Figuring out profitability
Both prices and yields are important, WSU economic studies show.
High yields or high prices alone are not enough to ensure that a Gala apple grower will see a profit, two Washington State University agricultural economists report.
Drs. Karina Gallardo and Mykel Taylor recently published a WSU extension fact sheet estimating the costs of establishing and producing Gala apples in Washington. It shows that in years when only price or production is high, the grower will not necessarily make a profit. Both yield and price must be relatively high.
For example, Figure 1 shows that a Gala orchard producing 35 bins per acre will likely only be profitable if the fruit returns $300 a bin or more. (A bin is assumed to hold 925 pounds of fruit.) The annual price summary published by the Washington Grower’s Clearing House Association shows that the actual fresh and processed return for Gala in the 2009–2010 season averaged 25.7 cents per pound, or $237 per bin.
With a per-bin return of only $200, a yield of at least 55 bins per acre would be needed to break even. At $250 bin, the grower would need at least 50 bins per acre to show a profit.
The WSU study is based on a hypothetical 40-acre block of Gala apples in a 160-acre well-managed orchard, not necessarily the average orchard. It assumes that the trees are planted four feet apart on a vertical trellis with ten feet between rows, and ladders are used, rather than platforms. It represents what growers can anticipate as their average cost of production over the life of the orchard if nothing goes wrong. However, growers should assume that they will suffer crop losses periodically, the economists say.
Gallardo and Taylor also studied the costs of production for organic apples. Price premiums for organic apples have fluctuated over the past 10 years between an average of about $4 and $8 a box, depending on the year. The average premium for the 2009–2010 season, according to the Washington Growers Clearing House Association, was about $6 a box.
For their economic study, the economists based their estimates on a 40-acre block of organic apples within a 140-acre orchard. The study assumes that the orchard would be farmed conventionally for the first two years and be certified organic by the fifth year. Based on grower input, the economists assumed a price premium for organic apples of $50 a bin.
They calculated the total cost of producing certified organic apples under this scenario at $11,407 per acre, compared with a total of $10,757 in the conventional Gala study. Assuming a return of $250 a bin, the net revenue for the conventional Gala apples would be $1,743 per acre. The estimated net revenue for organic Gala production is $3,595 per acre, because the premium more than offsets the slightly higher costs. In both cases, a yield of 50 bins per acre is assumed, with 20 packs per bin for the conventional orchard and 18 packs for the organic.
Figure 2 shows the effect of changes in yield and price on profitability of the organic orchard.
Gallardo and Taylor have also developed estimates of the costs of producing fresh pears in north central Washington, based on a 12-year-old, 40-acre pear orchard with 30 acres of d’Anjou pears and 10 acres of Bartletts planted on a 7- by 15-foot spacing.
Assuming an average yield of 30 bins per acre, to cover variable costs only (estimated at $5,344 per acre), the breakeven return would be $167 a bin. To cover total costs, including cash, land, depreciation, interest, and management costs (a total of $9,684 per acre), the breakeven return would be $303 per bin.
As Figure 3 shows, with a yield of 40 bins per acre, the grower would need a per-bin return of $275 to show a profit. With a return of $200 per bin, the grower would need to produce 60 bins per acre.
A study of the costs of producing Bartlett pears in Washington’s Yakima Valley shows that total production costs for a mature orchard are around $8,785 per acre. The study is based on a 10.5-acre pear block in a 100-acre orchard. The economists stress that crop yield varies from orchard to orchard and the price for Bartlett pears changes from year to year.
Figure 4 shows that at a price of $250 or $275 a ton, a grower would need to produce 40 bins per acre to make a profit. The base price negotiated by the Washington-Oregon Canning Pear Association for processing pears this year was $251 per ton.