This is the second of four articles where Brown & Co explore the market opportunities around permant crops. 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.
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 second of four articles where Brown & Co explore other market opportunities in the permanent crop space.
In the 2018/2019 season, world pistachio production was 31% up compared to the prior season to ca. 771,450 MT (in-shell basis) according to the International Nut and Dried Fruit Council.
95% of the 2019 crop originated from the U.S (58%), Turkey (30%) and Iran (7%). The U.S. crop was estimated at 64% up from 2017/18 to ca. 450,800 MT and Turkey presented a record crop of 232,000 MT as both regions experienced a good year during the 2018/19 campaign. The Iranian crop was exceptionally low last season due to unfavourable weather events; on average, over the last 5 years, it accounted for 27% of the world share retaining its status as a major producer globally for pistachio production.
Turkey and Greece are significant pistachio exporters to the United States despite considerable domestic demand. In contrast, China, Germany, and Spain are major importers of pistachios from the United States and Turkey and China are both major exporters and importers, respectively.
The entire U.S pistachio crop is grown in California (98.5% of the crop), Arizona, and New Mexico, where climate and soil type allow for satisfactory levels of production. In 2019 it was reported that California had over 127,000 ha of trees planted, with yields averaging approximately 3 tonnes/ha compared to the four year average for Turkey and Iran of 2.5tonnes/ha and 1 tonne/ha respectively. The concern here is that Pistachio areas are continuing to rise with a 5% average YoY increase in harvest areas but demand is outpacing that growth (at least for now). The global Pistachio Market is expected to grow from USD 3.68 Bn in 2018 to USD 4,75 Bn by the end of 2025, a CAGR of 3.71%.