This is the fourth and final article 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 final article (in a series of four) where Brown & Co explore other market opportunities in the permanent crop space.
Brown & Co have previously reported on the recent success of this crop in a two-part article – See links below:
European Hazelnut Consumption is anticipated to register the highest CAGR, at 7.6% between 2019-2024. There is increasing evidence to suggest that the crop is gaining investment appetite on the global scene. One U.S Ag-investment fund has successfully raised $27m in order to expand its hazelnut production operations as it aims to become one of North America’s leading Hazelnut producers. Whilst Turkey leads the way in terms of production the U.S accounts for just less than 4% of global production at the present time.
Turkey dominates global production with typically +60% of the market. However, this is extensive (hill sides, old orchards, heavy use of family labour) and is declining slowly over an extended period of time. The graph below highlighting yields per hectare show a key cause for concern, as in shell Hazelnut yields are on a downward trend whilst demand is increasing. This is of course a cause for concern, as when the region is hit by harsh weather it has a major impact on global supply patterns. Processors are therefore seeking to broaden and diversify the production base reducing emphasis on Turkish hazelnuts. This leads to significant opportunities for Southern European producers to begin to expand production, as well as new investment opportunities. Brown & Co have recently carried out work surrounding detailed new investment opportunities and for a properly researched and managed operation – believe the opportunity is compelling as part of a wider broader production strategy.
One region that is of interest for scalable investment projects is Southern Romania; land values are amongst some of the lowest in Europe, a land market Brown & Co have significant experience of, with a suitable climate and soil types as well as access to EU subsidy schemes which incentivise irrigation investments required for commercial sustainable Hazelnut production. Increasing levels of interest can already be seen when looking at harvested area data which shows an impressive uplift of 377%. However, the country is still relatively undeveloped if it were to be compared with one of Europe’s leading producers such as Italy who typically harvest +75,000 ha as one of the largest consumers of Hazelnuts in confectionary.