AGRIBUSINESS Crookes Brothers, which has been actively trying to diversify from its traditional sugar farming base, has taken a big step back on its deciduous fruit foray in the Western Cape.
In the financial year to end March, Crookes reported that its deciduous division reported an operating loss (after a biological asset fair value adjustment) of R19.2 million compared to the R10.1 million profits harvested in 2019.
The group reported that the average prices achieved on the 2019 crop were 16 % down on estimate – primarily due to smaller fruit size and overall quality. Crookes believed this was the result of the knock-on impact of the 2018 drought experienced in the Western Cape.
The 2020 crop harvest was lower than expected and only marginally higher than the 2019 crop, partially due to hail-storm damage suffered in the fourth quarter.
Crookes also reported deciduous prices being flat compared to the prior year. This meant revenue was unable to offset the inflationary increase in operating costs, which caused the loss in the division.
The Crookes board has now resolved to sell its High Noon deciduous fruit farming venture. The group said a number of parties have expressed an interest in acquiring the assets.
Crookes bought High Noon – situated near Villiersdorp – from the Ovenstone family in 2013 for R103 million.
High Noon comprises mainly farming land on the Elands River in the Kaaimansgat Valley. At the time of the purchase, this was considered to be a prime deciduous producing area “due to its unique micro climate and high-potential soils”.
The acquisition increased the area under deciduous fruit owned by Crookes to more than 600 ha, which purportedly allowed the group to take advantage of “resultant economies of scale”.
CBN would be intrigued to see if Crookes can realise anything near the original purchase price for High Noon. The value of agricultural real estate has tapered off in the wake of uncertainty around the government’s EWC (expropriation without compensation) policy for land reform. High Noon has also clearly not yielded a bountiful harvest for Crookes.
Crookes, in forward looking comments on its annual financial statements, said it was looking for an improved performance from the remaining deciduous fruit assets in the financial year ahead.
Revenue for the deciduous division is generated from delivery to Two-A-Day Group (TAD), the fruit exporting and marketing organisation, as well as Elgin Fruit Juices.
TAD is the exclusive buyer of the Crooke’s deciduous fruit, and the group holds a roughly 17% stake in TAD. Crookes noted: “Whilst Covid-19 has cast uncertainty over the deciduous fruit market and trade and exports throughout the world, TAD have taken forward cover on 50% of their crop at a rate of approximately R15.30 to the US Dollar.”
Crookes added that Europe and China’s demand for deciduous fruit over the next 12 months would be critical. “Whilst the fruit can be stored in cold storage for up to a year, when demand does eventually return, it is hoped that South Africa will be at the front of the queue.”
But the group acknowledged that a risk does exist that buying countries may look to whoever can provide a more fresh supply.
One bright spot is that the value of Crookes’ investment in TAD – which functions as packhouse and marketing facility for a number of fruit growers in the Grabouw/Elgin region – has grown markedly.
Crookes indicated that TAD had invested significantly in packing and storage infrastructure, and marketing and logistics facilities over many years. This effort was paid for by the members as a deduction from deciduous revenues.
Crookes has a participation right in TAD determined by its pro-rata contribution to TAD’s throughput.
Crookes noted that TAD carried a net asset value of R453 million (up markedly from the R375 million recorded in 2019). The group has a 16.68% shareholding in TAD, which infers its share of that value is a not insubstantial R75 million.