August 5, 2011

Fruit and wine growers under pressure

Many orchardists and winegrowers are feeling the pressure of lack of profitability or threat of disease.

The Ministry of Agriculture and Forestry has released the kiwifruit, pipfruit and winegrowing analyses as part of its annual Farm Monitoring Report series. The reports provide models and an overview of the financial performance of typical orchards and vineyards, based on information gathered from a sample of growers and industry stakeholders.

The relatively high value of the New Zealand dollar against key trading currencies is having a significant negative impact on the export-focused kiwifruit, pipfruit and wine industries says MAF senior policy analyst Annette Carey.

“Exporters are unable to raise prices high enough to compensate because of competing supplies overseas and options for consumers to substitute products.”

Many pipfruit growers suffered a financial loss in the 2010 calendar year as a result of adverse climatic conditions combined with insufficient returns for late-season varieties sold in Europe. The models show a typical Nelson owner-operated orchard suffered its second significant loss in a row – with a deficit of $126,200, and an equivalent Hawke’s Bay business suffered a loss of $5,000.

Despite most markets performing well this year, the high New Zealand dollar will erode export returns resulting in poor financial outcomes again for many growers in 2011. MAF’s orchard models show Nelson growers face another large trading loss – estimated at $54,100, while Hawke’s Bay growers could make a small profit of $15,700.

“As a result pipfruit growers are deferring expenditure where they can and assessing alternative business models,” says Ms Carey. “We expect further rationalisation to occur due to some unsustainable balance sheets.”

The outlook for the medium term is encouraging, she says, with potential for market expansion in Asia, particularly China and India, and the possibility of selling apples in Australia for the first time in decades.

Winegrowers are working hard to ride out the current period of low profitability caused by the global oversupply and tough economic conditions in the main markets, which MAF’s model shows reduced average grape prices by 8 percent.

Favourable climatic conditions led to higher yields and helped owner-operated vineyards in Marlborough achieve a profit of $167,300 in the year to June 30 2011. By contrast, lower yields and the lower prices resulted in a deficit of $20,100 for Hawke’s Bay vineyards.

The forecast for the coming financial year is for profit for typical Hawke’s Bay vineyards of $3,900 and Marlborough vineyards of $171,700.

“To achieve this, growers are keeping a tight rein on expenditure, with significant savings continuing to be made through reducing labour requirements,” says Ms Carey. “Many expect it will take three to five years to return to more sustainable profit levels. In the meantime, businesses with high debt levels may be forced into asset sales.”

On a positive note, according to MAF’s model the typical kiwifruit orchard business achieved its highest profit level for a number of years in the 2010/11 financial year, at $54,840 for the year to March 31.

Favourable climatic conditions have lifted kiwifruit yields for the 2011 harvest to record levels, helping to buffer against some reduction in prices and increased orchard expenses. The projection for a typical owner-operated business is a profit of $33,010 for the year to March 2012.

However, kiwifruit growers are dealing with considerable uncertainty in the ongoing battle against the vine disease Psa. “Psa management programmes necessary to prevent the spread of Psa are contributing to a significant increase in orchard working expenses for 2011/12.”

To view the full reports, go to MAF publication database http://www.maf.govt.nz/news-resources/publications.aspx?title=farm%20monitoring%20report&keywords=Horticulture%20arable

ENDS

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