Financial Factors
1999/2000 Review
Revenue
Gross orchard revenue for the model orchard was $218,353 in 1999/2000. This was $42,000 (24%) more than was forecast in June 1999, due to the much higher than expected kiwifruit revenue for the 1999 crop. At harvest, growers thought they would receive about $5.50/tray in total. The total to be paid for that crop has now increased substantially to a total of $6.66/tray, the highest return per tray in 10 years. This is $1.11 (20%) higher than received for the 1998 crop in total. Final payments of 39c/tray will occur in the 2000/01 year, together with repayment of a promissory note on the 1996 crop.
Growers are very pleased with the level of payment, which was influenced by the low total volume, the marketing strategy used and the exchange rate. The total grower return for the whole crop was slightly higher than the previous season, despite the overall volume of New Zealand kiwifruit being 14% less.
The figures used in this report are less than those published by ZESPRI International Limited in May 2000, of $7.60/tray. The difference is that this model is calculated on a basis of "cash in cash out" so excludes several items, particularly the loadout payments which are used to pay for coolstorage and supply chain activities. Also contributing to the revenue was $8,750 for Class II and local market grade kiwifruit. This is a substantial increase on the returns that growers have had for this fruit in the past, and is associated with the lower total volume of fruit available to market, and the strategic use of branded Class II fruit in some international markets beyond Australia. Final payments on the 1998 crop were also an important source of revenue, contributing over $16,000 towards the model orchard revenue.
The model orchard had no revenue from gold kiwifruit for the 1999/2000 year.
Other orchard revenue was significant in 1999/2000, at $4,400 for other fruit crops and $5,400 for rebates and hireage. One of the main contributors to other fruit revenue was avocados, which combined a good production year with good prices. Avocados did have some quality problems in the market, associated with harvest during the same wet weather that disrupted kiwifruit pollination, but growers still received good revenue. Rebates and hiring out orchard equipment contributed similar amounts of revenue as in previous years. The main sources of rebate are from shares in packhouse coolstore complexes with grower shareholding.
Expenditure
The model orchard's cash orchard expenses in 1999/2000 were $134,570. In the model budget, interest is now included in this expense category. Orchard production costs were about $15,000 more than in 1998/99. The most substantial increase in spending was on orchard wages, which increased by $6,500 (22%). This was due to a greater requirement for thinning off rejects on the green variety, intensive tending of the still establishing and high performing gold variety, and growers using more paid labour in response to the good revenue.
Small increases in spending on pollination and fertiliser also occurred. Spending on vehicles was increased, associated with more use and the higher prices for fuel. Spending on repairs and maintenance increased by $3,450 (62%) as a result of having more money and therefore catching up significantly on deferred maintenance and fine tuning the orchard set up. Administration costs also increased significantly by $3,100 (40%) mainly due to discretionary spending such as increased use of accountancy services, establishing a family trust, and using more communication services.
Net Result
The cash orchard surplus in 1999/2000 was $83,783, $17,000 (25%) more than occurred in the 1998/99 year. The higher cash orchard surplus was due to the higher revenue per tray and was achieved despite the lower production in 1999, caused by conversion of some vines to the new variety and lower yields on the rest of the orchard due to poor budbreak. The cash orchard surplus was $2.86/tray and the net trading profit $2.58/tray, 38% and 34% respectively of the gross orchard revenue.
Drawings increased significantly to $41,000, from $29,500 in 1998/99. This is an increase of $11,500 (39%). The tax due on the 1999/2000 year is high due to the higher profit. Accelerated principal repayments of $15,500 were made this year. Growers have increased family spending, including children's education costs and holidays, and also made some off-orchard investment. Many growers have high cash reserves, and are considering off-orchard investment or land purchase for orchard expansion, though high land prices are a disincentive for the latter course of action.
A moderate amount of development
expendi-ture was made at $3,800, mostly on fine tuning around the orchard. This included
planting new rows of vines to replace shelter belts, extending the ends of rows to create
extra productive area, or converting from a T-bar to a higher yielding pergola vine
training structure.
