Special Report: Millennials famously love them but so do the world’s biggest pension funds: avocados. For investors in agribusiness Alterra however the play is not fruit or farming, but property.

Agricultural land developer Alterra (ASX:1AG) is many things to many people but at its heart is an investment in land and water, says managing director Oliver Barnes.

The company has pivoted from carbon sinks into horticulture. It’s doing so via an industry that has captured the hearts of consumers and the minds of some of the biggest investors in the world.

Barnes, who grew up on a flower farm in Kenya, says the concept is to take “broken down” land and regenerate it by investing in water infrastructure and reviving soils.

“There are very few things ASX investors can look at from a defensive asset class, as recent events have shown, and Alterra brings agriculture and water back into that,” he told Stockhead.

They then bridge the gap between capital and the farm gate to bring development financing into key horticultural regions in Australia.

On Thursday, it began this process with a strategic agreement with family office buy-side advisory firm CapRaise. The partnership will provide Alterra access to an extensive international network of large family offices and additional investor portfolio worth more than $15 billion.

Alterra, in other words, is a bit more than just a land developer.


Back to their roots

Alterra listed in 2008 as an agricultural land developer. It has always had an ESG, or environmental, social and governance mindset.

Until 2018 it was turning suboptimal tracts of land into carbon sinks, legacy deals set to earn the company decent income until 2027, but it pivoted last year into avocados.

The company finds land assets that are ready to be regenerated and leads the development process. It partners with others who do the long-term farming.

At its first project, the 300-hectare Carpenters project in the “golden triangle” agricultural region of Pemberton in south-west WA, this includes digging out a dam, putting in irrigation and fencing, and regenerating soils.

“The business was looking for a growth sector and to get more exposure to water, an asset that is still linked to land in Western Australia unlike in the east,” Barnes said.

Technical partner French’s Group, a company with 30 years’ experience in growing, packing and exporting avocados in Pemberton, will handle the growing side and once the trees start producing Alterra will step back to allow ultra-long term investors to step up.

Carpenters is held in a special purpose vehicle that Alterra will raise capital for, following which it intends to maintain a direct equity interest. Alterra earns management fees during the development process and once it’s running, performance fees.

It secured an up to 50-year lease over the Carpenters project last month, which comes with rights to 500 gigalitres of water a year, and has already secured exclusive rights to local avocado genetics and production data from French’s Group.

Avocado trees mature after nine years and French’s expects the Pemberton orchard to produce between 20 to 30 tonnes of avocados per hectare per annum.

Based on current avocado prices of $5.44 –$9.38 per kilogram and an average yield of 25 tonnes/ha, the farm could deliver $41-70m in revenue a year today.

But with demand continuing to rise rapidly in Australia and surging around the world, those figures could become very old, very quickly.


Aside from being delicious, why avocados? 

After the Great Avocado Price Surge of ’16, horticulturalists began madly planting new trees to.

Two years later came fearful reports of an oversupply but Aussie farmers are still running to as the rest of the world is catching up with Australia’s fascination with the avo.

US shortages began last year, Asia has just discovered the green fruit, and China’s imports of avocados grew 1,000 times between 2011 and 2017.

Australia exports just 3 per cent of its total avocado crop and the industry is gearing up to follow peers such as citrus into international markets.

Australia has exported to Singapore and Malaysia for over a decade and last year Western Australia got access to Japan, purely because the state doesn’t have the same pests that other regions in the country do, Barnes says.

“We have 24m people in Australia and demand here is still outstripping supply. When it catches up — and it will — that is when exports will become more important. New Zealand already exports over 50 per cent of its avocado crop, the citrus industry followed a similar cycle, we’re following a well-trodden path here.”


Patient capital

Alterra isn’t the first to recognise the potential in Australian avocados.

The $207bn Ontario Teacher’s Pension Plan bought Jasper farms in WA and paid $180m for a 300-hectare property in 2017.

And last year fellow Canadian PSP Investments bought into Simpsons farms, a Queensland avocado business.

This is the type of ultra-long term patient capital Barnes hopes to matchmake ASX investors and landowners with.

“Our role as an originator and developer is to find off-market assets, bring them through the early development stage alongside technical partners, and allow long-term patient capital to own those assets long term,” he said.

Barnes’ goal is to create an investment opportunity in the agriculture sector that doesn’t come with the well publicised risks of past ASX ventures and instead provides investors with the opportunities massive foreign funds are jumping on in Australia.

“We want to participate in the uplift in value that comes from monetising land and water assets,” he said.

“These assets, once developed, are highly suitable for patient long-term capital such as the pension fund sector which like the uncorrelated long term income streams these assets can produce, that are backed by finite land and water.”

This story was developed in collaboration with Alterra Limited, a Stockhead advertiser at the time of publishing. This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.