Episode 8

Secrets of the world's biggest macadamia processing plant

How this Aussie farming co-operative grew into a multi-million-dollar, international business.

 

From small beginnings, Marquis Macadamias has grown into a huge co-operative enterprise, and long-time CEO Larry McHugh tells renowned agriculture journalist Pete Lewis all about that journey, as well as their recent major rebranding and restructure to become the biggest macadamia processing plant in the world. The farmer-owned co-operative grows, processes, and sells almost half of Australia’s macadamia production, as well as 22% of the world’s kernel sales and 16% of the international nut in shell sales, what they describe as the world’s finest nut. This is a story of innovation and success, and how a small number of individuals, with a vision for something greater, created world-leading scale together.

Listen to Episode 8

Episode 8 transcript

Melina Morrison:

Hi, I’m Melina Morrison, CEO of Business Council Co-operatives and Mutuals.  Welcome to our Co-operative Farming podcast series. Cooperative Farming is designed to support farmers, fishers and foresters through the formation of new farming cooperatives, and to foster the resilience and growth of developing farming cooperatives.

Today, Larry McHugh and Marquis Macadamias. This is a story of innovation and success.

For me, this is a great story of how a small number of individuals, with a vision for something greater, created world-leading scale together.

Here’s our host, renowned agricultural journalist, Peter Lewis. Enjoy!

Pete Lewis:

I’m delighted that today’s conversation is with Larry McHugh. Larry runs Marquis Macadamias and has worked in the macadamia industry for 30 years in various roles, including factory design, factory management, quality management, and operations management. He’s a member of the board of the Australian Macadamia Society and a member of the Australia Macadamia Marketing Committee. He also has a degree in mechanical engineering, which I’m sure comes in very handy.

Pete Lewis:

Marquis Macadamias has recently gone through a major rebrand and restructure to become the biggest macadamia processing plant in the world. The farmer-owned co-operative grows, processes, and sells almost half of Australia’s macadamia production, as well as 22% of the world’s kernel sales and 16% of the international nut in shell sales, what they describe as the world’s finest nut.

Pete Lewis:

Larry welcome, you’re coming to us from Brisbane tonight, but your farmers are mostly based along the north coast of New South Wales and area where macadamia’s first evolved 60 million years ago. It makes sense then that the macadamia is the sole Australian native crop to ever be developed and traded globally as a commercial food product. First up, give us a snapshot of your industry, of the nut game in Australia, specifically macadamias obviously, and why this product is so important to us as an industry.

Larry McHugh:

Thanks Pete, thanks for letting me talk to you today. The nut industry worldwide’s growing very rapidly and in Australia, likewise. So we have almonds, pistachios, macadamias, walnuts in Australia, but of those, almonds and macadamias are the largest of those crops. The farm gate value for macadamias this year will be around $250 million, but it is a drought year and our crop’s down quite a lot. So it’s normally a little bit more than that. The crop has been grown in Australia since probably the ’60s when a large company came in and commenced operations but since then, it’s been growing very, very rapidly.

Larry McHugh:

The plantings from northern New South Wales through southern Queensland, which is where the crop was found natively originally. So we have a very huge advantage that we’re actually growing our crop in the area that it was found. Being an Australian native is of great importance to us. We tell everyone we can, that is from Australia and our customers like the fact that we are growing in the region that it came from.

Larry McHugh:

Macadamias only make up around 1% of tree nuts around the world. So they’re actually reasonably rare and they’ve got quite a unique taste and texture, they’re very buttery, and they’ve got a buttery crunch and we find that consumers around the world love them and just can’t get enough of them. The unfortunate part for consumers is that they’ve been in short supply for many years, that is gradually changing with expanding production in Australia, with about 3,000 hectares going in every year at the moment and around the world. So in South Africa, Kenya, and even in China, the macadamia is being planted at the moment, but even so, we don’t believe that we’ll ever be anywhere near the size of any of the other tree nuts, we’ll always be rare and special.

