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4 Nelson Pipfruit

The Nelson orchard

Nelson is the second largest apple-growing region in New Zealand. Nelson’s orchards are a mixture of old and new varieties, typically run by owner-operators. Most harvested fruit is exported. Local market fruit is not significant, although larger growers are beginning to supply major brands to this market. Fruit is generally packed off the orchard on contract by a packhouse.

The model Nelson pipfruit orchard (referred to as “the orchard”) has grown in the last two years from 14.4 to 26.0 planted hectares. This reflects a trend of smaller growers selling up and leaving the industry. A primary reason for sale is the financial impact of two years in a row of extremely poor market returns. In contrast, some growers are actively buying or redeveloping land to achieve economies of scale. Increased throughput enables packhouse and coolstore facilities to be integrated.

Table 4.1: Key parameters of the Nelson model

				2006f	2006f
	2003	2004	2005	(grower)	(industry)1
Area available for pipfruit (ha)	18.5	26.0	28.0	28.0	28.0
Planted area (ha)	14.4	19.3	26.0	26.0	26.0
Total TCE	40 986	60 688	84 955	85 460	85 460
Export TCE	30 382	47 388	64 413	64 895	64 895
Weighted average price ($/TCE)	15.89	12.92	10.77	13.43	12.03
Cash orchard revenue ($)	651 000	784 000	915 281	1 147 742	1 028 500
Cash orchard surplus/deficit ($)	100 500	-41 400	-196 955	1 597	-117 700
Cash disposable surplus/deficit ($)	-14 500	-151 500	-395 267	-110 765	-230 000

Note
¹ Industry view discussed later in the report.

Symbol
f forecast

Key points

The status of the Nelson orchard can be summed up in the following points.

• The Nelson orchard is weathering the impact of a major drop in earnings for the second year running.
• Some growers have quit the industry, and another season of poor returns is likely to see this trend continue in 2006.
• Tough overseas market conditions should be improved by the recent weakening in the New Zealand dollar exchange rate, as well as the creation of a marketing panel of major New Zealand exporters.
• A lack of access to new varieties and limited availability of dwarf rootstocks are slowing new apple development. Intellectual property rights are becoming more important as growers search for new varieties to plant.
• Growers that are aligned with vertically integrated businesses are better positioned to manage their way through the poor returns.

Climatic factors affecting production

2004/05

A moderate 2004 winter was followed by a cooler and later start to spring, which had the flow-on effect of delaying bud break and the start of flowering. However, once flowering started, temperatures improved significantly and remained higher than the long-term average for the 50 days after fruit set. This 50-day period is critical for good chemical thinning and maximising fruit size.

Most of the district escaped major damage from hailstorms. However, some orchards around Kina Bluffs, Motueka River and the Marriages Road area were affected in late December and early January by hail with an estimated loss of 250 000 export cartons.

Above average rainfall in December helped raise fruit size on early varieties. January and February were dry, allowing harvest to start at the same time as in 2004. Late in March, an unusually heavy rainfall of 200 millimetres assisted fruit size in the later season varieties. Warmer temperatures late in March and early April, combined with larger crop load on many Braeburn trees, slowed colour development and frustrated harvesting programmes for this variety. Overall very few harvesting days were lost because of rain.

2005/06

A mild winter still gave adequate winter chill for Nelson’s apples. Spring got off to a good start with temperatures in September significantly warmer than average. Consequently, bud break was up to 10 days earlier than in recent years. Warm conditions continued through to December resulting in good fruit set and cell division.

These conditions also assisted fruit size and chemical thinning results. The lowest spring rainfall readings on record led to water restrictions in early November for orchards in the Waimea plains. Water restrictions were removed following some good falls of rain in late January and early February. These rains were expected to finish the fruit sizing to the satisfaction of most growers.

The drier weather has induced outbreaks of European mite and powdery mildew, which have required additional spraying to control. Fruit pressures particularly in Cox and Royal Gala are lower than normal and growers blame the warmer weather and heavier rainfall close to harvest. The use of SmartFresh™, which slows down fruit maturation and holds pressures in storage, should partially offset the lower fruit pressures. Most of Nelson’s Cox and Royal Gala will be treated with SmartFresh™.

