In recent years, avocados have become one of the most profitable crops in Israel. The rate at which avocado trees are being planted around Israel has risen accordingly, at the expense of less profitable crops, such as citrus fruits.
Real estate and food growing company Mehadrin (TASE: MEDN), which for many years was identified with citrus cultivation, has also seen the potential in avocado pears, and, as it pointed out in its financials, it has "almost ceased new orchard planting and is mainly planting avocado strains."
Last year, about 60% of Mehadrin's new plantings were of avocado plantations, amounting to some 650 dunams (163 acres), out of a total of over 1,050 dunams (263 acres) planted in 2020. Mehadrin's total area planted with avocado trees thus reached 7,500 dunams (1,875 acres), almost 20% of its total plantations area. Avocados also represent one of Mehadrin's main sources of revenue, accounting for 30% of turnover last year, although citrus fruits still accounted for 50%.
Mehadrin has now decided to expand its avocado growing business overseas. It has signed an agreement in Morocco, under which it will grow crops outside Israel for the first time. Under the agreement, signed with a Moroccan company with which Mehadrin had already collaborated in the past, the parties will lease at least 5,000 dunams (1,125 acres) in Morocco, and will jointly invest NIS 30 million (80 million Moroccan dirhams) over the first three years of activity.
The start of activity is subject to obtaining the regulatory approvals required for forming a joint company and for leasing the plantation from the Moroccan government. Mehadrin will own 51% of the company. To the best of its knowledge, the plantation's maximum annual output will be some 10,000 tonnes of avocado. The avocados to be grown will be sold by Mehadrin and its partner mainly in Europe. Fruits unsuitable for export will be sold in Morocco.
Mehadrin CEO Shaul Shelach explains: "In order to grow, Mehadrin has to become a company that, while its main activity is still in Israel, creates additional sources of activity in other places. That will also be beneficial for our agriculture in Israel, because that way we shall be able to give better service all year round to our customers in Europe.
"Morocco is a country with good growing conditions, and with much lower costs than in Israel, and it is a little closer to our main markets in Europe," Shelach said. "Our next moves overseas will be in the southern hemisphere, where, apart from finding lower costs, we shall also be able to grow fruit that ripens when it is out of season in Israel." Shelach estimates that, on the basis of the current agreement, the activity in Morocco could amount to a quarter of Mehadrin's avocado production.
Why has the avocado pear become such a hit?
"Demand for and consumption of avocados worldwide are on an upward trend, because the fruit is considered a 'super food' and people like it very much. In Europe, the US, and all over the world, people want avocados, and consumption of them has risen in Israel too.
"At this time, we like others are expanding our avocado acreage, but it's clear to everyone that at some stage supply will catch up with demand, because there's huge planting all over the world. Today, everyone wants avocados, but at some stage that will change. In agriculture, a situation always comes about in which demand stops rising, but supply continues to rise because of extensive planting. So one day, some of what is being planted now will be uprooted, because it will no longer be economic."
"Water and labor are much costlier than for our competitors
Despite the rising demand for avocados, Mehadrin's revenue from the popular fruit fell 11% in 2020, amounting to NIS 351 million out of total revenue of nearly NIS 1.2 billion.
On this, Shelach comments, "In 2020 there were one-time events unconnected to demand. With the coronavirus pandemic, we made the changes required to minimize the damage, and while sales to retailers continued, sales to restaurants and caterers were slashed. Another avocado season has just ended, and we grew our sales a great deal, and we'll continue growing them."
Is avocado your most profitable crop?
"Avocado is profitable, and in agriculture, finding profitable crops is not something to be taken for granted. But even with avocados, there are certain weeks during the season when prices suddenly slump, and we are often compelled to sell produce at a lower price. There's nothing fixed or certain.
"We're the biggest agricultural producer in Israel and the biggest agricultural exporter in Israel, but this is not a simple business to be in. First of all, we want citrus to be profitable, but that's difficult in Israel with such a high cost of water. The price of water is negligible in Morocco compared with Israel, and we have to compete with that. Water is our main expense, alongside manpower. In these two main things we're much more expensive than any of our competitors.
"An increase in the price of water is now on the agenda in Israel, and if it happens it will be a critical blow to agriculture. There are vegetables that will become much dearer if this decree goes ahead, and this will be passed on to the consumer, and it's liable to kill off some crops and orchards and farming. If we want to stay in existence, then the overseas proportion of our activity will grow. The price of water in Israel has to be brought down."
Mehadrin's ownership changed last year because of the Concentration Law which forced its largest shareholders, The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and Property and Building Ltd. (TASE: PTBL), to distribute their holdings to their shareholders as dividends in kind. The main shareholders in Mehadrin are now Discount Investment, with a 44.5% stake, and investor Binyamin Baron, with 22%.
Published by Globes, Israel business news - en.globes.co.il - on April 21, 2021
© Copyright of Globes Publisher Itonut (1983) Ltd. 2021