Harvard's nutty idea: Cracking into the almond market

In the Australian state of New South Wales, Harvard University is developing around 1,480 acres of former potato fields and other farmland, building a new dam and planting trees that will take about three years to bear their first edible crops.

It is part of a growing bet on almonds by the college’s endowment, which is adding to around 1,235 acres of almond plantations it already owns near a township called Hillston. Hundreds of miles away, Harvard is trying to sell an Australian sugar-cane plantation that it bought in 2016 and recently disposed of a dairy farm in New Zealand.

Almonds are shaping up to be a more lucrative endeavor for pension funds, endowments and other institutions with very long-term investment horizons. Global production of the oval-shaped tree nut is forecast to hit a record 1.3 million metric tons this year, according to the U.S. Department of Agriculture.

Around 80% of the world’s almonds are currently produced in California, whose almond plantations in its Central Valley have generated strong returns for investors for many years. Volatile weather in recent months, including frost and storms, have hurt estimates for the state’s almond harvest this summer, helping to push wholesale export prices for U.S. almonds to near a two-year high of $6,807 a metric ton.

The weaker U.S. production forecasts and changing weather patterns in California—which has also experienced droughts in past years—are coinciding with rising global demand for the calcium-rich nut.

Almonds’ high protein levels and other nutritional benefits have caught on with rising numbers of health-conscious consumers. Food manufacturers have also come up with more varieties of almond products in recent years, from almond milk to cereals to desserts and baked goods.

Consumption of almonds grew 15% from 2012 to 2017, according to estimates from Euromonitor International, which forecasts 4% annual growth through 2021.

Large investors are piling into established orchards and planting new trees, particularly in south eastern Australia, whose Mediterranean-like climate and farms’ ability to secure large quantities of fresh water make it one of few regions in the world that are conducive to growing almonds commercially. The country’s almond output is forecast to rise 9% this year, according to the USDA.

Ontario Teachers’ Pension Plan and Boston-based Hancock Agricultural Investment Group, a division of Manulife Asset Management Co. that manages farmland, also recently invested in almond plantations Down Under.

Almond trees take three years to mature, another four to reach their full production potential and only produce one harvest a year during the late summer months. In California, each almond tree on average produces more than 5,000 nuts a year, according to USDA data.

In Australia, nuts generate gross revenue of 8,097 to 12,146 Australian dollars (US$6,314 to US$9,471) per acre, roughly 40 times that of grains for the same area, according to the Australian Nut Industry Council.

At current wholesale prices of about US $7 per kilogram in Australia, almonds offer a gross margin of around 45% before overhead costs and other expenses, according to Tim McGavin,  chief executive of Laguna Bay Pastoral Co., an agricultural asset manager in Brisbane.

Laguna Bay is looking to buy new almond plantations for a $220 million fund that invests on behalf of the Washington State Investment Board and other investors.

Diana Will, a senior investment officer at the state’s pension fund, said Australian agricultural investments are attractive because the harvest season in the Southern Hemisphere takes place at a different time from the north, and helps ensure a year-round supply of nuts and other crops for export. Roughly $800 million of the fund’s $128.8 billion in assets are invested in agricultural assets around the world; around 2.9% of that is in Australia and the Pacific region.

Almonds have been grown in Australia since 1836, but increasingly family-owned and smaller farms are being replaced by large-scale commercial almond plantations backed by foreign investors.

The amount of land with almond trees has increased 30% in the past two years to nearly 100,000 acres and is forecast to increase by a further 10% this year, according to the Almond Board of Australia. There are now more than 10 million almond trees in Australia.

“Money is coming from quite a wide range of people,” said Ross Skinner, chief executive of the board. “It’s high yield and its an industry that has seen high demand growth.”

Aroona Farms, one of Australia’s largest almond growers that was acquired by the Ontario Teachers’ Pension Plan in 2014, has been expanding its acreage and now has nearly 5,000 acres of almond trees. The Canadian pension fund, which recently valued the business at more than $115 million, said Australia remains a target market and it is actively looking for opportunities.

Other large investors are looking for ways to invest: Last fall, United Arab Emirates’ sovereign-wealth fund Mubadala Investment Co. PJSC made a $340 million bid for Select Harvests Ltd. , one of Australia largest almond producers, according to a securities filing. Select’s board rejected the offer, saying it “significantly undervalued the company,” which remains listed on the Australian stock exchange.