Every year, AgFirst compiles the results of the Orchard Business Analysis (OBA) to determine the productivity and economic performance of Australia’s apple and pear orchard businesses.

Financial records of 26 representative orchard businesses around Australia that is then fed into a ‘model’ orchard comprising 40 hectares of apples and pears. The data presented here is from this model orchard and represents the performance of a typical Australian orchard business, not any individual business.

Performance of the model orchard

Growers can assess the performance of their own orchard blocks against the performance of the model orchard. The model orchard sets a useful benchmark that can show growers if their orchards are already above the industry benchmark and, if not, where the opportunities to improve might lie.

The data in this article was collected by AgFirst in November 2015 when the crop that was harvested in 2014 was sold out of cool stores and when those businesses that participated in the OBA were still selling their fruit that was harvested in 2015. Therefore, the results of the 2014 crop are considered final actuals while the 2015 results remain as a forecast until the entire crop is sold and final prices and packouts are known.

At the time of writing this article, the 2015 crop is now sold and the 2016 crop is now selling. The actual results for the 2015 crop will be finalised over the next few months as data is collected.

Orchard yields

From 2014 to 2015, the average gross yield per hectare of the OBA model orchard increased a considerable 28 per cent from 37.4 t/ha to 47.9 t/ha. This is the highest ever yield noted in the model orchard since 2008 when the first OBA was done. It also supports the overall trend towards higher yields. This is despite the yield of the 2014 crop being lower than the 2013 yield, which was 39.1 t/ha.

Packouts

The Class 1 yield for 2015 was also at an all-time high of 31.6 t/ha, with Class 1 packouts around 66 per cent. With the higher overall crop in 2015, there has been more Class 1 fruit in total, but a lower packout compared to previous years. The trendline for packouts since 2008 has been relatively stable and has remained within the 65-70 per cent range.

Prices

The 2014 selling season was strong throughout with the average wholesale price of Class 1 fruit being $2.29 per kg. This was up 11 per cent on 2013. Higher prices in 2014 were the single most significant change for the 2014 year.

In November 2015, OBA growers were forecasting an average Class 1 price of $2.01 per kg across all varieties, but the final price for 2015 has not been determined. The average Class 1 payment for virtually all varieties is expected to be lower than the 2014 season.

There are of course a range of different prices paid across the year and prices vary according to supply and demand. In years of higher yields, prices received for a Class 1 fruit have been lower. So it is not unexpected that in 2015, a higher production year, that prices will be lower.

Costs of production

Total overall costs of production comprise post-harvest costs and on-orchard costs, which include labour, management wages, depreciation and overheads.

The costs of production per hectare in 2015 were around 16 per cent higher than the previous year and the overall trend is towards higher production costs per hectare and per kg. In lighter cropping years (such as 2010 and 2014) there were spikes in the per kilogram costs of production as there are less kilograms to spread the overhead costs.

Profitability

Despite the larger yields in 2015, the model orchard’s cash operating surplus (or EBITDA – Earnings before interest, tax, depreciation and amortization) per hectare were predicted to be 21 per cent lower than 2014. This is the likely result of the lower anticipated prices stemming from the higher supply, lower Class 1 packouts, and higher costs of production.

For the OBA model orchard, 2014 was more of a financial success overall, despite lower yields. However, the situation around Australia’s different growing regions was quite variable.

Moreover, there is significant variability among the 26 participating fruit growing businesses, who represent only a sample of the 550 odd apple and/or pear growing businesses Australia-wide.

Marketing and exports

Prices of course remain central to profitability. To help raise prices, we all want to see a domestic marketing campaign succeed in promoting our products and creating more value and demand for them. Hort Innovation manages marketing using the apple and pear marketing levy and is working on a new campaign for 2017. While many Club varieties have developed their own successful marketing campaigns.

Exports also need to increase, which will shift the supply away from major domestic retailers and put more upward pressure on price. Recent export results have seen higher exports of both apples and pears, a promising sign.

Variety mix

The top performing variety that generated the highest revenue per hectare was Granny Smith followed by red strains of Cripps Pink.  In 2014, Jazz™ plantings were still young with low yields, but good returns and packouts meant that Jazz could produce very good revenue per hectare when in production.

The bottom two performing varieties were Packham and Willliams pears, but this is also a poor reflection as the cost of production for pears, while not measured, is probably lower compared to apples.

Room for improvement

Between 2008 and 2015 yields per hectare have increased 32 per cent, costs of production per hectare have increased 51 per cent, and the cash operating surplus (EBITDA) per hectare has decreased 36 per cent.

Australian orchards remain highly variable in performance and profitability and there is still a lot for growers to gain if they improve yield, Class 1 packouts and variety mixes. Notably, the most profitable orchards were forecast to have a cash operating surplus per hectare in 2015 three times or more that of the model orchard.

Growers who identify that their businesses are performing below the benchmark model should not be disheartened. There is always variability in the performance of rural commodities based on factors that growers have limited control over such as the weather and pests. The OBA acts as a demonstration of what the typical orchard business is achieving financially with pome fruit in Australia.

Typically, growers producing higher yields and whose businesses are performing better have participated in Future Orchards®. Over time these growers have changed and adopted more intensive orchard systems that can produce higher yields of marketable fruit.

Get the full report

The full OBA report is available to levy-paying apple and pear growers on request. Contact the APAL office to request a copy on 03 9329 3511 or e-mail.

Acknowledgement

The Orchard Business Analysis is part of APAL’s Future Orchards® program; conducted by AgFirst; and funded by Horticulture Innovation Australia Ltd using the apple and pear levy paid by growers and matching funds from the Australian Government.

Source: APAL