities and food products that we produce contain genetically modified organisms.

 

Our soybean, corn and cotton products contain GMOs in varying proportions depending on the year and the country of production. The use of GMOs in food has been met with varying degrees of acceptance in the markets in which we operate. The United States, Argentina and Brazil, for example, have approved the use of GMOs in food products, and GMO and non-GMO grain in those countries is produced and frequently commingled during the grain origination process. Elsewhere, adverse publicity about genetically modified food has led to governmental regulation limiting sales of GMO products in some of the markets in which our customers sell our products, including the European Union. It is possible that new restrictions on GMO products will be imposed in major markets for some of our products or that our customers will decide to purchase fewer GMO products or not buy GMO products at all, which could have a material adverse effect on our business, results of operations, financial condition or prospects.

 

If our products become contaminated, we may be subject to product liability claims, product recalls and restrictions on exports that would adversely affect our business.

 

The sale of food products for human consumption involves the risk of injury to consumers. These injuries may result from tampering by third parties, bioterrorism, product contamination or spoilage, including the presence of bacteria, pathogens, foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases.

 

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We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image, and we could also incur significant legal expenses. Moreover, claims or liabilities of this nature might not be covered by any rights of indemnity or contribution that we may have against others, which could have a material adverse effect on our business, results of operations or financial condition.

 

Our principal shareholders have the ability to direct our business and affairs, and their interests could conflict with yours

 

As of the date of this annual report, our principal shareholders were the beneficial owners of approximately 46.0% of our total shares outstanding.  As a result of this significant influence over us, our principal shareholders may be able to elect a majority of the members of our board of directors, direct our management and determine the result of substantially all resolutions that require shareholders’ approval, including fundamental corporate transactions and the payment of dividends by us. The interests of our principal shareholders may differ from, and could conflict with, those of our other shareholders.

 

IFRS accounting standards related to biological assets require us to make numerous estimates in the preparation of our financial statements and therefore limit the comparability of our financial statements to similar issuers using U.S. GAAP

 

IAS 41 “Biological Assets” requires that we measure our biological assets and agriculture produce at the point of harvest at fair value. Therefore, we are required to make assumptions and estimates relating to, among other things, future agricultural commodity yields, prices, and production costs extrapolated through a discounted cash flow method. For example, the value of our biological assets with a production cycle lasting more than one year (i.e., sugarcane, dairy and our all other segment) generated initial recognition and changes in fair value of biological assets amounting to a $21.7 million loss in 2014, a $71.8 million loss in 2013 and $25.3 million loss in 2012. The assumptions and estimates used to determine the fair value of biological assets, and any changes to such prior estimates, directly affect our reported results of operations. If actual market conditions differ from our estimates and assumptions, there could be material adjustments to our results of operations. In addition, the use of such discounted cash flow method utilizing these future estimated metrics differs from generally accepted accounting principles in the United States (“U.S. GAAP”). As a result, our financial statements and reported earnings are not directly comparable to those of similar companies in the United States.

 

Certain of our subsidiaries have substantial indebtedness which could impair their financial condition and decrease the amount of dividends we receive.

 

Certain of our subsidiaries in Argentina and Brazil have a substantial amount of debt, which requires significant principal and interest payments. As of December 31, 2014, we had $698.5 million of debt outstanding on a consolidated basis, all of which was incurred by our subsidiaries and not guaranteed by Adecoagro. Such indebtedness could affect our subsidiaries’ future operations, for example, by requiring a substantial portion of their cash flows from operations to be dedicated to the payment of principal and interest on indebtedness instead of funding working capital and capital improvements and other investments. The substantial amount of debt incurred by our subsidiaries also imposes significant debt obligations, increasing their cost of borrowing to satisfy business needs and limiting their ability to obtain additional financing.

 

The substantial level of indebtedness borne by certain of our subsidiaries also affects the amount of cash available to them to pay as dividends, increasing our vulnerability to economic downturns or other adverse developments relative to competitors with less leverage; and limiting our ability to obtain additional financing on their behalf for working capital, capital expenditures, acquisitions or other corporate purposes in the future. Moreover, by reducing the level of dividends we may receive, such indebtedness places limits on our ability to make acquisitions or needed capital expenditures or to pay dividends to our shareholders. See “Item 5. – Operating and Financial Review and Prospects – Liquidity and Capital Resources—Indebtedness and Financial Instruments”

 

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The terms of the indebtedness of, and past breaches of financial ratio covenants by, certain of our subsidiaries impose significant restrictions on their operating and financial flexibility.

 

The debt instruments of some of our subsidiaries contain customary covenants including limitations on their ability to, among other things, incur or guarantee additional indebtedness; make restricted payments, including dividends and prepaying indebtedness; create or permit liens; enter into business combinations and asset sale transactions; make investments, including capital expenditures; and enter into new businesses. Some of these debt instruments are also secured by various collateral including mortgages on farms, pledges of subsidiary stock and liens on certain facilities, equipment and accounts. Some of these debt instruments also contain cross-default provisions, where a default on one loan by one subsidiary could result in lenders of otherwise performing loans declaring a default. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness and Financial Instruments.”  These restrictions could limit our subsidiaries’ ability to obtain future financing, withstand a future downturn in business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. Moreover, by reducing the level of dividends we may receive, this indebtedness places limits on our ability to make acquisitions or needed capital expenditures or to pay dividends to our shareholders.

 

The terms of certain of our subsidiaries’ debt instruments contain financial ratio covenants, limitations on their levels of debt and capital expenditures and requirements on maintaining various levels of EBITDA. During 2009 and 2010, certain of our operating subsidiaries in Argentina and Brazil breached certain financial ratio covenants under their debt instruments, and subsequently entered into amendments with the lenders to redefine the terms of such financial ratio covenants. The financial ratio covenants we are currently required to meet, some of which are measured on a combined basis aggregating results of the borrowing subsidiaries and others which are measured on an individual debtor basis, include, among others, debt service coverage, minimum liquidity and leverage ratios.

 

The failure by our subsidiaries to maintain applicable financial ratios, in certain circumstances, would prevent them from borrowing additional amounts and could result in a default under such indebtedness. If we or our subsidiaries are unable to repay those amounts, the affected lenders could initiate bankruptcy-related proceedings or enforce their rights to the collateral securing such indebtedness, which would have a material and adverse effect on our business, results of operations and financial condition.

 

Fluctuations in interest rates could have a significant impact on our results of operations, indebtedness and cash flow.

 

As of December 31, 2014, approximately 48.1% of our total debt on a consolidated basis was subject to fixed interest rates and 51.9% was subject to variable interest rates. As of December 31, 2014, borrowings incurred by the Company’s subsidiaries in Brazil were repayable at various dates between January 2015 and April 2024 and bare either fixed interest rates ranging from 2.00% to 14.3% per annum or variable rates based on LIBOR or other specific base-rates plus spreads ranging from 4.46% to 15.59% per annum. At December 31, 2014, LIBOR (six months) was 0.37%. Borrowings incurred by the Company´s subsidiaries in Argentina are repayable at various dates between January 2015 and November 2019 and bear either fixed interest rates ranging from 4.50% and 7.00% per annum. Significant interest rate increases can have an adverse effect on our profitability, liquidity and financial position. Currently, our variable interest rate exposure is mainly linked to the LIBOR rate plus specified spreads. If interest rates increase, whether because of an increase in market interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remains the same, and our net income could be adversely affected. See also “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

 

We occasionally use interest rate swaps and forward interest rate contracts to reduce interest rate volatility and funding costs associated with certain debt issues and to achieve a desired proportion of variable-versus fixed-rate debt, based on current and projected market conditions. We have not applied hedge accounting to these transactions and may not do so in the future. Therefore, changes in the fair value of these derivative instruments can result in a non-cash charge or gain being recognized in our financial results for a period preceding the period or periods in which settlement occurs under the derivative instruments and interest payments are made. Changes or shifts in interest rates can significantly impact the valuation of our derivatives and therefore could expose us to substantial mark-to-market losses or gains if interest rates fluctuate materially from the time when the derivatives were entered into. Accordingly, fluctuations in interest rates may impact our financial position, results of operations, and cash flows.. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

 

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We may not be able to renew our credit lines when they mature, depriving us of needed liquidity.

 

Certain of our subsidiaries rely substantially on existing uncommitted credit lines to support their operations and business needs through the agricultural harvest cycle. If we are unable to renew these credit lines, or if we cannot replace such credit lines with other borrowing facilities, our financial condition and results of operations may be adversely affected.

 

There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax purposes, which could materially increase our U.S. federal income tax liability and subject any dividends we pay to U.S. federal withholding tax.

 

We acquired approximately 98% of IFH, a holding company, which was a partnership for U.S. federal income tax purposes organized under the laws of Delaware, immediately prior to our IPO, in exchange for our stock. Under U.S. Internal Revenue Code section 7874(b), we would be treated as a U.S. domestic corporation if we were deemed to have acquired substantially all of the assets constituting the trade or business of a U.S. domestic partnership and former members of IFH were deemed to own at least 80% of our stock by reason of the transfer of those trade or business assets (ignoring stock issued in our IPO for purposes of the 80% threshold). Although we and our subsidiaries conduct no direct business activity in the United States and we believe that our acquisition of IFH should not be subject to the rules above, those rules are unclear in certain respects and there is limited guidance on the application of the rules to partnership acquisitions. Accordingly, we cannot assure you that the U.S. Internal Revenue Service (“IRS”) will not seek to assert that we are a U.S. domestic corporation, which assertion if successful could materially increase our U.S. federal income tax liability and require us to withhold tax from any dividends we pay. See “Item 10. Additional Information—E. Taxation.”

 

We may be classified by the Internal Revenue Service as a “passive foreign investment company” (a “PFIC”), which may result in adverse tax consequences for U.S. investors.

 

We believe that we will not be a PFIC for U.S. federal income tax purposes for our current taxable year and do not expect to become one in the foreseeable future.  Whether the Company will be a PFIC for the current or future tax year will depend on the Company’s assets and income over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this Form 20-F.  Under circumstances where the cash is not deployed for active purposes, our risk of becoming a PFIC may increase. If we were treated as a PFIC for any taxable year during which a U.S. investor held common shares, certain adverse tax consequences could apply to such U.S. investor. A U.S. taxpayer who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC may mitigate such negative tax consequences by making certain U.S. federal income tax elections, which are subject to numerous restrictions and limitations. Holders of the Company’s shares are urged to consult their own tax advisors regarding the acquisition, ownership, and disposition of the Company’s shares. See “Taxation — U.S. Federal Income Tax Considerations — Passive foreign investment company rules.”

 

Risks associated with the Countries in which we operate

 

We operate our business in emerging markets. Our results of operations and financial condition are dependent upon economic conditions in those countries in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.

 

All of our operations and/or development activities are in South America. As of December 31, 2014, based on the net book value of our consolidated investment property and property, plant and equipment, approximately 21.0% of our assets were located in Argentina, 77.8% in Brazil and 1.1% in Uruguay. During the year ended 2014, 47.5% of our consolidated sales of manufactured products and services rendered and sales of agricultural produce and biological assets were attributable to our Brazilian operations, 29.0% were attributable to our Argentine operations and 23.4% were attributable to our Uruguayan operations. In the future we expect to have additional operations in the South American countries in which we now operate or in other countries with similar political, economic and social conditions. Many of these countries have a history of economic instability or crises (such as inflation or recession), government deadlock, political instability, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls which could adversely affect our business, financial condition and results of operations.

 

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In particular, fluctuations in the economies of Argentina and Brazil and actions adopted by the governments of those countries have had and may continue to have a significant impact on companies operating in those countries, including us. Specifically, we have been affected and may continue to be affected by inflation, increased interest rates, fluctuations in the value of the Argentine Peso and Brazilian Real against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations and in general by the political, social and economic scenarios in Argentina and Brazil and in other countries that may affect Argentina and Brazil.

 

The economies of the countries in which we operate may be adversely affected by the deterioration of other global markets.

 

Financial and securities markets in the countries in which we operate are influenced, to different degrees, by the economic and market conditions in other countries, including other South American and emerging market countries and other global markets. Although economic conditions in these countries may differ significantly from economic conditions in the countries in which we operate, investors’ reactions to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities of issuers with operations in, the countries in which we operate. A crisis in other emerging market countries could dampen investor enthusiasm for securities of issuers with South American operations, including our common shares. This could adversely affect the market price for our common shares, as well as make it difficult for us to access capital markets and obtain financing for our operations in the future, on acceptable terms or under any conditions.

 

A significant deterioration in the economic growth of any of the main trading partners of Brazil or Argentina could have a material impact on the trade balance of those countries and could adversely affect their economic growth and that of other countries in the region.

