The key drivers of orchard profit in 2010

June 2011 | Prepared by Craig Hornblow and Ross Wilson, AgFirst | Future Orchards® Orchard Walk notes

This Future Orchards® analysis examines the factors that separated stronger orchard businesses from average performers in the 2010 Australian pipfruit season. Craig Hornblow and Ross Wilson of AgFirst use Orchard Business Analysis data from 19 businesses and compare the 2010 model orchard with the earlier 2008 study to identify changes in productivity and profitability.

The 30-hectare planted model orchard showed a sharp deterioration in 2010. Gross production fell 14%, Class 1 recovery slipped from 69% to 67%, total fruit revenue fell 16% and orchard operating costs increased 6%. The model cash operating surplus dropped 53% and net trading profit after tax fell 82%. Only half of the surveyed orchard businesses made a profit in 2010, compared with 91% in 2008.

Despite the difficult season, upper-quartile growers continued to perform strongly. Their revenue per hectare was about 40% higher than the average, driven by a combination of higher production, better packout and stronger prices. The paper reinforces the “three Ps” — production, packout and price, in that order — as the core drivers of orchard profitability. Across individual varieties, improvements in marketable yield and revenue were substantial, with the upper quartile achieving better results even where price differences were relatively modest.

The resource also shows why cost reduction on its own is not enough. Upper-quartile growers were not necessarily the lowest-cost producers per hectare. By spending resources in the areas that lifted production and quality, they could spread costs over more kilograms and achieve lower costs per unit of fruit. The paper recommends focusing more management time on improving revenue while still understanding and controlling the cost structure.

Climatic and pest risks are identified as major threats to Class 1 production, including frost, hail, birds, dust storms and poor fruit set. High-quality orchard management, the right variety mix and strong marketing channels are also required to maximise returns.

Finally, Hornblow and Wilson introduce a practical “vertical analysis, horizontal application” approach. Growers analyse each block, identify its limitations, write three to five strategies with timeframes, and then combine those block strategies into a season-long orchard plan. This turns business analysis into specific actions that can be communicated and reviewed throughout the year.