Why weirdly cheap avocados are here to stay

In 2022, per capita supply of avocados is estimated to be up 26% on the previous 12 months to ~22 avos for every Australian, according to Rabobank.

Rabobank says a maturing of local avocado trees in the past season has resulted in a bumper crop, with oversupply leading to record low retail prices of $1 each in June last year and again early this month.

–

For the latest market news, sign up here for free Stockhead daily newsletters

–

Retail prices for 2022 remain tracking at 47% below the five-year average, Rabobank says.

“While the low prices have been welcomed by consumers currently facing significant price rises for many other food items and household staples, they have put considerable pressure on grower margins, already squeezed by increasing input costs and labour shortages,” RaboResearch associate analyst Pia Piggott says.

Supply ‘avolanche’ set to continue

Costa (ASX: CGC) calls itself Australia’s leading grower, packer and marketer of fresh fruit and vegetables in five core categories: berries, mushrooms, glasshouse tomatoes, citrus and avocados.

In a May speech, CEO Sean Hallahan said record industry volumes over the full year, combined with food service lockdowns and low retail price points “resulted in a disappointing performance from the (avocado) category”.

–

Visit Stockhead, where ASX small caps are big deals

–

But the past year’s market oversupply in Australia is just the beginning, Rabobank says.

“Industry forecasts that domestic avocado production will expand by 40% (or 50,000 tonnes) in the next five years, reaching 173,000 tonnes in 2026,” it says.

Adding to future supply will be Alterra (ASX: 1AG), developer of the Carpenters avocado project in WA’s southwest.

At ~280ha, Carpenters will be the largest avocado orchard in WA.

Stage 2 (2021) (7ha) is complete following an initial Stage 1 (5ha) planting in 2020. The planting of Stage 3 (85ha) is due to commence in 2022.

Export markets a saviour for local growers

Regaining balance in Australia’s avocado market requires both “increased domestic demand and larger export volumes”, Rabobank’s Piggott says.

“The good news is consumers’ appetite for the likes of smashed avocado and avo smoothies remains healthy, both in Australia and abroad – with local demand forecast to continue to grow while consumer demand is also expanding in offshore markets, providing Australia’s export sector with a platform for growth,” she says.

“In 2021/22, the average volume of avocados consumed by each Australian household increased 31.2 per cent on the previous year.”

However, increasing consumption of avocados in Australia will not be enough to use up additional local production in coming years, Rabobank says.

Ramping up exports will be critical in ensuring the market finds a better balance to support sustainable prices for growers.

Earlier this year Alterra said Australian provenance fruit commands premiums of 40% to >100% over the global price, but only 4% of Australian avocado production is exported.

“Significant trade barriers” means Australia currently has either limited or no access to three of the largest avocado-importing markets in Asia – Japan, China and South Korea.

Costa says that going forward, it is vitally important for avocados grown along the eastern seaboard to have access to the Japanese market, which on average is a 17 to 20 million tray per annum market.

Company product was successfully exported from WA to Japan over the second half of FY22, it says.

“It is pleasing that research has been completed on a protocol for the export of avocados to Japan, it is now up to the Australian government to negotiate this protocol with the Japanese government, and I would encourage our new government to make this a priority,” CEO Sean Hallahan says.

This content first appeared on stockhead.com.au

SUBSCRIBE

Get the latest Stockhead news delivered free to your inbox. Click here

Originally published as ‘Avolanche’: Cheap avocados here to stay, report finds