You can have all the finest technology in the world. But if mother nature decides it’s not your season, you can rest assured that it won’t be your season. And fruit and veg producer Costa Group (ASX: CGC) is a testament to that.
The Company reported that Australia’s adverse weather conditions, including both higher rainfall and cooler temperatures, have affected its citrus crop quality. Even though harvest volumes have been in accordance with the budget, the overall citrus crop quality has lowered across all regions. This, in turn, has decreased packouts and the availability of first grade fruit for export.
Costa is a grower, packer and distributor of fresh fruit and veg, with operations across China, Morocco and Australia. Primarily, the Company grows tomatoes, avocados, mushrooms, citrus and berries.
In its export destinations, the market demand and pricing has remained favourable, positioning the Company in a sweet position for its 2023 season. The poor weather conditions have been mucking Costa up for two years now. Still, it has persisted, trying to produce high quality crops in such conditions. This has increased its labour expenditure as well as spraying costs in relation to pest and disease control.
In the six months ended 30 June 2022, the avocado crop suffered, too, as prices were hit and demand lowered. The Company expects conditions to remain challenging for the rest of the year, but is anticipating some improvement and an increase in export demand from Japan.
Plus, thankfully, the rest of the crops, including the berries, tomatoes and mushrooms, are doing well as is the international business unit. Costa feels that, in the second half, the avocado category might benefit from improved pricing, ushering in a minor, yet noticeable gain, compared to previous levels.
As for the citrus category, the Queensland crop has now been harvested and packed. The southern crops in the Riverland and Sunraysia are almost 80% through the harvest with late navels and mandarins still to be packed and sold.
Unfortunately, the net outcome to date plus the forecast for the balance of the citrus season is expected to amount to a full year EBITDA-S that is considerably lower than previously forecast. Costa is expecting the full year EBITDA-S to be marginally above last year’s results.
Moreover, the Company cannot forecast how it’s going to perform next year. Even though it is confident that it will be able to reign in the impact from heavy rainfalls, it has no idea how it would deal with the other surprises the weather holds.
The past two years have not been an easy ride for the Company as it attempted to navigate Covid-19, climate change and CEO change. Hopefully, if Costa is able to strike a deal with mother nature, it will be able to get its crop quality back on track. If not, maybe it could create the tech to do so.
Alinda is a Business Reporter for The Sentiment
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