Orchard Business Analysis 2016-2017Industry Best Practice
The objective of the Future Orchards® Orchard Business Analysis (OBA) is to determine the productivity and economic performance of the Australian pome fruit industry. AgFirst collects the physical and financial data from a minimum of 24 orchard businesses, located throughout Australia.
This data is then analysed and used to create an industry model. This model captures the current performance of the industry and provides:
- A productive and financial snapshot of the state of the industry.
- Trends over the period 2008-2017.
- A benchmark for individual orchard comparisons.
- A tool for modeling different scenarios such as changes in markets and production.
- A means of benchmarking industry performance internationally.
The model size has been maintained at a 115 hectare (ha) property, of which 40ha is planted to apples and pears. The data that this report represents are the crops harvested in 2016 and 2017.
The model’s average gross yield was 47.2 tonnes per hectare (t/ha) in 2016 and 49.0 t/ha in 2017, a 3.8% lift. The 2017 yield is the highest average yield recorded since the OBA survey began in 2008.
Fruit quality as measured by Class 1 packout was up to 70 per cent in 2016 which is also a first for the study. The 2017 quality is predicted to be even better at 71%. This is an increase on the 66% packout in 2015, and 69% in 2014.
In Figure 1, the blue trend line of yield per ha shows a strong increase in gross yield since 2010, which is a positive trend for the industry. Average yield from the period 2008-11 was 34.7 t/ha while the last 3 years (2015-17), the average is 13 t/ha higher at 47.9 t/ha.
An even better trend is shown by the Class 1 green line, increasing from just over 20 t/ha in 2008 to 33 t/ha in 2016 and 35 t/ha predicted for 2017.
The combination of higher gross production, higher Class 1 recovery and higher returns per kg has lifted revenues per ha in 2016 and 2017 compared to the poor year in 2015.
In summary, the 2016 growing year was a high-yielding year, with high quality and good returns, resulting in a good financial result. 2017 is looking to be similarly positive. Gross volumes per hectare are up on 2015 (the previous record year). Growers are forecasting a slight lift in Class 1 packout and slight decline in returns (at the time of writing the 2017 crop was still being packed and sold). This is forecast to deliver greater revenue per ha but a reduced cash operating surplus due to increasing costs.
Variation around the average
Averages can be very misleading sometimes and its always the case that in any rural commodity, the differences between the minimum and maximum, lower and upper quartile, can be very significant.
The OBA data demonstrates the variation in attributes such as variety performance, revenue per ha and profitability. The data shows very clearly that all growers should aim to be in the upper quartile if they are serious about making good levels of return on investment.
The theme of the 2017 Future Orchards program is Future Trees which included a report on the performance of the major Australian varieties of apples and pears over time for yield, packout, returns and revenue.
For many years, APAL and AgFirst have encouraged growers to set up systems that track overall business performance as well as the performance of each variety or, even better, each block of trees.
The Australian model orchard is made up of all the significant varieties of apples and pears. The model orchard’s profit over the past two years has been $176,000 in 2015, $384,000 in 2016 and is forecast to be $320,000 in 2017. While it’s good to know that overall figure, it is important to understand how each variety contributes to this.
Over the past three years Jazz®, Granny Smith, Cripps Pink and Rosy Glow have all contributed positively. However, there are five varieties that are potentially pulling the model business backwards: Fuji, Red Delicious and Sundowner apples and Packham and Williams pears. This information gives a very good guide as to where the business is making or not making money.
The overhead costs ($6,000/ha) that will not go away if any block is pulled out are administration, depreciation, interest and leasing costs. This means that you’re no worse off by leaving in a block that has a loss above -$6,000 per ha. On current performance of the model orchard that means that the Packhams, Williams, Red Delicious and Sundowner are actually pulling the business down. The model orchard is making losses most years it grows these varieties. Fuji on the other hand is still making a contribution toward overheads albeit a small one.
It is from quantified data like this, that good decisions, including redevelopment can be made. All Future Orchards participants are encouraged to utilise systems that can provide this sort of information.
Get the full report
Levy-paying apple and pear growers can request a copy of the full OBA report, including the full breakdowns of costs of production and profitability trends by contacting Angus Crawford on 03 9329 3511 or firstname.lastname@example.org.
The Orchard Business Analysis is a strategic levy investment under the Hort Innovation Apple and Pear Fund. It is funded by Hort Innovation using the apple and pear levy and funds from the Australian Government and is delivered by AgFirst.