 

Governments have a high degree of influence in the economies in which we operate, which could adversely affect our results of operations or financial condition.

 

Governments in many of the markets in which we currently, or may in the future operate frequently intervene in their respective economies and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Government actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. We have no control over, and cannot predict what measures or policies governments may take in the future. The results of operations and financial condition of our businesses may be adversely affected by changes in governmental policy or regulations in the jurisdictions in which they operate that impact factors such as: 

     
  labor laws;
     
  economic growth;
     
  currency fluctuations;
     
  inflation;
     
  exchange and capital control policies;
     
  interest rates;
     
  liquidity of domestic capital and lending markets;
     
  monetary policy;

 

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  liquidity and solvency of the financial system;
     
  limitations on ownership of rural land by foreigners;
     
  developments in trade negotiations through the World Trade Organization or other international organizations;
     
  environmental regulations;
     
  tax laws, including royalties and the effect of tax laws on distributions from our subsidiaries;
     
  restrictions on repatriation of investments and on the transfer of funds abroad;
     
  expropriation or nationalization;
     
  import/export restrictions or other laws and policies affecting foreign trade and investment;
     
  price controls or price fixing regulations;
     
  restrictions on land acquisition or use or agricultural commodity production; and
     
  other political, social and economic developments, including political, social or economic instability, in or affecting the country where each business is based.

 

Uncertainty over whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial condition.

 

Currency exchange rate fluctuations relative to the U.S. dollar in the countries in which we operate our businesses may adversely impact our results of operations and financial condition.

 

We operate exclusively outside the United States, and our businesses may be impacted by significant fluctuations in foreign currency exchange rates. Our exposure to currency exchange rate fluctuations results from the currency translation adjustments required in connection with the preparation of our Consolidated Financial Statements. The currency exchange exposure stems from the generation of revenues and incurrence of expenses in different currencies and the devaluation of local currency revenues impairing the value of investments in U.S. Dollars. While the Consolidated Financial Statements presented herein are, and our future Consolidated Financial Statements will be, presented in U.S. dollars, the financial statements of our subsidiaries are prepared using the local currency as the functional currency and translated into U.S. dollars by applying: (i) a year-end exchange rate for assets and liabilities; and (ii) an average exchange rate for the year for income and expenses. Resulting exchange differences arising from the translation to our presentation currency are recognized as a separate component of equity. Currencies in Argentina and Brazil have fluctuated significantly against the U.S. dollar in the past. Accordingly, fluctuations in exchange rates relative to the U.S. dollar could impair the comparability of our results from period to period and have a material adverse effect on our results of operations and financial condition.

 

The Argentine Peso depreciated 5.89% against the U.S. dollar in 2011, 14.27% in 2012, 32.5% in 2013 and 30.7% in 2014.  However, due to the restrictions on the purchase of foreign currency imposed by the Argentine government (see “ - Risks Related to Argentina-Exchange controls could restrict the inflow and outflow of funds in Argentina.”) there exists an unofficial market where the U.S. dollar is trading at a different market value than reflected in the official Argentine Peso – U.S. Dollar exchange rate. The Company uses the official Argentine Peso-U.S. Dollar exchange rate as the reference exchange rate for all re-measurement purposes, which is consistent with the economic reality that foreign currency transactions entered into or paid out of Argentina are required to be converted at the official exchange rate. As of the date of this report the gap between the official rate and the unofficial rate is approximately 45.5% and may increase or decrease in the future. We cannot predict future fluctuations in the exchange rate of the Argentine Peso or whether the Argentine government will change its currency policy.

 

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The Brazilian currency has historically suffered frequent fluctuations. As a consequence of inflationary pressures, in the past, the Brazilian government has implemented various economic plans and adopted a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Formally the value of the Real against foreign currencies is determined under a free-floating exchange rate regime, but in fact the Brazilian government is actually intervening on the Market, through currency swaps, trading in the spot market, among others, every time the currency exchange rate is above or below the levels that the Brazilian government considers appropriate, taking into account, inflation, growth, the performance of the Real against the U.S dollar in comparison with other currencies and other economic factors. Periodically, there are significant fluctuations in the value of the Real against the U.S. dollar. The Real depreciated 12.6 % against the U.S. dollar in 2011, depreciated 8.94% in 2012, depreciated 14.6% in 2013 and depreciated 13.4% in 2014. Against the euro, the Real depreciated 9.3% in 2011, depreciated 10.7% in 2012 , depreciated 19.7% in 2013 and depreciated 0.01% in 2014 . On December 31, 2013, the Real/U.S. dollar exchange rate was R$2.3426 per U.S. dollar, and the Real/Euro exchange rate was R$3.2265 per Euro, as reported by the Central Bank of Brazil. On December 31, 2014, the Real/U.S. dollar exchange rate was R$ 2.6562, a depreciation of 13.4% in comparison with December 31, 2013, and as of December 31, 2014 the Real/Euro exchange rate was R$3.2270 per Euro, a depreciation of 0.01%.

 

Future fluctuations in the value of the local currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in one or a combination of the countries in which we operate, our results of operations or financial condition could be adversely affected.

 

Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations.

 

In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Argentina and Brazil, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. As part of these measures, governments have at times maintained a restrictive monetary policy and high interest rates that has limited the availability of credit and economic growth.

 

A portion of our operating costs in Argentina are denominated in Argentine Pesos and most of our operating costs in Brazil are denominated in Brazilian Reais. Inflation in Argentina or Brazil, without a corresponding Peso or Real devaluation could result in an increase in our operating costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to pay our foreign denominated obligations.

 

After several years of price stability in Argentina, the devaluation of the Peso in January 2002 imposed pressures on the domestic price system that generated high inflation throughout 2002. In 2003, inflation decreased significantly and stabilized. However, in recent years, encouraged by the pace of economic growth, according to the Instituto Nacional de Estadísticas y Censos, or “INDEC” (Argentine Statistics and Census Agency), the consumer price index increased by 9.5% in 2011, 10.8% in 2012, and10.9% in 2013; while the wholesale price index increased 10.3% in 2009, 14.6% in 2010, 12.7% in 2011, 13.1% in 2012, 14.7% in 2013 and 28.3% in 2014. The accuracy of the measurements of the INDEC has been questioned in the past, and the actual consumer price index and wholesale price index could be substantially higher than those indicated by the INDEC. For example, according to a research center of the University of Buenos Aires, School of Economics, the consumer price index increased by 10.7% (rather than 9.8%) in 2006, 25.7% (rather than 8.5%) in 2007, 23.0% (rather than 7.2%) in 2008 and 15.0% (rather than 7.7%) in 2009 (last published information). Moreover, according to InflacionVerdadera.com, an initiative that is part of the Billion Prices Project at the Massachusetts Institute of Technology, the consumer price index increased by 25.77% (rather than 10.9%) in 2010, by 30.18% (rather than 9.5%) in 2011, by 25.9% (rather than 10.8%) in 2012,24.3% (rather than 10.9%) in 2013.

 

According to private inflation measurements released mainly by the Commission of Freedom of Expression of the Argentine Congress (the “Expression Commission”)  and published in local newspapers, in 2011 the consumer price index increased by 22.8%  (rather than 9.5%), by 25.6% (rather than 10.8%) in 2012 and by 28.38% (rather than 10.9%) in 2013.. See “—Risks Related to Argentina—There are concerns about the accuracy of the INDEC’s measurements.”

 

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In February 2014 the INDEC modified the methodology for the calculation of the consumer price index and the gross domestic product. Under the new calculation methodology, the consumer price index increased by 23.9% in 2014. However, according to InflacionVerdadera.com and the Expression Commission the consumer price index increased by 38.82% and by 40.53%, respectively.

 

Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, has had significant negative effects on the Brazilian economy, particularly prior to 1995. Inflation rates were 7.7% in 2007 and 9.8% in 2008, compared to deflation of 1.7% in 2009, inflation of 11.3% in 2010, inflation of 5.1% in 2011, inflation of 7.8% in 2012, inflation of 5.5% in 2013 and inflation of 3.7% in 2014, as measured by the General Market Price Index (Indice Geral de Preços — Mercado), compiled by the Getúlio Vargas Foundation (Fundação Getúlio Vargas). A significant proportion of our cash costs and our operating expenses are denominated in Brazilian Reais and tend to increase with Brazilian inflation. The Brazilian government’s measures to control inflation have in the past included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. This policy has changed in the last two years, when the Brazilian government decreased the interest rate by 525 basis points. Subsequently, the high inflation, arising from the lower interest rate, and the intention to maintain this rate at low levels, led, the Brazilian government to adopt other measures to control inflation, such as tax relief for several sectors of the economy and tax cuts for the products included in the basic food basket. These measures were not sufficient to control the inflation, which led the Brazilian government to reinstate a tighter monetary policy. As a result, interest rates have fluctuated significantly. The Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia, or “SELIC”) interest rate in Brazil at year-end was 13.25% in 2006, 11.25% in 2007, 13.75% in 2008, 8.75% in 2009, 10.75% in 2010, 11.0% in 2011, and 7.25% in 2012, 10.0% in 2013 and 11.5% in 2014 as determined by the Comitê de Política Monetária, or COPOM.

 

Argentina and/or Brazil may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition.

 

Depreciation of the Peso or the Real relative to the U.S. Dollar or the Euro may also create additional inflationary pressures in Argentina or Brazil that may negatively affect us. Depreciation generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation also reduces the U.S. Dollar or Euro value of dividends and other distributions on our shares and the U.S. Dollar or Euro equivalent of the market price of our shares. Any of the foregoing might adversely affect our business, operating results, and cash flow, as well as the market price of our common shares.

 

Conversely, in the short term, a significant increase in the value of the Peso or the Real against the U.S. Dollar would adversely affect the respective Argentine and/or Brazilian government’s income from exports. This could have a negative effect on gross domestic product (“GDP”) growth and employment and could also reduce the public sector’s revenues in those countries by reducing tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.

 

Disruption of transportation and logistics services or insufficient investment in public infrastructure could adversely affect our operating results.

 

One of the principal disadvantages of the agricultural sector in the countries in which we operate is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of agriculture as a whole in the countries in which we operate and of our operations in particular. Improvements in transportation infrastructure are likely to be required to make more agricultural production accessible to export terminals at competitive prices. A substantial portion of agricultural production in the countries in which we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Our dependence on truck transportation may affect our position as a low-cost producer so that our ability to compete in the world markets may be impaired.

 

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Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could reduce the demand for our products, impede our products’ delivery or impose additional costs on us. We currently outsource the transportation and logistics services necessary to operate our business. Any disruption in these services could result in supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner.

 

Risks Related to Argentina

 

Argentine economic and political conditions and perceptions of these conditions in the international market may have a direct impact on our business and our access to international capital and debt markets, and could adversely affect our results of operations and financial condition.

 

A significant portion of our operations, properties and customers are located in Argentina. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Between 2001 and 2003 Argentina experienced a period of severe political, economic and social crisis. In 2002, the enactment of Law No. 25,561 (the “Public Emergency Law”) ended more than a decade of uninterrupted Peso/dollar parity, and the value of the Peso against the U.S. dollar has fluctuated significantly since then.

 

Although general economic conditions in Argentina recovered after the 2001-2003 period of severe economic crisis,a period of significant economic uncertainty followed. This is mainly because the economic growth was initially dependent on a significant devaluation of the Argentine Peso, a high excess production capacity resulting from a long period of deep recession and high commodity prices. The global economic crisis of 2008 led to a period of economic decline, accompanied by political and social unrest, inflationary and Peso depreciation pressures and lack of consumer and investor confidence. The lingering economic crises in Europe, including the financial crisis in Greece, Spain, Italy and Portugal, the international demand for Argentine products, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors, the stability and level of inflation and the future political uncertainties, among other factors, may also affect the development of the Argentine economy.

 

Since 2011 the economic conditions have continued to deteriorate, due to, among other things, the rise of inflation, the continued demand for salary increases, the growth of the fiscal deficit, the required payments to be made on public debt during 2012 (including the Bonos del Gobierno Nacional en Dólares Estadounidenses Libor 2012), the reduction of industrial growth, the recession and the increase of the capital outflows from Argentina. The foregoing prevailing economic conditions have forced the Argentine government to adopt different measures, including the tightening of foreign exchange controls, the elimination of subsidies to the private sector and the proposals for new taxes. See “—Changes in the Argentine tax laws may adversely affect the results of our operations”.  Argentine presidential, congressional, municipal and state government elections are expected to be held in October 2015. However there is uncertainty on the possible outcome of the elections and therefore on the governmental policies which may be adopted in the future.

