The great South American cattle scam

There is a major financial scandal sweeping through Uruguay centred on the nation’s famous cattle industry.

Retail investors who thought they had purchased cattle as an investment now find themselves nursing losses which could run to $300m (€277m).

The investment schemes, which go back to the turn of the millennium, allowed ordinary Uruguayans to invest in cattle ranches, offering fixed annual returns of up to 11% per year.

The idea became very popular among the country’s middle class in the wake of the banking crisis in the country in 2002 which had seen several banks fail and thousands of depositors lose all their savings.

The crisis left people with a deep distrust of banks, and ranchers with no access to credit. From this, the cattle investment schemes were born – farmers could raise money, and ordinary people could put their money into farms for a good return, while avoiding banking risks.

The schemes were generally built around six- to 24-month contracts, where investors sent their money to investment firms who in turn, ideally, invested the money in cattle ranches and, more often, individual cattle. When the animals were sold the investment was returned with interest.

For years the schemes ran smoothly as cattle prices rose and the demand from investors for the products remained robust. However, everything came undone since the pandemic.

Interest rates rose, which made the investments less attractive, and then the country was hit by a brutal drought in 2022 which led to huge losses in the livestock sector. The drought also led to a surge in the cost of leasing land which could sustain grazing.

The investment firms, which offered fixed returns in an industry which has always been beset by massive variations in income, found themselves with investments which were not covered by the value of their livestock assets.

The problem, and the reason some of the largest firms in the industry are facing criminal prosecution, is that it seems the companies continued to take in fresh money from investors even as the money they owed to previous investors vastly outweighed their assets.

The first firm to fold, in November last year, Grupo Larrate, had a $12.5m (€11.5m) shortfall between its assets and liabilities, according to local media.

That failure led to a snowball effect which has engulfed the industry. Conexion Canadera, which in 2022 reportedly managed 120,000 cattle on behalf of 1,400 investors, had €158m (€145.7m) in assets but owed $384m (€354m) to investors in January of this year.

The company’s business model was to manage the cattle on behalf of the investors who were the ultimate owners of the cattle.

Those investors became registered cattle owners and could even have their own brand for the cattle, further improving the attraction for those with little connection to farming. Ranchers were then paid to contract rear the cattle.

Accountant Ricardo Giovio told investors in January that there was no way they would get all of their money back, saying that the company was paying a fixed income on a variable income sector, which ended up in an unsustainable structure.

“All scams end the way all scams end,” he told a meeting of investors, according to MercoPress, a media organisation based in the Uruguay capital Montevideo.