Most people don’t spend their time researching the ROI of fruit trees.
It could be that not many investors realize how easily they can invest in small plots of productive farmland without ever needing to change out of their pajamas.
Understandable, and that’s why I did the digging for you. Today we’ll be unpacking the hidden value in some of the world’s highest-value tree crops: mango, avocado, and lime.
But first, why should anyone look at tree crops as an investment in the first place?
It all comes down to history and “super-cycles.”
‘The Revenge of the Old Economy’
Goldman Sachs commodity chief Jeff Currie is considered “the world’s most closely followed energy guru” by The Telegraph. Jeff has a message for us all: the world is entering a new commodity boom, and investors need to get ready.
Sachs is calling the looming commodity boom a “revenge of the old economy,” a turbo-charged counter to inflation in nearly every other kind of asset.
In the same vein, Stifel’s June 2020 report reveals that a new commodity super-cycle would be in line with a trend dating back to 1795 (chart by Janus Henderson Investors):
Commodity booms appear to be cyclical – and we’re due.
Some investors suspect that we are in an everything-but-commodities bubble. Asset manager Incrementum highlights an incoming commodity boom in their May 2020 “In Gold We Trust” report:
Gaining Exposure to High-Value Tree Crops
If you’re new to agriculture investing, you may only be familiar with annual row crops, like corn. While annual crops are comparatively flexible with these growth periods, permanent crops take years and sometimes decades to reach full maturity.
The long time horizons associated with these crops allow investors to take unique advantage of commodity cycles while simultaneously profiting from any appreciation in the underlying land value.
Tree fruit crops check several boxes as a hedge against a widespread recession. As a long-term permanent crop, fruiting trees present investors with healthy returns and a high compound annual growth rate (CAGR). You’ll be hard-pressed to find better deals anywhere else in the market.
Without tree crops, we’d lose most of the nuts and fruits that reach the market today. And if you’re behind on consumer health trends, people are eating a lot of fruit and nuts (CAGR of 3% through 2025, according to Statista).
Let’s take a look at some of the commodities best poised to benefit from these changes.
Mangos are one of the best-producing tree crops available for investment today, and they’re great in a smoothie. With total mango sales in the US alone reaching $1.4 million, demand has increased roughly 5% over five years. Summer or winter, mangos are a blockbuster fruit that’s enjoying increased popularity in developed world markets.
It takes a mango tree five to eight years to start producing fruit, meaning market participants are usually better off purchasing existing productive land. Otherwise, they face a productivity lag time of at least a decade.
The flip side is that mango trees can live for up to 200 years! Mango trees planted by gold prospectors in the 1870s are still producing healthy amounts of fruits and have grown to mammoth sizes.
It’s possible to plant mango trees at ultra-high-density, sometimes up to 674 plants per acre. I’m not the best at math, but you can expect between 200 to 300 fruits per year for a single adult tree, so that’s around 200 thousand smoothies.
One study covered a single acre of mango trees that clocked in at 42.5% internal rate of return (IRR). Another study by the Northern Territory Government of Australia lists an IRR of 15.2% to 22.5% as the upper bound for a highly productive 5000-tree mango farm.
The Millennial generation’s appetite for avocados is bottomless, and the healthy fruit has already enjoyed a place at tables around the world for decades. Avocados have rich amounts of vitamin K and omega-6 oils, making them a top dietary choice as trends for health foods among the global middle-class claws upward.
The creamy fruit aims for a 6% CAGR between 2020 and 2024 – similar to its attractive investment partner, the mango. Mordor Intelligence puts the CAGR of avocados a bit lower at 5.03% through 2024.
While the developed world has some capacity for avocado production, the vast majority of global production comes from Latin America. Mexico leads world production with over 1 million tons produced in 2016. Given the affordable land prices in Latin America, there’s ample opportunity to capitalize on the steady increase in avocado demand. As the global middle class continues to grow, more expensive fruits like avocado will enjoy even higher growth rates.
Avocado Production Worldwide
Avocados are a bit quicker to produce fruit than mangos – an avocado tree can reach maturity in just four to five years. An avocado tree can reach about twenty feet at maximum height produce fruit for over 100 years, making it a generational investment with significant upside potential. I can’t speak for everyone, but I plan to continue eating guacamole well into my grandpa-years.
Limes are a staple in many Latin American dishes and offer a wide range of health benefits. They also make plain water much less monotonous to drink. Rich in vitamin C, limes are an excellent addition to your diet for fighting sickness and infection, which is increasingly important in the wake of Covid-19.
Economists expect the global lime market to expand by around 5.1% between 2020 and 2024. Meanwhile, the United States, one of the fruit’s largest consumers, has seen domestic production of all citrus fruits drop markedly in recent years.
I suggest you read Farmfolio’s report on limes if you’re curious about what that means for the future distribution of lime production. Here’s an executive summary: The market hasn’t soured on lime tree investment, and Latin America offers the best investment opportunities.
Image Source: FreshPlaza
With two harvesting periods per year, investors can enjoy a biannual capitalization from lime investments. Additionally, limes begin producing fruit in as little as three years and reach full production in as few as eight years. Investors may have new groves planted rather than purchasing existing ones for immediate income since lime trees take less time to grow than mangos or avocados. The tradeoff for that rapid development is a comparatively shorter lifespan – a lime tree produces for “only” around 50 years.
As with avocados and mangos, Latin America is one of the world’s breadbaskets for limes. By far, Mexico is the United States’ largest lime supplier, and Colombia’s production has increased by over 450% since 2015.
Latin America Will Grow Faster than Average (and so will the trees)
If you’re going to invest in tree fruit, follow the thunderclouds, both literally and figuratively. Latin America and the Caribbean (LAC) was at the forefront of the last commodity super-cycle, which ended around 2015, and we may see that lightning strike in the same place again.
The OECD and FAO’s Agricultural Outlook report for 2019-2028 paints LAC as a water-and-land-rich region already accounting for 14% of global production and 23% of global exports of agricultural commodities. LAC boasts some of the best soil on the planet, and harvests happen year-round. Both crop and livestock growth is growing faster than the global average. By 2028, LAC will cover a full quarter of global ag exports.
Investors are paying attention. Arjun Divecha, head of GMO’s Emerging Markets Equity team, has highlighted the explosive growth in store for emerging markets (even after a global pandemic).
The point? Mangos, limes, and avocados grow with gusto in LAC, thanks to the abundance and regularity of rainfall. Keep in mind, tree crops tend to demand a lot of water, so the farmland you’ll find in places like Panama and Colombia are worth their acreage in gold. When you invest in these crops within Latin America, you’re getting a slice of the future’s most prosperous agricultural region at a discount.
Are you interested in grabbing a piece of the future? Farmfolio helps people like you get in on the action. Check out Farmfolio’s website periodically, as their offerings tend to sell out faster than avocado toast at a yoga center.
Tree fruits have historically offered lucrative returns. A confluence of health-conscious diets and a rising global middle class are increasing demand worldwide.
As bond yields continue to tumble, investors can find alpha in permanent crops thanks to this asset class’s consistent income and land appreciation. Tree fruits like mangos, avocados, and limes are a prime candidate for a well-diversified portfolio. Thank goodness — most portfolios today could use an adjustment to stave off inflation and economic uncertainty.