DURIAN DASH
Now that China has developed a big appetite for the king of fruits, investors are scouring the region for farms where they can ‘plant gold’.
Many a bus has trundled north across the causeway into Malaysia, carrying Singaporeans in search of an unusual treasure: a plentiful supply of the fruit with pungent yellow flesh inside a thorny chassis. Michael Syn, who heads the derivatives segment at the Singapore Exchange, has gone one step further. The 47-year-old four professional years ago bought a durian plantation in Johor with four friends who ploughed S$2.5 million into the venture.
With that, he was thrust into the world of durians — for decades a sleepy market dominated by Southeast Asian countries, but now is being increasingly disrupted by a dragon recently awoken to the fruit’s charms: the Chinese consumer.
Malaysian durian exports to China have soared since the turn of this decade. From merely 40 tonnes in 2011, the shipments have skyrocketed to 368 tonnes worth US$4.34 million in 2016, United Nations data show.
The brisk trade came about after then-premier Wen Jiabao of China visited Malaysia in 2011 and sanctioned imports of Malaysian durians. Still, only the mao shan wang variety, also known as “Musang King” — which the current Chinese frenzy is all about — in frozen pulp form is allowed, and not the whole durian.
Thailand currently has a virtual monopoly in the Chinese durian market; durian varieties in Thailand are harvested just before they ripen, making overseas shipments convenient.
Malaysian durians, on the other hand, are harvested after ripening, limiting the country to nearer export markets such as Singapore.
The popularity of Malaysian varieties such as mao shan wang and D24 in China could be due to Chinese consumers’ propensity for “trading up”, says Loris Li, a food and drink analyst with the research firm Mintel in Shanghai.
Durian farm broker Nicholas Tan observes the same, noting that mao shan wang durians in China were selling for about 1,200 yuan (S$247) a kilogramme in Shanghai in December. Some Malaysian durians are brought into China indirectly through Thailand or Hong Kong.
“It’s the king of fruits. It’s like iPhone in China,” he says. “It’s so expensive it makes you feel you’re above the rest of people. So they’re okay with paying [top dollar].”
For now, Singapore remains Malaysia’s largest export market for durians, buying 16,600 tonnes worth US$7.97 million in 2016. But Malaysia is in talks with China to approve whole-fruit durian exports, which Malaysia’s agriculture minister said in late 2017 could be achieved within a year.
Hence concerns are simmering that in the years to come, consumers in Singapore will have to fork out more for their durian fix, and that the choicest fruits will go to China, where buyers have deeper pockets.
Mao shan wang prices in the city-state hit highs of over S$40 a kilogramme last year after a wet season resulted in short supply, before falling to around S$20 with the year-end harvest.
Notwithstanding the vagaries of the weather, enterprising individuals and companies in the country are beating a path to the proverbial pot of gold, stirring up a sector that has long been used to operating on relationships established over decades.
PLANTING GOLD
Owning a durian plantation appeared easy enough at first, says Mr Syn.
Durian farmers sell their fruit to an aggregating middleman known as an agent — “literally a guy in a singlet” — who takes all that is produced by the farm. “Of course it’s at a steep discount, but it makes your life very easy,” he says. “He’ll look at the rain and the season and the flowers, and he’ll say, ‘Okay I think it’s going to be like that. Why don’t I pay you cash, and basically what falls on the ground is mine.’”
It also seemed like a good way to go about a real estate investment, especially as the trees, which start bearing fruit at 10-15 years, last up to 70-80 years.
“Provided that your yield is positive, enough to pay for your workers, fencing and a bit of compost, and increasingly a little pesticide, then isn’t that a great way to hold land?”
So Mr Syn and his friends decided to take the plunge, buying a piece of agricultural land near the Chinese township of Segamat in the hope of benefitting from land value appreciation when the town expands and builds more infrastructure.
“That is the land speculation phase,” he adds. The other motivating factor? Simply the fun of it.
