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Best of 2015: Blue Sky makes A$10m citrus fruit and water play in Australia

The alternative assets firm looks to access Asia while sticking to its water-rights strategy.

Over the Christmas and New Year period, we’re looking back at some of our most popular news stories and commentaries.

Blue Sky Alternative Investments says it has closed an investment of close to A$10 million ($7 million; €7 million) in land, citrus trees and water assets on 988 acres of Australian farmland.

The group intends to realign the production focus of their operations from juice to navel and mandarin oranges for export to east Asian consumer markets, Blue Sky investment director Michael Blakeney told Agri Investor.

“We believe there’s tremendous opportunity to supply safe, fresh and quality fruit to the Asian middle class market,” said Blakeney. “It doesn’t have to be niche, it just has to be clean, sustainable and high quality. We believe citrus in Australia offers all three.”

Developing the operation will take 3 to 4 years, said Blakeney, about the same time it will take to realise returns on the investment. Overseeing the transition will be Blue Sky’s operating partners, Southern Cross Farms, whom Blakeney describes as the “best in class in citrus in Australia”.

“We’re terribly excited by the export demand for this type of food crop and the redevelopment opportunity provided by this asset,” said Blakeney. “We’re going to expand the asset by 15 percent and we’re going to reset the value of that asset.”

According to Blakeney, the land parcel already hosts 740 acres of citrus orchards. Blue Sky’s operating partners will use a technique called top-working, or grafting, to grow the new varietals from existing mature citrus tree bases and reduce the time to economic yield.

The acquisition will be made from the firm’s Blue Sky Agriculture Fund II, which is described as a single-asset closed-end fund. However, Blakeney said the fund could be used to make an additional citrus investments. Investors in the fund include high net worth individuals, self-managed superannuation funds and a listed investment company.

Blakeney said Australia’s productive capacity and proximity to the fast-growing consumer market of east Asia makes it an ideal place for investment in agriculture.

“Sixty percent of Australia’s produce is exported. And the majority of that export is today’s growing Asia markets; not just China but across the north Asian sector,” he said. “So if you want exposure to this growing agriculture market, Australia’s one of the best places to be.”

Blue Sky has made drawing yield from water rights a significant aspect of its investments in Australia. Blakeney said Blue Sky does not necessarily see a direct revenue stream attached to the water rights at the recently-announced project. However, the increased revenue from redevelopment of the citrus operation will significantly increase return per megalitre of water applied to the crop, in keeping with the fund’s focus on combining water strategy and farmland investment.