Bumper harvests of avocados have caused an oversupply of the commodity in Australia, leading to lower prices and reduced margins – with large increases in production growth set to cement this trend over the next five years.
Rabobank’s Australian & New Zealand Avocado Outlook 2022, published this week, found that the oversupply has put significant pressure on tray prices at the same time as global events have distorted consumer markets and impacted supply chains, leading to increased costs for growers.
Further, significant amounts of avocado production land will reach maturity over the next five years, further increasing the supply of the crop. Rabobank cited industry forecasts that indicate Australian production will expand by more than 40 percent (or 50,000 tonnes) between 2022 and 2026, to reach 173,000 tonnes.
Australia’s avocado production for 2021-22 is estimated at 124,000 tonnes, which has contributed to a per capita supply of 22 avocados for every Australian. This has led to the retail price of a single avocado falling to around A$1 ($0.7; €0.7) in June and July 2022, with retail prices for the year tracking at 47 percent below the five-year average.
RaboResearch associate analyst Pia Piggott, author of the report, said: “A bumper 2021-22 crop in Western Australia was a turning point, with industry estimates of avocado production in the state being up a staggering 265 percent on the previous year.
“This was driven by a 21 percent increase in the hectares of avocado trees in WA that reached maturity and produced fruit in this season, coupled with optimal growing conditions in the state.”
Piggott said domestic demand for avocados is expected to remain strong, as well as demand in offshore markets that will provide opportunities for export growth.
“Avocados have a strong health halo and are price competitive amid the broader cost of living pressures, and this has supported Australian domestic demand,” she said.
Increasing exports will be crucial in helping to find balance in the market, though, with increases in domestic demand nowhere near enough to consume the additional avocados that are set to be produced over the next five years.
Institutional capital has invested significant sums into Australian avocado production, seeing opportunities to produce a high-value crop.
But one farmland asset manager told Agri Investor that they felt it was “almost impossible to sell an avocado farm at the moment,” suggesting that forecast levels of oversupply and the resultant lower-than-expected profit margins may have hampered the valuations of these assets.
However, demand is still strong generally for Australian farmland, particularly permanent cropping assets that are accompanied by high-value water entitlements.