Pete Lewis:

As you say, it’s been a pretty character-building time for this industry to get to where it is. Like many co-ops you came about to solve a very common problem in farming, a glut. Can you tell us how your co-op started and what did it actually does?

Larry McHugh:

So I think like many industries, someone had a good idea to put a plant in the ground, but they never thought about how they were going to sell it. In the late ’70s, there were a lot of trees being planted around the Northern Rivers regions of New South Wales, but there wasn’t a lot of selling going on. The group of growers who were growing at that time found that they weren’t able to sell their crop for a reasonable price and without forming a co-op, they couldn’t see much future in the industry.

Larry McHugh:

So a few of them got together and decided to create a co-op, to process their macadamias and to sell them. One of those founding members is actually Phil Zadro, who is now the largest single macadamia grower in the world. So he’s certainly stayed with us for a long time and has been a bit very big influence in it. The company now processes macadamias and sells them around the world. Marquis Macadamias is the processing company, it’s owned by growers. Marquis Marketing is the company that sells all the macadamias from our growers here and it’s currently owned by Marquis Macadamias but we’re in the middle of taking on a shareholder who is another big grower and processor in South Africa. Once we’ve done that, we will be by far and away the biggest macadamia marketing company in the world.

Larry McHugh:

The structure of our company is that we believe that we have to be market driven. We must create new market as we move forward, otherwise our growers will not be profitable. So our aim is always to keep our growers profitable, keep their farm value up. So we’re trying to get scale and show some leadership in the world market and start creating new world market.

Pete Lewis:

Now, Marquis Macadamias is an interesting co-operative in the sense that it consists of members right across the production process chain, from picking, to processing and marketing. Tell us a bit about your structure.

Larry McHugh:

Yeah, so Marquis Macadamias is owned by the growers and Marquis Marketing sells all the product for them, is owned by Marquis Macadamias. We sell to a lot of manufacturers and retailers around the world, some of the big brand names, and they really like the fact that we’re able to take them to our growers, to our processing, introduce them to the people who are doing the paperwork and selling the macadamias to them. It’s very important for them to understand the whole production chain. So we found it extremely useful to have this structure. It’s also very important for us that we drive market growth over time and having the marketing company there is one of our big strengths. World production’s growing very quickly at the moment and we believe that it’s essential that we keep driving market growth.

Larry McHugh:

So having elements in all parts of the supply chain allows us to be adaptable. We can adapt to what customers are asking us for, so sometimes a customer may ask for a particular sort of product and we can do that right from the farm, through the factories and through our marketing. So it’s certainly been very good to us, having this structure.

Pete Lewis:

Now, it started off as you said, quite modestly, just three members, and has grown quite spectacularly. What do you think were the main drivers? What attracted more and more growers to your organisation?

Larry McHugh:

I think that’s changed over time. So at the beginning, there was a fear amongst growers that they would not be able to sell their product and the company provided them a processing and marketing source … place to sell their product. Over time, as the industry grew, the market became more secure and I think the fact that our company was providing very good returns continuously and was able to survive all the hard times while other players fell around us, and we’re still there today, has been very important. But recently the industry has been changing quite rapidly. Originally growers were normally smaller scale in the Northern Rivers. As the industry has grown, we have attracted more attention from bigger farmers and corporate farmers. So now the scale of plantings is changing dramatically and people are pumping hundreds of millions of dollars into orchards. They want to know that they have a company that can sell all that product as it comes on, but they also want to be able to have a say in that company.

Larry McHugh:

So being part of a co-op means that these big growers can come in and talk to us, can talk about future and work with us, to ensure that when their product comes in, that we’re still able to sell it and provide them the returns that they need.

Pete Lewis:

What about growing pains? Clearly you can’t go from something quite small to something quite significant without a few people having an arm wrestle?