 

According to the INDEC, Argentina’s GDP, in real terms, grew by 8.7% in 2007, 6.8% in 2008, 0.9% in 2009, 9.2% in 2010, 8.9% in 2011, 1.9% in 2012, 5.6% in 2013 and 0.5% in 2014. See “—Official data regarding inflation may be unreliable” and “—Risks Associated with the Countries in which We Operate—Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations” in this section. The INDEC originally reported a GDP for 2013 equal to 5.6%, however, in February 2014 the INDEC modified the methodology for the calculation of the GDP and released a new GDP index for 2013, equal to 3.00%. According to a preliminary estimates, the GDP reported  by INDEC for 2014 is equal to 0.5%. We cannot assure you that GDP will increase or remain stable in the future.

 

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In the recent past, social and political tension and high levels of poverty and unemployment have persisted and in recent months industrial activity and consumption has diminished considerably. The deterioration of the economy significantly increased the social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Due to the high levels of inflation and devaluation, employers both in the public and private sectors are experiencing significant pressure from organized labor unions and their employees to further increase salaries. See “—Risks related to Argentina—The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs”.

 

In addition, during the recent past the Argentine Central Bank’s reserves have suffered a substantial decrease mainly as a consequence of the increasing need to import energy and payments of sovereign debt. The reduction of the Argentine Central Bank’s reserves may weaken Argentina’s ability to overcome economic deterioration. This could inhibit the ability of the Argentine Central Bank to adopt measures to curb inflation and could adversely affect Argentina’s economic growth and public finances.

 

A continued deterioration of the economic, social and/or political conditions may adversely affect the development of the Argentine economy and force the government to adopt future policies including forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment and salary increases, and/or the provision of additional employee benefits. Any such economic, social and/or political conditions and/or measures could materially affect our business, results of operations and financial condition.

 

The economy of Argentina may be affected by its government’s limited access to financing from international markets.

 

The Argentine economy has experienced significant instability in the past decades, including devaluations, high inflation, and prolonged periods of reduced economic growth, which have led to payment defaults on Argentina’s foreign debt and multiple downgrades in Argentina’s foreign debt rating with attendant restrictions on Argentina’s ability to obtain financing in the international markets.

 

As of December 31, 2001, Argentina’s total public debt amounted to $144.5 billion (including $6.6 billion owed to the Paris Club, an informal group of financial officials from 19 creditor nations entrusted with the negotiation of sovereign debt defaults). In December 2001, Argentina defaulted on over $81.8 billion in external debt to bondholders. In addition, since 2002, Argentina suspended payments on over $15.7 billion in debt to multilateral financial institutions (e.g. International Monetary Fund and the Paris Club) and other financial institutions. In 2006, Argentina cancelled all its outstanding debt with the International Monetary Fund totaling approximately $9.5 billion, and through various exchange offers made to bondholders in 2005 and 2010, restructured over approximately $74.2 billion of the defaulted debt to bondholders. As of December 31, 2014, Argentina’s total public debt amounted to $196.1 billion (excluding over $1.3 billion of debt that remained in default to bondholders who did not participate in the exchange offers in 2005 and 2010).

 

Since 2010, the Argentine government applied $6.4 billion of the Argentine Central Bank’s reserves to the payment of public debt. In 2011, the Argentine government applied $9.6 billion from the Argentine Central Bank’s reserves to the payment of public debt, cancelling the entire debt with international financial institutions. During 2013, the Argentine government made the payment of approximately $4.5 billion of privately held public debt and approximately $2 billion of public debt with multilateral financial institutions and during 2013 refinanced approximately $8 billion of public debt with local public entities (i.e. Argentine Central Bank and the Administración Nacional de la Seguridad Social or ANSES –the social security authority-). On May 29, 2014, the Paris Club announced that it had reached an agreement to clear Argentina´s debt in arrears in the amount of $9.7 billion, as of April 30, 2014. The agreement provides for repayment of the debt within five years, including a minimum of $1.2 billion to be paid during May 2015.  During 2015 the Argentine government is obligated to make payments of approximately $14 billion of public debt, including the Bonos del Gobierno Nacional en Dólares Estadounidenses (BODEN 2015), which represents approximately 45% of the Argentine Central Bank’s foreign reserves as of December 31, 2014. After these payments, the Argentine Central Bank’s reserves would be reduced to approximately $17 billion, very close to the amount of the reserves during the crisis of 2001 when the reserves were reduced to approximately $15 billion on December 31, 2001.

 

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The Argentine government has had to respond to claims in respect of payment defaults at the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”) for approximately $65 billion (some of which have been settled or ruled against Argentina).

 

Among the more publicized disputes is the on-going litigation brought in U.S. federal courts by the bondholders who did not participate in the exchange offers made in 2005 and 2010. During 2012 the United States District Court for the Southern District of New York granted an injunction requiring Argentina to make “ratable payments” to the litigating bondholders as a condition to making any payment under the restructured debt and to deposit into an escrow account over $1.3 billion prior to making the scheduled payment on the restructured debt on  December 15, 2012.  On August 23, 2013, the United States Court of Appeals for the Second Circuit affirmed the District Courts’ orders but stayed enforcement pending resolution of a petition to the Supreme Court for a writ of certiorari, which was rejected by the Supreme Court. Subsequently, the District Court lifted the stay on enforcement of the injunction and appointed Mr. Daniel A. Pollack as mediator to settle negotiations between Argentina and the litigating bondholders.  These negotiations ended on July 30, 2014 without reaching agreement. Due to the lack of payment under the outstanding notes, Argentina entered into “technical default” under the terms of the indebtedness.  On September 12, 2014, the Argentine Congress passed Law No. 26,984 approving the replacement of The Bank of New York Mellon by Nación Fideicomisos S.A., as trustee under the restructured bonds; changing the place of payment under the exchange bonds into Argentina; and approving the launch of an offer for the exchange of the restructured bonds for new bonds governed by Argentine and French law.  However, the exchange offer failed to receive the requisite acceptance.

 

Due to the lack of access to the international capital markets on March 28, 2012, the Argentine government approved a reform of the Argentine Central Bank’s Charter by which, among other things: (i) limited the availability of economic information (i.e. expected rate of inflation, amount and composition of reserves and of the monetary base); (ii) significantly increased the Argentine government’s access to financing from the Argentine Central Bank; (iii) granted the Board of Directors of the Argentine Central Bank the discretion to determine the required level of reserves; (iv) determined that any reserves above the required level fixed by the Board of Directors constitutes freely available reserves; and (v) provided that in addition to the payment of obligations with international financial institutions, the freely available reserves may also be applied to the payment of official bilateral external debt (i.e. Paris Club).

 

The reduction of the Argentine Central Bank’s reserves may weaken Argentina’s ability to overcome economic deterioration in the future. As a result of this economic instability, the foreign debt rating of Argentina has been downgraded on multiple occasions based upon concerns regarding economic conditions and rising fears of increased inflationary pressures. This uncertainty may also adversely impact Argentina’s ability to attract capital. Without access to international private financing, Argentina may not be able to finance its obligations, and financing from multilateral financial institutions may be limited or not available. This could also inhibit the ability of the Argentine Central Bank to adopt measures to curb inflation and could adversely affect Argentina’s economic growth and public finances, which could, in turn, adversely affect our operations in Argentina, our financial condition or the results of our operations.

 

Argentine law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina.

 

Law No. 26,737, passed by the Argentine Congress in December 2011, and its implementing regulation Decree No. 274/2012 of February 28, 2012, impose limits on the ownership or possession of rural land by foreign legal entities or foreign individuals (excluding foreign individuals who have resided in Argentina ten years or more; who have Argentine children and also have resided at least five-years in Argentina; or who have been married to Argentine citizens for at least five years prior to the transfer of the property rights over rural land and have resided in Argentina for at least five years).

 

Law No. 26,737 and its implementing regulation require that, “foreign ownership” of rural land may not exceed 15% of the total amount of rural land in the Argentine territory calculated also in relation to the territory of the Province, Department or Municipality where the relevant lands are located. For purposes of the law, “foreign ownership” means the ownership (whether by acquisition, transfer, assignment of rights or otherwise) over rural land by: (i) foreign individuals, regardless of whether they are Argentine residents or not; (ii) legal entities where more than 51% of the stock is directly owned by foreign individuals or entities; (iii) legal entities which are indirectly linked to or controlled by foreign entities or individuals through ownership of (a) 25% or more of their stock or (b) a number of votes sufficient to prevail in the local entity’s decision-making process; (iv) any foreign legal entity or individual operating as de facto shareholder; (v) companies that issue bonds (a) convertible in stock representing 25% or more of the company’s stock and (b) whose holders are foreign individuals or entities; (vi) trusts whose beneficiaries are foreign individuals or entities, as defined pursuant to (ii), (iii), (iv) or (v) above; (vii) joint ventures in which foreign entities or individuals hold a participating interest higher than those set forth by the law (51% under (ii) or 25% under (iii), (iv), (v) or (vi) above); (viii) foreign public law-governed legal entities; and (ix) simple associations or de facto corporations in which foreigners hold shares in the percentage set forth by the new law in relation to corporations or which are controlled by foreigners. Any modification to the capital stock of companies that own or possess rural land, by public or private instrument, may be reported to the National Registry of Rural Land (Registro Nacional de Tierras Rurales) within 30 days from the date of such modification.

 

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In addition, foreign entities or individuals of the same nationality may not own more than 4.5% of rural land in Argentina and a single foreign entity or individual may not own more than 1,000 hectares in the “core area”, or the “equivalent surface”, as determined by the Interministerial Council of Rural Land (Consejo Interministerial de Tierras Rurales) in accordance with the provinces’ proposal, specifying districts, sub-regions or areas and taking into consideration the location of the land, the proportion of the land area in respect of the total territory of the relevant Province, Department or Municipality and, the quality of the land for use and exploitation. The “equivalent surface” regime may be modified by the Interministerial Council of Rural Lands (Consejo Interministerial de Tierras Rurales) taking into account possible changes in the quality of the land or the growth of urban populations. Pursuant to Decree No. 274/2012 the departments that comprise the “core area” are: Marcos Juarez and Union in the Province of Córdoba; Belgrano, San Martin, San Jeronimo, Iriondo, San Lorenzo, Rosario, Constitución, Caseros and General Lopez in the Province of Santa Fe; and the districts of Leandro N. Alem, General Viamonte, Bragado, General Arenales, Junin, Alberti, Rojas, Chivilcoy, Chacabuco, Colon, Salto, San Nicolas, Ramallo, San Pedro, Baradero, San Antonio de Areco, Exaltacion de La Cruz, Capitan Sarmiento and San Andres de Giles in the Province of Buenos Aires.

 

Foreign legal entities or individuals may not own rural land that comprise or are located beside permanent and significant bodies of water to be determined by the Interministerial Council of Rural Land (Consejo Interministerial de Tierras Rurales) and will include hydrological works and projects considered strategic and of public interest.

 

Law No. 26,787 created a National Registry of Rural Land (Registro Nacional de Tierras Rurales) in charge of the enforcement of the provisions of the law and registry of rural land. Foreign owners were required to report their ownership of rural land to the National Registry of Rural Land within the 180 days immediately following the issuance of the law’s implementing regulations.

 

Acquisition of rural land will not be deemed as an “investment” under bilateral investment treaties signed by the Argentine Republic, since rural land is deemed as “a non-renewable natural resource”.

 

Certain provisions of Law No. 26,787 and its implementing regulation raise questions over their precise meaning. Law No. 26,787 states that any act in violation of its provisions will be considered null and void, notwithstanding, the law expressly provides that it “does not affect any vested rights”. Hence, it should not have an adverse effect on the current rural land owned by our Argentine subsidiaries. However, our Argentine subsidiaries may be prevented from acquiring additional rural land in Argentina, which may adversely affect our financial condition and results of our operations.

 

The lack of financing for Argentine companies may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.

 

The prospects for Argentine companies accessing financial markets are limited in terms of the amount of the financing available and the conditions and costs of such financing. The default on the Argentine sovereign debt and the global economic crisis has significantly limited the ability of Argentine companies to access international financial markets.

 

In addition, in November 2008, the Argentine Congress passed a law eliminating the private pension fund system and transferring all retirement and pension funds held by the pension fund administrators (Administradoras de Fondos de Jubilaciones y Pensiones, or “AFJPs”) to the National Social Security Administrative Office (Administración Nacional de la Seguridad Social). Because the AFJPs had been the major institutional investors in the Argentine capital markets, the nationalization of the pension fund system has led to a reduction of the liquidity available in the local Argentine capital markets. As of December 31, 2014, our subsidiaries in Argentina have relied on local Argentine financing for 52% of our total indebtedness. Lack of access to international or domestic financial markets could affect the projected capital expenditures for our operations in Argentina and, therefore, may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.

 

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Official data regarding inflation may be unreliable.

