2016 Economic Report: Establishment and production cost for tender fruit in Ontario

Introduction

This report tries to reflect the current management practices presently being used by growers today. Soil conditions and the unique micro climates of Ontario result in many different grower practices in training systems, cultivar selections, planting densities and pest management programs.

Objectives

The tender fruit industry uses the cost of establishment and cost of production models extensively to determine the profitability of the industry in order to make business decisions and future planting plans. Growers can use the input costs as general guidelines to identify strengths and weaknesses in their own business.

Methods and procedures

The information used in this report was derived from previous economic reports, the Ontario Tender Fruit Growers, surveys with growers, and a collaboration of data from researchers, extension specialists and agribusiness.

Input costs were organized into variable and measurable fixed costs. Variable costs, for example include fertilizers, pesticides, hired labour, tractor and machine costs, and interest on operating capital.

Measurable fixed costs include interest on investment, depreciation and other overhead cost items such as a portion of utilities, equipment storage, insurance, accounting, farm vehicles and general maintenance.

Assumptions

Yield data was given as an attainable average obtained from commercial orchards, using best management practices.

The establishment period of the peach orchard covers a 4 ½ year period: a half of a year for soil preparation, one year for planting and three years to grow the tree to full cropping potential. For High Density Pears, the establishment period was 7 years (Table 1).

The establishment costs will need to be recovered over the productive life of the orchard. An estimate of the annual cost to recover establishment costs is included in the Total Establishment Costs section of fresh market peach. Fresh market peach was amortized over the remaining 15 years of orchard life at a rate of interest of 2.0%. Fresh market pear establishment costs were recovered by year 7, as a result an amortization factor was not included in the mature orchard costs.

In the pre-plant year of establishment, tile drainage and a small amount for laser leveling is included as a land improvement, and also included in the breakeven and profitability worksheet.

Hired Labour, which is usually offshore labour, was charged at $14.40 per hour including benefits (Worker's Compensation, Employment Insurance, Canada Pension Plan and an allowance for additional costs of air flight, housing and local transportation).

Hired machine operator labour was charged at $17.70 per hour including benefits.

Machinery costs were calculated based on the purchase price for 2016, useful life, annual use and trade in value. Machinery and equipment costs were based on a commercial farm size of 80 acres. The 'Machine costs' column in each Operation Costs table includes fuel, maintenance and repair.

Cover Crops - Most growers cultivate their orchards and use an annual cover crop instead of using a permanent grass when the trees are mature.

Fuel costs were based on the size of each tractor, truck or self-propelled machine used in the production operation. The following farm-gate fuel prices were used: gasoline 93.0 cents/litre and diesel 81.0 cents/litre. Fuel costs are net of all 2016 Provincial and Federal rebates.

The interest rate applied to the operating capital of 3.7% was based on the prime lending rate plus one percent. Interest on operating capital is compounded annually until the orchard generates revenue to first pay down the accumulated interest and then the outstanding principal. Operating capital includes cost of materials, fuel, repairs, labour and other cash items but does not include farm overhead expenses.

Interest on investment was calculated at 2.0 %, which was the average interest rate paid by chartered banks on Guaranteed Investment Certificates.

Consulting fees were included but rates varied depending upon crop and whether it was full service or partial service. Consulting fees might include soil and /or leaf sampling as well as a full or partial pest monitoring service.

Irrigation costs were included as a variable cost for some of the tender fruit crops. Irrigation included both the variable and fixed costs associated with owning and operating irrigation equipment.

Miscellaneous items items used for some crops included foliar sprays, soil or leaf lab diagnostic costs, mulch, bees for pollination and bird control.

Cold storage and packing equipment for fresh market crops have been included under the fixed costs in the annual estimated costs of production. The fixed costs start in the first year of harvest to reflect the first year that cold storage would be built and used. No costs were allocated to processing crops since they do not require the use of on-farm cold storage.

Other overhead under the fixed costs for processing crops has been reduced to reflect more accurately the building requirements for processing crops compared to fresh market crops.

Prices - The prices listed for fresh market Ontario grown tender fruit were the 2015 - 2016 averages obtained through the Ontario Tender Fruit Growers net of shipper commission, service charges and containers.

The price listed for processing Sour Cherries was the 2015 - 2016 averages obtained through the Ontario Tender Fruit Growers net of license fees. The prices were also an average of the 92 and 97-100 Score. The price used for High Density Pears was the 2016 price for the varieties Cold Snap™ and Bosc Pear.

The contribution margin was obtained by subtracting the total variable costs from the gross income. Contribution Margin is the amount of funds that the crop contributes to cover fixed costs and provide returns for owner management and investment.

Due to rounding, figures may not add to total shown.

Items not included in the 2016 Economic Report

Land costs and carrying charges were not included as part of the establishment or production costs because of the extreme variance in land prices.

Land ownership and rental prices vary considerably from farm to farm depending upon road location, services, soil types, access to water and the potential for urban development or establishing a fruit market. For this reason a space was provided for the user to insert land rental cost in the variable cost section and land ownership in the fixed cost section.

A management allowance was not included as a cost.

Other income stabilization programs were not calculated in the cost of production. It can be included in the individual grower's cost of production if applicable.

Changes from the 2010 Economic Report

High Density Pear plantings have increased as low density plantings continue to decline. New Fire blight tolerant pear cultivars are also being planted in large numbers as the Bartlett cultivar also declines. The trees density per acre for pears has increased from 201 to 1117 trees per acre.

Yields improved for Apricots from 5 to 6 tons per acre as well as nectarines from 7 to 7.5 tons per acre.

Production Insurance was included as a cost for peach, nectarine, pear, sour cherry and plums. It is not included for apricots.

There were very minor changes in a few production practices such as one more mowing, additional time to chop brush and less time for seeding cover crops.

Summary

The assumptions reflect the current practices in the industry and do not necessarily represent recommendations from the contributors. Newer plantings of tender fruits may involve higher tree densities, dwarf rootstocks, alternative training systems, new cultivars and other innovative cultural practices.

The authors assume no liability or responsibility as a result of the reader relying or acting upon the information contained herein. Any use or misuse of the information is the sole responsibility of the reader.

Fresh market peach

Pre-plant year

Planting year

Second Year

Third Year - 2.64 ton yield (33% yield)

Fourth Year - 5.28 ton yield (66% yield)

Excludes harvest costs and does not include revenues for years 3 and 4.

Does not include land costs

Annual Estimated Cost of Production - 8 ton yield

Break-even in Year 9 (Does not include land and food safety costs).

Fresh market pear

Pre-plant year

Planting Year

Second Year - 1 ton yield (2.5%)

Third Year - 5.5 ton yield (2%)

Fourth Year - 9 ton yield (36%)

Fifth Year - 14.25 ton yield (57%)

Sixth Year - 18.75 ton yield (75%)

Seventh Year - 23.125 ton yield (93%)

Excludes harvest costs and does not include revenues for years 2 to 7.

Establishment costs are recovered by Year 7 (not including land and food safety costs)

Annual Estimated Cost of Production - 25 ton yield

Break-even results occur in Year 7 (not including land and food safety costs).

Other tender fruit - annual cost

Nectarine

Annual Estimated Cost of Production - 7.5 ton yield

Sour cherry

Annual Estimated Cost of Production - 6 ton yield

Japanese plum

Annual Estimated Cost of Production - 6 ton yield

European plum

Annual Estimated Cost of Production - 6 ton yield

Apricot

Annual Estimated Cost of Production - 6 ton yield