Larry McHugh:

Look, there are always growing pains, but I think part of being a co-operative is that you do have a common goal in place. So over time, as there’s definitely been some arm wrestles about the direction we should go, but we have a board that’s been with the company for quite some time. Phil Zadro, who I mentioned earlier has been with the company all the time since 1983 and there’s a lot of management to have been there a long time. So I think that it’s relatively easy for us to agree on the strategic direction for the company. It probably just comes down to the minor details in the long run. Of course, funding is also an issue, that when the industry is expanding, we need to expand quickly as well and getting enough funding to do that can sometimes be difficult.

Pete Lewis:

It’s been a big year for Marquis Macadamias. Tell us about your recent rebranding and the consolidation experience, and how and why did that come about?

Larry McHugh:

So, as I said, we’ve been around since 1983 and we’ve had several names across that time. When we started, we were Macadamia Processing Company, MPC, and locally around the Northern Rivers, we were known as Macadamia Magic. We had a brand on all our boxes, was International Macadamias, then we had a second brand called Grower’s Choice. In 2011, we bought a 50% share in Pacific gold Macadamias in Bundaberg, so Pacific Gold Macadamias also came into our stable of names. At that time, we also created Macadamia Marketing International, which was our selling company. So what was happening was that the first 10 minutes of conversations with customers, growers, all our stakeholders, was trying to describe how our company actually fitted together and who was who, so it became quite … In 2019, MPC as it was then, acquired the remaining shares in Pacific Gold Macadamias and we became one.

Larry McHugh:

At that point, it became clear that we really needed to be one entity rather than all these different names. So in order to build a platform for future growth, we just had to rebrand and bring everything under one name. So that’s what we’ve done this year, it’s been an effort, but we have got there. So we’re now Marquis, Marquis Macadamias.

Pete Lewis:

Specifically, how did you manage to add value, profitability and resilience to farmers’ incomes from advanced food manufacturing through this consolidation process?

Larry McHugh:

I think this is the first step. We’ve got a longer term strategic plan, which says we need to do more value adding, particularly selling private label and their own label overseas and starting to add our macadamias into other products, so mixed nuts and maybe muesli bars or something like that. We haven’t fully scoped it out yet, but to do that, we needed a strong platform. We couldn’t do that with all these multiple brand names. So the first step here is that we’re providing a platform for the future and in there, we’re also building a bit of resilience.

Larry McHugh:

We’ve now got a lot of scale. As you mentioned previously, we sell nearly 50% of the Australian crop. Having that scale allows us to invest more in our factories, so we are a high cost producer in Australia, and most of the new origins producing are actually low cost producers.

Larry McHugh:

So we have to trade … We have to be efficient in producing our kernel, but we also have to trade on quality. So we spend a lot of time making sure we have the best technology in place. One of the items that we have that no one else in the world has, is a pasteurisation of our product and we would not have been able to do that unless we had the scale that we have. So this is the beginning, the beginning of more resilience and more return to growers, but a very important step.

Pete Lewis:

What keeps you up at night? What are the challenges, the imminent challenges, I guess the opportunities that you see out there?

Larry McHugh:

I think that’s the key, that in challenges are always opportunities. What keeps me awake at night is my mind ticking over about what’s happening next in the world, where we’re heading, where we’re going. We export 70% of our product and we have very diverse markets, so we sell throughout Asia, USA, Europe, China, and Australia. But if there’s a hiccup in any of those markets, then it can affect us And COVID-19 is a very good example of what can happen virtually overnight with markets. So we’re always trying to think ahead and think what’s going to happen next.

Larry McHugh:

The other challenge at the moment is that world profit’s growing fast. So South Africa is becoming quite big, as is China. So we need to keep ahead of our game all the time and be thinking forward about what might happen next, and that can keep you awake at night sometimes.

Pete Lewis:

The government talks a lot about a manufacturing-led recovery, including food processing. What to you are the key barriers to producing high quality, value-added food and products in this country?

