‘Smashed’: Why Australia’s biggest avocado grower will sell some farms
Australia’s biggest avocado grower, Costa Group, will be forced to sell some avocado farms and focus instead on berries, citrus, and exports to China as the business attempts to recover from La Nina rain bombs that hammered farmers and destroyed crops last year.
Costa Group’s interim chief executive, Harry Debney, said the company was looking at “trimming” the avocado business, which has been unprofitable for two straight years and now makes up only 5 per cent of the ASX-listed company’s revenue.
“It’s challenging,” Debney said after revealing the company’s statutory net profits had slid 10 per cent. “We’ve done a major deep-dive into all our farms … but cutting a long story short, we’ve identified a number of lower-yielding farms which we will probably scale back or even divest.”
Australia has had an oversupply of the “green gold” for years, driving record low prices, before heavy rain and floods inflicted further damage on Costa Group’s outdoor crops. Debney is holding his breath that 2023 will mark a return of “neutral” weather patterns and growing conditions and therefore recovery of its orange and mandarin export business.
“We’ve got about 4700 hectares of citrus, a massive footprint of citrus, and that just got smashed. Almost every second week we had another weather event go through,” he said.
“We normally export about 70 per cent of our crop to Japan and China and South Korea and our export pack-out was down 20 per cent because of weather-related events. That’s what killed us.”
Costa Group reported statutory net profits of $47 million for the 2022 calendar year, a 10 per cent drop compared with $52.2 million in 2021, while earnings (EBITDA) dipped slightly to $214.8 million from $218.2 million the previous year. It will pay a 40 per cent franked dividend of 5 cents per share.
While avocados and oranges have suffered, the $1.2 billion company has found significant growth through its berries, mushrooms and tomato business, supported by price increases it passed through to customers last year. Berries, citrus and mushrooms now make up 22 per cent, 21 per cent and 20 per cent of the company’s revenue, while grapes and tomatoes make up 13 per cent each.
Costa Group will also seek to double down on export markets as a key growth opportunity, particularly China, where it is hoping to nearly double its 400 hectare footprint of blueberries to 700 in three years. The horticulture giant also has operations in Morocco and Zimbabwe, and is eyeballing India and Laos as future opportunities.
But Costa Group and other produce growers have been frustrated for years by a fruitfly issue on the east coast of Australia that means only avocados from Western Australia, but not from Queensland or NSW, can be exported to Japan and some other Asian countries.
Debney echoed former Costa chief Sean Hallahan’s call for the Albanese government to work more closely with ministerial counterparts to open export pathways to Asian countries for growers.
“It needs more will on behalf of our government, and we’ve actually been heartened by the Albanese government’s focus on that for the first time in a number of years. So what we need is some government-to- government negotiations to take place in a positive manner,” Debney said.
Shareholders appeared unimpressed with Costa’s results, sending the share price down as much as 5 per cent on Tuesday before moderating to 2.2 per cent to $2.64 in early afternoon trading.
Debney is leading the company as interim chief executive while it seeks a replacement for Hallahan who suddenly left the business in late September last year.
Debney confirmed there were a shortlist of candidates being considered for the role. “The board is still working through that,” he said. “It’s early days.”
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Source: Thanks smh.com