Bad citrus crops cause huge fall in profits for Costa Group

Ross Greenwood speaks to Costa Group CEO Harry Debney after Australia’s largest grower and wholesaler of fruits and vegetables has experienced a loss in profits after poor citrus crops.

Ross Greenwood: your company here on Money News right around Australia. One company that I really like to follow the fortunes of is Costa Group. The reason for it is because it’s expanding so rapidly, and of course, it’s Australia’s largest grower and wholesaler of fruit and vegetables. It’s poised not only in the local market here and important to every one of us because of our health and obviously our diet, but on top of that, also the expansion overseas. Say for example, right now they’re planting significant amounts of berries in Morocco and in China. They’ve also got other operations not only in Australia but overseas as well.

Now, what’s happened is for a number of reasons, the profit is slumped in the six months to December but this is partly because of a change in their balanced diets. Plus also, what we know is some crops did not work the way in which they were anticipated. When this was first announced to the market a couple of months back, the share price fell significantly. Today, the share price jumped by 23 cents, 4.4% to $5.43. I thought it would be really worthwhile just to consider what is taking place here. Harry Debney is the Chief Executive of Costa Group is on the line right now. Harry, many thanks for your time.

Interview with: Harry Debney, CEO, Costa Group

Harry Debney: Very good, Ross, very happy to talk.

Ross Greenwood:  Just explain– I know one of the things that’s contributed to these fall in the profit is really been about the citrus crops, but also there’s been the growing season. It’s been disrupted significantly, avocados, some berries also did not work in the way in which you would expect them to over the past summer season.

Harry Debney: Yes, but Ross we have in December– when was it, January for certain crops, a bit of overproduction in some areas and also some yield problems we had which were only seasonal but they certainly hurt us so we felt obliged to make it marketed being a public company. Happy to say that by early February, all of those issues are behind us so we’ve now got very good yields coming along and prices are where we want to be or a touch better. Look, we all agreed this is it for long term, as you said, we’ve got three major expansion programs going on a number of fronts. A little bit of a bump in the road, but I wouldn’t say it’s any more than that.

Ross Greenwood:  Did you get affected terribly much by the floods in Northern Queensland? I know some produce in particular with transport, there was difficulty in getting goods out for a period of time.

Harry Debney: No, not so. We were able to get out our products from the north bay in the farm in-land where it’s so. We’ve got tropical places but luckily, we’re on the opposite side land and also where the major suppliesof food, so no issue there.

Ross Greenwood:  Okay, and you’re not really expecting any significant change in fruit and vegetable prices as a result of those, or even potentially some of the drought that other parts of Australia has experienced?

Harry Debney: Take tomatoes, for example, with all the heat waves we’ve had progressing north across the southern part of the continent. Ross, you’ll currently see tomatoes are the truss tomatoes that we grow or maybe field tomatoes jump in price because a lot of the tomatoes had been heat-affected. That will probably take a month to work through. Yes, there has been heat effect, but generally across the wider spectrum, I don’t think you’ll see any major impact.

Ross Greenwood:  Just give people some sense of the expansion of Costa Group in terms of what you’ve got rolling out. This is one of the great parts of this story, not only feeding Australians but also then feeding the region which is a part of the strategy of the overall company.

Harry Debney: Yes, look. Start with Australia, but it would have beenChina and other places. Basically, we’re just rolling out a seven-million dollar expansion throughout Australia. This is real globally, state-of-art automated production. Another 120 tons a week. Mushrooms are really misunderstood a bit by a lot of people. They’re very nutritious and also very healthy and there’s a very big demand for mushrooms but not enough supply. In another three or four months, we’ll be getting that new production.

Ross Greenwood:  Hang on, Harry. You’re gonna create 120 tons of mushrooms every week.

Harry Debney: Additional.

Ross Greenwood:  Additional?

Harry Debney: Yes. We just go with 150 tons a week currently in our five sites.

Ross Greenwood:  It’s just incredible. All right, so there’s the mushrooms, what else have you got coming?

Harry Debney: Okay, we’re building another tomato glasshouse but it won’t be coming till May next year but that’s another 10 hectares to produce more snacking tomatoes. If you buy a management, they have a sort of tomatoes we’ll be growing more of. We’re very big in citrus because very importantly for Australia, we export about 3/4 of a 100,000 ton a year crop to Japan, China, US. A lot of export dollars coming in there.

We’ve just bought another farm, so we’ve got about 3,000 hectares of citrus which comes into production probably about mid-April this year. More expansion in citrus. We continue to grow our berries. I think of interest, people will start to see new generation blackberries on the shelves very shortly. These are new American varieties which we’ve got use of and they’re coming in at an additional brand were all our berries do as a special pick, so look out for those. I guess you want me to jump to overseas.

Ross Greenwood:  Yes, do that. Morroco and China, this is the thing that gets me.

Harry Debney: Well, China, around– we’re just this month planting another 64 hectares which is all substrate in crops under big tunnels so it’s a lot of production. That’s just being planted. That’ll make our total area now to 174 hectares and it will be another similar amount the following year. We’re on a very rapid expansion there of high-quality blueberries and a few raspberries and blackberries for the Chinese market. Interestingly, Ross, we ‘re getting a big premium, at the top end of the market. I think that’s going to continue to grow. Again, it’s good to see a small Australian company doing something in China.

Ross Greenwood:  Is that a difficult thing to do, to actually manage the bureaucracy?

Harry Debney: [chuckles] It’s got its challenges. It takes at least a year to arrange all the land leases in China. Land in China, you get long-term leases. Takes at least a year to negotiate with the villages and the regional government and those sort of things. Then you’ve got to organize, secure lines to save reservoirs for the water and those sort of things.

Nothing happens quickly but we tend to work three years ahead on each of our new planting areas. Morroco is not that much different. We’ve got almost 300 hectares in Morroco where we grow blueberries for the European market. We’ve been all over  so we’re much more experienced. We’re gonna be three years in China. You have to work well ahead and you’ve got to understand and be respectful of the local political systems and local social system.

Ross Greenwood:  I just think it’s a wonderful story. This is the point as you pointed out. It’s an Australian company. It’s Australian know-how going to the world and of course, the produce is not only here for Australian use but also then for that global expansion as well. It is just always a fantastic thing to have you on the program, Harry, telling us that story and we appreciate it. Harry Debney is the Chief Executive of Costa Group.

Harry Debney: Good talking to you, Ross. Thank you.

Image source: 2GB

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