 

Since 2007, the INDEC has experienced a process of institutional and methodological reforms that have given rise to controversy with respect to the reliability of the information produced by the INDEC. The intervention of the Argentine government in the INDEC and the change in the way the inflation index is measured has resulted in disagreements between the Argentine government and private consultants as to the country’s actual annual inflation rate. Members of the political opposition in the House of Representatives of the Argentine Congress periodically disseminate inflation data produced by certain private analysts and non-governmental sources which differ significantly from, and which present higher estimates of inflation than those published by the INDEC. According to the INDEC inflation was approximately 8.5% for 2007, 7.2% for 2008, 7.7% for 2009, 10.9% for 2010, 9.5% for 2011, 10.8% for 2012, 10.9% for 2013 and 23.9% for 2014. Uncertainty surrounding future inflation rates has slowed the rebound in the long-term credit market. Private estimates, on average, refer to annual rates of inflation substantially in excess of those published by the INDEC. In the past, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that would permit stable growth. High inflation may also undermine Argentina’s foreign competitiveness in international markets and adversely affect economic activity and employment, as well as our business and results of operations. In June 2008, the INDEC published a new consumer price index, which has been criticized by economists and investors after its initial report found prices rising below expectations. These events have affected the credibility of the consumer price index published by the INDEC, as well as other indices published by the INDEC that use the consumer price index in their calculation, including the poverty index, the unemployment index and real GDP. Beginning November 23, 2010, the Argentine government consulted with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system. During the first quarter of 2011, a team from the IMF started working in conjunction with the INDEC to create a new national consumer price index. Reports published by the IMF state that their staff also uses alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those issued by the INDEC since 2007, and the IMF has called on Argentina to adopt remedial measures to address the quality of official data. In its meeting held on February 1, 2013, the Executive Board of the IMF found that Argentina’s progress in implementing remedial measures since September 2012 has not been sufficient, and as a result, the IMF issued a declaration of censure against Argentina in connection with its breach of its related obligations to the IMF under the Articles of Agreement, and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay.

 

In February 2014, the INDEC modified the methodology for the calculation of the consumer price index and the gross domestic product and released a new GDP index for 2013, equal to 3.003% which differs from de GDP of 5.6% originally reported by INDEC for the same period. In addition, the INDEC reported preliminary estimates for GDP for 2014, equal to 0.5%. Regarding the consumer price index, the INDEC reported that it increased by 23.9% in 2014 whereas according to InflacionVerdadera.com and the Expression Commission the consumer price index increased by 38.819%, 40.53%, respectively.

 

The intervention of the Argentine government in the determination of the INDEC’s indices could result in a further decrease in confidence in Argentina’s economy, which could, in turn, have an adverse effect on our ability to access the international credit markets at market rates to finance our operations and growth.

 

Government intervention in Argentina may have a direct impact on our prices and sales.

 

The Argentine government has in the past set certain industry market conditions and prices. In March 2002, the Argentine government fixed the price for milk after a conflict among producers and the government. In 2005, the Argentine government adopted measures in order to increase the domestic availability of beef and reduce domestic prices. The export tax rate was increased and a minimum weight requirement for animals to be slaughtered was established. In March 2006, sales of beef products to foreign markets were temporarily suspended until prices decreased. Furthermore, in 2007 the Argentine government significantly increased export tax rates on exports of crops. A number of restrictions are also imposed on the grain and oilseed markets that essentially limit the access of traders to exports, resulting in a disparity between domestic and world prices. In March 2012, the Undersecretary of Transport created an “indicative price” for the transportation of grains by road fixed on a quarterly basis. The actual price paid for the road transportation of grains cannot be lower than 5% or higher than 15% of the “indicative price” fixed for the applicable period. In some cases, the imposition of this “indicative price” would produce increases in our transportation costs. In addition, on April 9, 2013, the Secretary of Commerce issued a resolution that established a fixed price for selling liquid hydrocarbons for a six months period. The fixed price would be the highest selling price on the date of issuance of the resolution, in certain regions of the country. Notwithstanding the April 9th resolution, YPF (the Argentine government-controlled oil and gas company) implemented gas price increases that were matched by other oil companies. Due to the increase in the price of the wheat, on July 4, 2013, the Secretary of Commerce issued a resolution mandating wheat producers and distributors to sell their stocks to satisfy the domestic demand, seeking to reduce the wheat price. On January 2014, the Secretary of Commerce launched a new program of price controls called Precios Cuidados. Producers and suppliers committed to fixed prices for more than 300  basic products subject to review on a quarterly basis. As of the date of this annual report, one of our rice products sold under the trademark “Molinos Ala” is subject to this program. Violation of the program may result in sanctions, including fines of up to AR$5,000,000.

 

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The Argentine government may pursue other expropriations or similar interventions such as the one relating to YPF. See “—Risks related to Argentina—The economy of Argentina may be affected by its government’s limited access to financing from international markets.”On December 27, 2012 the Argentine Congress passed Law N° 26,831, known as the new Capital Markets Law, which modifies the public offer regime set forth by Law No. 17,811 as amended. On August 1, 2013 Decree No. 1023/2013, which regulates the Capital Markets Law, was enacted.

 

The Capital Markets Law modifies the applicable regime of the Exchange Markets, including local Stock Exchange and commodities markets, and of the agents and also the powers conferred to the Argentine Securities Commission (Comisión Nacional de Valores) (“CNV”). The main amendments introduced refer to the increase in the power of intervention by the CNV over the Exchange Markets and agents entitling the CNV to appoint supervisors with the ability to veto listed companies´ board decisions, and even separate the board of directors for a period of 180 days; and suspend the activities of agents and markets, without prior notice, when the CNV determines that a breach of applicable regulations has occurred. Also the new Capital Markets Law introduces new and more stringent requirements for agents to obtain authorization to operate in the markets which may result in a reduction of the current number of authorized agents operating in the grain markets.

 

Moreover, the Argentine government may increase its level of intervention in certain areas of the economy. For example, on May 3, 2012 the Argentine Congress passed Law No. 26,741 providing for the expropriation of 51% of the share capital of YPF, S.A. (“YPF”), the largest Argentine oil and gas company in Argentina, represented by an identical stake of Class D shares owned, directly or indirectly, by Repsol S.A., a Spanish integrated oil and gas company. The national government and the Argentine provinces that are members of the Federal Organization of Hydrocarbon Producing Provinces now own 51% and 49%, respectively, of the YPF shares subject to the seizure. This particular measure also sparked a strong international condemnation and had a significant negative impact on foreign direct investment in Argentina as well as further impaired the already limited access to international capital and debt markets. In response to the nationalization of YPF by the Argentine government, the European Union Commission threatened with the imposition of commercial sanctions (i.e. unilateral tariff preferences to Argentina). However, during February 2014, the Argentine government and Repsol S.A. agreed to a compensation of $5,000 million payable in Argentine sovereign bonds to compensate Repsol S.A. for the seizure of the YPF shares. This settlement was ratified by Repsol YPF S.A.´s shareholders and by the Argentine Congress through a law passed on April 24, 2014. Political parties  in opposition to the Government have threatened to challenge the agreement before the Argentine courts.

 

In addition, on November 28, 2012, the Argentine government, through YPF Inversora Energética S.A., an affiliate of YPF, exercised an option for the purchase of the shares of BG Inversiones Argentinas S.A. in Gas Argentino S.A. (the controlling company of Metrogas S.A., the major gas distributor in Argentina). Through this transaction, the Argentine government indirectly acquired control of Metrogas S.A.

 

Expropriations and other interventions by the Argentine government such as the one relating to YPF can have an adverse impact on the level of foreign investment in Argentina, the access of Argentine companies to the international capital markets and Argentina’s commercial and diplomatic relations with other countries. In the future, the level of governmental intervention in the economy may continue, which may have adverse effects on Argentina’s economy and, in turn, our business, results of operations and financial condition.

 

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The Argentine government has been debating the creation of a National Grain Commission (Junta Nacional de Granos) and during February 2014 a senate representative member of the official party circulated a bill providing for the creation of such a commission with powers to regulate the production, commercialization and export of grains and related products. The bill has not yet been officially sent to the Congress for consideration.

 

Furthermore, on April 1, 2014 (i) the Argentine Tax Federal Authority (“Administración Federal de Ingresos Públicos – AFIP”) issued Resolution No. 3,593/14 which established a “Systematic Registration of Movements and Grains Stocks Regime” (“Régimen de Registración Sistemática de Movimientos y Existencias de Granos”) pursuant to which all persons involved in the commercialization and manufacturing of grains and dairy products registered with the National Registry of Operators of the Commercial Agri-Food Chain (Registro Unico de Operadores de la Cadena Comercial Agropecuaria Alimentaria, or “RUO”) must report the stock and stock variations (including locations, transport between the producer´s facilities, etc.) of all grains and other agricultural products (other than those to be applied to sowing) held in inventory  or through third parties; and (ii) the Secretary of Commerce enacted Resolution No. 29 by which all producers and suppliers of goods and services with annual sales greater than AR$183 million must report to the Secretary of Commerce the prices of all their products on a monthly basis. Violations of these regimes may be subject to fines, among and other sanctions.

 

On April 16, 2015, the Argentine Congress passed a law approving the government takeover of the passenger and cargo railways, which will be owned by a State-owned company called Ferrocarriles Argentinos Sociedad del Estado. This law is another exampleof intervention by the Argentine government and may result in higher transportation costs for our products and operations.

 

We cannot assure you that the Argentine government will not continue to interfere or increase its intervention by setting prices or regulating other market conditions. Accordingly, we cannot assure you that we will be able to freely negotiate the prices of all our Argentine products in the future or that the prices or other market conditions that the Argentine government might impose will allow us to freely negotiate the prices of our products, which could have a material and adverse effect on our business, results of operations and financial condition.

 

Recent legislative reforms could adversely affect the operation of our business.

 

On April 8 2013, the Argentine government submitted to the Argentine Congress three bills: (a) the creation of three courts of cassation and the amendment to the Civil and Commercial Procedure Code, which was passed by the Argentine Congress on April 2, 2013 (“Courts of Cassation Law”); (b) the amendment to the Law which regulates the Council of the Judiciary No. 24,937, which was passed by the Argentine Congress on May 8, 2013 (“Council of the Judiciary Law”); and (c) a new regulation of precautionary measures in proceedings involving the federal government or any of its decentralized entities, which was passed by the Argentine Congress on April 24, 2013 (“Precautionary Proceedings Law”).

 

The Court of Cassation Law created (i) a federal court of cassation on Administrative Law matters; (ii) a federal and national court of cassation on Labor and Social Security law matters; and (iii) a federal and national court of cassation on Civil and Commercial law matters, which has jurisdiction to decide the cassation, unconstitutionality and to review appeals against the decisions rendered by the Federal and National Court of Appeals on Administrative Law, Labor and Social Security and Civil and Commercial matters, respectively. The law sets forth that the judges of the Cassation Courts are required to be selected in the same manner and meet the same conditions as a Supreme Court judge. Finally, such law reduces the members of the Supreme Court of Argentina from seven to five. The Court of Cassation Law provides for additional judicial review before having access to the Federal Supreme Court.  Accordingly, judicial proceedings before federal and national courts may require additional time and will likely result in higher legal costs.

 

The Council of the Judiciary Law increased the number of members of the Council of the Judiciary from thirteen to nineteen, including three judges, three lawyer’s representatives, six representatives from academia, six congressmen (four selected by the majority in the Argentine Congress and two selected by the minority) and a Federal Executive Branch representative. The law changed the method for appointing the Members of the Council. Prior to the adoption of the Council of the Judiciary Law, Members of the Council were appointed by their peers. According to the new law, they will be appointed by means of open, compulsory and simultaneous primary elections. The Council of the Judiciary is entrusted with broad powers to organize and run the system to train, appoint and remove judges; approve the draft proposal for the annual budget, establish the system of compensation of all the judicial system and provide for the administration of all the judicial personnel; sanction judges and retired judges; and amend the regime applicable to the judiciary system. As a result, the election of the members of the Council of the Judiciary would be politically based influenced and the majorities for the removal of judges would be limited.

 

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According to the Precautionary Proceedings Law, when granting a precautionary measure against the Argentine government and its agencies, judges will have to establish, under penalty of nullity, a period of effectiveness of such measure of no longer than six months in normal proceedings and three months in abbreviated proceedings and in the case of “an amparo (“injuction relief”).” The term can be extended for six months considering if its in the public interest. Special consideration will be given to the dilatory tactics or proactive measures taken by the party that was awarded the measure. In addition, under such legislation, Judges are not allowed to grant precautionary measures that will affect or detract from its purposes or in any way disrupt the property or revenues of the Federal Government, nor impose personal monetary charges to public officers. Moreover, the law establishes that the precautionary measures against the Federal Government or its decentralized entities will be effective once the requesting party places an injunction bond for the expenditures or damages that the measure may cause. The injunction bond will not be required when the precautionary measure is granted in favor of the Federal Government or any of its decentralized entities.