Larry McHugh:

Well, I mean the outstanding barrier is the cost of labor, but there’s very little we can do about that. So in the end, we have to be very clever about the way we go about both growing, manufacturing and marketing the product. I think one area that’s that has fallen away in government support over time has been the R and D sector. There’s a lot … Macadamias are a fairly young industry, and there’s a lot of things that still need to be looked at, but it’s getting harder and harder to get the money to do the research. It’s also getting harder and harder to find researchers to do it. Now, I think if the government wants the food sector to be innovative and make good profits, then there are key areas where we have to keep investing in R and D.

Larry McHugh:

The other level in there is about funding. So, we’re growing rapidly at the moment and I’m sure a lot of other co-ops will grow rapidly too, but we have to be able to fund that growth. One of the mechanisms a co-op has to use is to get Treasury Corp, or government funding that allows us to use our co-op tax status. That’s a very, very effective way of being able to afford capital investment over time. Really, if we want to build these co-ops and build our industry, then we need to continue to have good access to those funds and at the moment, that’s becoming more and more difficult. So I believe the government needs to look hard and long at the co-op tax status and the funding of those to try and support industry over time. It is a relatively cheap way for them to invest in industry.

Pete Lewis:

Well, the squeaky wheel gets the oil. Agriculture, as we’ve seen, has been one of the star performers through COVID-19. It has really stood up and supply lines and our capacity to produce world-class food has been under ministry this whole disruption. So I guess there’s probably never been a better time to go to government. They’re all ears, as they say, when it comes to keeping up food.

Larry McHugh:

I agree. So, I think it’s a good thing that agriculture is so prominent at the moment. The resilience we’re showing now is resilience that the agriculture sector has always had. I think that people are now starting to recognize that we need this sector and it’s really the engine room of the country.

Pete Lewis:

Let’s drill down a little bit. The economic and employment value that created through your co-operative cannot be understated. What are some of the benefits for growers? How are they able to mitigate the risks of farming by working together?

Larry McHugh:

I think with any co-op, the benefit is bringing parts together, the sum of the parts is much more. So I think we brought 350 growers together, 170 are shareholders, we get 350 delivering. Each of those growers would find it hard to do what we do on an individual scale. We export around the world. We value add, we sell private label, we sell our own. Each of those people would not be able to do that without us. What we’ve done by bringing the co-op together is allowed us to build strong export markets. So we sell to retailers around the world, we sell to manufacturers around the world. We sell value-added products around the world. All that money is coming back into Australia, but into the regional areas where we’re actually processing and growing.

Larry McHugh:

The money going to growers, then they employ people, they go to the local restaurants, our workers go to the local restaurants. We employ 350 people between our processing plant and Bundaberg and our processing plant in Lismore. So, there’s significant employers in there, but then there are a lot of growers and a lot of workers on the farms as well. So, I think it’s pretty significant to regional areas, particularly in the Northern Rivers, it’s a high unemployment area and it really needs industries like ours to drive them along and what better for a nice clean green area like that than a rural-based co-op?

Pete Lewis:

That story particularly plays well internationally, doesn’t it? They actually like the way you operate and how you’re structured and who’s involved in producing.

Larry McHugh:

It’s been one of our strongest assets over time. One of our founding shareholders, Phil Zadro, who I’ve mentioned before, has worked with us over time and gone to big customers with us just to sell the story about, we are connected to growers. When we bring our customers to our factories, we take them and we let them meet our growers. We want them to meet with our growers and we want them to talk to the people in our factories, because we are the complete supply chain and consumers these days want to know where their product’s coming from. They want to know that it’s safe and what better way than to actually be able to go from the farm all the way through to what’s being delivered to them and being able to talk to everyone and understand what’s going on. I think, certainly with some of the big retailers, the story resounds very well with them, and it’s enabled us to form very good partnerships with them over time.

Pete Lewis:

I guess one of the most important things about that first person connection is that you can explain to people that the macadamia is in fact, an Australian native nut and not something from Hawaii?

Larry McHugh:

Yes, the Hawaiians took our native nuts, I believe it was in the 1940s, or somewhere around there and developed into a commercial crop and did a very good job of convincing people that it was their nut. When Australia took hold of it again and built their industry bigger than Hawaii, the reputation of being in an Hawaiian nut was hard to shake. We are working on that over time.

