Oversupply threatens premium olive market

THE olive industry has grown rapidly over recent years and nearly a dozen olive projects are currently being marketed to investors.

Independent research groups agree that the industry faces some major risks, particularly the prospect of oversupply. However, it also offers the potential for higher returns.

Shane Kelly of Agribusiness Research has predicted that production is expected to increase dramatically over the next five years as non-bearing trees mature and come into full production.

“The premium domestic market is likely to become very crowded very quickly,” he said. “The ability of the olive industry to develop key export markets will have a strong bearing on the future profitability of the industry.”

Mr Kelly said an added concern was the lack of research data supporting some of the yield projections made by project promoters. There also is a trend to varieties that are untried under Australian growing conditions.

Harry Sookias of van Eyk Capital said he was “wary about the industry fundamentals given the rapid growth in plantings”. He also was concerned about some project managers using overly optimistic production and price projections.

A review of the 2002 Timbercorp Olive Project by PIR Agribusiness provides one example of how the risks are being managed.

The positive factors noted by PIR Agribusiness include the role of Timbercorp, the largest specialist agribusiness fund manager in Australia.

Its financial security is strong after recent capital raisings, it has world class operational, compliance and support teams and achieved excellent results from olive groves established in 2000 and 2001, PIR Agribusiness said.

Timbercorp has an assured market for at least part of its production, via a put option of the sale of 4,500 tonnes of bulk olive oil annually to a major Italian processor and marketer.

PIR Agribusiness said Timbercorp may sell oil at premium prices and rely on the put option to take up any additional oil. PIR Agribusiness said there was little yield history for the main olive variety, barnea, to be grown by Timbercorp.

In relation to the threat of oversupply, PIR Agribusiness commented that: “there is evidence to suggest the potential for growth in the Australian and export markets and many opportunities ahead for the industry resulting from an increased awareness, and development of uniquely Australian products and new varieties”.

To compensate for the risks involved, Timbercorp has projected higher returns from its 2002 olive project compared with its 2002 eucalypts project.

The projected annual return from olives is 11.7 per cent ungeared and 17.0 per cent geared, while the projected return from eucalypts is 8.1 per cent ungeared and 10.0 per cent geared.

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