Financial Factors
2002/03 Review
Revenue
Gross orchard revenue for the model orchard was nearly $187,000. This was $8,000 (4%) higher than in 2001/02 on a comparative basis. Significantly higher revenue per tray offset lower yields. For the 2002 harvest, yield of the green variety was down 14% to 6,080 trays/ha due to low flower numbers and a cool, wet spring. Yield of the gold variety was down 9% to 7,200 trays/ha, due mainly to smaller fruit size.
Revenue is now being expressed as orchard gate return (OGR). The OGR is the revenue growers receive net of costs that arise after harvest, outside the orchard gate, such as packing fruit. The industry has rapidly adopted this term to make it easier to compare revenue figures, which had become increasingly complex and difficult in recent years. For this model budget, the main changes are that revenue is now shown net of packing costs and freight to the packhouse, and revenue for all saleable grades of fruit (i.e., Class I and Class II) are included in the OGR for the variety. Table 3 shows the figures as published by ZESPRI.
Growers expect total OGR for their 2002 crop of $5.65/tray for green and $6.59/tray for the gold variety, of which $5.25/tray (93%) and $6.06/tray (92%) respectively was received before the 31 March 2003 balance date. Therefore, 40 c/tray for green and 53 c/tray for gold will occur during the next financial year. The full year OGR per tray is significantly higher for both varieties than for the previous crop. For green the increase is $1.14/tray (25%) above the 2001 crop OGR and for gold it is $1.63/tray (33%) higher.
The reports that growers receive from their packhouse usually itemise components of the OGR. Returns from Class II grade fruit are about 24 c/Class I tray for green and organic fruit but negligible for gold fruit.
Hiring out orchard equipment, rental of houses on orchards and rebates from merchants contributed revenue of $4,400. This does not include any crop volume related rebates from packhouses, which growers include in their kiwifruit revenue.
The good returns for the 2002 kiwifruit crop are especially valuable to those growers with lower yields. The Bay of Plenty tends to have higher yields. Growers in other districts have commented that the good 2002 returns makes kiwifruit more viable compared with the other crops on their orchards, which will encourage them to increase inputs and attention to detail on their kiwifruit.
Table 3: ZESPRI-estimated OGR by Fruit Type ($/ha)
Year of harvest |
ZESPRITM GREEN |
ZESPRITM GREEN |
ZESPRITM GOLD |
2002 crop |
32,455 |
32,292 |
42,857 |
2001 crop |
29,748 |
25,842 |
27,415 |
Source: Kiwiflier 212, May 2003
Expenditure
The model orchard cash orchard expenditure was just over $103,000. This was 14% higher than in 2001/02. Spending was higher on most production costs, particularly labour, but also spraying and chemicals (which includes pest monitoring), pollination (due to costs being passed on and higher hive numbers being used as a result of varroa mite), and fertiliser (due to higher or more costly inputs).
Activities added to growers' practices have also increased costs, such as increased pest monitoring and banding to prevent Fuller's rose weevil adding to pest control costs, and girdling to improve fruit size adding to labour costs. Increased labour spending is also due to a high degree of attention to detail being applied to orchard activities, with the expected orchard performance improvements as a pay-off. Some growers are also taking advantage of their good financial position to reduce their own labour input. The rate of payment to workers has also increased.
Spending on repairs and maintenance has increased. Growers are doing a range of work on orchards, particularly on repairing vine support structures. While repairing aged support structures, there are improvements being made that will enhance future yields, such as making the rows slightly longer, or that will reduce future maintenance, such as using steel rather than timber beams on pergolas. A number of orchards are converting from a T-bar vine support structure to a pergola in pursuit of higher yields and improved fruit size and quality.
Adoption of communications technology, such as cell phones and the internet, have increased communication costs.
In general, growers' spending is pitched to their currently good financial position and would be reduced as a response to any deterioration in financial position.
Net Result
The cash orchard surplus was a little over $70,000. This is 10% lower than in the 2001/02 year, due mainly to the higher spending.
