Prices and expenses climb
Economists recommend using extra income to make orchards more competitive for the future.
Grower prices for apples, pears, and sweet cherries have generally been strong the last few years. But have orchardists really made great gains? A closer look at orchard inputs shows that expenses are also up, and up dramatically.
Industry data collected by the Washington Growers Clearing House Association show that the average f.o.b. prices per box for all grades and sizes of apples in 2005 and 2006 were $16.19 and $19.05, respectively, up significantly from the average f.o.b. price of $11.29 in 1998. Data for pears, also from the Clearing House, show steady increases in price for the last four years for Bartletts and the last six for d'Anjous. Bigger cherry crops in recent years have not translated into lower prices—cherry f.o.b. prices have climbed also (see charts of tree fruit prices).
Prices in 2007 and heading into 2008 appear to again be strong for the three fruit categories.
A number of factors have influenced prices this year, according to Dr. Desmond O'Rourke, agricultural --economist from Pullman, Washington. He cited inflation as one of the main culprits that has helped push prices higher. "When you account for inflation, you'll find that the price increases for growers are not as dramatic as they seem," he said, noting that production costs for fuel, fertilizer, and chemicals have increased significantly in the last two years.
Agricultural economist Clark Seavert, director of Oregon State University's North Willamette Research and Extension Center in Aurora, annually tracks orchard inputs to help producers manage risks associated with agriculture. He noted that while grower prices for tree fruit have increased, orchard expenses have risen even more dramatically. Since 1991, expenses associated with apple production have increased 60 percent, for an average annual increase of 2.9 percent. Increases are similar for pears and cherries (see "Costs of growing winter pears, sweet cherries, and apples" chart).
Seavert said that strong fruit prices can be misleading for growers who don't have a handle on their production costs.
O'Rourke said other factors that helped spike 2006-2007 prices include last year's freeze in California, which devastated the citrus and strawberry industry.
"The shortages from the freeze and other crop shortages provided a wonderful opportunity for apples, pears, and cherries to move in," he explained.
It wasn't until last June that fruit retail prices dropped at the grocery store level for the first time in 24 months, he noted.
Additionally, O'Rourke pointed out that the huge growth that occurred earlier in the banana industry finally slowed down. Bananas are not as plentiful or inexpensive as they once were.
And, adjustments in tree fruit acreage have played a role.
"What really helped the apple and pear industries take advantage of the opportunities were the extensive orchard removal that occurred across the country several years ago," he said, adding that since the early 2000s, the tree fruit industry has brought supplies in better balance with demand. "But with cherries, where acreage has increased throughout the nation, that's not true. We could have a 25 to 30 percent increase in volume of cherries next year."
O'Rourke noted that many growers are still in the process of digging out from the mid-1990s when prices were especially turbulent and it was difficult for producers to break even. A break-even analysis compiled by the Growers Clearing House for the period 1994 to 2004 showed only one year in which most growers broke even, O'Rourke recalled. "It was a pretty rough ten years. Many of them are only now catching up."
Farmers frequently plan for the future based on current conditions. It's easy to get caught up with today's strong prices and look for places to spend income that wasn't there several years ago. But both O'Rourke and Seavert urge producers to first use spare funds to improve yield and quality of their fruit.
O'Rourke advises growers to renovate old, poor-yielding blocks. "Rather than buy a new tractor, invest in the orchard to improve quality and yields."
Growers should evaluate all of their orchards and review their packout reports to identify blocks not producing "target" fruit, Seavert said. Target fruit are the grades and sizes that are in demand and pay a higher premium than smaller or off-grade lots. "If you have an old orchard system that is not producing 'target' fruit, you are not making money that you should be. On average, it's a specific size and grade that's making the money.
"It's true that we've made great strides increasing yield and quality of our tree fruit," he added. "But with the current systems in the ground, we've milked it about as much as we can."
He believes that producers must plant "competitive orchard systems" to stay profitable in the future. Competitive systems are those that can reduce labor, chemical, and fertilizer costs. Compared with more traditional orchards, competitive orchards use dwarfing rootstocks, have tighter spacings, higher densities, and trellis training that result in compact fruiting walls adaptable to mechanical platforms or harvesters.
For pears, redesigning the conventional orchard is more difficult because a dwarfing pear rootstock has not yet been identified for the Pacific Northwest. But OSU will be gathering data from a Hood River research pear block planted in 2006.
Seavert encourages growers to plant small test blocks of five to ten acres under the new competitive orchard concept that allows mechanization of harvest, pruning, and other tasks, and better utilization of cover sprays, so they can learn how to shift their entire operation to a more competitive environment.
In looking to the near future, O'Rourke noted that a review of history shows that nothing stays the same without some change. But he anticipates that good prices should continue as long as supply stays in line with demand.