Establishment and Production Costs for Tender Fruit in Ontario - 2010 Economic Report

Table of Contents

Fresh Market Peach

Fresh Market Pear

Other Tender Fruit - Annual Cost

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 Producers' Marketing Board, processors, 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 obtained from commercial orchards, using best management practices. Yields were given as an attainable average and reflect the best management practices of commercial production.

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 (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 and fresh market pear. Fresh market peach was amortized over the remaining 15 years of orchard life and fresh market pear over 40 years at a rate of interest of 2.0%.

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.

Table 1 - Establishment Period

Crop

Trees per Acre

Establishment Period

Peach - Fresh Market
242
4 ½ years
Peach - Processing
242
4 ½ years
Nectarines
242
4 ½ years
Sour Cherries
145
6 ½ years
Plum - European
201
6 ½ years
Plum - Japanese
201
8 ½ years
Sweet Cherry: Standard
109
8 ½ years
Apricot
201
8 ½ years
Pear - Fresh Market
201
8 ½ years

Hired Labour, which is usually offshore labour, was charged at $ 14.00 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 $ 15.70 per hour including benefits.

Machinery costs were calculated based on the purchase price for 2010, useful life, annual use and trade in value. Machinery and equipment costs were based on a commercial farm size of 50 acres. The 'Machine costs' column in each Operation Costs table includes fuel, maintenance and repair.

Cover Crops - The majority of 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 92.0 cents/litre and diesel 80.0 cents/litre. Fuel costs are net of all 2010 Provincial and Federal rebates.

The interest rate applied to the operating capital of 5.0% 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 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 has 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 2009 - 2010 averages obtained through the Ontario Tender Fruit Producers' Marketing Board net of shipper commission, service charges and containers.

The price listed for processing sour cherries was the 2009 - 2010 averages obtained through the Ontario Tender Fruit Producers' Marketing Board net of license fees. The prices were also an average of the 92 and 97-100 Score.

The prices listed for processing peaches and pears were the 2009 - 2010 averages obtained through Ontario Tender Fruit Producers' Marketing Board net of license fees.

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 2010 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.

Crop Insurance and 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 2006 Economic Report

Trees density per acre for plums, apricots and sour cherries has increased with new plantings from the previous report.

There is more custom packing in the industry and for this reason a charge for custom packing fruit was included. The hand labour charge for packing fruit on the farm was removed to compensate for the change. Also, there is no packing equipment charges however there are still cold storage charges.

There were other minor changes in a production practices such as chopping brush instead of removing it, one extra discing, and no permanent sod culture in the orchards.

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 varieties, 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.

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For more information:
Toll Free: 1-877-424-1300
E-mail: ag.info.omafra@ontario.ca
Author: Ken Slingerland - Tender Fruit & Grape Specialist/OMAFRA; John Molenhuis - Business Analysis & Cost of Production Program Lead/OMAFRA
Creation Date: 01 March 2007
Last Reviewed: 21 March 2012