Opportunities to improve margins for those who know their numbers

Which orchard task is going to add the most value to your business? The latest Orchard Business Analysis report has insights into opportunities for delivering a better bottom line. 

To break even on a 2024 crop of Pink Lady apples packing out at 60 per cent Class 1 fruit, the model orchard at the centre of the apple and pear industry’s long-running Orchard Business Analysis (OBA)¹ project is forecast to need a yield of 75 tonnes/hectare (t/ha). 

If that packout can be lifted to 70 per cent, it would break even at 55t/ha – a full 20t/ha less. 

The aim is obviously to do better than break even, but the exercise highlights the potential for significant gains just by knowing where to get the best value for effort. 

Costs, and prices, up; yields plateau

The breakeven analysis is one of the many interesting insights to come out of the Orchard Business Analysis 2023 Actual and 2024 Forecast report which was presented as part of the Future Orchards® spring orchard walk series in November by AgFirst consultants Cameron Burt and Sarah de Bruin, and again by Sarah in an online webinar in mid-December. 

Established in 2008, the OBA project provides a snapshot of the productivity and financial performance of the industry using data from a model orchard, growing 40ha of apples and pears, with a variety mix guided by the industry orchard census. 

In 2023 gross yield was 45.6t/ha, down just under 10 per cent from the all-time model high of 50.6t/ha in 2022, as widespread hail across Victoria and in Western Australia and Tasmania impacted crops. Class 1 packout also slipped to 61 per cent across the varieties in the model in 2023 (70% in 2022), with 10 per cent Class 2 recovery and the remainder going to processing/juice (29%).  

The pull back in yield and packout in 2023 brought an end to the steady increase in both between 2010 and 2021 and Sarah said Class 1 yields had reached an unsustainably low level. 

Although Class 1 returns² were rising over time, Sarah said they were not keeping up with costs and even the second highest Class 1 on record for the model of $2.50/C1 kg, was not enough to cover the cost of production in 2023. 

Yields and Class 1 packouts are forecast to rise slightly in the 2024 crop, but the model orchard is expected to make its fourth consecutive trading loss.  

“It is vital to maximise gross yield and Class 1 packout to get high value Class 1 volumes to spread rising input costs,” Sarah said. 

Yield, efficiency and quality

Real data for the model is drawn from a panel of 21 growers across the growing regions. While the model may be making a loss, the individual performances across panel members range from loss to significant profit.  

Each year data from the top six ‘upper quartile’ businesses is reported against the rest of the group. The six were not all the same in 2023 and 2024 and were not all from one region. 

Sarah said the upper quartile growers were producing a higher gross yield, a higher Class 1 packout and securing a higher Class 1 price, as well as spending less per kg on post-harvest expenditure and significantly less on labour. In both years, while the rest of the group ran a cash deficit, the upper quartile growers were making a $25,000/ha cash surplus. 

“This shows there is an opportunity to do a better job, but we need to be looking at greater efficiencies and it is definitely easier if the quality is better in the first place,” she said. 

With labour the biggest on-orchard cost and harvest the biggest labour component, harvest efficiencies gained could go a long way to reducing labour costs and therefore total cost of production. 

Knowing current yields, packouts, returns and costs is a first step to setting targets. 

“How are you going to improve your profitability if you don’t know what it is in the first place?” Sarah said. 

Spring walk presentations including OBA case study discussions were videoed and are available in the Future Orchards® Library.

References

1 Commissioned by APAL, the Australian Pome Fruit Industry Orchard Business Analysis Report (OBA) is prepared by AgFirst as part of the Future Orchards® program, now part of the Developing orchardists of the future (LP23001) project, which is funded through Hort Innovation Frontiers with co-investment from APAL and Pink Lady® and contributions from the Australian Government. Australian growers can request copies by contacting APAL on [email protected]

2 Class 1 return/kg is return before post-harvest costs are deducted

This article was first published in the Summer 2024 edition of AFG.