Macadamia growers expect ‘super profits' from land conversions

He has raised around $30 million for his two-year-old start-up M-Nut, which is in the process of converting hundreds of hectares of former sugarcane and banana farms into greenfield macadamia orchards.

“The next wave of significant investment is coming from institutional style investors, who are gaining confidence in the sector,” he told The Australian Financial Review.

Mr Bogg’s latest acquisition is a 514.4ha former sugarcane property on the southern bank of the Kolan River in Bucca, west of Bundaberg, that he purchased for over $9 million from banana growers the Mackay family in a deal brokered by JLL’s Chris Holgar.

“We want to build a long-term scale macadamia business,” Mr Bogg said.

“The sector has all the good tailwinds including increasingly recognised health benefits (macadamias are the healthiest of tree nuts) and being a good part of diets, plus it’s a premium-priced nut.”

While the pricing of macadamia nuts has actually crashed this year amid a COVID-induced glut – falling to around $3 per kilogram for nuts in shell, having peaked at almost $7 in 2020 – Mr Bogg and his high net worth investor partners are confident the price will recover over the coming years given rising global demand and the development of more productive tree types.

However, investors need to be patient: a macadamia tree takes around three years to produce its first crop, and it’s not until about the eighth or ninth year that they hit peak production, at which time growers can expect to earn super profits.

Mr Bogg said he hoped to continue to raise further capital and develop further macadamia farms based around land conversions to capitalise on productivity gains being made rapidly in the industry.

Taking advantage of these productivity gains however requires the planting of the latest tree species, which produce nuts with much larger kernels (the tasty part you eat) and that can last for up to 50 years.

This has in turn driven a wave of greenfield macadamia plantings – the Australian Macadamia Society forecasts an additional 8,000ha to be planted by 2025, taking the total to 46,000ha – and the conversion of sugar cane farms in areas like Bundaberg and Maryborough into new macadamia orchards.

Sugarcane farms are well suited to conversion to macadamia (and other high-yielding crops like avocados) given they have been developed around existing water and other key infrastructure, and are in climatic regions well suited to growing the nuts – macadamia trees are a Queensland native.

“Macadamia trees need a lot of water – about 12 megalitres per hectare, the same amount as almonds,” Mr Bogg explained.

“But in places like Bundaberg you get at least three-quarters of these water needs from natural rainfall. And because it’s an Australian native, when macadamia trees need water, that’s when it tends to rain as they are genetically bred to suit places like Northern NSW and SE Queensland

“So you’re tapping into the natural strengths of the species by growing them in their native environment,” he said.

In addition, many sugarcane growers are looking for a way to exit an industry, where profits are declining and where Australia is facing increased competition from a growing number of low-cost sugar-producing nations.

This downsizing is driving the country’s biggest macadamia development program being undertaken by ASX-listed Rural Funds Group.

RFF, as it is known by its ticker, is on track to plant 1000ha of greenfield orchards this year in Queensland after acquiring 5409ha of Maryborough sugarcane farms from MSF Sugar in 2020.

All up, Rural Funds plans to invest $500 million into the planting of 5000ha of macadamia orchards, that will over the next decade replace almonds and cattle as its primary earnings growth driver.

James Powell, general manager of investor relations at Rural Funds Management, the manager of RFF, said macadamia orchards had the potential to deliver gross profits in the double digits and returns of 20 per cent or more, compared to 3-4 per cent for sugar.

Given the long wait to reach maturity, Mr Powell said the investment by patient institutional capital into the sector over the past few years has been a key driver of its expansion.

Rural Funds has already capitalised on its expansion into macadamia, after striking a deal in September to progressively lease up to 3000ha of orchards in Bundaberg, Maryborough and Rockhampton to a company managed by global asset manager The Rohatyn Group on 40-year terms.

Whilst pricing will go up and down depending on supply and demand, Mr Powell said as macadamias made up only 1 per cent of global tree nut production, there was significant scope for expansion.

He added that RFF’s success at developing almond orchards (leased to the likes of Olam and ASX-listed Select Harvests) provided a “good template” of what can be achieved in macadamias.

“This supply of nuts doesn’t occur for another 5-10 years, so there is lots of time for the industry to start marketing to new markets.” Mr Powell said.

Amid the global push into more sustainable agriculture or “natural capital”, Mr Bogg said there was an added benefit of investing in macadamia development.

“Macadamia offer investors the potential to not only generate good returns, but they also have a positive sustainable impact, as trees absorb carbon,” he said.