Avocados smashing it with most expensive farmland in Australia

Neil and Ian Delroy of Jasper Farms in Sabina River. Photo by Emma Kirk.
Neil and Ian Delroy of Jasper Farms in Sabina River. Photo by Emma Kirk.

Neil Delroy is thinking about buying a racehorse and naming it Smashed Avocado. If the horse is anywhere near as good as his farm, it could win next year's Melbourne Cup by the length of the straight and then some.

Neil and his brother Ian have just sold Jasper Farms, made up of about 360 hectares of avocado trees, for an unprecedented price in Australian agriculture. They won't say how much other than it is not quite the $180 million figure that is the talk of the industry.

The sale follows a bidding war started by the ASX-listed Costa Group and involving groups from China and North America all wanting a piece of agriculture's green gold. Avocado assets are in high demand as growers report returns have doubled in the space of a few years, demand continues to increase and existing production doesn't satisfy the domestic market.

The winning bidder, Ontario Teachers' Pension Fund, has already met staff at Jasper Farms to reassure them about its plans as the new owners, but declined to comment on the sale.

The farm produces up to a million trays of avocados a year with each tray weighing 5.5 kilograms, and those with a fruit count most preferred by supermarkets recently selling for $62 a tray.

Neil and Ian Delroy have started this season's harvest on the two properties which make up Jasper Farms in the southern corner of Western Australia. It is understood they will keep the proceeds of the crop before handing over to the giant pension fund, which purchased almond producer Aroona Farms for $115 million in 2014.

What's even more remarkable is that one of the Jasper Farms' properties grew out of the managed investment scheme debacle that saw Timbercorp collapse owing creditors $750 million and the other property is a rehabilitated mineral sands mine.

While Neil and Ian Delroy are moving on from avocados, a third brother, Russell, will continue to operate his independently owned and highly successful avocado growing, packing and marketing business.

The brothers have come a long way from the family's original broadacre farm in the Wheatbelt of Western Australia to the sweet spot of avocados.

Neil Delroy, who opted for avocados after a carrot growing venture went sour, said it had been an extraordinary past six years for the industry as the fruit became a household favourite as well as a staple for millennials.

"I've never seen anything like it. We are putting high volumes through the market at very good prices," he said. "I also think the future is very good if we continue to get better quality to consumers."

While the Costa Group missed out on Jasper Farms, its message this week was "watch this space" in terms of avocado acquisitions.

It has already acquired two properties in Queensland in conjunction with Macquarie Agricultural Funds Management with Costa operating the farms under a 20-year lease agreement.

Costa's goal is to be the No.1 grower, packer and marketer of avocados in Australia and in doing so achieve the capacity to supply the fruit 52 weeks of the year.

The harvest around the Bundaberg and Childers growing hub in Queensland runs from March to September and is counter seasonal to Western Australia's south-west. There are also commercial operations in southern Queensland, central New South Wales and the Mildura-Renmark area.

Peak industry group Avocados Australia is expecting production to hit a record 75,000 tonnes this year but the nation chewed through 86,000 tonnes in 2016-17 with 20,000 tonnes imported from New Zealand.

Australian production is tipped to hit 100,000 tonnes within the next eight years and might keep pace with domestic demand, but potentially lucrative exports markets, chiefly Japan and China, are on the horizon.

Australians consumed about 3.5 kilogram of avocado per person last year, less than half the consumption per person in countries like Mexico and Chile.

‚ÄčAustralia's biggest producer is Simpson Farms, a fully integrated, family-run business based in the Bundaberg-Childers region, with growth plans of its own.

John Walsh, a family member and manager of several arms of the business, said growers big and small had worked together to develop a very strong industry which benefitted from orderly marketing.

"Now that Australia can produce for 12 months a year the challenge is to make sure we are putting good quality product out there," he said.

"We feel confident demand will continue to grow. Avocados are now in every day use in households, in pubs, in cafes and restaurants."

Simpson Farms grows avocados over 775 hectares and is set to produce up to 1.6 million trays next year.

It has the capacity to breed new trees as well as grow them and then pack, process and market the fruit. That is a big competitive advantage given newcomers to the industry now face a two-year wait to get trees because suppliers simply can't keep up.

Neil Delroy said his family had benefitted from building close research and development ties in Chile, where trees up to 90 years old can remain productive.

Yields on Jasper Farms are double the national average.

Agricultural scientist Neil and accountant Ian keep an operating manual and insist on pruning every tree, every year as part of what is a highly structured operation.

"I come from a research background and I read all the research papers. The whole emphasis there is trying to put research into practice," Neil Delroy said.

"That is how we have built it up and with good financial controls."

Timbercorp was leasing their farm as part of one of its managed investment schemes prior to going bust in 2009.

Timbercorp's involvement accelerated the planting of trees and installation of bores but created a financial headache for the Delroys when the lease payments stopped.

The lease default eventually saw the assets bankrolled by Timbercorp turned over to the Delroys and they haven't looked back.

"It has turned out alright but we still had to finish the development at the time. We were worried and financially it was killing us," Neil Delroy said.

They later added the rehabilitated mineral sands mine site to increase the size of their growing area by 137 hectares and there is potential within Jasper Farms add about 80 hectares of additional plantings.

Neil Delroy, who has just sold his last vineyard after a long association with the wine grape industry, said they toyed with the idea of floating the avocado business and buying more farms but opted to run a sale process through EY.

The 59-year-old said they could have got at even higher price for Jasper Farms but considered compatibility and staff transition factors in selecting the winning bid.

This story was first published in the Financial Review.


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