South African farmers brave enough to invest in macadamia orchards years ago are reaping the rewards. The industry is enjoying an exceptionally profitable phase, with global prices riding the crest of Chinese demand. “Macadamias have become the most expensive nuts in China. They carry social status. Chinese demand has pushed up the farm-gate price 400% in the last six years, with no price dip,” says KwaZulu-Natal North Coast macadamia farmer, Myles Osborn, who spoke at a recent Standard Bank agribusiness event in Durban.
Being a low-cost operation, macadamia production is an attractive industry locally, especially for farmers in KZN, which is deemed to be amongst the best areas in the world for the crop. “Over the last 10 years, large plantings have been undertaken in KZN, especially in Paddock and Port Edward on the South Coast, as well as pockets in Empangeni and Umhlali on the North Coast. The industry is really starting to develop,” says Myles, who farms 60ha macadamias and 340ha sugarcane in Doringkop near Stanger.
Macadamias are already firmly established in Levubu in Limpopo and Mpumalanga. Confidence in the suitability of these regions is high, as evidenced by the purchase of a large macadamia farm in Barberton, Mpumalanga, by Australian farmer Phil Zadro, the world’s largest macadamia producer.
Prior to 2011, Australia was the globe’s leading macadamia producer, with 35 500t nut-in-shell (NIS) in 2010. Production dipped to 27 800t in 2012, recovering to 40 000t in 2014. This year’s estimate is 46 000t. South Africa now holds pole position, with a crop of 34 946t NIS in 2012, 37 000t in 2013, 43 000t in 2014, and an estimated 48 000t in 2015.
A new industry
Although macadamias have been farmed in South Africa for some time, the industry is relatively new in terms of its life cycle. At this stage, therefore, most power in the value chain is vested with growers. But it will not always be this way, according to Myles. “A new industry moves through three phases: the new stage, the growth stage and the mature stage. The timeline could be 40 years with a crop like macadamias, and reflects the age-old friction between farm-gate sellers and processors.”
Limited supply; farmers hold all the bargaining power, with the factory operating at lower margins to capture supply.
Stock levels increase; factories gain more bargaining power, investing in value-added products and looking for new geographic markets to beat the competition.
Profitability levels out at lower levels, with the factory or middleman making higher profits than producers. The SA macadamia industry is now at the new stage, where the farmer holds all the bargaining power, explains Myles. But the growth stage is imminent and growers should plan accordingly.
“There’s a two-year waiting list to buy macadamia trees, five years thereafter before you get the first decent crop, and two more years before you break even at current prices. This is something farmers must be aware of and plan for.”
South Africans are not large consumers of nuts, and every Mayo Macs nut is exported to China, the EU and the US. The traditional market for macadamia kernels (cracked nuts) is the EU and US for both the snack and ingredient market, while uncracked nuts (NIS) are sold to China as a snack product.
“The Chinese market is fascinating. China has a strong culture of eating nuts and the market doesn’t sell the kernel, but the whole nut within the shell,” Myles says. Mayo Macs exports NIS in bulk to China, and the packaging is done there. “Internet sales are booming. Customers order a bag online and have it delivered the next day to their doorstep in most regions.”
The Chinese market has been likened to an awakening giant – and it is evident in this case: the macadamia price is 30% higher than other nuts in China. ”We’re sitting at a record price of R50/ kg dry NIS at 34% crack-out. This is unchartered territory. We don’t know if prices can go on like this. But even if we have a 30% price correction down to R35/ kg, we’re still looking at good profits,” says Myles.
Growers need a sustainable, long-term industry where they have a say in its development, stresses Myles. Those who signed up with macadamia processor, Mayo Macs, hope they have found exactly this. Mayo Macs, which operates in Levubu and KZN, was started by the Lindeque family in Mpumalanga in 1999. In 2012, the current CEO, PJ Venter, and chairperson, John Osborn, introduced a new ownership model whereby growers own a 50% stake in the business, with the processing and overseas marketing arms each holding a 25% stake.
“We’re not looking to offer our grower- shareholders once-off high prices. We strive to offer them long-term, sustainable high prices. That is the ultimate goal of both processors and growers,” says Myles, a Mayo Macs grower director and board consultant. In 2014, the processor produced 14,4% of South Africa’s total macadamia crop and held 4,3% of the world market, which amounted to 6 935 wet-in-shell tons and 6 224 dry-in-shell tons, he says.
South Africa’s growth stage
Does NIS have a healthy future, or is it a case of boom or bust? The latter is possible, but careful risk management can help to navigate pitfalls. “Mayo Macs has invested in world-class extension services to help farmers produce higher yields and better quality, maximising income and reducing factory variable costs. This will help to build a more sustainable business over time,” says Myles.
The company is working towards new kernel markets across the globe, so a downturn in one market will not affect the business severely. “Now that the industry will be going into the growth stage, we want to stay ahead of the curve in terms of our consumer offering. We’re looking at different processing methods and at product development to suit the tastes of different regions and markets.”
Mayo Macs focuses on maintaining high quality and selling to reputable buyers only.
“Our strategy for 2015 will be to continue focusing on existing customers. In a market that has moved up this fast, it’s important to cement partnerships with strong players in the market. We’re looking forward to the 2015 season,” says Myles.
This article was originally published in the 24 April 2015 issue of Farmer’s Weekly.