Mr Syn and his friends were ahead of the curve. As Chinese investors rushed in the past year, prices for durian plantations in Malaysia have almost doubled. At Raub district in Pahang — where the best mao shan wang durian farms in Malaysia can be found — prices for good plantations certified for their agricultural practices now stand at 500,000 to 600,000 ringgit (S$167,000 to S$200,000) per acre, up from about 300,000 ringgit a year ago, according to Mr Tan, the durian farm broker.
Mr Tan, who formerly owned a property agency and now runs an e-commerce startup, started brokering durian farms for Chinese investors six months ago, after discovering their interest in his travels to China.
He has successfully completed a deal, and is now in talks with a few more keen buyers. The Chinese, he says, are looking mainly at plantations with mao shan wang trees. Some want to do this as a hobby and because they like to eat durians; others are going into it as a business investment. “They prefer to own their own trees, because they can guarantee quality and safety,” says the 40-year-old.
The hitch in the plan for these investors, however, is that they don’t know how to maintain such farms.
Mr Tan therefore offers such services in collaboration with his partner, a datuk who has the necessary connections locally to source for good farms, export durian produce and maintain the farms. The local partner also has an important role, since Malaysia law requires that locals hold at least 51% of any company buying agricultural land.
Banking on the presumption that there are more people who’d want to own durian farms but don’t have enough capital on their own, Mr Tan is starting a crowdfunding campaign to raise US$10 million.
His plan is for interested investors to buy a share in a Singapore-incorporated holding company for US$5,000 each; this company will in turn hold a Malaysia-incorporated company which will be 51%-owned by the local partner.
Mr Tan estimates that investors will receive net returns of about 10-15% a year. He has already taken an option to buy a 63-acre plantation in Raub, with the aim of buying it once enough money is raised.
The campaign, which is open to investors from all countries, will be launched in the next few months, ahead of the next durian season which starts in June. “It’ll be nice to be ready
for the next durian season so that the investor can take a trip down to Raub, eat durians and then decide to invest,” he says.
But those hoping that a share in the company will give them a free lifetime supply of durians will be disappointed. Mr Tan says shareholders will have to buy durians from the company at the wholesale price, which currently stands at 30 ringgit per kilogramme.
More importantly, however, they will be assured that the durians they buy will be pesticide-free, he adds, as the farm has a certificate for its good agricultural practices.
JOINING THE PARTY
Chinese consumers’ huge appetite for the fruit has not gone unnoticed by other businessmen in Malaysia and Singapore.
Singapore-listed Regal International Group last October helped to organise a three-day durian festival in the southern Chinese city of Nanning, in collaboration with the Malaysian agriculture ministry and the local Chinese government.
The property development firm based in East Malaysia obtained special permission to ship 3.8 tonnes of frozen whole durians (with their shells) into the city for the event, and also brought in over 200 other durian-related products.
The festival was a resounding success. About 165,000 people visited it, with some queuing up to three hours under rain and sun, says group chief executive Dominic Su. It even attracted visitors and reporters who travelled long distances from other provinces. Many of those who had attended the festival had only tried whole durians from Thailand before, and were surprised by the rich taste of Malaysian mao shan wang durians.
The festival also led to successful tie-ups between Malaysia durian businesses and local Chinese partners, with the trade value of the matches projected to come up to 2.9 billion ringgit by 2020.
“We are very overwhelmed by these Chinese consumers’ enthusiasm for Malaysian durians,” says Mr Su.
Regal International is now exploring new ventures that can tap the Chinese demand for durian. It will focus on the real estate aspect of the durian supply chain — for instance, durian processing plants and warehousing in industrial parks, or ecotourism for plantations.
“The market opportunities are tremendous. Because of our connections in China, we have access to a lot of the Chinese markets,” he points out. “We are looking for ways to link up this enthusiasm and the supply to turn it into a sustainable and realistic business.”
