Expected returns from the new red-blushed pear Deliza®
UPDATE – since this article was written in 2017 pears from the variety ANP-0131 have been rebranded from Deliza® to Ricó®. Results reported in 2018 can be found under Further Reading.
By Kerry Stott, Mark O’Connell, Ian Goodwin and Susanna Turpin
In collaboration with Goulburn Valley pear growers, Agriculture Victoria researchers are conducting economic assessments of the new red-blushed pear ANP-0131 to help growers determine how to grow it most profitably.
Bred out of the Australian National Pear Breeding Program at Agriculture Victoria, Tatura, and marketed by APAL as Deliza®, ANP-0131 is one of the new red-blushed pears that is visually attractive, tastes good, has desirable texture and stores extremely well, providing it with a point of difference on the fresh market.
The planting systems we are investigating at Tatura are characterised by high-density, compact trees that use water efficiently, fruit early in life and produce consistent high yields of quality pears. We are examining thirty six combinations of different training systems, rootstocks and tree spacing. Training systems include single- and multi-leader Open Tatura (OT) and vertical 2D designs, and central leader, spindle and vase 3D designs. Rootstocks are Quince A (QA), D6 and BP1 and tree spacing ranges from 0.5 to 3m.
We are assessing the costs, benefits and risks of growing the new blushed pears on a representative block in a Goulburn Valley orchard using discounted cash flow analysis. Potential advantages include more fresh fruit marketed at premium prices, earlier production to help repay the high establishment costs, and efficiencies in production and harvest operations at full bearing.
Our preliminary economic and financial assessment focused on trees grafted to QA rootstock and trained on Open Tatura trellis at densities of 1,481, 2,222 and 4,444 trees per hectare (respectively, 1.5, 1.0 and 0.5m between trees all with rows 4.5m wide). In order to establish a high density of fruiting units at a lower tree cost, the lower density plantings were trained with a greater number of leaders per tree (8, 4 and 2, respectively). The results reflect actual establishment and tree training costs and yields achieved to-date in the experimental orchard at Tatura; these and other key assumptions are highlighted below.
Performance measures used
Economic performance was evaluated using discounted cash flow budgeting over a 30-year planning horizon. Performance metrics used were:
- The net present value (NPV), estimated at a required (real) discount rate of 4.3 per cent. An NPV greater than zero indicates a potentially profitable investment.
- The modified internal rate of return (MIRR), which is the discount rate at which the NPV is zero. It is the percentage return on the extra capital invested in growing the blushed pears.
Business risk was accommodated in the analysis through changes in farm-gate prices, yields, packouts and prices paid for water during each year over the planning horizon. A range of values were specified for these risky variables.
Financial performance was determined from the undiscounted (nominal) net cash flows (NCF) using the payback period; that is, the time (years) required for the investment in additional capital to break even.
Establishment and tree training costs
Establishment costs included ground preparation, trellis, irrigation infrastructure, trees and planting. Netting for sun and hail protection was not included. Establishment costs were highest for the higher density plantings, due to the additional cost of a greater number of trees and higher planting costs.
|Tree density||Ground preparation||Trellis/supports||Drip irrigation & fertigation infrastructure||Trees @$14 each||Planting (labour & materials) @$2.15 per tree||Total establishment costs|
Orchard establishment costs for Open Tatura trellis training systems (2013 values) ($/ha).
The variable labour inputs associated with tree training, tree support, leader management, winter pruning, tying down, thinning and summer pruning were high in the early years. Tree training costs were considerably higher for the lower density eight- and four-leader systems in year two. However, on a cumulative basis, costs were more even by the end of year three. Labour was valued at about $23/hour in the analysis.
|Tree density||Leaders per tree||Tree training times/ha (hours)|
|Year 2||Year 3||Cumulative|
Average time/ha (hours) for all tree training tasks, Open Tatura trellis training system by tree density.
Price and yield assumptions
Orchard-gate prices were assumed higher, and fruit quality on average better and more uniform compared to the more traditional Packhams pear. Based on a consumer preference survey and observed premiums for the parent cultivar (Corella) we assumed a price premium of 20 per cent for Deliza. With good sized fruit (averaging 200gms), packout was assumed to be 90 per cent (70 per cent class 1 and 20 per cent class 2). The average farm-gate price (net of pack-house costs) averaged over all classes used in the analysis was $530/t ($1,440/t gross).
Trees in the field experiment started producing in the third year after planting and achieved modest marketable yields of 0.15, 3.05 and 7.48 t/ha, respectively for plantings of 1,481, 2,222, and 4,444 trees/ha.
