Finding Avocado Level Growth in Emerging Markets

China and Australia diplomats agreeing on a deal
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There’s not much point to life anymore. This week could be perhaps one of the worst, most difficult weeks on record for every Australian.

I’m not quite sure how exactly to break this to you. But I’ll try…

Here we go.

Woolworths [ASX:WOW] is…whoa, this is tough…Woolworths is importing foreign avocados!

God help us all.

Artisan cafes all over Melbourne and Sydney are crying in disbelief. Overpriced breakfast eateries over in Perth and up in Brisbane are wailing into the empty shells of their ‘green gold’.

What a horrific day for Australia.

The avocado has become a cult hero in the last few years. You can’t sip a mocha-frappe-latte in Degraves St, or percolate over a freshly roasted ristretto in Paddington, without being within at least two feet of the oval shaped icon.

No breakfast is complete these days without some ‘smashed avo’ or thin slices of it sprinkled with chia seeds.

The ABC’s Landline program highlighted this ‘Avocado Boom’ recently:

The summer of 2016 will be remembered as the time of the great avocado shortage. For a brief time, avocado prices hit an astonishing $6 each. The shortage made national headlines, highlighting that many Australians no longer see avocados as a luxury, but a staple they expect to be available year-round.

The decision by Woolworths to seek their Avocados from New Zealand has sent Aussie growers off the deep end.

Avocado’s Australia CEO John Tyas said:

Australian production doubled over the past decade and is forecast to double again, with 100,000 tonnes expected to be reached by 2025,

One of the industry’s priorities is to continue to drive increased consumption in Australia to match the growing supply.

Last year, Australian per capita consumption reached 3.27 kg per person, amongst the highest avocado consumption levels in the English-speaking world.

It is important the major chains consult with their suppliers and Avocados Australia to ensure their decisions are based on the best information available. Some do this better than others.

Ouch.

Woolworths is going to get the avocados from New Zealand. For now, it’s bringing in these ‘foreign’ fruits mainly to Queensland. As a result, Queensland growers are sending their harvests to the other states.

This, of course, is going to see a supply increase. And you guessed it; there should be a fall in avocado prices. However, it does annoy existing growers. Because, you know, competition is a bad thing, according to the domestic industry.

They’ve been so used to extortionate prices for their avocados, they probably won’t be able to keep up the repayments on the new John Deere equipment with falling prices.

Nonetheless, for consumers, the outcome is great. Unless the existing growers realise that, perhaps, instead of complaining, they should be thinking about change.

126-fold growth in a booming market

Keeping on from yesterday’s Daily Reckoning with interesting animal names, did you know the Chinese call avocados ‘Alligator Pears’? Why? We have no idea — maybe because their bumpy green skin is reminiscent of an alligator?

What we do know is that China hasn’t had a very successful history with the avocado. Through to the turn of the century, there was limited commercial production. Some of the issues identified include limited awareness of the benefits, difficulty in marketing, the natural environment and poor agricultural technology.

But it’s starting to become far more popular as China wakes up to the cult figure that is the avocado. Late last year, the price of avocados exploded in Shanghai.

Some supermarkets were selling a pack of three for 118 yuan (AU$23). These are incredible prices.

As reported in the Shanghai Daily:

The avocado is a latecomer to the Chinese palate. Thirty years ago, there wasn’t an avocado to be found on the mainland. But with the opening of the Chinese economy, Western tastes came along with investment and technology.

The avocado is the star of Western brunch menus. A simple avocado spread onto a piece of toast is not only tasty but also colorful.

They go on to highlight:

In the last four years, imports of avocado into China have increased 126-fold, and the average price has dropped from about 20 Yuan in 2008.

Now a pack of three avocados is still around 45 yuan (AU$9.00). Those are still attractive prices for growers. And it’s not going unnoticed by switched-on growers in Australia.

The Southern Forest Food Council (SFFC) is a collection of WA growers. Established in 2010, the aim of the council is:

…to [unify] the area’s world-class and diverse producers to strengthen the region’s economy, attract investment and export opportunities, promote regional pride, and create sustainable jobs.

Some of the council’s growers include farmers of potatoes, figs, limes, apples, wine and, of course, avocados. The council has even launched a new brand, ‘Genuinely’. You can now find ‘Genuinely Southern Forests’ grab-and-go bags in supermarkets in Hong Kong.

Now that’s what I call adapting to changing times and seizing an opportunity in a difficult market. Sadly, these growers and the council are all private companies.

But their approach to growth is exactly the kind of quality I look for when it comes to companies you can invest in on the ASX.

Finding growth in extreme markets

Who said you can’t make money in this market? If ‘Alligator Pears’ can demonstrate incredible growth, then I know there are other opportunities out there, too.

While there aren’t any pure-play avo growers on the ASX, there are agri-companies tapping into the massive Chinese market.

Make no mistake; for all the negative news you hear about China, this is still a giant market, with incredible opportunities. 1.357 billion people need food. This gives opportunities to Aussie producers of produce, livestock, milk products, wine, health foods and supplements.

Of course, you need to look no further than two huge success stories that have tapped the Chinese market: Blackmores Ltd [ASX:BKL] and Bellamy’s Australia [ASX:BAL]. These two darling stocks of the ASX smashed the lights out last year.

Blackmores was up over 530%; Bellamy’s over 710%. We tipped Bellamy’s to subscribers of Australian Small-Cap Investigator and locked in profits of 575% in 2015.

What made Bellamy’s so attractive was their ability to perform in an extreme market.

Don’t forget the All Ordinaries was down 0.46% in 2015. The S&P/ASX 200 was down 1.83%. Where would you rather have had your money: in the ‘safe’ index, or in a small-cap stock like Bellamy’s?

At the start of 2015, Bellamy’s had a market cap of around $155 million. Today they’re almost eight times larger. This is what happens when a small-cap company takes off — it can become a multi-bagger in the space of a year.

Now I’m hunting for the next ‘Bellamy’s’.

For over a year now, I’ve been developing a new system for picking stocks — just like Bellamy’s — that have the ability to make extraordinary gains when the overall market is going from one extreme to the next. And, on Saturday, I’m going to release a special report detailing it all.

Admittedly, this report won’t feature ‘Alligator Pears’. But it will feature one company that’s set to capitalise on the Chinese market in a very similar way.

There will be three others, too — all unique, and all with the potential to perform in extreme market conditions. But I won’t give too much away now. Keep an eye out on Saturday for more.

Cheers,

Sam Volkering,
For The Daily Reckoning

Sam Volkering
Sam is Editor for Money Morning and it's small-cap and technology analyst. He spends his time hunting down the most exciting stocks on the planets, whether they’re potential-packed volatile small-caps or tech firms transforming our future through cutting-edge technologies. You can find more of Sam’s work over at Australian Small-Cap Investigator, where he shares the best small-cap stocks he finds on the ASX, or at Revolutionary Tech Investor where he reveals the latest breakthrough tech investment he’s discovered.
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