Anatomy of a scam, part 3 of 4

“Each plant will produce a $10 bill each year... just like an ATM machine, just add water." So says San Cristobal promoter Tom McMurrain, at http://e-caribbeanrealestate.info/html/article_on_san_cristobal.htm, about the noni crops on the Isla San Cristobal farms he’s selling.

Consider, however, whether there really are money trees in this world.

Teak wood and noni fruit are agroforestry commodities, like white pine planks or orange juice concentrate. Or, for that matter, like the cocoa produced by the beans harvested from the cacao trees which San Cristobal has been cutting down to replace with teak and noni at its Isla San Cristobal project.

But wasn’t cacao also an attractive investment to a previous generation of speculators on the tropical agroforestry market? What went wrong?

Several things went wrong. First, the productivity of many of the trees in Bocas was slashed by a series of blights that killed or stunted the cacao beans. Second, a number of other developing tropical countries bet on cacao as their source of foreign revenue, and too many producers glutted the world market, driving prices down. Shifting trends in chocolate consumption and the import and export duties and regulations of many countries were also reflected in world cocoa prices.

As is the case with virtually every other commodity, it wasn’t really possible for an investor to plant cacao and know how profitable or unprofitable it would be in years to come. There were just too many fluctuating variables.

These uncertainties apply not just to cacao, but to all agricultural commodities. Ask any farmer who makes a living from cash crops. Consider the great fortunes that have been made in coffee and bananas, but also the devastating effects that current low world prices are now having on those parts of Panama whose economies depend on these crops. For a much longer-term perspective, pick up the Bible, turn to Genesis 41, and read about the seven years of plenty followed by seven years of scarcity in ancient Egypt.

Ah, but Tom McMurrain would have people believe that his agroforestry scheme is immune to all such variables. In one of the pitches for his teak and noni plantations, made in July of 2002 and still on the Internet at http://ww1.prweb.com/releases/2002/7/prweb41564.htm, he claims that:

“The concept of ‘growing wealth’ is not a new one and many of the people who have taken this road over the stock markets have accumulated incredible wealth. No economic warnings, political scandals or even Alan Greenspan can mess with Mother Nature's earnings.”

Since those words were written, a teak blight has appeared in Panama. The disease, teak rust, is caused by Olivea tectonae, a fungus that before its appearance in Panama last November near Rio Hato had only been seen in India and Pakistan. Teak rust kills the leaves and is devastating to young trees, and as a result a number of countries have imposed agricultural quarantines on wood from areas affected by the blight. Teak is also vulnerable to certain insect pests that have yet to make it to the isthmus and to root diseases caused by organisms in the soil.

Also since McMurrain made his pitch about “Mother Nature’s earnings,” the US government has imposed new regulations on the importation of tropical fruit and other produce, justifying them as a necessary measure to deter biological terrorist attacks. Also to prevent terrorism, the US has imposed early notification and registration requirements for all incoming cargo ships, which can be especially burdensome in the case of perishable goods. Many Panamanian farmers complain that the new rules have made it more difficult and expensive to export their crops to the United States. Those new rules apply to noni too.

When he ignores the market variables affecting the long-term prices of teak and noni and makes bold predictions about the value and profitability of the plantations he’s selling, McMurrain is pandering to his potential customers’ ignorance.

Meanwhile, his company is attempting to deflect criticism by pleading ignorance.

San Cristobal’s lawyer Barry Miller has told this reporter several times that the company has had delays delivering titles to buyers because they didn’t know the difficulties that they would encounter with Panamanian laws and government bureaucracies.

Well, fine. For the sake of argument, take Miller’s excuse at face value. But don’t legal factors and the costs of dealing with governments affect the profitability of almost every enterprise? If the promoter of a business investment scheme doesn’t have a clue about these things, how credible can his or her profit projections be?

And make no mistake about it: as slick as McMurrain’s pitches may be, when they get to the point of agricultural economics, they make little sense.

When this reporter met with Tom McMurrain at the Hotel Bristol, bits of the conversation revealed how little the man knows about Panama. He is neither literate nor conversant in Spanish, and is unaware of the indigenous languages spoken in Bocas del Toro. He knows next to nothing about this country’s history, politics or ethnic groups. He doesn’t know about our native fauna and flora. He hasn’t taken the time to learn about the geology or natural history of the places he proposes to farm.

Thus McMurrain may have started this teak and noni venture not actually knowing that neither the short dry season in Bocas del Toro nor the soil conditions in most of that province are conducive to the production of high-quality teak wood.

But in the end that sort of innocence isn’t likely to be very comforting to those who have invested their lives’ savings into McMurrain’s scheme.

And just how ignorant is Tom McMurrain about teak?

Check out this San Cristobal statement, on the Internet at http://e-caribbeanrealestate.info/html/article_on_san_cristobal.html:

“As you do your research you will find that Teak is very difficult to find, the growing regions are very limited and in Burma and Africa all native Teak is nearly extinct.”

In fact, teak is not native to Africa.

The plant originally grew wild in parts of India, Burma, northern Thailand and Laos. However, before European colonizers came to the region it had been cultivated beyond its original range. In Asia, teak spread across the Indian Subcontinent, down the Malay Peninsula, into Indonesia and across the sea into the Philippines. In more recent times the trees have been planted in parts of Africa and the Americas.

Not long ago there were vast teak forests, most of them cultivated rather than wild, covering much of tropical Asia. There still are, but logging and urban sprawl have reduced these forests. Burma does possess the world’s last great stands of wild teak. But many of the region’s deforested areas can be replanted with teak, and they often are.

Thus McMurrain’s long-term projections about the availability (and thus the price) of teak rest in large part upon the dubious --- and quite frankly, racist --- presumption that the idea of reforestation will never occur to people in the Asian countries where the trees grow best.

The basic fallacy in McMurrain’s “money tree” pitch will be evident to every professional farmer, and is shown by the experience of thousands of years of agricultural history. Crop yields are always uncertain, as are commodity prices.

Next issue: All the standard tricks, political games in sordid times and McMurrain’s claim that he’s a genius.

Also in this section:
Business & Economy briefs
US-RP trade talks underway
Anatomy of a scam, part 3 of 4
Mayday: unions oppose Seguro privatization, FTAA