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Costa Group Selling $300M Fruit Farm Portfolio, Acquires Avocado Farms Through Macquarie Partnership

July 13, 2017

The Costa family, the name behind Australia’s largest produce company, the Costa Group,  is selling a portfolio of berry and citrus farms along the east coast of Australia.

The properties, which include raspberry and blueberry farms that stretch from northern New South Wales to northern Tasmania, and citrus orchards located in the Riverland in South Australia, are expected to fetch approximately $300 million, David Williams, managing director of agricultural advisory firm Kidder Williams, which has been engaged to manage the sale, told ABC.

Currently, the farms, which are to be sold as a group, are leased by the family to the publicly listed Costa Group, and expectations are that the leases will continue.

Williams told ABC that he expects that the potential strong returns on investment will generate a high level of interest in the properties from both overseas and domestic buyers, including Australian super funds which have been chastised by the Australian government in recent years for their lack of investment in the ag sector.

“We think for the first time we are likely to see some substantial interest out of Australian superannuation and pension funds,” Williams told ABC.

“The berry category in the supermarket is a fantastic category and growing. It deserves and is getting more capital expenditure, not just from the Costa Group and Costa family, but from other people in the market as well…”

With $2.2 trillion at hand, Australian super funds invest only about 0.5 percent of fund under management in agriculture. One reason cited for the lack of investment in the sector has been its lack of scale.

“Most of the opportunities in agriculture are around $2 million or $5 million. We need investment opportunities at $100 to $200 million to work on,” Damien Webb, First State Super told ABC last year.

However, offerings such as the Costa fruit farm aggregation are catching institutional attention, as well as the fact that the contribution of production from Australia’s agriculture sector to the country’s gross domestic product (GDP) jumped by a significant 8.3 percent in the final quarter of 2016 – effectively doubling that of mining.

“Super funds are realising agriculture is getting more stability and better returns, commodity platforms are strong and that it can be de-risked; it’s become more of an attractive place to be investing,” Greg Quinn, agribusiness chief with PricewaterhouseCooper, told The Australian.

An Avocado Pillar

In the fourth quarter of last year, Costa Group announced at its Annual General Meeting that it has entered into an exclusive non-binding partnership with Macquarie Agricultural Funds Management to “jointly investigate compelling M&A projects in farmland, biological assets, water and infrastructure assets.”

That same week, the partnership announced its first acquisition – the Avocado Ridge orchards and packing operations in Queensland from the Carney family for an undisclosed amount.

The Costa Group has earmarked avocados as a key growth crop that aligns with the company’s goals of achieving a year-round, 52-week production model.

“…It will add significant growing capacity to our existing plantings, and ripening and marketing functions,” said Harry Debney, Costa’s CEO. “Avocados will become a truly vertically integrated fifth pillar complementing our existing core produce categories of berries, mushrooms, citrus and glasshouse tomatoes.”

“Our focus is to be number one in the categories that we operate in where there are opportunities for us to create a genuine market difference and to ultimately achieve a 52-week production situation. We believe avocados is a very strong growth area that fits these criteria,” said Debney.

In alignment with its strategic plan to position avocados as its fifth pillar, and to become the largest avocado producer in the country, Costa Group and Macquarie Agricultural Fund Management (MAFM) have jointly agreed to acquire Queensland-based Lankester Avocado orchards and packing operations.

“Our production and supply period will now span from February to August, bringing us closer to achieving 52 week supply and our ultimate goal to be the number one grower, packer and marketer of avocados,” said Debney.

Adding to Costa’s existing 370 hectares of avocados in Queensland and South Australia, this acquisition will bring the group’s total avocado acreage to 500 hectares, while the group has plans to plant an additional 60 hectares over the next 12 months, according to Fresh Fruit Portal.

Under the terms of the deal, Macquarie will purchase the three Lankester farms, and will establish a 20 year lease of the farms  to Costa, which will handle operations. Meanwhile, the Lankester family will remain involved in the business, filing management and operational roles.

The deal is expected to close by the end of July 2017.
-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.

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