Larry McHugh:

Unfortunately, the Chinese name for our nut that is still Hawaiian Nut. We’ve asked them to change it, but it’s not that easy. But nevertheless, people do understand, and we make a big point of the fact that they do come from Australia, we’re growing them in the place where they were meant to be grown and the quality of the crop shows from being grown in the area where it’s supposed to be grown.

Pete Lewis:

Well, I guess the Chinese can appreciate that the gooseberry, which is Chinese, has been virtually taken over lock stock and barrel by the Kiwis.

Larry McHugh:

Yeah. I don’t know how they let that happen in a small country like that.

Pete Lewis:

They get up earlier, I think is probably the answer. A lot earlier than everybody else.

Larry McHugh:

True.

Pete Lewis:

What’s your best advice for producers thinking of forming a co-op from your experience?

Larry McHugh:

Look, I think the most important thing is that the business that you’re in as a grower, or a farmer, or a fishermen is a very different business than the business of processing and marketing. So you have to concentrate on building a strong business, you need to employ people who understand what they’re doing in that market and you need to put the resources behind building that market. Never believe that tomorrow is going to be the same as today because it very rarely is. Our company started in 1983, there was no internet. I think computers had green screens at that time and so everything changes all the time. So you’ve got to be on the ball, treat it as a business, take nothing for granted and on a full business mentality. This is a business that can be an international business, you’ve just got to work hard at it.

Pete Lewis:

You concentrate obviously on a long-term strategy and you’re looking some, some pretty tasty new products, what’s next for you and what more can be achieved through new investments and greater supply chain collaboration?

Larry McHugh:

So, as I said previously, we’ve been building a platform for our growth. Our long-term strategy is very important for us. We’ve realised that in Australia, we’re going to become a less and less proportion of the world crop. For us, it’s very important that as new crop comes in around the world, that we continue to build market. So what’s coming ahead for us is greater collaboration with other origins. To build market, we need access to more kernel. So we’ll collaborate with our partners in South Africa and Kenya, we’ll take that kernel to market and we’ll build market for bulk product. But at the same time, we’re going to start building other products into the market. So they may well be mixed nuts, other products incorporating our nuts.

Larry McHugh:

We’re also going to concentrate on product development, not only for ourselves, but also helping our customers do product development, take ideas to them and get them to take that to market for us. We have always been very collaborative throughout the supply chain. We find it very important that we partner with our end users. We always go as close as we possibly can to the consumer. So, as I’ve said previously, we have quite a few partnerships with retailers around the world and that’s what’s going to enable us to grow over time. They’re always often new products and they’re always after people who can make sure that they supply the product that they need.

Larry McHugh:

So you’ll see the Marquis name grow around the world. It will become a name that’s known both at a business level and at consumer level. It’s going to take some years to get there, but we have a strategy in place and we’ve got the building blocks in place to be able to move forward.

Pete Lewis:

I guess in terms of that strategy, a lot of the good ideas invariably will come from your own growers?

Larry McHugh:

That’s true and one of the benefits of being a co-op is that our board members are actually all growers. One of the things about the macadamia industry is that the original growers, a lot of them were actually termed Pitt Street farmers, so there were lawyers and doctors and various professionals who came in and they were looking for an investment.

Larry McHugh:

A lot of those people are still around now but what it’s enabled us to do is have a board of very varied business backgrounds, but all very good professional people. They’ve employed staff over time who have been in the business a long time. A lot of those directors have been in the business a long time. So strategy comes fairly easy to the board and the group. The strategy’s easy it’s enacting it that takes the time and energy.

Pete Lewis:

Now look, in terms of those goals, aside from profitable returns for you growers, you obviously … business doesn’t occur in a vacuum, the context of where you grow and the part of Australia where you’re doing all this is obviously … comes with it, the issues of very sound environmental stewardship and the best land use and water use possible. So how important are those environmental and social goals to what you’re about?

