Macquarie’s links with avocado giant Costa Group

Costa Group has signed an agreement for the acquisition of the Avocado Ridge orchards in central Queensland.

Costa Group has signed an agreement for the acquisition of the Avocado Ridge orchards in central Queensland. Picture: AFP

Macquarie Group has taken its first step into Australia’s booming $300 million avocado market through an alliance with the ­nation’s biggest horticulture company, Costa Group, to capitalise on soaring demand for the popular fruit.

Costa Group has signed an agreement for the acquisition of the Avocado Ridge orchards and packing operations in central Queensland from the Carney family, the first purchase under a recently announced joint venture between Costa and Macquarie Agricultural Funds Management.

Under the agreement, MAFM will purchase the farms and enter into a 20-year lease with Costa to operate them.

The deal, understood to be worth about $50m, is expected to be the first of many for the joint venture partners as Costa looks to make avocados the fifth pillar of its burgeoning produce business.

Costa is expected to look at similar deals in Western Australia and North Queensland to build out its avocado operation. It already runs a small avocado crop in Renmark in South Australia and Avocado Ridge has farms in the Childers and Kumbia regions of central Queensland. The acquisition will give Costa total avocado plantings of about 400 ha.

“We have a fairly strong growth agenda,” said Costa chief executive Harry Debney. “We have a quite a lot of organic growth funded out of cashflow. And we have low debt. But with agricultural companies, to get the full economic value to your shareholders you should use some off-balance sheet capacity as well.

“We need a multi-region approach in avocados. Probably most of what we will do in this space will be with Macquarie.”

He declined to comment on the purchase price for Avocado Ridge. Last month Costa said it had entered into an exclusive non-binding arrangement with MAFM to “jointly investigate compelling M&A projects in farmland, biological assets, water and infrastructure assets”.

Mr Debney said the arrangement would give Costa access to “hundreds of millions of dollars” for expansion opportunities.

Coles has seen huge growth in customer demand for avocados over the past few years, with volumes growing by 25 per cent in the last financial year alone. In 2010, many of the 1100 Australian avocado growers were burying fruit because of oversupply. Now they sell for $50 a tray. Production and consumption have doubled over the past 10 years.

Hass is the most commonly available avocado, representing 80 per cent of the market. This perennial fruit is available all year round thanks to Australia’s diverse growing regions.

But the Australian avocado farming market is highly fragmented and run by largely family-based businesses, with the biggest players being in Bundaberg in central Queensland and WA.

The listed Costa Group, which is partly owned by former Geelong Football Club president Frank Costa and his brothers and US private equity firm Paine & Partners, has transformed the way fruit and vegetables are farmed by growing them in glasshouses and gal­vanised steel tunnels.

“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,” Mr Debney said. “We believe avocados are a very strong growth area that fits these criteria.”

Under the deal, to be com­pleted in January, the Carney family will retain management and operational responsibility of Avocado Ridge.