Growers' approach to debt varies considerably. Many have no borrowings or modest debt, and some have used their good financial position in recent years to repay all term debt. Others have used their surpluses and equity to expand by buying or developing additional orchards or to make significant improvements to the orchard or dwelling. Investment outside the kiwifruit industry has also occurred. Bankers are positive towards established growers wishing to borrow to make improvements, expand or buy other assets, and report an increase in debt levels.
Spending on development and capital items also varies considerably between growers. Vehicle spending is a common capital item, and some growers have purchased tractors or mulchers. Other projects include installing frost protection, installing irrigation, removing shelter trees, converting T-bar structures to pergola, planting additional kiwifruit area, and improving dwellings.
The model's debt structure reflects the increase in average debt levels, with a corresponding increase in interest and principal. Seasonal borrowings were reduced by good revenue flow. Cash flow through the winter and spring of 2002 was good due to good fruit prices and sale volumes.
Personal drawings for the year, at $47,900, increased slightly on the previous year. Growers appreciate their good financial position and are enjoying a higher level of drawings than in tougher times a few years ago.
Off-orchard income contributed $18,200 from a mix of investment returns and off-orchard work. Investment return from packhouse shares is included in this category, as are dividends from other kiwifruit industry investments such as ZESPRI or Kiwifruit International shares. Thus part of growers' off-orchard income is often derived from within the kiwifruit industry.
2003/04 Forecast
Revenue
Forecast gross orchard revenue for the model orchard for the 2003/04 financial year is $180,450. This is 3% lower than in the 2002/03 year. Growers expect similar production to 2002/03 and lower fruit revenue per tray. Growers expect OGR for their 2003 crop of $5.25/tray for green and $6.35/tray for gold, with 25 c/tray and 35 c/tray respectively expected to fall into the 2004/05 financial year. This is lower than the OGR for the 2002 crop by 40 c/tray (7%) for green and 24 c/tray (4%) for gold. The main reason growers expect lower revenue is the higher value of the New Zealand dollar (NZD) against the major currencies kiwifruit is traded in. The lower per tray drop in OGR for gold is due to better fruit size than in 2002. The first official forecast of 2003 crop returns will be made by ZESPRI in August 2003. Growers have incorporated ZESPRI's comments on the exchange rate effect into their forecast returns.
Revenue from other fruit crops is expected to be lower at $2,500. Avocados are the most common other fruit type and many have had poor fruit set due to the cool 2002 spring so will have low yields during the 2003/04 financial year.
Expenditure
Forecast cash orchard expenditure is nearly $96,000. This is 7% less than in 2002/03 due mainly to lower forecast spending on labour, and repairs and maintenance. Spending on routine production costs, like fertiliser, pollination, and pest and disease control, is forecast at similar levels to the 2002/03 year. Small increases in costs of some overhead-type items, like insurance and accountancy, are expected. Many growers have changed their business structure over recent years, such as establishing a family trust to own the orchard property, which has added to administration costs.
Net Result
The model budget is forecast to provide a cash orchard surplus of nearly $71,600. This is 2% more than in the 2002/03 year. Personal drawings are forecast to increase slightly and modest amounts of development and capital spending are forecast.
Off-orchard income is expected to contribute $16,600 from a mix of work and investments within and outside the kiwifruit industry.
Financial performance of individual growers continues to vary enormously. Differences in yield, fruit size, fruit quality and time of harvest have a marked effect on returns to individual growers. Higher profit is not simply a matter of achieving higher yield but of high performance in terms of factors like fruit size and quality. Those growers affected by frosts in spring 2002 will have lower revenue during their 2003/04 year due to a lower 2003 yield. Frost insurance payments are useful, but a much lower level of payment is received than would be paid for fruit, and those growers with frosts in both 2001 and 2002 have to sustain a higher portion of uninsured losses.
Growers will review spending as they receive market feedback and revenue forecasts. Some spending would be reduced if forecasts are poor, but growers prioritise operational spending to produce their next crop.
Kiwifruit Profitability Trends
Note: Crop harvested in the preceding years, e.g., 2000 entry means the crop has been harvested in 1999, etc.
Contact for Enquiries
Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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