Production is expected to increase rapidly to reach a maximum in year six or seven. Due to the varying number of leaders per tree, yield at full bearing is expected to even out at 70 t/ha (with a possible upper limit of 90–100 t/ha). This compares to about 40 t/ha for traditional plantings of Packhams at full bearing, that typically occurs in year ten.
Based on the assumptions discussed above, the ‘economic feasibility’ (or profitability) and the ‘financial feasibility’ (or liquidity) of investing in the new red-blushed pears varies depending on the scenario.
The NPV for the ‘Base’ scenario (Scenario 1) for a planting density of 2,222 trees/ha averaged $210,613 over 30 years, in the range $165,888 – $257,175. The NPV and the lower 90 per cent confidence interval are both greater than zero indicating a profitable investment.
The modified internal rate of return (MIRR) averaged 8.7 per cent, in the range 8.1 to 9.3 per cent. These results indicate that growers can invest in the new pears with confidence. Debt peaked at approximately $89,083 in year three, and the investment broke even in year nine.
Performance to changes in baseline assumptions for trees grafted to Quince A rootstock and trained on Open Tatura trellis.
|Economic feasibility||Financial feasibility|
|Scenario||Tree density||Price premium (%)||Year – three yield (t/ha)||Year full bearing achieved||Yield at full bearing (t/ha)||NPV (real $)b||MIRR (%)c||Peak debt (nominal $)||Pay back period (years)d|
|(1) Base||2,222||20||3.05||6||70||210,613 (165,888 – 257,175)||8.7 (8.1 – 9.3)||89,083||8|
|(2) Higher price premium||2,222||30||3.05||6||70||296,310 (247,244 – 347,360)||9.7 (9.2 – 10.2)||86,929||8|
|(3) Higher yield in year three||2,222||20||10||6||70||219,880 (174,696 – 266,328)||9.0 (8.4 – 9.5)||83,395||8|
|(4) Full maturity one year later||2,222||20||3.05||7||70||199,312 (152,557 – 241,790)||8.5 (7.9 – 9.1)||91,061||9|
|(5) Lower yield at full maturity||2,222||20||3.05||6||60||144,357 (105,735 – 184,563)||7.9 (7.1 – 8.4)||90,496||9|
|(6) Lower density planting||1,481||20||0.15||7||70||204,973 (162,122 – 249,262)||9.0 (8.3 – 9.5)||82,727||9|
|(7) Higher density planting||4,444||20||7.48||6||70||175,344 (128,552 – 225,289)||7.5 (6.9 – 8.2)||118,535||9|
a. Compared to Packham’s Triumph
b. The sum of the present value of the annual net cash flows over the life of the investment (real), discounted at 4.3% p.a. (based on a 6.5% cash rate and inflation of 2.2%). 90% confidence interval in brackets.
c. Modified internal rate of return. 90% confidence interval in brackets.
d. Determined from the cumulative net cash flow after tax with inflation.
Sensitivity analysis (Scenarios 2 to 5) suggested that a 10 percentage-point increase in the price premium, bringing the price up to $990/t net, or an increase in the yield in year three to 10 t/ha would have the most positive effect on both profitability and liquidity, with the pay-back period dropping back to year eight. In contrast, a delay by one year in achieving full yield potential (Scenario 4) has the most adverse effect on the economic performance metrics.
Should full maturity be delayed by one year, or yield at full maturity fall to 60 t/ha (Scenario 5), then the grower would be better off to plant at a lower tree density (Scenario 6).
The higher density planting of 4,444 trees/ha (Scenario 7) is the least profitable option, and has the highest peak-debt. The reason is that the anticipated yields were insufficient to offset the higher establishment costs.
Although preliminary, the results of this analysis suggest that growing the new red-blushed pears would be a profitable investment for pear growers in areas such as the Goulburn Valley if done in a modern orchard system characterised by high-density plantings of compact trees that use water efficiently, fruit early in life and produce consistent high yields of quality.
Updated results for this project were published in 2018 and can be found on the Horticultural Industry Network site – Blush Pear Economic Feasability.
The authors are greatly indebted to David Cornwall, Dave Haberfield and Wendy Sessions for field data collection, and to Jason Shields of Plunkett Orchards for comparative technical and economic data for Packhams.
About the authors
Contributing authors include Kerry Stott, Mark O’Connell, Ian Goodwin and Susanna Turpin of Agriculture Victoria, Department of Economic Development, Jobs, Transport and Resources, Victoria.