Investing in tree crops

Tree crops are agricultural products grown on trees or shrubs. Unlike annual crops, which are harvested once during their lifetime, tree crops are capable of producing multiple harvests, with most able to sustain productivity for 25 harvests or more.

Examples include:

In the UK, tree crops represent a very small proportion of total agricultural output, with the main tree crop by area being apples. In different climatic conditions, however, a wide variety of tree crops can be grown, with the potential to provide very attractive returns to investors.

Global trends driving demand

A food megatrend is a significant global shift in food consumption habits over time. Current food megatrends are fuelling demand for tree crops, increased per capita food consumption, increased animal protein consumption, and increased consumption of healthy foods – otherwise known as the “health megatrend”.

This “health megatrend” has led consumers to seek out foods that support physical, mental, and emotional wellness. Among these are lean proteins (such as fish and eggs), foods with high polyunsaturated fat content (such as olive oil, almonds, and avocados), and foods with high antioxidant levels (such as blueberries and raspberries). Many of these are tree crops.

Demand for tree crops is expected to grow

According to Savills analysis of FAOSTAT data, between 2000 and 2021, the world per capita consumption of specific tree crops grew as follows:

• Blueberries: 412%
• Almonds: 128%
• Avocados: 146%

There is scope for further growth in the demand for tree crops, driven by rising incomes in emerging markets. Savills analysis of FAOSTAT data indicates that if China’s per-capita consumption of olive oil matched the global average, olive oil demand would increase by 17%. Similarly, if per-capita consumption of almonds in India and China reached the world average, demand would grow by 16%. Remarkably, if per-capita almond consumption in those countries rose to the level seen in the United States, global demand could increase by a significant 179%.

Tree crops: increasing farm income potential

Tree crops have both higher sale prices per tonne and higher tonne-per-hectare yields, compared to annual crops.

Using wheat as a benchmark for gross annual crop returns, figure 3 illustrates that tree crops can achieve a price per tonne of up to 1,200% higher and generate per-hectare revenues as much as 2,000% higher.

Where do tree crops grow?

Figure 4 shows that 40% of global tree crop production comes from stone fruit, citrus, and tropical fruits, most notably bananas. These tree crops thrive in tropical climates, so it is not surprising that many of the largest tree crop-producing areas by volume are located in countries such as India and Brazil.

Figure 4 shows the composition of global output by tree crop type. Further research indicates that countries such as the United States and Spain now dominate as two of the world’s top five global producers by value, demonstrating the premium nature of their agricultural output.

What risks are associated with tree crops?

As with all investments with higher return potential, tree crop investing is associated with a number of risks; however, many of these can be mitigated.

Water

Tree crops often perform best in low-rainfall areas with warm, sunny climates, making irrigation essential to the viability of many tree crop orchards. However, water shortages, due to natural limits or regulation, pose risks.

This can be mitigated through:

• Prioritising sustainable surface water sources such as large rivers.

• Improving soil structure to optimise moisture retention.

• Balancing water-demanding crops with drought-resistant ones (e.g. almonds and olives grown together, with olives surviving on minimal water if needed).

Climate

Climate change is making winters in parts of southern Europe too mild for effective tree dormancy. While this may initially appear like a threat to the viability of the sector, it also opens up new growing regions:

• Avocados are now viable further north along the Mediterranean coast, subject to water availability.

• With springs growing warmer in southern France, the climate is now increasingly able to support the growing of almonds.

Market trends

Tree crops take five to eight years to reach their maximum yield, during which crop prices incentivise growers to plant, but oversupply later depresses markets, triggering a cycle. Low prices of a particular tree crop lead to orchards being retired or replaced, reducing supply and pushing up prices again. Holding investments over the long term helps offset these price fluctuations. Recent modelling indicated that investment returns over 20 years exhibited almost no sensitivity to the point in the crop-pricing cycle at which the investor entered.

FOCUS ON ALMONDS

Over the past two decades, almonds have seen significant growth in both production and global consumption. This growth has been fuelled in part by the health megatrend, as almonds are naturally rich in protein and healthy fat. Beyond their traditional uses in snacking, confectionery, and baking, almonds are increasingly featured in a range of health-focused products, including almond milk and almond butter. Analysis of FAOSTAT data indicates world consumption has grown by 161% over the past 20 years, with the harvested area increasing by 143% over that same period.

According to USDA data, 80% of the world’s almonds are grown in the United States, specifically in the Central Valley of California. The Central Valley is a 400-mile-long expanse of flat, fertile land with an ideal microclimate for almond production. Cold winters allow for tree dormancy, while hot, dry springs allow for optimal bloom formation, and mild autumns enable efficient harvesting. A further 10–12% of global almond production is in the European Union (primarily in Spain and Portugal) and Australia.

Almonds have long been popular with farmland investors due to the high cash-generation potential of their orchards. The latest USDA census indicates that around 10% of all almond orchards in the United States are owned by investors (such as Nuveen, Manulife, and UBS) and corporates (such as Blue Diamond and Wonderful), while in Australia, almond grower Select Harvest is publicly listed. In Europe, large family grower De Prado recently received investment estimated in the tens of millions from Canadian investment fund PSP. Currently, the almond price cycle is at its low point. However, as growers in California replace retired almond orchards with other crops, supply shortages are likely to force the cycle back up, creating interesting buying opportunities for investors. This can add some healthy upside to solid long-term fundamentals.

Outlook

Attracted by their alignment with powerful health megatrends relating to food, many investors are recognising the long-term value of owning tree crop orchards. While these assets offer growth potential, care must be taken to avoid risks relating to water availability, climate variability, and market fluctuations. However, strategic diversification across crop types, geographic regions, and water sources can help mitigate these challenges and, over the long term, deliver a well-balanced risk-return profile.

_{Read the articles within Spotlight: Global Farmland below.}