Brown & Co are witnessing increasing investor interest around permanent crop options – which is partly being driven by portfolio reviews as a result of the COVID-19 impact on markets worldwide. Instead of being planted, grown and harvested annually, permanent crops can be generally characterized as “perennials” – crops with a life cycle of many years, some up to multiple decades, that are planted once and then maintained and harvested in place throughout their entire life cycle. Crops grown on trees, shrubs and vineyards are the most common examples, including Blueberries, Apples, Nut orchards, and olive groves.
With the correct research, due diligence, management and access to market investors can, in some cases, generate stronger returns than typical row crops such as corn, wheat and oilseeds. Row crops such as wheat and corn have long been a staple of farmland portfolios. A number of institutional investors diversified some years ago into permanent crops with the intention of increasing returns as typically 4-6% cash on cash returns are considered acceptable compared to 3-4% for row crops. Indeed with land appreciation factored in, many permanent crops in key markets have consistently achieved 10+% over extended periods of time.
Underpinning all of this is the fact that a number of permanent crops are witnessing an increase in consumer demand, particularly as health foods and snacks are landing in shopping baskets with increased frequency. For example, last year (2019) global tree nut production reached a record level of circa 4.5 million metric tons as consumption trends continued positive growth. Brown & Co have recently published articles on blueberries and Hazelnuts in the CEE region but there are also other high value permanent crop options. This is the first of four articles where Brown & Co explore other market opportunities in the permanent crop space.
Almonds – Australia
Almond production continues to grow YoY; in 2019 the almond world crop increased by 2% from the prior season and 20% from the previous 10-year average, amounting to over 1.25 million metric tons (MMT) (kernel basis) according to the International Nut and Dried Fruit Council. As of 2018/19, domestic consumption of almonds amounted to about 1.29 MMT worldwide, a 29% increase since 2013/14.
The U.S accounted for 80% of global production in 2018/19, followed by Australia and Spain with 6% and 5%, respectively. Australian almond production has been following an upward trajectory during the last decade and it is now 33% above the prior 10-year average. In turn, the Spanish crop has significantly risen from last season, up 15% from around 53,000 MT to over 61,000 MT.
The Global Almond Ingredients market accounted for $7.99 billion in 2018 and is expected to reach $23.26 billion by 2027 growing at a CAGR of 12.6% during the forecast period. Some of the key factors propelling market growth are nutritional benefits offered by almond ingredients and increasing demand for plant-based proteins & beverages. One key growth area is the Asia Pacific region, particularly the likes of India and China where the awareness for health snacks is growing alongside the growth in the middle class populations of both countries. In terms of production areas Australia is considered to be the area which offers investors real opportunity – both in consolidation and new investments. Tree nuts offer an attractive alternative agricultural output in comparison to those traditional, largely low value, Australian agricultural commodities. Sustainable water availability is of course key when assessing the any potential opportunities. Tree Nuts can offer revenues of $2,000 – $3,000 per megalitre of water applied; in contrast, rice returns several hundred dollars per megalitre. Nuts return a gross revenue of $20,000-$30,000/hectare; compared to a $500 – $700/ha return from commodity large scale grain production.