Even closer to home, Singapore-listed Serial System made headlines in August last year when it announced that it was entering into a joint venture to invest in a Malaysian durian company.
The two-year-old firm, Musang Durians Frozen Food, processes and makes durian puree and durian-related products such as pizzas, mochi and ice cream. It has two factories in Pahang and Kuala Lumpur, and exports these products to Hong Kong and China.
Explaining the reason for the move, chief executive Derek Goh says that Serial Systems was hoping to ride on the rising Chinese demand, and to diversify to mitigate risks in its core electronics business.
The group chose to enter the mid to downstream portion of the durian value chain, instead of buying plantations, because of the long gestation period for new durian plantations and their current high prices, he notes.
Mr Goh is expecting returns of at least 10% from the investment. Serial Systems has committed S$165,000 to this, while he is investing S$45,000 on a personal basis on top of that.
For now, however, the Malaysian company is still in the midst of putting in place system processes for quality control and other functions before it can properly take off, he reveals.
GO AHEAD, TUCK IN
Meanwhile, businesses in Singapore are also gearing up to tap even greater demand for durian products by both Singaporeans and tourists.
Cashing in on the mao shan wang craze is the Singapore-based food and drinks conglomerate Fraser and Neave (F&N), controlled by the Thai billionaire Charoen Sirivadhanabhakdi. In 2016 it launched mao shan wang durian ice-cream as a limited-edition product.
The premium flavour proved to be such a hit, the company decided to make it a permanent product last year alongside its normal durian flavour. Noting that durians are popular with tourists too, it also supplies the mao shan wang flavour to ice-cream cart sellers.
Thanks to the mao shan wang flavour, sales in its durian potong range have more than doubled last year compared to 2016, according to Lee Yeau Yin, head of F&N Creameries’ icecream division.
The specialty confectionery firm Four Seasons Durians has taken things even further; in August last year it opened a durian cafe in Singapore’s Chinatown, where it serves items such as durian pizzas and fries with durian dips.
Eventually, the group plans to export its products globally. It has already received franchising inquiries from China, but talks are still ongoing.
In Hong Kong and China, where whole durians are harder to come by, durian-flavoured products have also mushroomed, appearing in forms such as dumplings, glutinous rice balls, yoghurt and burgers.
In fact, durian-flavoured yoghurt has become increasingly common. Some 1.2% of all launches of spoonable yoghurt, drinking yoghurt and liquid cultured milk in China between April and December last year incorporated durian, compared with 0.2% from April 2016 to March 2017, according to the market research firm Mintel.
The Chinese frenzy is making owners of durian plantations like Mr Syn hopeful. “Right now, we sense this excitement and interest because of the awareness of the China demand, in Hong Kong and in Malaysia. So we’re waiting to see how this develops.”
Indeed, the investment has turned out less lucrative than it had appeared to be, as his plantation had included durian trees of other varieties. “We discovered that if you don’t have pure mao shan wang you don’t get premium economics, because what the Chinese demand is only mao shan wang.”
Mr Syn and his friends have since converted a third of the 50-acre farmland to oil palm. From their experience, the margins for oil palm are double that of durians.
“Actually oil palm is easy and has more regular harvests, and right now it’s pretty high yielding,” he says. “The infrastructure in Malaysia for monetising oil palm is much better. ... Workers are trained and the market is understood.”
The durian plantation business is also a longterm one, with a minimum investment horizon of 10 years, he cautions. By his estimates, a durian plantation owner will be able to achieve 10% in profit margins in the medium term.
Asked if he will be holding it for such a long period, he concedes that the group could get bored with it. “The truth is, it sounds more exciting than it is,” he adds. “It’s probably easier to go to (a durian seller) to eat there.”
“It’s the king of fruits. It’s like iPhone in China. It’s so expensive it makes you feel you’re above the rest of people. So they’re okay with paying [top dollar]” NICHOLAS TAN Durian farm broker