Financial Factors
1999/2000 Review
Revenue
Cashflow for an orchard is made up of two parts. Firstly, advance payments that reflect 50% of the ENZA expectation for export prices and, secondly, the deferred payments from the previous season's crop. If ENZA estimates are accurate, the latter should be similar to the advance payments.
The 1999/2000 year shows a significant reduction in gross orchard revenue compared to the previous year. Advance payments made in the previous year appeared to be generous in relation to the actual international prices the crop was receiving.
The revenue for fruit exported averaged $12.39/export carton compared to $15.65 in 1998/99. Other revenue increased, due in part to the Braeburn crop management programme and hail insurance payments.
Gross orchard revenue was $9.91/gross TCE compared with $12.41 for the equivalent in 1998/99.
At this time last year, Nelson orchardists were anticipating a similar level of revenue to the $12.41 received. Therefore, the actual returns have been very disappointing for all Nelson and Marlborough growers.
The prices reflect the price expectation for the final payments for each variety (Table 4). It does not indicate the cash revenue in any one year because of the advance and deferred payment system. It reflects the prices growers estimate they will receive before the free alongside ship (FAS) costs have been charged to their account.
Other orchard income and off-orchard income has lifted considerably on previous years. This is in part reflected by the increase in the size of the model orchard, but also reflects the contribution that owning and operating post-harvest facilities is having on the industry. Hail insurance payments, local market fruit and the returns from processed fruit have assisted in lifting other revenue.
Expenditure
Cash orchard expenses have increased considerably in 1999/2000. Expenses have moved from $21,000/ha to $27,000/ha.
The move to the FAS basis of payment means pipfruit growers now have to cover packaging, coolstore and freight from coolstore to ship.
In 1999/2000 packing costs increased to $2.32/TCE, up from $2.23. Added to this is a further estimated $2.06/TCE for packaging. This is a new cost to growers and it needs to be reflected in the higher prices received for their fruit at FAS price.
Growers anticipate that coolstorage costs are unlikely to be charged in this financial year. However, some post-harvest operators are keen to charge out some coolstorage costs as soon as they possibly can.
Chemical costs are increasing, although growers are maintaining chemical costs on a TCE basis at $0.73. Newer, softer chemicals are more expensive, so growers are ensuring they maximise the use of IFP methods and spray only when necessary.
Fertiliser expenditure has reduced from 1998/99. Growers are maintaining application rates but are choosing less expensive forms of each nutrient. There has been a significant change to sulphate of ammonia or urea forms of nitrogen.
Taxation reflects the better financial result that growers achieved in 1998/99.
Other on-orchard costs are holding. Growers are very conscious of the tight financial situation they are experiencing and are placing a lot of effort on holding costs.
Net Result
Growers face a net trading loss of -$21,400 in 1999/2000.
To cover taxation, personal drawings, principal and capital development, growers have had to rely on off-orchard income where they can to minimise the negative change in their cash position.
2000/01 Forecast
Revenue
Growers forecast a substantial lift in revenue in 2000/01.
Deferred payments for the previous season's fruit are expected to return over $5/TCE, compared to $2 in 1999/2000.
Forecast prices were based on ENZA price projections back in February. Since then ENZA has lowered the price forecasts. If current (June 2000) price forecasts are used in the model, gross revenue could be reduced by up to $32,000 over the 2000/01 and 2001/02 financial years.
Expenditure
Thinning costs are expected to rise in 2000/01. This reflects the good result growers achieved from chemical thinning in 1999/2000 and their expectation that the 2001 season will revert back to a more normal situation.
Coolstorage costs of $61,300 are a new cost and will be slightly exaggerated in the 2000/01 year. Storage costs following the 2000 season have not been charged to growers by the end of the financial year. It is anticipated that post-harvest providers will become more efficient at recovering the costs of coolstorage sooner.
Fixed costs are expected to lift from $179/ha to $210/ha. The lower New Zealand dollar is reflected in this movement.
Growers forecast that interest costs will reduce as a result of their continued repayment of loans.
Orchardists plan to maintain debt repayments of $19,000 pa, despite the poor returns in 1999/2000.
Development expenditure has been trimmed by $5,400. Growers are hesitant to plant bare ground and they are uncertain about varieties for the future. The 2000/01 year will be one of consolidation.
Replacement of vehicles will be maintained. Capital expenditure will reflect deferred spending on vehicle replacement.
Net Result
A return to profitability is forecast with
a net trading profit of $59,000. This will allow a positive change in growers' cash
position of $23,000.
This positive forecast has to be seen in light of the potential change in gross revenue as a result of recent downward price forecasts by ENZA. Consultants consider this may mean the $23,000 net cash change does not eventuate.
Issues and Trends
The immediate lack of profitability and the over-supply of key varieties are the main concerns for growers.
FAS costs are placing more risks back on growers. The timing and opportunity of the FAS costs have created significant confusion for growers. This confusion has resulted in orchardists not attempting to reconcile revenue flow with actual fruit submission. The industry requires a transition period to allow information systems to develop.
Post-harvest providers are joining strong alliances. Packhouse operators, coolstore owners and growers are forming trading groups. These alliances are getting closer to the market through ENZA.
Growers have accepted the ENZA profile harvest management disciplines and this is no longer an issue.
Staff turnover on many orchards reached 100-150% in the 2000 season. Growers were pleased to see a relaxation in the number of visitor work permits being allowed to young travellers on a working holiday in New Zealand.
Growers are concerned about funding industry research and development. The recent industry restructuring could allow the funding of research to fall between the cracks.
Development of new plantings of pipfruit is slowing down.
Growers anticipate pipfruit will be able to be exported to Australia and look forward to this having a positive effect on their profitability.
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Monitoring and Evaluation
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NEW ZEALAND
Phone: +64 4 894 0623
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