Significant capital purchases of $18,000 occurred. Capital and development spending are very variable between individual orchards, but typical in this year was capital spending on orchard equipment, such as tractors and mowers. Previously the most common capital spending has been to upgrade a vehicle. Most growers also took up their offered investment in Kiwifruit International Limited, a separate company structured to finance 12 months' marketing of kiwifruit by ZESPRI International. This contributed about $2,000 of the capital purchases made on the model orchard.
Off-orchard income continued to be a factor in the kiwifruit model with $19,200 earned in the 1999/2000 year. This is similar to the level in the 1998/99 year. There is a mixture of wage/salary and contract work. Contract work includes an orchardist providing services to neighbouring orchardists. Revenue from work carried out within the kiwifruit industry (e.g., contract management of orchards and packing) is an important source of off-orchard income for kiwifruit growers.
2000/01 Forecast
Revenue
Forecast revenue for the model orchard in 2000/01 is $242,070. This is over $23,720 (11%) more than received in the 1999/2000 year. The increase is due to the green kiwifruit returning to a more normal yield level, and the first harvest of the gold variety from the model orchard.
Growers expect to receive similar revenue per tray for their green kiwifruit as in 1999/2000. The budgeted figure is $6.50/tray, of which $6.20 is expected to be received before the end of the 2000/01 financial year. The first official forecast of revenue will be made by ZESPRI International in August 2000. It appears growers are optimistic, budgeting on 97% of their impressive 1999 crop revenue, which was the highest in more than 10 years.
Fruit size is significantly smaller than for the 1999 crop, which will make it more difficult to achieve a premium for New Zealand fruit in export markets. However, growers are behaving prudently and can adjust some spending in the light of revised official forecasts during the season. The December official forecast of revenue is usually viewed with confidence by growers. The model's cash expenses are only $4.33/tray, so there is considerable scope to withstand revenue less than is forecast in this budget, and even more so for those orchards with no debt or high production levels.
For the gold variety of kiwifruit, growers expect about $9.30/tray. This is a decrease on the return received by growers of gold fruit for their 1999 crop of $13.50/tray, due to a more than ten-fold increase in volume. Market demand will need to be developed because it is a new and relatively unknown fruit. An important part of the promotional programme will be fruit tasting which will be a significant cost.
Revenue from local market and Class II fruit is expected to once again be significant at $7,000. Final payments on the 1999 crop and repayment of an earlier promissory note are expected to contribute $13,000 to the revenue. Revenue from other fruit crops and rebates is expected at similar levels to the 1999/2000 year.
Expenditure
Budgeted operating expenses in the model are $142,351 for 2000/01. This is $7,781 (6%) more than in the 1999/2000 year. The higher spending is due mainly to the cost of packing the increased yield, including a higher cost per tray for packing the gold variety. Small increases are budgeted for other spending items. Pollination costs are budgeted to cost $950 (28%) more in the 2000/01 year. Growers expect the cost of beehives to increase due to the presence of the varroa mite in New Zealand, but the level of increase is very difficult to predict at present.
Net Result
The model orchard is forecast to make a cash orchard surplus of nearly $100,000 this year. This is nearly $16,000 (19%) higher than in the 1999/2000 year due to the higher revenue expected for the orchard.
The high revenue per tray is especially valuable because production costs have reduced and average yields increased in the last 10 years. This means the revenue per tray required to break-even has reduced. Despite the relaxing of spending in the two financial years discussed in this report, break-even revenue levels per tray are much lower than 10 years ago when $6/tray revenue was considered a minimum level for viability.
Growers are, by and large, continuing their off-orchard work, despite the good orchard finances. Personal drawings and tax are expected to increase again on the 1999/2000 level. Growers are intending to reduce loan principal repayments on their orchards. Many now feel the level of debt is modest so there is less urgency to repay the loan principal, and with a table mortgage loan structure, many will be free of debt in about five years anyway. There are a significant number of orchardists, probably around 40%, who have no debt and therefore an increased orchard profit.
Return on capital invested in the model orchard (measured as economic orchard surplus as a percentage of total orchard capital) is expected to rise from the 5% achieved in the 1999/2000 year, to 6% in 2000/01. Cash orchard expenses expressed as a percentage of gross orchard revenue is expected to improve slightly from the 57% achieved in 1999/2000, to 55% in 2000/01.
| © MAF 2000 |  |
|
| MAFnet Help | Important Disclaimer |
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
Contact this person
