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Desert Farmer Taps Into Global Markets

Cadiz's Sun World unit, which grows citrus, grapes and stone fruit in the Mojave, shields itself from seasonal dips in profit by licensing its patented produce to growers around the world. It hopes to duplicate its success in Egypt, where it's helping develop a system that would yield out-of-season crops for sale to Europe.

October 08, 2000|MELINDA FULMER | TIMES STAFF WRITER

To airline passengers cruising over the Mojave Desert, the farms in Cadiz seem to appear from out of nowhere, an unexpected checkerboard of green painted on the dusty no-man's land off historic Route 66.

On the ground, these checkerboards are actually thousands of acres of farmland, row after row of citrus trees, peach trees and trailing grape vines that produce hundreds of thousands of boxes of fruit a year when crops elsewhere are still ripening or are long gone.

Its owner, Santa Monica-based water resources firm Cadiz Inc., is hoping to duplicate this agricultural marvel and turn a parched corner of the Egyptian desert into another Coachella Valley, supplying Europe with juicy citrus and jumbo Muscat grapes out of season.

While most California growers are still struggling to get their fruit into international markets, Cadiz and its farming unit, Sun World International, have discovered a lucrative niche helping growers across the globe plant their own grapes, plums and citrus.

In Egypt, Sun World is being paid to design a massive drip-irrigation system for one of the world's largest farms and to plant its own patented crops. If everything goes smoothly, it will earn an ownership stake in this phase of Egypt President Hosni Mubarak's Toshka project, which at 100,000 acres is five times the size of Sun World's California farming operations.

Between Toshka and the deals Sun World is cutting to license its fancy patented crops overseas, it is well on the way to becoming a global farmer with enough reach to insulate itself from crop price plunges due to weather or oversupply.

"They're smoothing out the seasonal ups and downs of the [agriculture] business," said Debra Coy, a water analyst with Schwab Capital Markets in Washington.

And, analysts say, with Toshka, they are paving the way for more arid farming projects in places such as the Middle East.

Here in the U.S., Sun World is already one of the state's largest fruit marketers, growing and shipping about 14 million boxes of fruit each year. But it has struggled to turn a profit in recent years as crop prices have dropped while it was investing large amounts of money on irrigation equipment and new plantings across the state.

"The farming operations are still in . . . a growth mode," said Michael Crawford, an analyst with Los Angeles-based B. Riley & Co. "There's been a lot of capital going in without a lot of revenues coming out."

That should change next year, analysts say, when some of those plantings start bearing fruit and as income flows in from its crop-licensing operation.

Moreover, by using water-conserving farming methods, the company should have enough water to keep its crops green in coming years, with enough left over to sell to other users.

The Sun World unit earned $22 million last year before interest, taxes and depreciation and amortization on revenue of $115 million. However, the drag of interest expense related to its parent's land investments pushed the entire operation $8.5 million into the red.

Cadiz was formed in 1983 after the founders identified an aquifer in the Mojave Desert, and it has spent years accumulating the land around it as well as other prime farmland around the state.

Cadiz's income has been largely contingent on the company's ability to cut a deal with a water agency to tap the Cadiz aquifer. Since 1996, the company has been negotiating with Southern California's Metropolitan Water District to supply water from the Cadiz aquifer and store water from the Colorado River in the aquifer when supplies are plentiful.

That controversial deal, which aroused the ire of some environmentalists, probably will be concluded next year and would mean hundreds of millions of dollars in revenue for Cadiz, which could turn the thinly traded public company into an attractive play for some long-term investors.

"If you understand the dynamics of the water business in Southern California, then you know they've got a unique asset there," Coy said. "It's certainly not going to go down in value."

Sun World's fortunes also have dramatically improved since it was scooped out of Chapter 11 bankruptcy by Cadiz in 1996.

The fruit packer, started in 1976 to sell patented specialty fruit, had poured tens of millions into research and development and even bought full-page newspaper ads to introduce consumers to innovative new varieties of fruit such as the Sun World seedless watermelon and red flame seedless grape.

These products became so popular that growers rushed to plant their own acreage, bringing so much fruit to market that they ultimately became commodity items. Within years of its introduction of the seedless watermelon, there were 35 other varieties on the market, said Sun World Chief Executive Timothy Shaheen.

There were other costly stumbles and management excess. Mangoes developed for the Japanese market proved too expensive to compete with Mexican and South American imports. A costly tomato growing operation in Mexico had to be divested.

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