Australia’s biggest fruit and vegetable company, Costa Group, will pitch itself to investors as an industrial technology player as opposed to being a purely agricultural business as it prepares for its $1 billion float.
The 127-year-old company, controlled by former Geelong Cats president Frank Costa, launched a transformation strategy six years ago that aimed to eliminate much of the risks associated with primary production.
The group moved to a protected cropping model – moving plantings away from the paddock, where produce is exposed to the elements, and into glasshouses, galvanised steel tunnels shielded in plastic and other forms of undercover production.
It has been so successful that Costa has exported its business model to Morocco and China as it moves to feed the world – at least with blueberries.
“You have got to choose your own categories; you can’t be all things to all people,” said Costa chief executive Harry Debney. He said blueberries were the world’s fastest-growing fresh food segment.
“About six years ago we started a major transformation. We decided the smartest thing to do was get a very concentrated focus at a large scale and really develop a lot of IP [intellectual property] and to move away from the vagaries of the weather.
“We would argue that we are more of an industrial profile than an agricultural profile.”
Protected cropping now accounts for 75 per cent of Costa’s earnings and has led to increased production.
Mr Debney said the group’s hydroponic technology was able to deliver a commercial-sized crop one year after planting, a third of the time needed in the field.
“If you look at blueberries … in the first year it’s typically about eight to 10 tonnes, and then goes to 20 tonnes each year after; in the field … [we] might get one to 1½ tonnes in year 1, then we inch up to seven to eight tonnes in year 3, so for profit and cashflow, it’s a huge impact.”
But it’s not just blueberries that Costa grows and distributes: the company also produces mushrooms, glasshouse tomatoes, bananas, avocados and citrus fruits.
However, blueberries have underpinned its global expansion. It operates five farms in Morocco through a joint venture that it owns 49 per cent of with three partners, including Dublin-based fresh food company Total Produce.
The Moroccan farms are based on Costa’s main Australian berry operation in Corindi, about 40 kilometres north of Coffs Harbour in northern NSW.
The NSW farms can be seen from Google Earth and involve planting blueberries in plastic-covered, steel-walled tunnels about 110 metres long and nine metres wide.
The berries used to be exported in small quantities to Britain, where they were sold at retailers including Marks & Spencer and Sainbury’s. But the long distance for a short-shelf-life product, although the berries were flown to London, and the high cost of Australian production, became a problem.
“The reason Morocco was chosen was the north-western region, near the capital of Rabat, is basically an identical environment to Corindi,” Mr Debney said.
“Our thesis was to develop good varieties, which are sought after, in a low-cost environment, and Morocco is a very low-cost environment compared to Australia, and has very good logistics.
“We are only an hour and half away from the Tangier Ferry across to Spain, so we have got very good refrigerated transport across to European markets. It’s proven to be very successful.”
Costa is now developing a sixth farm in Morocco. It has also partnered with US berry company Driscoll’s to launch a farm in China.
“That will grow Costa blueberries and Driscolls raspberries for the Asian market; we will be the majority owner,” Mr Debney said.
Goldman Sachs, which is the joint underwriter for the float with UBS, has implied an equity value of $959 million to $1.18 billion, translating to a multiple of 20 to 25 times net profit.
Goldman analysts said Costa’s blueberry patents formed part of its strengths, but a potential loss of this proprietary technology was a possible risk to the company’s international growth strategy.