Economists called on to discuss profitability
As costs rise and production increases, producers need to know how to stay profitable.
A new committee of the North Central Washington Fieldmen’s Association is bringing in speakers to talk to its members about the economics of fruit production.
The aim is to educate field horticulturists so they can work with growers to produce a crop that will return a profit.
Tom Auvil, chair of the new committee, said there’s a lack of understanding about what size and color of fruit growers need to take to the warehouse in order to be profitable.
Dan Kelly, assistant manager of the Washington Growers Clearing House Association, spoke to Fieldmen’s Association members in late February about how growers can calculate their costs-of-production on a per-pound, per-box, per-bin, or per-acre basis using a cost of production calculator on the Clearing House’s Web site. They can then compare their costs with industry breakeven costs and look at possible explanations for the differences.
The Web site also enables growers to search f.o.b. prices for the past five years by variety, size, grade, and package type, and provides an annual report of actual grower returns as supplied by many warehouses.
Kelly stressed the importance of not sending to the warehouse small sizes, low grades, or other fruit that won’t sell for a profit. He suggested that growers try to manage the crop during pruning and be selective about what they harvest. “With fruit that’s not profitable, it doesn’t make sense to take it to the warehouse.”
The Fieldmen’s Association also invited Dr. Clark Seavert, agricultural economist with Oregon State University, to a four-hour seminar in March to talk on topics such as how growers can assess the return on investment of practices used to improve fruit quality. Seavert has been involved in developing a national initiative called Cooperative Orchard Systems 2015, whose goal is to help growers develop optimum orchard systems to achieve long-term profitability in the face of rising costs and tough global competition. It ties in with the Tree Fruit Technology Roadmap, whose goal is to reduce the cost of producing high-quality fruit.
Cooperative Orchard Systems 2015 addresses both costs and returns and emphasizes the need to produce target fruit—the kind of fruit that the market wants.
Brent Milne, horticulturist with McDougall and Sons, Wenatchee, and a member of the new committee, said Seavert has shown graphically that unless growers change their practices, inflationary increases can put them out of business within five years.
The committee also planned to schedule talks by agricultural economists Dr. Des O’Rourke, president of Belrose, Inc., and Dr. Tom Schotzko of Washington State University.
Data compiled by Washington marketers show that the demand curve for apples has shifted over the past 15 years, Milne said. The range of sizes that generate a profit to the grower is much narrower than it used to be and peaks between a size 64 and 88, tailing off very quickly at size 100 and smaller.
“If it’s not Extra Fancy and it’s not within that four-to-five size range, you’re losing money as a grower by delivering it to the warehouse,” he said. “We have to be getting value back.”
Milne said he hopes the educational presentations will provide field staff with more tools to effectively communicate the economic situation to the growers so they can make informed decisions and not put themselves out of business delivering unwanted fruit to the warehouse.
Target fruit is hard to define because it differs from warehouse to warehouse, depending on their particular markets.
“What I’m interested in is furthering the education of these field people to be able to put together information from their own organizations and own sales desk and be able to go out to their growers and say, ‘This is what our program is, and this is where we need to be.’”
So how can a horticulturist representing a company that’s in the business to pack fruit tell a grower to leave part of the crop in the field rather than take it to the warehouse?
“That was debated at great length,” Milne said. “If you look at the cherry scenario, growers have changed their pruning to get higher quality fruit and larger fruit because industry has said, ‘We’re not taking the small sizes.’”
The relationship between the grower and the packer has to be a synergistic one, he added. “We have to be giving due diligence to the growers and pointing them in the right direction because if the return is not going to the land eventually, it renders all this moot—they’re out of business, we’re out of business, and everything shuts down.”
Auvil said principals of major fruit growing and packing companies and their marketers would also be invited to the meetings to increase their understanding of the economic reality that growers are facing.
Data and tools designed to help growers make good business decisions are available to Clearing House members at the Web site, www.waclearinghouse.org.