Financial Factors
1999/2000 Review
Revenue
The 1999/2000 financial year started out with a lot of promise, with a good 1999 crop and good indicative export returns. However, as the selling season progressed it became apparent grower returns were going to be poor. ENZA eventually announced to growers in August that the prospects for the later varieties were extremely poor.
Braeburn, the largest export variety in 1999 (41% of Hawke's Bay volume), only received a grower return of $7.88/carton. The other late varieties also suffered, including the new varieties Pacific Rose and Southern Rose ($12.86 and $9.47 respectively). The comparisons of 1999 returns with the past four years are shown in Table 4.
Deferred revenue that flowed through into the 1999/2000 financial year was extremely low - $39,120 for the model orchard compared to a forecast back in June 1999 of $104,000.
Hawke's Bay pipfruit growers have over time had to diversify away from being solely reliant on pipfruit profits, and as a result most families have significant off-orchard income coming in to support the overall business. In 1999/2000 the combined off-orchard income was $28,900, up from $23,228 in 1998/99.
Source: ENZA
Expenditure
This year saw the introduction of growers paying for packaging and coolstorage costs. In an effort to neutralise the cashflow effects of these new costs, ENZA increased advance rates to 50% of FAS indicative returns and offered growers an advance facility to cover the coolstorage costs of up to $2.25/carton. Most growers have taken the additional advance option and as a result coolstorage costs for the 2000 crop will come out of their deferred revenue in the 2000/01 financial year.
Packaging costs for the 2000 crop are incurred immediately after packing and come into the 1999/2000 financial year. If ENZA, or any other export company, are unable to continue to provide cashflow neutrality in the future, it will seriously impact on the ability of growers to bankroll their harvest.
Orchard expenditure in 1999/2000 was $22,000/ha, which equates to $7.82/gross TCE and $12.76/export TCE. When it is considered these totals include $2.73/export carton packaging ($1.68/gross TCE), it demonstrates growers have been able to reduce costs from last year's $7.22/gross TCE. There were also cost reductions in pruning, thinning, harvesting, vehicles, repairs and maintenance, and administration. These savings result from an increased production per hectare and growers making an all-out effort to reduce costs wherever possible.
Harvesting costs are down in 1999/2000 to $1.39/gross TCE. In addition to the reasons noted, this is also due to a large proportion of the crop being picked for process under the Braeburn crop management strategy. Cost increases have occurred with interest and lease costs. This is due to increased indebtedness and leasing that is now a feature of the larger full-time grower.
Net Result
After all cash costs (including interest, drawings, capital and development expenditure) the model orchard in 1999/2000 will make a disposable loss of $69,686. This is the largest loss recorded since the inception of the Monitoring Report.
With additional long-term borrowings (term debt only), the net cash change
is a loss of $37,686. This compares with a positive net cash change of $14,829 in 1998/99.
The Hawke's Bay model is extremely reliant on the two main varieties, Royal Gala and Braeburn. In both the 1999/2000 and 2000/01 years they make up 73% of the export volume. If either one of these varieties fail in the international market-place, it has a negative impact on the fortunes of Hawke's Bay pipfruit growers.
At the time of writing, ENZA announced the return for 2000 ENZA grade Royal Gala was likely to be $15.47/TCE FAS. This is down from $18.19/TCE predicted prior to the start of the selling season. Growers are extremely nervous that a similar sequence of events to 1999 may happen this year. The returns used to generate the model budget are based on growers' expectations at the time of writing, and may be above or below the estimates being forecast by ENZA at the time.
2000/01 Forecast
Revenue
The 2000/01 forecast shows a real improvement on 1999/2000. This is primarily based on grower expectation that there will be reasonable deferred revenue coming through on their 2000ÿcrop.
Expenditure
The 2000/01 year will be the first to show the full FAS costs, including coolstorage. Total post-harvest costs are expected to increase to $7.77/export carton. Total orchard expenditure is expected to increase to $13.89/export carton and $15.12/export carton, including interest and lease. To achieve a break-even result at the disposable surplus level will require an average FAS return of $17.50/export TCE.
Freight costs shown in the model are from orchard to packhouse. The freight from packhouse to coolstore is included in packing and freight; coolstore to wharf is included in coolstorage. The freight figure is an average for Hawke's Bay and is low, reflecting the proportion of the crop that growers truck themselves.
Under the new FAS system, harvest and post-harvest costs now account for 71% of cash orchard expenditure. In 2000/01 the model shows total harvest and post-harvest costs to be $9.86/export carton. These are significant costs for the orchardist to cashflow and try to control. In 2000/01, as post-harvest operators gain experience under the new regime, we are likely to see real differences start to emerge between the costs of different service providers. Growers will be targeting these services to try and reduce costs.
Net Result
The 2000/01 forecast budget is predicting a cash orchard surplus of $65,000 and a small disposable deficit of $6,000. With the continuation of good levels of off-orchard income, the model is predicting a net cash change of $27,000.
During the last five years the model orchard has only made a reasonable disposable profit in one year (1996/97). This explains the low industry morale.
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