Larry McHugh:

They’re incredibly important? One of the big things about Australian product in general is its clean green credentials. So we have to be very careful to maintain that over time. We can’t have our customers come and visit us here and see, or read, or hear things that tell them otherwise. So we also, in our local communities, we’re very obvious. There are a lot of trees in the ground around that area, and we use a lot of land. So it’s incredibly important that we have a right to farm in those areas, which means we need to be very mindful of the community around us. So we take a lot of time to work with local councils, local community groups, et cetera, to make sure that we’re being a good citizen.

Larry McHugh:

We also, in our local communities, we sponsor local groups. We sponsor good causes around us as well. So we do take out our role in the community very seriously. Certainly as far as sustainability goes, there’s a lot of work going on in the industry. IPM, Integrated Pest Management, is already in and getting better all the time. So we only spray when we need to, if the pest scouts go out and find any bugs and they only spray in the regions that need to.

Larry McHugh:

We are a tree crop. Unfortunately, trees sequester carbon from the atmosphere. So, we are actually carbon neutral, probably a little bit better than that, which has helped a lot. We’ve recently found that it’s a rainforest tree and it really prefers organic matter than fertilisers, chemical fertilisers. So there’s been a lot of work done recently about putting organic matter out which stabilised the soil and re-energises the soil, and is very good for the trees. So there’s a lot of good work going on there and obviously as the biggest processor in the industry, we get behind that and help wherever we can.

Pete Lewis:

As you’ve said, from very small and humble beginnings, it’s now quite an enterprise. You’ve mentioned a Phil Zadro’s name a couple of times, and I’m intrigued and I’m sure our audience will be intrigued to know a little bit more about Phil. He has been there since day one and as you indicated, is now the biggest player in the industry. Remarkable.

Larry McHugh:

He’s a remarkable man. So Phil back in, I think it was the late ’70s, early ’80s, he had been in construction and property development and decided he needed a hobby. So he went to the Northern Rivers and talked to some people and decided to grow macadamias. At that point, three or four years later, he found, “Well, I can’t sell it. So I’ll have to start a co-op.” Then he helped fund the building of the first factory, which is still the basis of the factory in the Northern Rivers today. In the ’90s, he decided that he’d moved to Bundaberg, not physically move, but he would move his farming up there and see what he could do up there. So he basically started the farm in Bundaberg, and it’s now the bigger of the areas. Then he went to South Africa and started growing over there as well. He’s become by far the largest single grower in the world.

Larry McHugh:

He’s now 87, he’s still building farms. One of his enterprises is in Emerald at the moment, in Queensland. He’s growing out there and he’s still expanding in South Africa. So a man of endless energy and also very, very important part of our co-op because he’s been there the whole time and he understands the business intimately.

Pete Lewis:

A lot of Australian farming enterprises should graft that man and get that kind of energy and enterprise. That’s fantastic, it’s a great story. The macadamia story is a terrific story, and we really appreciate your input on this Larry, and you will be back to join us a little bit later, but I do want to encourage as much as I can, people to get involved in this conversation. One of the ways they can do that is to take part in our poll. Today’s poll question is value-added production is an opportunity for Aussie farmers to diversify and improve farm income. Should we do more value-added food and beverage manufacturing in this country? Some of us probably think that’s an obvious answer to that, but we’re very interested to know what you think about that. Answer in the chat box, to the right of the stream.

Pete Lewis:

As we said, that’s about it for our in-depth conversation and we do appreciate the catching up and getting the inside wood from Larry on the macadamia story.

Melina Morrison

I hope you enjoyed this episode, and you’re inspired to find out more about the fantastic benefits of cooperative farming, and how to realise the incredible potential for your business.

Don’t forget to subscribe now to the cooperative farming podcast series and rate us. You can also watch them as video’s on our website, at coopfarming.coop…

You’ll learn the benefits, tips and techniques of cooperatives as we future proof Aussie farmers.

Remember, in a challenging world, we are all “better together”.

I’m Melina Morrison, thanks for listening.

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