Victorian apple and pear growers could significantly reduce costs by adopting new packing technology and smarter marketing, according to a preliminary analysis of packhouse costs carried out in 2017.
They may also be better off to mothball old or smaller sites and combine capacity via very large (by Australian standards) new, state-of-the-art facilities to drive greater efficiencies and cost savings for all growers.
The Packhouse Optimisation Project which analysed the costs of 10 Victorian and one Tasmanian packhouse (packing a combined total of 121,500t of fruit) found that storing, packing, grading and selling apples collectively added an average extra $1.06/kg to growers’ costs, with grading and packing making up 65 per cent of that cost.
But one of the most significant findings of the study, which was funded by the Victorian Government through Regional Development Victoria and by participating packhouses, was the widespread lack of understanding of post-harvest costs and the absence of national benchmarks.
Report author Russell Soderlund said what had emerged strongly was that orchards, coolstores and packhouses often didn’t allocate costs on a ‘cost-centre’ basis, attributing costs between orchard, coolstore and packhouse according to where they were incurred.
“The industry needs to be much more rigorous in its accounting so that it can understand where its costs occur and which portions of the enterprise are profitable,” Russell said.
Participating packhouses ranged from family-owned orchards and packhouses packing 2,000t of their own fruit to large packhouses purpose-built to contract grade, store, pack and market more than 15,000t per annum.
Costs were entered into a central model with the assistance of a rural financial counsellor.
Russell said different approaches to cost allocation and enterprise-specific storage and selling costs had made it difficult to draw robust industry averages from the project. In some cases figures had had to be guessed.
“There is a need for a national benchmarking service,” he said. “Future Orchards® already does this with the production side of the business and it is a logical extension to move into a comparison of post-harvest costs.”
Low cost of grading vs high cost of packing
Rural consultant Tom Chick from AgBiz Assist worked with participants to review and correctly apportion data before entering it into a financial model developed for the project, and then analysing the results.
Grading costs averaged $0.12/kg (range $0.06–$0.26/kg) and were predictably lower in businesses with higher throughput, with the average marginal cost of grading $0.08/kg.
Packing costs also decreased with throughput but by contrast were much higher, ranging $0.44–$0.71/kg and averaging $0.53/kg.
Russell said the low cost of grading relative to packing highlighted the attractiveness of exporting fruit in bulk bins to be packed in the importing country.
He said with many Victorian packhouses in the process of improving their grading and packing technology it was likely grading would become even more efficient.
“The real question for growers is where to invest their capital,” he said. “Significantly reducing post-harvest costs is possible but very expensive – and we already have too many, poorly utilised packhouses with aging technology.
“Growers may be better off investing in their orchards and contract packing with some of the more efficient packhouses. Packing into bins for export is another option to consider.”
Greenfield site comparison
One of the original aims of the project was to better understand post-harvest costs to provide growers with the financial information they need to make informed decisions about upgrades, refurbishments, starting a new packing shed on a greenfield site or, possibly, amalgamation.
Grading and packing costs were therefore estimated for a state-of-the-art greenfield site facility for the purposes of comparison.
It was estimated grading costs could potentially be slashed by up to 75 per cent to $0.04/kg and packing costs by an estimated 50 per cent to $0.25/kg by investing in new state-of-the-art facilities. This assumes having access to the capital for the $20 million plus investment required and the confidence of securing the assumed 80,000t of throughput on which the figures were based – both are challenging.
Russell said there was no doubt packing costs could be substantially reduced by building a new packhouse with modern technology – but that investment required the throughput to justify the cost and few orchards had the volume required in their own right.
“Justifying the $20m-plus capital costs requires access to a large amount of fruit,” he said. “It is the politics of association and merger of business interests that hold such a packhouse back – not anything else.”
APAL CEO Phil Turnbull said the study was a preliminary one and the next step would be to develop a broader project that would establish simple and robust benchmarks to inform business decisions on whether to invest in on-farm packing or contract it out.
But he said the $1.06/kg average cost was a step closer to a precise understanding of the costs of packing and grading and already highlighted that there were significant opportunities for growers to reduce costs by contracting out costly packing and grading activities to modern, efficient facilities.
“The real cost of packing and grading has been largely unknown, making it hard for growers to improve efficiencies,” he said. “This project starts to put some figures around this.”
He said it was important for industry to work together to avoid duplication and overinvestment and underutilisation of new facilities and drive efficiencies and lower unit costs.
“There are numerous packing sheds in Australia that pack apples and pears and many of these are old and only utilised for part of the year,” said Phil.
“A number of state-of-the-art facilities are either under way or being planned. Throughput is the key to reducing costs and it clearly makes no sense to have a string of expensive new facilities, all running below capacity.
“As an industry we have the opportunity to work together to plan the capacity we need and make sure it is fully utilised to deliver the lowest costs for all growers.”
Copies of an overview of the report with conclusions and recommendations are available by request AFTER 1 Feb 2018 from Alison Barber on 03 9329 3511 or firstname.lastname@example.org.
APAL’s Packhouse Optimisation Project was funded by the Victorian Department of Economic Development, Jobs, Transport and Resources through Regional Development Victoria’s Food Source Victoria program and by participants.