The growing international demand for high-end permanent crop products grown in New Zealand is driving the Kakariki Fund's four initial investments - a SunGold kiwifruit orchard, hop garden development, Manuka plantation and Rockit apple licences.
Kakariki's purchase of two established SunGold kiwifruit orchards near Opotiki in the Eastern Bay of Plenty with a total area of 10.72 cha is forecast to produce 15,000-16,000 trays/cha, and at the current price for SunGold these orchards are expected to generate EBITDA returns in excess of 10% p.a. Unlike the other initial planned investments, these orchards are already well-established and the purchase will include the proceeds of the 2019 crop as well as lease payments from partner DMS.
The hops, plantation manuka and Rockit apples investments will be based on land use change. The Fund considers development as a more cost-effective way of establishing a portfolio of high-yielding assets and offers initial investors scope to benefit from capital growth and development margins.
The Fund plans to invest in 50% of a 130 cha hop garden on dairy land under contract in the Tapawera Valley near Nelson. The investment is likely to cost $10.33 million and be available in September 2019. Operated by Hop Revolution, who will also pelletise, pack, store, distribute and market hops, the Hops Syndicate is expected to be profitable from FY22 and provide Kakariki with distributions of 18% p.a. from maturity in year five.
A share farming agreement with Comvita is the basis for the Fund's intention to develop a 2,000 cha manuka plantation on North Island hill country. Kakariki anticipates sourcing suitable properties to undertake this development by June 2020 when the agreement with Comvita is set to commence. As part of this investment in Manuka, Kakariki will apply for a $1.38 million land use grant from the Provincial Growth Fund as part of the government's billion trees programme.
Comvita will pay a 5% hive set down fee during the initial establishment period and once the plantation is established Kakariki will receive 35% of honey revenue and 80% of the carbon credits generated and meet 50% of the cost of pest control. Plantation manuka is expected to generate 2.3% p.a. in year one increasing to 16.6% p.a. in year 10.
Finally, the Fund has a heads of agreement with Rockit Global to enter into an orchard development programme which will see the acquisition of suitable land in the next 12 months with licences and priority for plant material to develop 35 cha of Rockit apples in Hawke's Bay, for planting in the Spring of 2020. The orchards are expected to be profitable from year three onwards and generate profits of c. 50% p.a. from maturity in year eight.