Costa Group shares plunge 24 per cent after new CEO outlines price pressure and labour challenges

Australia's largest vertically integrated fruit and vegetable company Costa Group (ASX: CGC) has seen investors head for the exits today after reporting domestic labour and pricing challenges, as well as negative impacts to an otherwise strong international performance due to the strong Aussie dollar.

This morning's 23.87 per cent drop to $3.38 per share erased seven months of gains for Costa, after an AGM speech from new CEO Sean Hallahan offered a comprehensive overview of the company's operations and outlook.

Sean Hallahan said without action to give growers timely access to seasonal workers around the country, the industry would continue to face labour challenges at least through to 2022.

"In our domestic produce segment, we have continued to face short term challenges arising from COVID restrictions and labour shortages," Hallahan said.

"I can report that we have currently been able to cover our citrus harvest labour requirements, however we have faced some labour shortfall at our Monarto mushroom farm.

"Although challenging, we expect to meet our requirements for the main berry season in Corindi New South Wales, and we remain focused on also targeting more local labour through our Pick Adventure recruitment campaign."

Hallahan said first half performance was expected to be marginally ahead of the previous comparable period in 2020, with strong international operations offset by challenges in domestic produce conditions.

The company also expects depreciation and amortisation charges of approximately $110 million for 2021.

Despite positive performance for its berry category globally, prices were put under pressure for Costa's tomatoes and avocados, the latter being one of the group's major growth segments with a world-leading high-density, trellised system being rolled out.

However, increased Hass avocado production across the sector has led to reduced prices - a trend Costa believes will continue into the second half of the year.

Citrus, also historically a key source of earnings for Costa, has also seen its performance impacted by fruit fly restrictions in the South Australian Riverland, as well as previously advised hail damage which mainly affected table grapes.

"However, CY21 is an 'on year' in terms of yield and it is expected that results in the second half of the year, where the bulk of harvest occurs, will benefit from strong yields," Hallahan said.

"It is also noted that our exposure to supply chain constraints with respect to exports to China is limited."

Hallahan noted the group did not expect its additional 10 hectares of glasshouse tomato production to start until 2022, although on a positive note tomato pricing pressure is currently abating.