 

On June 18, 2013, the Supreme Court declared certain sections of the Council of the Judiciary Law unconstitutional, in particular those referring to the increase in the number of members and the method for appointing such members. On July 7, 2013, the Federal Court on Administrative Law suspended the implementation of the Court of Cassation Law and declared the precautionary proceedings limitations provided for in the law to be unconstitutional. This law if implemented or other laws approving reforms to the Argentine judicial system may have a negative impact on our business and operations as such legislation could make a timely and impartial administrative process more difficult.

 

On October 8, 2014 the Argentine Congress passed Law No. 26,994, which approved the new Argentine consolidated Civil and Commercial Code, which will come into force on August 1, 2015. Among others, the new Argentine consolidated Civil and Commercial Code introduced significant amendments with respect to the obligations to pay sums of money denominated in foreign currency, where the obligation to deliver foreign currency must be deemed as an obligation to deliver amounts of goods and debtor may comply by delivering an equivalent amount in legal tender, without clarifying how such equivalent amount will be determined.  However, a different section of the same law provides that where debtor is obligated to make a payment in foreign currency it must satisfy the obligation in the same currency.  It is expected that this contradiction in the law may result in potential litigation.

 

These laws and other laws that the Argentine government may introduce for approval by the Argentine Congress may have an adversely and materially affect on the Argentine economy, and thereby our business, results of operations and financial condition.

 

Government measures to preempt or respond to social unrest may adversely affect the Argentine economy and our business.

 

During the Argentine economic crisis in 2001 and 2002, Argentina experienced significant social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Despite Argentina’s economic recovery and relative stabilization, social and political tension and high levels of poverty and unemployment continue. In 2008, Argentina faced nationwide strikes and protests from farmers due to increased export taxes on agricultural products, which disrupted economic activity and have heightened political tensions. Currently, Argentina is facing national protests from the Argentine population. On November 8, 2012, there was a massive protest against the government and on November 20, 2012 opposition trade unions led a general strike. The social unrest increased during the last months of 2012, and in December there were new riots and lootings to shops and supermarkets in various cities around the country. Social unrest has continued since, reflected by a general massive strike on April 10, 2014, and a protest in February 2015 and a general strike on March 31, 2015.

 

Future government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the Argentine economy, and thereby our business, results of operations and financial condition.

 

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Disputes between the Argentine government and the agricultural sector may adversely affect the Argentine economy and our business.

 

In 2008, the Ministry of Economy and Public Finance issued a resolution which applied variable export tariffs (retenciones móviles) to the agricultural sector, thereby increasing the tariffs applicable to such exports. The resolution caused a strong reaction by organizations and individuals related to the agricultural sector, who considered the increase a direct confiscation of their private property. This reaction was publicly evidenced by large-scale demonstrations all over the country, resulting in the largest agricultural strike in Argentina’s history, which included road blocks by strikers to prevent traffic of any freight related to agricultural production. As a consequence, markets reacted adversely, causing a recession in local demand and a disruption in the local financial markets. After a serious institutional crisis between the Argentine congress and the executive branch, the Argentine government issued decrees limiting the effectiveness of the original resolution. However, we cannot assure you that the government’s dispute with the agricultural sector will not resume or whether a similar reaction or conflict with the same sector will not arise.

 

Moreover, a decision of the Argentine government to pursue the creation of a National Grain Commission (Junta Nacional de Granos) could lead to a conflict greater than the one originated by the increase of the variable export tariffs. See “—Risks related to Argentina—Government intervention in Argentina may have a direct impact on our result of operations or financial condition”.

 

Although, to date, the dispute has not materially affected us, we cannot assure you that a similar dispute will not arise and, if it were to arise, that it will not have a material and adverse effect on our business, results of operations and financial condition in the future.

 

The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs.

 

The Argentine government increased the minimum salary from 3,300 Argentine Pesos to 3,600 Argentine Pesos in January 2014, to 4,400 in September 2014 and to 4,716 in January 2015 (equivalent to aggregate increase of 30% during 2014). Due to the high levels of inflation, employers both in the public and private sectors are experiencing significant pressure from organized labor and their employees to further increase salaries. During 2013 organized labor unions agreed with employers’ associations on salary increases between 22% and 25%. Due to the acceleration of the devaluation and inflation during 2014 labor unions have agreed on salary increases of up to 32%. During the beginning of 2015, labor unions are demanding salary increases of up to 30% provided that the Argentine government agrees to pass an amendment increasing the minimum amount subject to the income tax and grant other non-remunerative benefits. It is possible that the Argentine government could adopt measures establishing further minimum salary increases, and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.

 

An increase in export and import duties and controls may have an adverse impact on our sales.

 

Since 2002, the Argentine government has imposed duties on the exports of various primary and manufactured products, including some of our products. During the last ten years, such export taxes have undergone significant increases, reaching a maximum of 35% in the case of soybean. We cannot assure you that there will not be further increases in the export taxes or that other new export taxes or quotas will not be imposed. Imposition of new export taxes or quotas or a significant increase in existing export taxes or the application of export quotas could adversely affect our financial condition or results of operations.

 

Pursuant to a resolution of the AFIP since February 2012, prior to the execution of any purchase order or similar document, Argentine importers are required to file before the AFIP a “Prior Import Statement” (Declaración Jurada Anticipada de Importación) providing information on future imports. Compliance with this requirement will be verified by the Argentine Customs upon arrival of the goods into Argentina and will be condition for the authorization of the payment of the purchase price by the Argentine financial entities. Even though this is intended merely as an information regime, it may be used for purposes of restricting imports into Argentina. A similar regime was also imposed in respect of the import and export of services, and could result in additional restrictions being imposed on the payments made by Argentine residents on services provided by foreign residents. The imposition of this regime may restrict the imports of goods and the import and export of services of our Argentine subsidiaries which may adversely affect our financial conditions or results of operations.

 

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On November 5, 2013, the Central Bank issued Communication “A” 5493 restricting lending by domestic bank to large export companies (“Grandes Empresas Exportadoras”) with the stated aim of increasing the flow of U.S. Dollars into Argentina. The objective of the new law is to cause large export companies to seek financing from foreign institutions. We believe that the Company’s subsidiaries in Argentina should not be deemed to be Grandes Empresas Exportadoras and therefore should not be subject to these limitations on borrowing from domestic banks. However, if the Company´s subsidiaries in Argentina become subject to these limitations in the future, the lack of access to financing in the domestic and foreign markets may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.

 

Exchange controls could restrict the inflow and outflow of funds in Argentina.

 

In 2001 and 2002, the Argentine government implemented a number of monetary and currency exchange control measures that included restrictions on the withdrawal of funds deposited with banks and stringent restrictions on the outflow of foreign currency from Argentina, including for purposes of paying principal and interest on debt and distributing dividends.

 

Although most of these restrictions were eased in the past, as a consequence of the increase of the demand in Argentina for U. S. Dollars and the capital flows out of Argentina during 2011, the Argentine government imposed additional restrictions on the purchase of foreign currency and on the transfer of funds from Argentina (e.g., to make portfolio investments) and reduced the time required to comply with the mandatory transfer of funds into Argentina (e.g., the mandatory transfer into Argentina of the proceeds of loans disbursed outside of Argentina or the mandatory repatriation of export receivables).

 

In October 2011 and during 2012 and 2013, the Government of Argentina adopted informal restrictions on certain local companies and individuals for purchasing foreign currency in response to the decrease in availability of U.S. dollars in Argentina. These restrictions consisted of de facto measures restricting local residents and companies from purchasing foreign currency through the Argentine Single Free Foreign Exchange Market (Mercado Único y Libre de Cambios, or “FX Market”) for the purpose of making payments abroad, such as dividends, capital reductions, and payment for importation of goods and services. Other exchange controls could impair or prevent the conversion of anticipated dividends, distributions, or the proceeds from any sale of equity holdings in Argentina, as the case may be, from Argentine pesos into U.S. dollars and the remittance of the U.S. dollars abroad. These restrictions and controls could interfere with the ability of our Argentine subsidiaries to make distributions in U.S. dollars to us and thus our ability to pay dividends in the future.

 

Since January 2012, the term for mandatory transfer of foreign currency denominated indebtedness in Argentine pesos was reduced from 365 days to 30 or 10 days following disbursement depending on the indebtedness. Accordingly, we may face difficulties in the payment of external debt obligations from Argentina, we may not be able to fund and/or finance our operations in Argentina, or we may not be able to distribute dividends from Argentina. Additionally, by means of resolution 142/2012 issued by the Ministry of Economy and Public Finance on April 24, 2012, and Communication “A” 5300 issued by the Central Bank on April 27, 2012, the term to comply with the mandatory transfer into Argentina of export proceeds was reduced to 15 days following shipment. This last term was increased to 30 days pursuant to Resolution 231/2012 issued by the Ministry of Economy and Public Finance on May 24, 2012. These restrictions and requirements, and any additional exchange controls and transfer restrictions in the future that may be adopted by the Argentine government in response to capital flight or a depreciation of the Argentine peso, could adversely affect our financial condition and the results of our operations, or the market price of our common shares.

 

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Changes in the Argentine tax laws may adversely affect the results of our operations.

 

On September 23, 2013, Law No. 26,893 amending the Income Tax Law was enacted. According to the amendments the distribution of dividends is subject to income tax at a rate of 10% and the sale, exchange or disposition of shares and other securities not trading in or listed in capital markets and securities exchanges is subject to income tax at a rate of 15%. These amendments may adversely affect the results of our Argentine subsidiaries’ operations; and adversely impact the results of the sale or disposition of our Argentine subsidiaries’ shares.

 

Risks Related to Brazil

 

Brazilian economic and political conditions and perceptions of these conditions in international markets have a direct impact on our business and our access to international capital and debt markets and could adversely affect our results of operations and financial condition.

 

A significant portion of our operations, properties and customers are located in Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil. The Brazilian economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Brazil’s GDP, in real terms, grew by 6.1% in 2007, 5.1% in 2008, decreased 0.2% in 2009, increased by 7.5% in 2010, increased 3.0% in 2011, increased 0.9% in 2012, and increased 2.3% in 2013 and 0.2 % in 2014. We cannot assure you that GDP will increase or remain stable in the future. Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of sugar, ethanol, and our other products. As a result, these developments could impair our business strategies, results of operations and financial condition.

 

Historically, Brazil’s political situation has influenced the performance of the Brazilian economy, and political crisis have affected the confidence of investors and the general public, which has resulted in economic deceleration and heightened volatility in the securities issued abroad by Brazilian companies. Future developments in policies of the Brazilian government and/or the uncertainty of whether and when such policies and regulations may be implemented.

 

Changes in Brazilian tax laws may increase our tax burden have a material adverse impact on the taxes applicable to our business

 

The Brazilian government frequently implements changes to the Brazilian tax regime that may affect us and our clients. These changes include changes in prevailing tax rates and, occasionally, imposition of temporary taxes, the proceeds of which are earmarked for designated government purposes. Some of these changes may result in increases in our tax payments, which could adversely affect industry profitability and increase the prices of our products, restrict our ability to do business in our existing and target markets and cause our financial results to suffer. For example, in September 2011, the Brazilian government introduced a tax on currency derivative securities transactions (“IOF/Securities”) (where the underlying asset is linked to fluctuations in foreign currency exchange rates relative to the Reais) that are executed through the Brazilian markets at the time of the acquisition, sale or maturity of IOF/Securities. The tax is calculated at the rate of 1.0% on the notional adjusted value of the financial derivative transaction. On March 1, 2012, the Brazilian government issued new regulations effective immediately relating to new export prepayment financing, limiting the tenor of these financings to 360 days and excluding financial institutions as eligible lenders. In addition, the Brazilian government implemented a 6% IOF/Exchange tax rate applicable to foreign exchange transactions related to financing from foreign financial institutions (“IOF/Exchange”) on loan transactions with an average maturity of less than five years and reduced the IOF/Exchange rate for 360 days. In December 2012, the Brazilian government modified the regulation, allowing early receipt of resources for Brazilian exporters, for prepayment export facilities by importers or any corporate entity operating abroad, including financial institutions, without any incidence of taxes in certain cases. In June 2013, the Brazilian Government revoked those measures, and reduced to 0% of the IOF tax on inflows of investment capital destined to investments in fixed income as well in derivative securities transactions. The effects of these changes and any other change that could result from the enactment of additional legislation cannot be quantified. We cannot assure you that we will be able to maintain our projected cash flow and profitability following any increases in Brazilian taxes applicable to us and our operations.

