Australian Citrus Markets and Farmland Investment

October 11, 2021

September 2021 marked AcreTrader’s inaugural expansion into the international farmland market with the offering of Burnett River Citrus Orchards and AcreTrader is currently funding its third Australian offering, the Murray River Citrus Development. AcreTrader investors now have the opportunity to buy direct shares in a company owning quality farmland, not just in the United States but abroad as well.

Murray River Citrus Development is a value-added development of horticultural land to highest and best use alongside a seasoned Sponsor. Located near Yalca in the province of Victoria, Australia, this offering represents the development of a scale (1,119 gross acre) citrus mandarin orchard in the Southern Murray Darling Basin.

We believe a citrus offering in Australia to be a good fit for the AcreTrader platform and a great example of the kind of opportunities our investors are looking for. By offering some insight into the decision-making processes that led to this third international offering, we hope to shed light on the rigor of our diligence processes on all potential farm offerings as well as the opportunities available as we continue to expand our investors’ market reach.

Why Australian Farmland?

Australia presents a strong opportunity for farmland investing because of its robust legal framework and general political stability. Couched in a transparent and democratic political system, strong title law with strong protections for asset owners ensure that foreign investments are legally assured similarly to U.S. land investments.

Investors' ownership structure in AcreTrader Australian Citrus farmland investment

Secondly, Australia has a well-established and diverse agricultural industry and carries a reputation for producing premium quality, non-contaminated agricultural products. It also enjoys geographic proximity to large developing economies, such as China and Indonesia. In many cases, that market access is underpinned by bilateral free trade agreements.

Thanks to these factors, Australian farmland has demonstrated a long track record of farmland value appreciation. Over the last 20 years, Australian farmland values have increased at a 7.6% Compound Annual Growth Rate (CAGR).

And the market is broad: Australia contains relatively inexpensive land suitable for institutional operations, yet less than 10% is owned by institutional investors.

Australian Water Rights

Australia has the most regulated and established agricultural irrigation water market in the world.

Water rights trade independently and distinctly from the land they’re attached to. Water access has value in its own right as well as secure title regulations similar to those around land.

In Australia, growers buy permanent water entitlements in the underlying water resource, such as a river or aquifer. Each year they benefit from the water that comes from that source in the form of an “annual water allocation.”

The standard unit of measure for these water allocations is Megalitres (ML). One Megalitre is the equivalent of 0.81 Acre-Foot of water in the U.S. system. The farm will have 3,000 ML of annual permanent water entitlements to serve the orchard at maturity.

Australia a Unique Supplier of Mandarins

Favorable global demand trends couple with unique global supply dynamics to create a healthy market outlook for Australian mandarins. We’ve seen strong and consistent demand for fresh mandarins globally over the last 20 years, with consumption increasing more than 3.5 times. On a per capita basis, that’s a steady increase at a roughly 5% CAGR.

Global Mandarin Consumption has risen by nearly 300% over the past 20 years

Source: USDA and AcreTrader

When considering permanent crop investments, we often look for a unique market angle to ensure favorable supply and demand. Such an angle frequently has to do with specific climate conditions, thus location.

Australian citrus crops run counter-seasonally to the main global production and export market.

China (located in the northern hemisphere) is the dominant producer of fresh mandarins, representing 70% of global production. The southern hemisphere represents just 7% of global production. Harvest in the southern hemisphere takes place April through September, while harvest in the northern hemisphere is from October to March.

This seasonality is key; 93% of the global market is eliminated from competition for southern hemisphere citrus growers. Citrus production in the southern hemisphere allows for year-round citrus availability.

Mandarin production in the southern vs. the northern hemisphere

Source: FAOSTAT and AcreTrader

In the Southern Murray Darling Basin in particular, where the Murray River Citrus Development is located, mandarins are harvested from June to August, compared to China’s primary domestic harvest in January and February.

Here are a few encouraging numbers:

  • Australia produced 172,934 tons of mandarins for the year ending in June 2020, of which 45% were exported.
  • Fresh export tons have increased 2.3 times over the last seven years; mandarin export value has increased 3.4 times.
  • Free Trade Agreements with Korea, China, and Japan, established in 2015, have contributed to an average annual increase of 21% in mandarin exports by value over the last 7 years.
  • Globally, prices for Australian mandarins have increased by 6% annually over the last 20 years.

Australia’s unique geographic proximity to these large, developing economies bodes well for demand trends in the future.

Average 21% increase in Australian mandarin export values since 2013

Source: Hort Innovation and AcreTrader

Victoria Citrus

Not only is Australia in a unique position to supply citrus to the world, but Victoria and the Southern Murray Darling Basin is the dominant growing region for permanent crops in Australia. The Murray Darling Basin spans four states in Australia, contains over 40% of all Australian farmland and produces over 1/3 of Australia's food supply. The region contains the unique Mediterranean climate, coupled with Australia's most established water market to grow everything from row crops to citrus, almonds, grapes, olives, and stone fruit, among other crop types.

Map of Australia pointing out regions of major citrus production

Over the last 20 years, farmland values in the state of Victoria have increased at a 7.2% compound annual growth rate, and have increased 11.1% compound annual growth rate over the last 5 years.

The property is located just over 2.5 hours north of Melbourne, providing good infrastructure, access to markets, and number of alternative uses for land and water entitlements, leading to optionality on exit.

It’s also important to note that Citrus Greening disease, which has decimated the citrus industry in Florida and other parts of the world, has not been detected in Australia due to the country’s extremely tight management practices.

Conclusion

It’s always important to remember that past performance is no guarantee of future results, and that every investment carries risk.

Every investment offered on the AcreTrader platform is selected through deliberate and strategic choices informed by global market trends, farm-specific criteria and characteristics, and every detail in between.


Drew
Drew Lipke

Senior Investment Manager

Drew grew up in Little Rock and has owned farmland in central Arkansas since 2014. He joined AcreTrader in 2021 after spending two years as a Managing Director of credit analysis at a large fixed income broker-dealer in Little Rock. Earlier, he spent five years in equity research and seven years in institutional equity sales at Stephens Inc. In 2017, he was voted to Institutional Investor’s All-America Research Team Rising Stars for his Aerospace & Defense sector coverage. He holds Series 7, 63, 65, 86, and 87 licenses with the Financial Industry Regulatory Authority (FINRA). He graduated from the University of Georgia’s Terry College of Business.

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