Table 4.2: Nelson weather data

					Growing
		Rain (mm)			degree days
	2004/05	2005/06	Average	2004/05	2005/06	Average
September	139	30	125	39	70	38
October	159	69	116	103	100	86
November	52	29	106	144	140	122
December	124	97	92	124	262	194
January	83	107	79	225	214	233
Total	557	332	518	635	797	673

Source
HortResearch (Riwaka site)

Production figures and forecasts

2005

The orchard has increased in size to 26 planted hectares. This reflects an underlying trend in Nelson as smaller orchards are removed and larger growers consolidate their holdings through purchasing or leasing additional land.

Gross orchard production increased as Braeburn and Cox achieved higher yields per hectare. Royal Gala yields declined as growers chased larger fruit size by more aggressive chemical thinning. Production of the newer apple varieties, Jazz™ and Tentation, increased as younger trees begin to mature.

Average fruit size count for Braeburn and Royal Gala varieties were bigger than in 2004. Fuji is fast losing its position as a major variety in Nelson following a trend towards lower yields, poor colour development and low packouts. The Jazz™ variety has effectively replaced Fuji, following a rapid planting programme in recent years.

Pear production decreased due to the biennial bearing tendency of this crop. Chemical thinning options are available to lessen the impact of biennial bearing. Growers are still exploring the best ways to use these new tools.

Total export production in Nelson in 2005 was 6.2 million cartons, 4 percent lower than 2004. Windier than normal conditions were a prime factor in export packouts being lower than expected.

2006

Growers expect overall orchard production to be similar to last season. Most of the change in relative production between varieties is due to growers’ redevelopment programmes and the increasing maturity of younger trees. The orchard is reflecting the trend in Nelson towards lowering the proportion of Braeburn, Royal Gala and Fuji. This reduction is being offset with a corresponding rise in the planting of Jazz™, pears and some Royal Gala on dwarfing rootstock.

Regional estimates by Pipfruit New Zealand predict a 12 percent decline in the total area planted in Nelson as more orchards are removed. The main reductions expected in planted area are Braeburn (down 23 percent), Royal Gala (down 18 percent), and Fuji (down 25 percent). Total Nelson export production is expected to be 5.7 million cartons, down 8 percent on 2005. Further plantings of pears and Jazz™ are expected in 2007.

Export packouts are expected to be the same as 2005 at 76 percent. Similar fruit size to last year is expected for Braeburn and Royal Gala.

Financial position of the orchard

Review of 2005

Revenue

Although gross orchard revenue compared to 2004 is up as a consequence of the increase in planted area of the orchard, it is down 13 percent when assessed on planted hectares. Braeburn and Royal Gala, which make up 72 percent of the orchard, achieved very poor market returns. The poor returns can be attributed to the following factors:

• flagship varieties Braeburn and Royal Gala being now viewed as commodities and no longer commanding a premium in overseas markets, as they did when New Zealand was the only exporter of these varieties;
• the relatively high level of the New Zealand dollar;
• lack of effective co-ordination across New Zealand exporters particularly in the European market;
• the depressed nature of the European market with large carryover of northern hemisphere fruit;
• fierce competition from other southern hemisphere exporters;
• competition from summerfruit in overseas markets.

Table 4.3: Average FAS export returns ($/TCE) for Nelson growers

				2006f	2006f
Variety	2003	2004	2005	(grower)	(industry)
Braeburn	19.83	14.18	10.30	14.29	12.00
Cox	17.30	18.02	17.28	19.02	18.00
Royal Gala	20.79	16.75	14.42	16.24	15.50
Jazz™			31.85	31.89	29.00
Other apples	20.28	16.64	17.09	20.00	17.00
Pears	39.03	24.54	29.58	32.04	29.50
Pipfruit average	20.47	15.71	13.09	16.74	14.91

Source
MAF Pipfruit Monitoring

Symbol
f forecast

Expenditure

Cash orchard expenditure per export carton dropped below $16.00. Savings mostly came from pruning more aggressively with less attention to detail, and removing lower-yielding blocks. Lower thinning costs were a direct result of improved chemical thinning that lessened hand thinning. As is typical in difficult years, growers spent less on repairs and maintenance and on vehicle costs.

Significant savings were also made in crop insurance after one major insurer formed an alliance with a major exporter and reduced premiums by 28 percent. Fewer growers took out hail insurance in 2005.