 

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Widespread corruption and fraud relating to ownership of real estate may adversely affect our business, especially our land transformation business.

 

Under Brazilian Legislation, real property ownership is normally transferred by means of a transfer deed, and subsequently registered at the appropriate Real Estate Registry Office under the corresponding real property record. There are uncertainties, corruption and fraud relating to title ownership of real estate in Brazil, mostly in rural areas. In certain cases, the Real Estate Registry Office may register deeds with errors, including duplicate and/or fraudulent entries, and, therefore, deed challenges frequently occur, leading to judicial actions. Property disputes over title ownership are frequent in Brazil, and, as a result, there is a risk that errors, fraud or challenges could adversely affect us.

 

As an example, the Instituto Nacional de Colonização e Reforma Agrária (“INCRA”) conducted an investigation to determine the falsehood of the Certificado de Cadastro do Imóvel Rural (“CCIR”) delivered to us by the former owner of Rio de Janeiro Farm (the “Farm”) in January 2005 when we acquired the Farm. The INCRA also conducted another investigation related to the cadeia dominial of the Farm to determine the correct chain of ownership through the successive transfers of ownership of the Farm, for the purpose of confirming that the destaque publico occurred, which refers to the transfer of land ownership from the State to a private owner, or that the State does not have an interest in claiming the ownership of the Farm. While, the INCRA found no regularity that could jeopardize the acquisition deed or affect the ownership of Rio de Janeiro Farm we are currently waiting for INCRA to conclude its investigation.

 

Social movements and the possibility of expropriation may affect the normal use of, damage, or deprive us of the use of or fair value of, our properties.

 

Social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra, are active in Brazil and advocate land reform and mandatory property redistribution by the federal government. Land invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including those in which we have invested or are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot assure you that our properties will not be subject to invasion or occupation by these groups. A land invasion or occupation could materially impair the normal use of our lands or have a material adverse effect on our results of operations, financial condition or the value of our common shares In addition, our land may be subject to expropriation by the federal government. Under Article 184 of the Brazilian Constitution, the federal government may expropriate land that is not in compliance with mandated local “social functions”. A “social function” is defined in Article 186 of the Brazilian Constitution as (i) rational and adequate exploitation of land,; (ii) adequate use of natural resources available and preservation of the environment, (iii) compliance with labor laws, and (iv) exploitation of land to promote welfare of owners and employees. If the Brazilian government decides to expropriate any of our properties, our results of operations may be adversely affected, to the extent that potential compensation to be paid by the federal government may be less than the profit we could make from the sale or use of such land. Disputing the federal government’s expropriation of land is usually time-consuming and the outcomes at of such challenges are uncertain. In addition, we may be forced to accept public debt bonds, which have limited liquidity, as compensation for expropriated land instead of cash.

 

Recent changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.

 

Brazilian Federal Law No. 5,709, effective October 7, 1971 (“Law 5709”) established certain restrictions on the acquisition of rural property by foreigners, including that (i) foreign investors may only acquire rural properties in which agricultural, cattle-raising, industrial or colonization projects are going to be developed as approved by the relevant authorities; (ii) the total rural area to be acquired by a foreign investor cannot exceed one quarter of the surface of the municipality where it is located, and foreigners with the same nationality may not own, cumulatively, more than 10% of the surface of the municipality in which it is located; and (iii) the acquisition or possession (or any in rem right) by a foreigner of rural property situated in an area considered important to national security must be previously approved by the General Office of the National Security Council (Secretaria-Geral do Conselho de Segurança Nacional). Pursuant to Article 23 of Law No. 8,629, of February 25, 1993 (“Law 8629”), the restrictions mentioned in items (i) and (ii) above established by Law 5709 are also applicable for rural lease agreements executed by foreigners. “Parcerias Agrícolas” (agriculture partnerships agreements) have not been subject to these restrictions. Although, a broader interpretation of the existing regulations could have also included these agreements within the limitations for foreigners, the Federal General Attorney’s Office (“AGU”) on October 8, 2012 issued a legal opinion 005/2012, pursuant to which the AGU confirmed the understanding that the “Parcerias Rurais” are not subject to the restrictions or limitations of Law 5709. In addition, pursuant to Law 8629, the acquisition or lease by a foreigner of a rural property exceeding 100 módulos de exploração indefinida  - “MEI,” a measurement unit defined by the Regional Superintendence of the National Institute of Colonization and Land Reform (Superintendencia Regional do Instituto Nacional de Colonizaçao e Reforma Agrária – “INCRA”) must be previously approved by the Brazilian National Congress. Law 5709 also establishes that the same restrictions apply to Brazilian companies that are directly or indirectly controlled by foreign investors. Any acquisition or lease of rural property by foreigners in violation of the terms of Law 5709 would be considered null and void under Brazilian law.

 

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However, the Brazilian Constitution enacted in 1988 and its amendments, in particular Constitutional Amendment No. 6, of August 15, 1995, provides that (i) no restrictions on the acquisition of rural land in Brazil should apply to Brazilian companies; and (ii) any company incorporated and headquartered in Brazil and controlled by foreign investors must receive the same treatment as any other company incorporated and headquartered in Brazil and controlled by Brazilian investors. Since the enactment of the Brazilian Constitution in 1988, the interpretation had been that the restrictions imposed by Federal Law 5709 on the acquisition or lease of rural property above-mentioned did not apply to Brazilian companies controlled by foreigners, pursuant to legal opinion No. GQ-22, issued by the AGU in 1994, which was ratified by legal opinion No. GQ-181, also issued by the AGU in 1998. However, the Brazilian Justice National Council issued an Official Letter on July 13, 2010 addressed to all the Brazilian local State Internal Affairs Bureaus in order for them to adopt procedures within sixty (60) days and instruct the local State Notary and Real Estate Registry Offices to observe the restrictions of the Brazilian law on the acquisitions of rural land by Brazilian companies with foreign equity holders. Thereafter, on August 19, 2010, the AGU revised its prior opinion, and published a new legal opinion which: (i) revoked the AGU’s legal opinions No. GQ-22 and GQ-181; and (ii) confirmed that Brazilian entities controlled by foreigners should be subject to the restrictions described above, and transactions entered into by foreigners in connection with the acquisition of rural properties would be subject to approval from INCRA, the Ministry of Agrarian Development and the Brazilian National Congress, when applicable. This revised opinion was ratified by the President of Brazil and published in the Official Gazette of the Federal Executive on August 23, 2010, becoming effective as of such date. We believe that the acquisitions of rural properties by Brazilian companies directly or indirectly controlled by foreigners registered in the appropriate real estate registry prior to August 23, 2010 are not affected by the AGU’s legal opinion. As a confirmation of such understanding, pursuant to the Joint Normative Ruling N. 1 issued on September 27, 2012 by the Ministries of: (i) Agricultural Development; (ii) Agriculture, Cattle-raising and Supply; (iii) Industry Development and Foreign Commerce; and (iv) Tourism (the “Joint Normative Ruling N. 1”); and the Normative Ruling/IN INCRA No.76, issued on August 23, 2013, a Brazilian company controlled by foreign individuals or companies which acquired or leased rural properties, by means of an act or agreement entered into from June 7, 1994 and August 22, 2010, may register such property before the National System of Rural Registry (Sistema Nacional de Catastro Rural-SNCR), without any administrative sanction. However, as of said date, the acquisition and leasing of rural land in Brazil, including through corporate transactions, will be subject to the above-mentioned restrictions, and will require several additional layers of review and approvals, which may be discretionary (including the approvals from INCRA, Ministry of Agrarian Development and the Brazilian National Congress, when applicable), burdensome and time consuming. Additionally, the Joint Normative Ruling N. 1 sets forth the administrative procedures applicable to requests for authorization for the acquisition or lease of rural properties by foreign investors pursuant to Law 5709. Under the Joint Normative Ruling, in order to obtain the authorization for the acquisition or lease of rural properties, foreign investors must present a project proposal to the INCRA, containing: (i) the rationale for the relationship between the property to be acquired or leased and the project size; (ii) physical and financial schedule of the investment and implementation of the project; (iii) use of official credit (governmental funds) for the total or partial finance of the project; (iv) logistic viability of the execution of the project and, in case of an industrial project, proof of compatibility between the local industrial sites and the geographic location of the lands; and (v) proof of compatibility with the criteria established by the Brazilian Ecological and Economical Zoning (Zoneamento Ecológico Económico do Brasil- ZEE), relating to the location of the property.

 

While we conduct our operations in Brazil through local subsidiaries, we would be considered a foreign controlled entity within the meaning of the restrictions articulated above. Therefore, if we are not able to comply with these restrictions and obtain the required approvals in connection with future acquisitions or lease transactions, our business plan, contemplated expansion in Brazil and results of operations will be adversely affected.

 

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Furthermore, there is currently proposed legislation under review in the Brazilian National Congress regarding the acquisition of rural land by Brazilian companies controlled by foreign holders, which if approved may further limit and restrict the investments of companies with foreign equity capital in rural land in Brazil. Such further restrictions, if adopted, may place more strain on our ability to expand our operations in Brazil.

 

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.

 

The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on exports and imports. We may be adversely affected by changes in policy or regulations involving or affecting factors such as:

     
  interest rates;
     
  monetary policy;
     
  limitation on ownership of rural land by foreigners;
     
  exchange controls and restrictions on remittances abroad;
     
  currency fluctuations;
     
  inflation;
     
  the liquidity of domestic capital and financial markets;
     
  tax policy; and
     
  other political, social and economic policies or developments in or affecting Brazil.

 

Uncertainty over whether the Brazilian government will implement changes in policy or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad that are supported by Brazilian issuers. As a result, these uncertainties and other future developments in the Brazilian economy may adversely affect our business, financial condition and results of operations and may adversely affect the price of our common shares.

 

Our business in Brazil is subject to governmental regulation.

 

Our Brazilian operations are subject to a variety of national, state, and local laws and regulations, including environmental, agricultural, health and safety and labor laws. We invest financial and managerial resources to comply with these laws and related permit requirements. Our failure to do so could subject us to fines or penalties, enforcement actions, claims for personal injury or property damages, or obligations to investigate and/or remediate damage or injury. Moreover, if applicable laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, our capital or operating costs could increase beyond what we currently anticipate, and the process of obtaining or renewing licenses for our activities could be hindered or even opposed by the competent authorities.

 

We are also subject to several laws and regulations, among others, imposed in Brazil by (i) the National Agency of Petroleum, Natural Gas and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustível(“ANP”)) and by the Brazilian Electricity Regulatory Agency (Agência Nacional de Energia Elétrica) (“ANEEL”) due to our production of sugarcane and ethanol and (ii) the Ministry of Agriculture, Breeding Cattle and Supply (Ministerio da Agricultura, Pecuaria e Abastecimento(“MAPA”)), due to our agricultural, sugarcane and ethanol production activities. If an adverse final decision is issued in an administrative process, we could be exposed to penalties and sanctions derived from the violation of any of these laws and regulations, including the payment of fines, and, depending on the level of severity applied to the infraction, the closure of facilities and/or stoppage of activities and the cancellation or suspension of the registrations, authorizations and licenses, which may also result in temporary interruption or discontinuity of activities in our plants, and adversely affect our business, financial status, and operating results.

 

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Government laws and regulations in Brazil governing the burning of sugarcane could have a material adverse impact on our business or financial performance.

 

In Brazil, a relevant percentage of sugarcane is currently harvested by burning the crop, which removes leaves in addition to eliminating insects and other pests. The states of São Paulo, Minas Gerais and Mato Grosso do Sul, among others, have established laws and regulations that limit and/or entirely prohibit the burning of sugarcane and there is a likelihood that increasingly stringent regulations will be imposed by those states and other governmental agencies in the near future.

 

Such limitations arise from a Brazilian Federal Decree that set forth the complete elimination of the harvest by burning the crop until 2018 in areas where it is possible to carry out mechanized harvest. In the state of Minas Gerais, the deadline imposed by the State Government for the elimination of the harvest by burning the crop is 2014, for areas with declivity lower than 12%, and for areas with declivity higher than 12%, they are subject to an additional term at the discretion of the State Environmental Agency, on a case by case basis. Nevertheless, in the state of Mato Grosso do Sul. The current deadline is 2018 for the elimination of harvest by burning the crop for areas where  mechanized harvest can be carried out, as per the Brazilian Federal Decree.

 

We currently make significant investments to comply with these laws and regulations. Although our plans for the implementation of mechanized harvesting are underway, with 90.0% of our sugarcane harvest mechanized during the 2012-2013 harvest, the strengthening of these laws and regulations or the total prohibition of sugarcane burning would require us to increase our planned investment in harvesting equipment, which, in turn, would limit our ability to fund other investments. In addition, the state of São Paulo has imposed an obligation on growers to dedicate a certain percentage of land used for sugarcane cultivation for native or reclaimed forest area. The cost of setting aside this land is difficult to predict and may increase costs for us or our sugarcane suppliers. As a result, the costs to comply with existing or new laws or regulations are likely to increase, and, in turn, our ability to operate our plants and harvest our sugarcane crops may be adversely affected.

