Focus on enhancing revenue
During tough economic times, don't focus on cutting costs.
Suppose your operating income is $80,000 and your expenses are $100,000. Your banker says you have to reduce your costs by 20 percent. What do you do?
You can't reduce pruning and training costs because your fruit quality would go down, notes Yakima, Washington, orchardist Dave Allan. You can't reduce hand labor costs by reducing wages. Nor can you reduce the amount of chemicals or fertilizers you use without negatively impacting the crop.
Instead of doing less pruning, thinning, or tree training—areas that typically get cut when a grower has economic problems—the aim should be to do a better job of those practices, and enhance revenue rather than lower costs, Allan said. "Don't focus on cost containment, or I think you'll lose the ball game."
To improve profitability, cut out loser blocks, produce more target fruit per acre, and grow varieties that deliver value to the customer at a relatively high price of, say, $2.49 to $2.99 a pound, he suggested.
Remove the losers
Banks sometimes encourage growers to keep blocks that aren't feasible, Allan said.
"The banks help us make that mistake. You tell them you're going to pull this block out, and they say you have to keep it for the overhead. I think that's a huge mistake. If the orchard is losing money, then the value is in the land and not the orchard. Take it out and preserve the equity in your land. So often, what we see is people want to try one more year, one more year, and they lose equity in the land."
Produce targeted fruit
Growing the sizes and grades most in demand can have a great impact on revenue. Growers producing fruit at the bottom of the warehouse pools don't make money.
Variety also impacts revenue. Red Delicious could be a profitable option if the Washington State crop drops below 26 million boxes and the grower can produce 50 bins per acre, Allan believes. The 2006 Red Delicious crop is similar to last season's at 27.5 million boxes.
Growers should probably move away from Golden Delicious unless they can average 60 bins per acre of good quality fruit, Allan said. He thinks the statewide crop needs to be below 9 million boxes, which it is this season for the first time in many years.
Demand has been increasing for Granny Smith. Growers shouldn't rush out and plant more Grannies, he said, but they should not get rid of them if they have good yields.
Gala generated good returns until Washington's crop reached 5 million boxes. If you grow small Gala apples, take them out, is his advice. If you produce big Galas, you can still make good money.
Fuji still has good market acceptance, but prices for that variety also declined after the state's production topped five million boxes. Allan said when Honeycrisp production reaches five million boxes, it might be time to slow down plantings.
Production of Cripps Pink has not yet been enough to fill the market, and Allan thinks the variety still has good market potential.
How do you choose which variety to grow?
Don't rely on coffee-shop talk, but do your own research, Allan advised. "Don't go to the sales organizations and ask what's going to be successful in five years. Their horizon is 48 hours in the future, and that's about it. They might give you a little bit of insight, but they're not the right guys to go to."
Allan said the best way to learn about a new variety is to test it and get input from other people who are testing it. However, testing a new variety is a risk. "If you're going to get in the game, you have to plant about ten acres," Allan said. And that means an outlay of $250,000.
"Some are not going to work and that $250,000 is going to turn into zero. There's a lot of risk here."
A successful variety must offer value to consumers after it's been harvested, stored, packed, shipped to market, and set on the retail shelf for 72 hours, he added.
"If you have confidence that the variety you're looking at can do that, it could be a good investment."