Costa Group is an Australian success story. It has gone from humble beginnings as a family-owned fruit shop in Geelong to become the largest horticultural company in Australia. We look at the positives as well as the areas where the fruit and vegetables giant has room for improvement.
Costa is the largest supplier of fresh fruit and vegetables in Australia. The company grows, packages and markets berries, mushrooms, citrus (including table grapes), glasshouse-grown tomatoes, avocados and bananas. Costa also has interests in two berry operations overseas. The company runs a joint venture with Driscoll’s in China and took a controlling stake in Moroccan blueberry producer African Blue in 2018.
How Costa made blueberries cheaper
Unlike some of its competitors, Costa aims to grow and supply fruits and vegetables all year round. The company also supplies blueberries 52 weeks of the year which has driven down the average price for consumers, with 125 gram punnets falling from more than $10 to as little as $3 (depending on the season). So how does Costa manage it? Part of the answer is its development of more resistant varieties of blueberries that can be grown all year round. The company also uses polythene tunnels that it calls ‘protected cropping’ to keep hungry birds and extreme weather events away from its berries. Finally, Costa has berry farms across four Australian states which reduces the risk of a single weather event wiping out all its crops.
Along with its domestic growing business, Costa earns an income by growing berries overseas. The company has a joint venture with Driscoll’s to grow blueberries, raspberries and blackberries in Southern China. Costa also grows blueberries in Morocco for consumption in the UK and continental Europe via the company African Blue, which Costa fully aquired in 2018. The impact of this acquisition, along with the biennial citrus crop being in an ‘off’ year, contributed to a poor result for the second half of 2018. This was compounded on 30 May 2019 when the company downgraded its earnings guidance again due to weather-related setbacks. However, we are confident that Costa has a solid growth story and that the recent downgrades are cyclical rather than structural. Like any agricultural company, Costa is susceptible to numerous risks including poor weather and fluctuating product prices.
Costa passes our ethics test – for now
We have very strict ethical rules when it comes to food producers. For a food production company to be investable under our Ethical Charter it must produce food that forms part of a healthy diet. Costa certainly ticks that box: blueberries, avocados, mushrooms, tomatoes and citrus fruits are all included in the World Health Organisation’s healthy diet guidelines.
However, even if the food is healthy it must be produced in an environmentally sustainable way and avoid unnecessary harm to humans and animals. In its 2018 Sustainability Report, Costa laid out its Sustainable Commercial Farming strategy which aims to “balance commercial fresh produce production with environmental responsibility and affordability with quality, in order that healthy and nutritious food is available to everyone for generations to come”. According to the company’s website, it uses “organic and biological pest and disease control methods on [its] crops where practical and cost efficient”. Where chemicals are used, Costa says it closely monitors their effectiveness to ensure compliance with maximum residue limits. As for energy efficiency, in 2018 the company commenced the installation of 5,000 solar panels at its Monarto South Australia mushroom farm that will have a capacity of 2,000 kilowatts.
Regarding labour standards, the seasonal nature of the agricultural industry means more than 80% of Costa’s workers are either contractors, casual or part-time. The company states in its sustainability report that “human resource practictioners” have been employed in China to ensure “all legal obligations are continuously being met”.
In May 2019 we asked Costa a series of questions about its use of pesticides and the steps it is taking to avoid human rights breaches in its operations and supply chain. We wanted to know which pesticides Costa uses, whether its pesticide use is decreasing, and whether it uses GMO technology. On human rights, we wanted to know whether it had specific human rights policies, how it assesses labour hire companies’ compliance with those policies, how it reduces the risk of human rights abuses for its staff and contractors in Morocco and China, and whether Costa intends to report under the new Modern Slavery Act. While we were comfortable that Costa is taking appropriate steps on the human rights front, some of the responses on pesticide use raised concerns. We would like to see the company measure and disclose its use of pesticides, herbicides and insecticides to confirm its usage per unit of production is going down. We also hope this will incentivise the company’s adoption of alternatives to pesticides. We we will reassess Costa from an ethics perspective in 2020.
Costa does a lot of good by producing relatively cheap fresh fruit and vegetables. However, no company is perfect and we will continue to scrutinise Costa to make sure they align with the principles of our Ethical Charter.