 

Risks Related to a Luxembourg Company

 

We are a Luxembourg corporation (“société anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.

 

We are organized under the laws of the Grand Duchy of Luxembourg. Most of our assets are located outside the United States. Furthermore, most of our directors and officers and the experts named in this annual report reside outside the United States, and most of their assets are located outside the United States. As a result, you may find it difficult to effect service of process within the United States upon these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for you to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Luxembourg law, furthermore, does not recognize a shareholder’s right to bring a derivative action on behalf of the company.

 

Service of process within Luxembourg upon the Company may be possible, provided that The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of November 15, 1965 is complied with. As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. The enforceability in Luxembourg courts of judgments entered by U.S. courts will be subject prior any enforcement in Luxembourg to the procedure and the conditions set forth in particular in the Luxembourg procedural code, which conditions may include the following (subject to court interpretation which may evolve): 

     
  the judgment of the U.S. court is final and duly enforceable (exécutoire) in the United States;

 

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  the U.S. court had jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was established in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);
     
  the U.S. court has applied to the dispute the substantive law which would have been applied by Luxembourg courts;
     
  the judgment was granted following proceedings where the counterparty had the opportunity to appear, and if it appeared, to present a defense;
     
  the U.S. court has acted in accordance with its own procedural laws; and
     
  the judgment of the U.S. court does not contravene Luxembourg international public policy.

 

Under our articles of incorporation, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited exceptions. Under our articles of incorporation, to the extent allowed or required by law, the rights and obligations among or between us, any of our current or former directors, officers and company employees and any current or former shareholder will be governed exclusively by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. securities laws, such provision could make the enforcement of judgments obtained outside Luxembourg more difficult as to the enforcement against our assets in Luxembourg or jurisdictions that would apply Luxembourg law.

 

You may have more difficulty protecting your interests than you would as a shareholder of a U.S. corporation.

 

Our corporate affairs are governed by our articles of incorporation and by the laws governing joint stock companies organized under the laws of the Grand Duchy of Luxembourg as well as such other applicable local law, rules and regulations. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. There may be less publicly available information about us than is regularly published by or about U.S. issuers. Also, Luxembourg regulations governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters may not be as protective of minority shareholders as state corporation laws in the United States. Therefore, you may have more difficulty protecting your interests in connection with actions taken by our directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United States.

 

You may not be able to participate in equity offerings, and you may not receive any value for rights that we may grant.

 

Pursuant to Luxembourg corporate law, existing shareholders are generally entitled to preemptive subscription rights in the event of capital increases and issues of shares against cash contributions. However, under our articles of incorporation, the board of directors has been authorized to waive, limit or suppress such preemptive subscription rights until the fifth anniversary of the publication of the authorization granted to the board in respect of such waiver by the general meeting of shareholders. The current authorization is valid until April 22, 2016 and we expect to seek a renewal and/extension of such authorization thereafter. 

 

Item 4. Information on the Company

 

  A. HISTORY AND DEVELOPMENT OF THE COMPANY

 

General Information

 

Adecoagro is a Luxembourg société anonyme (a joint stock company). The Company’s legal name is “Adecoagro S.A.” Adecoagro was incorporated on June 11, 2010 and on October 26, 2010 all the outstanding shares of Adecoagro were acquired by IFH.

 

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On October 30, 2010, the members of IFH transferred pro rata approximately 98% of their membership interests in IFH to Adecoagro in exchange for common shares of Adecoagro. On January 28, 2011, Adecoagro completed the IPO of its shares listed on the New York Stock Exchange (“NYSE”). The shares are traded under the symbol “AGRO.”  During 2011, we contributed net proceeds of the IPO to increase our interest in IFH from 98% to 98.64%. In a series of transactions during 2012, we transferred shares of Adecoagro to certain limited partners of IFH in exchange for their residual interest in IFH increasing our interest in IFH to approximately 100%.

 

On March 27, 2015,  Adecoagro commenced a series of transactions for the purpose of  transfering the domicile of Adecoagro LP to Luxembourg. In connection with the Adecoagro LP redomiciliation, Adecoagro merged IFH into Adecoagro LP with Adecoagro LP as the surviving entity and Adecoagro GP S.a.r.l., a societe responsibilitie limitee organized under the laws of Luxembourg, became he general partner of Adecoagro LP on April 1, 2015.  Also on April 1, 2015, Adecoagro completed the redomiciliation of Adecoagro LP out of  Delaware  to Luxembourg and Adecoagro LP without dissolution or liquidation, continued  its corporate existence as Adecoagro LP S.C.S., a societe en commandite simple organized under Luxembourg law, effective April 2, 2015.  For a detailed description of the Adecoagro LP redomiciliation please see “ Corporate Development ” below.

 

Adecoagro is registered with the Luxembourg Registry of Trade and Companies under number B153681. Adecoagro has its registered office at 6, Rue Eugène Ruppert, L-2453, Luxembourg, Grand Duchy of Luxembourg. Our telephone number is (+352) 264491.

 

History

 

In September 2002, we commenced our operations with the acquisition of 100% of the equity interests of Pecom Agropecuaria S.A., an Argentine corporation (sociedad anónima), and we rapidly became one of the largest agricultural companies in Argentina. Involving more than 74,000 hectares of farmland, this acquisition represented one of the largest stock purchase transactions in South America in 2002. In connection with the acquisition, Pecom Agropecuaria S.A. changed its name to Adeco Agropecuaria S.A. (“Adeco Agropecuaria”). Adeco Agropecuaria was the platform from which we executed our expansion plans, including the acquisition of additional land and the diversification of our business activities.

 

In 2004, we began our regional expansion and acquired our farm in Uruguay (approximately 5,086 hectares) and three farms in Western Bahia Brazil (20,419 hectares). In 2005, we continued the expansion of our crop business in Argentina with the acquisitions of La Agraria S.A. (approximately 4,857 hectares) and Establecimientos El Orden S.A. and Cavok S.A. (approximately 15,157 hectares) and Las Horquetas farm (2,086 hectares).

 

In 2005, we acquired our first sugar and ethanol mill, Usina Monte Alegre S.A. (“UMA”), with a crushing capacity of 0.9 million tons of sugarcane per year at that time. UMA became our platform for expansion in the Brazilian sugar and ethanol sector.

 

In 2006 and 2007, we continued our land portfolio expansion and vertical integration through the acquisitions of Pilagá S.A. (formerly Pilagá S.R.L. and before that, Pilagá S.A.G.), one of the largest and oldest agriculture companies in Argentina, with more than 88,000 hectares and two rice processing facilities, and one additional farm of approximately 2,400 hectares in Argentina and two farms of approximately 4,000 hectares in Brazil for the production of crops. Also, in December 2007, we acquired Bañado del Salado S.A. and Agro Invest S.A., with more than 43,000 hectares for crop production in Argentina, and one farm in Uruguay of approximately 3,177 hectares.

 

During 2007, we also began the expansion of our dairy business in Argentina. After five years of research, we began the construction of a “free-stall” dairy facility with a capacity to milk 3,000 cows.

 

In Brazil, during 2007, we began the construction of a sugarcane cluster in Mato Grosso do Sul with a projected 10.0 million tons of sugarcane crushing capacity.  Angelica was the first greenfield mill we built from inception, with a nominal crushing capacity of 4.0 million tons. We also bought approximately 13,000 hectares of farmland for the planting of sugarcane to supply the mill. Angelica began operating during August 2008, and reached full operational capacity during April 2010.

 

Additionally, in August 2010, we acquired Dinaluca S.A., an agricultural company consisting of a farm located in the province of Corrientes, Argentina, and with more than 14,000 hectares for crop production in Argentina. Further, between August and November 2011, we acquired: (i) Compañía Agroforestal de Servicios y Mandatos S.A., an agricultural Argentine company owning more than 4,900 hectares of land in the province of Santiago del Estero, (ii) Simoneta S.A., an agricultural Argentine company owner of more than 4,600 hectares of land in the province of La Pampa, and (iii)  3,400 hectares of land for crop production in the province of San Luis, Argentina.

 

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During 2012, we began the construction of our second free stall dairy facility in Argentina, with a capacity of 3,500 milking cows.

 

On Februrary 26, 2013, Adecoagro formed CHS Agro S.A., a joint venture with a leading farmer-owned energy, grains and foods company based in the United States. We hold 50% interest in CHS Agro. CHS Agro will build a sunflower processing facility located in the city of Pehuajo, Province of Buenos Aires, Argentina. The facility will process blackoil and confectionary sunflower into speciatly products such as in-shell seeds and oil seeds, which will be entirely exported to markets in Europe and the Middle East. The joint venture will grow confectionary sunflower on leased farms, while blackoil sunflower will be originated from third parties. As of December 31, 2014 We and CHS Inc. have made  individual capital contributions to CHS Agro of approximately US$ 4 million each.

 

During March 2013, we began the construction of the second greenfield project in our sugarcane cluster in Mato Grosso do Sul. The Ivinhema mill, with 5.0 million tons of sugarcane crushing capacity and located 45 km south of Angelica, would consolidate our cluster, generating important synergies and economies of scale, improving operational margins and free cash flow. Ivinhema was built in two phases: the first phase with 2.0 million tons of capacity was completed during April 2012 and  the second phase, of 3.0 million tons of crushing capacity was, as of the date of this report is essentially complete. Assembly and commissioning of minor equipment will continue until the end of May 2015.

 

Corporate Development

 

On October 30, 2010, as part of the corporate reorganization, referred to herein as the Reorganization, AFI Ltd., a subsidiary of IFH LLC and the parent of Adecoagro LLC, distributed its interest in Adecoagro LLC to IFH LLC and commenced a process of dissolution, making IFH LLC the direct parent of Adecoagro LLC. Thereafter, our shareholders transferred pro rata 98% of their membership interests in IFH LLC to Adecoagro (a corporation organized under the laws of the Grand Duchy of Luxembourg with no prior holdings or operations, formed for the purpose, among others, of facilitating our IPO) in exchange for 100% of the common shares of Adecoagro.

 

In connection with the Reorganization, Adecoagro converted IFH LLC from a limited liability company to IFH LP, a Delaware limited partnership. owned 2% by our shareholders, approximately 98% by Adecoagro, in each case as limited partners, and the remainder by Ona Ltd., a newly formed Maltese corporation, as its general partner. Adecoagro LLC was also converted to Adecoagro LP, a Delaware limited partnership, owned approximately 100% by IFH LP as limited partner, and the remainder by Toba Ltd., a newly formed Maltese corporation, as its general partner.

 

On January 28, 2011, we successfully completed our initial public offering of our shares listed on the NYSE and on February 2, 2011 we issued 28,405,925 shares, at a price of US$11 per share. The shares trade under the symbol “AGRO.”

 

On February 2, 2011, we also issued and sold to Al Gharrafa Investment Company (“Al Gharrafa”), a wholly owned subsidiary of Qatar Holding LLC and one of our shareholders, 7,377,598 common shares at a purchase price of $10.65 per share, which is equal to the price per common share paid by the underwriters of our initial public offering of the Company, pursuant to an agreement entered into on January 6, 2011. In addition, on February 11, 2011, we issued 4,285,714 shares when the over-allotment option was exercised by the underwriters in our IPO.

 

During 2012, the Company issued in a series of transactions 1,654,752 shares to certain limited partners of IFH in exchange for their residual interest in IFH increasing Adecoagro’s interest in IFHto approximately 100%.

 

On February 26, 2013, Adecoagro formed CHS Agro S.A., a joint venture with CHS Inc. (www.chsinc.com) a leading farmer-owned energy, grains and foods company based in the United States. We hold 50% interest in CHS Agro. CHS Agro will build a sunflower processing facility located in the city of Pehuajo, Province of Buenos Aires, Argentina. The facility will process blackoil and confectionary sunflower into specialty products such as in-shell seeds and oil seeds, which will be entirely exported to markets in Europe and the Middle East. The joint venture will grow confectionary sunflower on leased farms, while blackoil sunflower will be originated from third parties. As of December 31, 2014 We and CHS Inc. have made  a capital contribution to CHS Agro of approximately US$ 4 million each.

 

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On February 5, 2013, we completed an underwritten secondary offering of 13.9 million common shares of Adecoagro offered by our shareholder, HBK Master Fund LP at a price per share to the public of $8.00 pursuant to an effective shelf registration statement on Form F-3 filed with the SEC.  On February 13, 2013, HBK Master Fund LP sold an additional 2,1 million common shares of Adecoagro pursuant to the overallotment option it granted to  the underwriter in the secondary offering.

