Costa berry plantings abroad overtake Australian operations

When Australia’s largest integrated fresh produce grower-marketer Costa Group (ASX: CGC) listed on the stock market in 2015, the family company had the ambition to strengthen its global footprint but had just 182ha of blueberry plantings through a joint venture in Morocco and a tentative deal with multinational Driscoll’s to grow berries in China. 

This represented just 6 per cent of the group’s total plantings across all crops at the time. Fast forward to today, and total hectares have more than doubled on the back of numerous acquisitions including a now sizeable foray into avocado cultivation, while the surface area of overseas berry operations has more than quadrupled.

Costa Group’s annual report released today reveals that for the first time its international berry plantings are greater than those in home-grown soil and pots, at 749ha, edging ahead of its 727ha of berry farms in Australia that stretch from the Atherton Tableland to Gingin, WA to northern Tasmania, although the bulk are found around the Coffs Coast region of NSW.

Costa’s berry operations abroad now represent more than 9 per cent of all its farms, bolstered by a new 100ha farm in the Baoshan Agripark in China where the group had its first harvest last year. 

The group’s 400ha of operations in China, all in the Yunnan province through the Driscoll’s joint venture (JV), have overtaken those in Morocco (369ha) operated by its 90 per cent-owned subsidiary African Blue.

In Morocco, Costa also sources blueberries from third-party growers covering a further 120ha, while deals are also in place to source from producers spanning hundreds of hectares in South Africa, Zimbabwe and Zambia.

The international segment also punches above its weight from a profitability standpoint, accounting for 38 per cent of Costa Group earnings in 2022 at $81.8 million.

Costa’s international earnings margin of 42.8 per cent is much higher than the 11.4 per cent margin for the group’s produce segment generally, and stems from the added bonus of royalties for its premium blueberry varieties that are grown in the Americas, China, Africa, and at home in Australia.

“The contribution from our international segment continues to build year-on-year, with an outstanding China performance driving solid profit growth with a 34 per cent increase in revenue versus the prior year,” chairman Neil Chatfield and interim CEO Harry Debney said in the annual report.

“This reflected increased volumes, strong quality and demand, and higher pricing, even taking into consideration major city COVID lockdowns toward the end of the China season.

“Pleasingly our premium Jumbo Arana variety volumes continue to build and attract higher pricing, in CY22 its volume as a percentage of total crop volumes in China was 44 per cent, an 11 per cent increase on CY21.”

They noted operations in Morocco had proven more challenging, and while volumes were up 4 per cent year-on-year the delayed crop timing due to weather impacted revenue.

“Our northern Morocco farm replanting program is proceeding to plan, with the Mayra variety’s progressive replacement by other Costa Variety Improvement Program (VIP) purpose bred, premium genetics blueberry varieties on track,” Chatfield and Debney said.

“We continue to expand our year-round African blueberry supply offering, with third-party grower volumes increasing versus the prior year. This was mainly reflected through increased volumes from southern African growers, notably in South Africa and Zimbabwe.”

Blueberries are a much more dominant crop for Costa abroad, representing 100 per cent of plantings in Morocco and 90 per cent in China alongside raspberries and blackberries, compared to 66 per cent of all its berry fields in Australia.

The chairman and interim CEO noted that in Australia, where the company delivers a 52-week supply of blueberries and raspberries, Costa was buffered somewhat by its more advanced production systems and proprietary genetics.

“Our premium blueberry varieties, including our latest exciting variety Delight, which was purpose bred for growing in the tropical climate of Far North Queensland, help to consolidate and build on Costa’s position as the leading grower in the Australian berry market,” Chatfield and Debney said.

“Costa is the clear industry leader in Australia in utilising protected cropping and the development of proprietary and licensed genetics. We have done so to our competitive advantage and in CY22, the evidence of this was especially seen in the performance of our domestic berry category.

“While other growers in the main growing region on the north coast of New South Wales were severely impacted by rain and as a result suffered from reduced quality and volume, the benefit of our expansive protected cropping infrastructure and the premium varieties we grow, came to the fore enabling us to maintain market supply into the peak season.”

Most of Costa’s Australian-grown berries are marketed through a partnership with Driscoll’s, with gross sales of that partnership reaching $577.5 million in 2022 – a lift of 6.5 per cent year-on-year.

The group’s earnings were down slightly in 2022 due to the impacts of extreme weather conditions on its flagship citrus crop, which accounts for the vast majority of planted hectares. Following the acquisition of 2PH, Costa’s citrus exports to China more than doubled in the calendar year.

“This provides a significant opportunity to further build on growth in this market through a premium brand offering, with China continuing to be the largest market for Australian citrus exports,” Chatfield and Debney said in the annual report.

They described the avocado segment performance as “disappointing” due to a reduction in Costa’s own volume amidst weather issues, as well as a prolonged crop from Western Australia. The agricultural industry in general has been hit by significant cost inflation pressures, including “above CPI increases for the cost of transport, fertilisers, and packaging”.

In their update for the 2023 calendar year, Chatfield and Debney highlighted an improved weather outlook, indicating more favourable growing conditions across Costa’s farming portfolio.

“We also expect a recovery in the citrus category’s performance, which will be enhanced by maturing orchards in Central QLD and Sunraysia (Vic),” they said.

“The International season including new China berry plantings started positively and our focus across the business remains on yield, quality and further premium product rollout to offset input cost inflation. Labour availability is improving significantly, contrasted with shortages over the past two years.

“We are also benefiting from our continuing program of insourcing Pacific seasonal labour. Return on capital and strong cashflow generation remain priorities.”