Capital purchases and development have both increased as orchardists look to plant new varieties on smaller dwarf trees. This trend is expected to continue for those orchardists that remain in the industry.

Net result

The orchard suffered another disastrous result in 2005 with a net trading loss of $242,559. This followed a net trading loss of $67,260 in the previous year. The net cash change for 2005 was a deficit of $317,267. Disappointing market returns reflecting the commodity nature of the two main varieties is the primary reason for this loss.

Not surprisingly, two major trading losses in a row have taken their toll, and some growers have left the industry. Growers who have stayed in the industry have covered these losses by interchanging profit from other crop enterprises, and by selling assets and land.

Forecast for 2006

Revenue and expenditure in the 2006 budget and comments in the following section represent the expectations of the 20 growers surveyed. However, industry commentators considered that the market returns forecast by growers were optimistic. A section has been added to this report comparing grower and industry forecasts.

Revenue

Growers forecast a crop size for 2006 similar to 2005, at about 65 000 export cartons. Fruit size is expected to be large for Royal Gala and satisfactory for Braeburn. Average export packouts are expected to be the same at 76 percent. Lower Braeburn production is partially offset by small increases to Royal Gala and Jazz™. However Jazz™ is still only a small proportion of the orchard area and so has minimal impact on the orchard’s bottom line.

Growers are predicting the average export return per carton for 2006 will rise to $16.74, up from $13.09 in 2005. This is primarily due to an expected jump in the Braeburn price of almost four dollars per export carton. Growers do not believe the year will be as bad as 2005.

Royal Gala prices are forecast to increase because of larger fruit size and because more fruit will be sent to the North American market, which is expected to pay comparatively more for them.

There is also some expectation among growers that the New Zealand dollar will weaken against our major trading partners, and this should improve prices.

Expenditure

Cash orchard expenditure is forecast to increase in 2006 to $16.23 per export carton. The main expenditure increases are higher chemical costs as growers make use of new technology sprays that reduce tree vigour, and some increases in administration and property charges. Wages and post-harvest costs are expected to be similar to 2005.

Development costs are expected to continue as orchardists look to create a more marketable suite of fruit, planting new varieties on dwarf rootstocks. No principal repayments are planned in 2006.

Net result

The net trading loss forecast by growers is a deficit of $42,655. This is about $200,000 less than the deficit experienced in 2005, but is still likely to drive more orchardists out of the industry in 2006.

The orchard is projected to have a disposable deficit of $110,765 after allowance is made for drawings, principal repayments and development capital. Off-orchard income will decrease this loss, reducing the deficit to $64,069.

 Figure 4.1: Nelson pipfruit profitability trends

Symbol
f forecast

Banks will be closely scrutinising client performance on a case-by-case basis and relationships will again be tested in 2006.

Industry forecasts

The orchard model is based on grower expectations. However, the monitoring process also surveys the opinions of industry experts. The industry panel held a more sobering view than the growers, forecasting a disposable deficit of $230,000. This larger deficit derives from a more conservative assessment of forecast price, especially for the major varieties Braeburn and Royal Gala. The industry panel does not see enough change in overall market conditions to warrant optimism about improved variety returns. The orchard still relies heavily on Braeburn and Royal Gala, and the industry panel considered these to be commodity varieties. The industry panel forecasts an average return of $14.91 per export carton – $1.83 per carton lower than the grower panel.

No matter which opinion is correct, if orchard profitability is not restored soon, more growers will definitely leave the industry while they still have some equity.

Table 4.4: Industry vs growers’ expectations, Nelson

	2005	2006f	2006f
	Actual	(Grower)	(Industry)
Gross TCE/ha	3 267	3 052	3 052
Average packout (%)	76	76	76
Export TCE/ha	2 300	2 317	2 317
Average export return ($/TCE)	13.09	16.74	14.91
Gross revenue ($)	915 281	1 147 742	1 028 000
Orchard expenses ($)	1 025 213	1 052 936	1 052 900
Cash orchard surplus ($)	-196 955	1 597	-117 700
Net trading profit ($)	-242 559	-42 655	-161 900
Disposable surplus ($)	-395 267	-110 765	-230 000
Net cash change ($)	-317 267	-64 069	-183 300

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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