 

On March 27, 2015, Adecoagro commenced a series of transactions for the purpose of  transfering the domicile of Adecoagro LP to Luxembourg. In connection with the Adecoagro LP redomiciliation, Adecoagro merged IFH LP into Adecoagro LP with Adecoagro LP as the surviving entity. In connection with this merger, all of the assets and liabilities of IFH L.P. vested in Adecoagro LP, Ona Ltd became its general partner and Toba Ltd became a wholly owned subsidiary of Adecoagro LP. In connection with the transactions completed on March 27, 2015, Ona Ltd. assigned its general partnership interest in Adecoagro LP to Adecoagro GP S.a.r.l., a societe responsibilitie limitee organized under the laws of Luxembourg, on April 1, 2015. Also on April 1, 2015, Adecoagro completed the redomiciliation of Adecoagro LP out of  Delaware to Luxembourg and Adecoagro LP, without dissolution or liquidation, continued its corporate existence as Adecoagro LP S.C.S., a societe en commandite simple organized under Luxembourg law, effective April 2, 2015. Since that date the affairs of Adecoagro LP S.C.S. have been governed by its by-laws and Luxembourg law. Set forth below is a corporate structure as of April 2, 2015

 

(GRAPHIC)

 

Principal Capital Expenditures

 

Capital expenditures totaled $322.9 million, $232.1 million and $335.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.

 

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For a discussion of our capital expenditures and future projections, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditure Commitments.”

 

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  B. BUSINESS OVERVIEW

 

Our Company

 

We are a leading agricultural company in South America, with operations in Argentina, Brazil and Uruguay. We are currently involved in a broad range of businesses, including farming crops and other agricultural products, dairy operations, sugar, ethanol and energy production and land transformation. Our sustainable business model is focused on (i) a low-cost production model that leverages growing or producing each of our agricultural products in regions where we believe we have competitive advantages, (ii) reducing the volatility of our returns through product and geographic diversification and use of advanced technology, (iii) benefiting from vertical integration in key segments of the agro-industrial chain, (iv) acquiring and transforming land to improve its productivity and realizing land appreciation through strategic dispositions; and (v) implementing sustainable production practices and technologies focused on long term profitability.

 

As of December 31, 2014, we owned a total of 257,036 hectares, comprised of 20 farms in Argentina, 11 farms in Brazil and one farm in Uruguay. In addition we own and operate several agro-industrial production facilities including three rice processing facilities in Argentina, two dairy facilities with approximately 6,551 milking cows in Argentina and 10 grain and rice conditioning and storage plants in Argentina. As of March 31, 2015 we owned three sugar and ethanol mills in Brazil with a sugarcane crushing capacity of 10.2 million tons.

 

We believe that we are:

 

  one of the largest owners of productive farmland in South America, with more than 212,426 owned hectares as of December 31, 2014 (excluding legal land reserves pursuant to local regulations and other land reserves) located in Argentina, Brazil and Uruguay, producing a wide range of agricultural products.
     
  a leading producer of agricultural commodities in South America. During the 2013/2014 harvest year, we harvested 182,701 hectares of crops and produced 643,354 tons of grains, including soybeans, corn, wheat, sunflower and cotton.
     
  one of the largest producers of rough (unprocessed) rice in the world, planting 36,604 hectares (including 3,100 leased hectares) and producing 205,489 tons during the 2013/2014 harvest year, which accounted for 15% of the total Argentine production according to the Confederacion de Molinos Arroceros del Mercosur (“Conmasur”). We are also a large processor and exporter of white rice (processed) in Argentina, accounting for 18% of total white rice production capacity in Argentina and 15% of total Argentine white rice exports during 2014, according to Camara de Industriales Arroceros de Entre Ríos (Federacion de Entidades Arroceras), respectively.
     
  a leading dairy producer in South America in terms of our cutting-edge technology, productivity per cow and grain conversion efficiencies, producing approximately 79.5 million liters of raw milk during 2014.
     
  a growing producer of sugar and ethanol in Brazil, where we are in the process of building what we expect will be one of the most cost-efficient sugarcane crushing clusters in Brazil. We currently own three sugar and ethanol mills in Brazil with an aggregate installed capacity of 10.2 million tons per year and full cogeneration capacity (the generation of electricity from sugarcane bagasse, the fiber portion of sugarcane that remains after the extraction of sugarcane juice) of 232 MW as of March 31, 2015.
     
  one of the leading companies in South America involved in the acquisition and transformation of undermanaged land to more productive uses, generating higher cash yields. During the last seven fiscal years we have consistently sold a portion of our fully mature farmland every year. In aggregate, we have sold 17 farms generating capital gains of approximately $185 million. 

 

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We are engaged in three main businesses:

 

Farming Business: As of December 31, 2014 we owned 247,891 hectares (excluding sugarcane farms) of farmland in Argentina, Brazil and Uruguay, of which 122,138 hectares are croppable, 17,807 hectares are being evaluated for transformation, 63,336 hectares are suitable for raising beef cattle and are mostly leased to third party cattle farmers, constituting a total of 203,281 productive hectares, and 44,610 hectares are legal land reserves pursuant to local regulations or other land reserves. During the 2013/2014 harvest year we held leases or have entered into agriculture partnerships for an additional 55,797 croppable hectares. We own the facilities and have the resources to store and condition 100% of our crop and rice production. We do not depend on third parties to condition our production for sale. Our farming business is subdivided into four main businesses:

 

  Crop business: We produce a wide range of agricultural commodities including soybeans, corn, wheat, sunflower and cotton, among others. In Argentina, our farming activities are conducted mainly in the Argentine humid pampas region, where agro-ecological conditions are optimal for low-cost production. Since 2004, we have expanded our operations throughout the center-west region of Uruguay and the western part of the state of Bahia, Brazil, as well as in the northern region of Argentina. During the 2013/2014 harvest year, we planted approximately 182,813 hectares of crops, including second harvests, producing 643,354 tons of grains, including soybeans, wheat and corn, sunflower and cotton. We also planted an additional 3,141 hectares where we produced over 89,081 tons of forage that we used for cow feed in our dairy operation. During the current 2014/15 harvest year, we planted approximately 189,272 hectares of crops, including second harvest, and also planted an additional 4,999 hectares of forage .
     
  Rice business: We own a fully-integrated rice operation in Argentina. We produce irrigated rice in the northeast provinces of Argentina, where the availability of water, sunlight, and fertile soil results in one of the most ideal regions in the world for producing rice at low cost. We believe that we are one of the largest producers of rough (unprocessed) rice in Argentina, producing 205,489 tons during the 2013/2014 harvest year, which accounted for 15% of the total Argentine production according to Conmasur. We own three rice mills that process our own production, as well as rice purchased from third parties. We produce different types of white and brown rice that are both sold in the domestic Argentine retail market and exported. During the current 2014/15 harvest year, we planted 35,328 hectares of rice.
     
  Dairy business: We believe that we are a leading dairy producer in South America in terms of our utilization of cutting-edge technology, productivity per cow and grain conversion efficiencies, producing approximately 79.5 million liters of raw milk during 2014, with an average of 6,440 milking cows, delivering an average of 33.8 liters of milk per cow per day. Through the production of raw milk, we are able to transform forage and grains into value-added animal protein. We believe that our “free-stall” dairies in Argentina are the first of their kind in South America and allows us to optimize our use of resources (land, dairy cow feed and capital), increase our productivity and maximize the conversion of forage and grain into raw milk.
     
  All Other Segments business: Our all other segments business consists of leasing pasture land to cattle farmers in Argentina and leasing  our coffee plantation in the Rio de Janeiro farm, located in Western Bahia, Brazil, to a third party. We lease 63,336 hectares of pasture land which is not suitable for crop production to third party cattle farmers.

 

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The following table sets forth, for the periods indicated, certain data relating to our farming business:

                         
    Year Ended December 31,  
      2014       2013       2012  
Sales    (In thousands of $)  
Crops(l)     177,662       185,117       196,206  
Rice(2)     103,682       107,093       93,904  
Dairy     32,968       30,661       18,868  
All Other Segments (3)     1,525       4,293       13,390  
Total     315,837       327,163       322,368  
                         

 

 

Production

 

2013/2014

Harvest

Year

   

2012/2013

Harvest

Year

   

2011/2012

Harvest

Year

 
Crops (tons)(4)     643,354       496,590       564,800  
Rice (tons)(5)     205,489       202,589       171,137  
Total      848,843       699,179       738,810  
                         

 

                         
    Year Ended December 31  
      2014       2013       2012  
Dairy (thousands of liters)(6)     79,468       72,984       54,954  

 

   

2014/2015

Harvest

Year

   

2013/2014

Harvest

Year

   

2012/2013

Harvest

 Year

   

2011/2012

Harvest

Year

 
Planted Area    (In hectares, including second harvest)  
Crops (7)     194,271       185,954       187,220       204,097  
Rice     35,328       36,604       35,249       31,497  

 

 
(1) Includes soybeans, corn, wheat, sunflower and cotton, among others.

 

(2) Sales of processed rice, including rough rice purchased from third parties and processed in our facilities.

 

(3) All Other Segments encompasses our remaining interests in the beef Cattle and Coffee businesses. Our beef cattle business consists of over 63 thousand hectares of pasture land that is not suitable for crop production and as a result is leased to third parties for cattle grazing activities. We lease the coffee production rights with respect to our Rio de Janeiro coffee plantation.

 

(4) Crop production does not include 89,081 tons, 30,628 tons, and 62,636 tons of forage produced in the 2013/2014, 2012/2011 and 2011/2012 harvest years, respectively.

 

(5) Expressed in tons of rough rice produced on owned and leased farms. As of December 31, 2014, the 2014/15 harvest year of  rice harvest had not began.

 

(6) Raw milk produced at our dairy farms.

 

(7) Includes 4,999 hectares, 3,141 hectares, 5,172 hectares and 4,679 hectares, used for the production of forage during the 2014/15, 2013/2014, 2012/2013 and 2011/2012 harvest years, respectively.

 

Sugar, Ethanol and Energy Business: We cultivate and harvest sugarcane which is then processed in our own mills to produce sugar, ethanol and energy. As of December 31, 2014, our total sugarcane plantation consisted of 124,412 hectares, planted over both owned and leased land. We currently own and operate three sugar and ethanol mills, UMA, Angélica and Ivinhema, with a total crushing capacity of 10.2 million tons of sugarcane per year as of March 31, 2015. UMA is a small but efficient mill located in the state of Minas Gerais, Brazil, with a sugarcane crushing capacity of 1.2 million tons per year, full cogeneration capacity and an associated sugar brand with strong presence in the regional retail market (Açúcar Monte Alegre). We plant and harvest 99% of the sugarcane milled at UMA, with the remaining 1% acquired from third parties. Angélica and Ivinhema are two new, modern mills, which we built in the state of Mato Grosso do Sul, Brazil, with current sugarcane crushing capacities of 4.0 and 5.0 million tons per year, respectively. Both mills are located 45 km apart, and form a cluster surrounded by one large sugarcane plantation. Angelica and Ivinhema are equipped with high pressure steam boilers and turbo-generators with the capacity to use all the sugarcane bagasse by-product to generate electricity. Approximately 25% of the electricity generated is used to power the mill and the excess electricity is sold to the local power grid, resulting in the mills having full cogeneration capacity.

 

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For the year ended December 31, 2014, we crushed 7.2 million tons of sugarcane. Our mills produce both sugar and ethanol, and accordingly, we have some flexibility to adjust our production (within certain capacity limits that generally vary between 40% and 60%) between sugar and ethanol, to take advantage of more favorable market demand and prices at given points in time. For the year ended December 31, 2014 we produced 413,687 tons of sugar and 299,810 cubic meters of ethanol.

 

As of December 31, 2014, our overall sugarcane plantation consisted of 124,412 hectares of sugarcane in the states of Mato Grosso do Sul and Minas Gerais, Brazil, of which 9,145 hectares of sugarcane were planted on owned land, and 115,267 hectares were planted on land leased from third parties under long term agreements.

 

The following table sets forth, for the periods indicated, certain data relating to our sugar, ethanol and energy business: 

 

Sales   Year Ended December 31,
    2014     2013     2012  
                   
    (In thousands of $)
Sugar     174,459       133,597       134,766  
Ethanol     165,870       150,382       121,544  
Energy     66,800       32,463       25,649  
Other     -       1,019       373  
Total     407,129       317,461       282,332  

 

     Year Ended December 31  

Production

  2014     2013     2012  
                   
Sugar (tons)     413,687       335,643       281,622  
Ethanol (cubic meters)     299,810       268,053       183,713  
Energy (MWh exported)     445,705