When MyFarm is assessing an investment opportunity, the sector is the first consideration on our checklist. Is that export sector successful with strong demand and the ability to command premium prices? Does it have the means to protect its position?
A plant variety right (PVR) gives its owner protection through an exclusive right to grow and to sell propagating material of that variety. Some of our best known investments into crops with PVR's have been in SunGold kiwifruit and RockitTM apples. In the past three years we have seen a marked shift in the value of these PVRs as the market demand for grower licenses has increased. In 2017 investors in MyFarm's first RockitTM apple orchard offer were able to buy licences to grow the crop for $25,000/cha, a price that has now tripled in two years to $75,000/cha.
The better known story is Zespri's SunGold variety, which was first released to growers in 2010. Its release was fast-tracked to help growers recover from Psa, which had decimated an earlier gold variety, Hort 16A. Existing gold kiwifruit growers were able to purchase SunGold licenses for $8,000/cha prior to the tender process being implemented.
Safe in the knowledge that this variety was protected by PVR, Zespri was able to focus on marketing and sales that built demand for SunGold. Since 2016 Zespri has held an annual confidential tender for SunGold licences. Initially releasing 400 hectares of licence in 2016 and 2017, Zespri has since increased this to 750 hectares (including organic) annually up to 2022.
With supply carefully controlled and grower returns for SunGold holding near record highs, tender prices have risen sharply from $200,000/cha in 2016; to $290,000/cha in 2019 despite the total licence area almost doubling to 750ha. This year 303 growers (out of 546 bidders) missed out on the opportunity to plant SunGold. This would indicate the value for this license will remain high for the foreseeable future
However, PVR's do not last forever. And this is part of the reason they gain value in the early years, if grower returns are high and productivity proven. Once the SunGold (G3) licence expires anyone will be able to grow this variety of kiwifruit. As that time approaches investors will need to gauge the value of buying new licence compared to the returns that can be generated before anyone is able to grow it.
What is the lesson in all of this? The early movers who invest in orchards with licensed crops have some clear advantages - lower prices for those licences, and the increased profits and land value that can be generated by a protected variety over the lifetime of the license.