Like governments, businesses must always be conscious of costs, and each grower should do what they can to keep them under control.
However, I still remember a Tasmanian grower making a presentation at a conference some years ago who said, “You can’t save your way to a profit”. His message: that income was a bigger driver of profitability than cost control.
Simple income equation
The primary production income equation is simply: Income = area (hectares) x yield (bins per hectare) x price ($ per bin)
In effect, higher income will result from an increase in any one, or more, of these elements.
This article considers some elements associated with orchard income (fruit sales).
I am not an agronomist and have drawn some information from the AgFirst website; specifically, Factors Critical to Orchard Profitability, July 2001. Please check out that website to read about agronomic factors in more detail.
The income equation—orchard area
Considering area first, this is normally one of the main limiting factors for a business.
That is, the land area is fixed and to maximise income, it will plant up most of that land.
Growers who have enough land to keep some free of trees may not be trying to maximise income— but they may be able to better-manage a problem that arises when an old block has to be pushed out.
They will have land available to plant a new block before the old one must be removed, and may be able to avoid some of the income volatility that arises during the non-productive period of a young block.
Over time, it is likely that income will ultimately peak on a fixed area of land. At this point, pressure will build to buy more land because ‘natural’ inflation (typically 4%–5% per year on Australian farms) of fixed costs will tend to reduce profit.
When a son or daughter returns to the orchard and starts their own family there will also be pressure to expand because two or more families are now dependant on the fixed area.
A recent paper on broadacre farming suggested that it is always cheaper to get the most out of the land you have before buying new land. This means that every effort should be made to optimise the best combination of varieties and marketable yield from a given area of land before considering the acquisition of additional land to increase income.
The income equation—yield
The higher the average yield, the higher is potential income.
That is, a block that yields 50 tonnes per hectare should produce more income than if it produces 40 tonnes per hectare from the same fixed inputs.
Continues next month
For more information. see Tree Fruit May 2014
