Poor returns to growers depress apple industry

21 December 2004

Poor returns to growers depress apple industry

The Ministry of Agriculture and Forestry’s annual forecasting report on the apple industry foresees tough times ahead with diminished returns to growers.

The Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report into apple production finds apple export production at an all time high. This, together with a high exchange rate, increased competition from apples from other countries, competition from other fruit and snack foods, an uncoordinated marketing approach and decreased quality from New Zealand exporters has made marketing problematic.

The report’s author, Policy Analyst Duane Redward, says based on current and forecast plantings, export quantities are expected to decrease next year before steadily increasing to 2008.

“Despite this projected increase in volume, export returns are forecast to increase over the outlook period (to 2007/08), due to improved exchange rate assumptions, a strengthening world economy and increasing inflation worldwide,” Mr Redward explains.

SONZAF is an annual roundup of New Zealand’s main agriculture and forestry industries, covering the major issues and trends, the current situation and the medium-term outlook. Each article is written by an industry specialist, and incorporates both modelled price, production and export projections with industry intelligence. One particular feature of SONZAF is that it includes projections based on two alternative exchange rate tracks as well as the main projections. This enables readers to better understand the prices that could result should exchange rates differ from those used in the main projections.

Looking at the 2004 season, the report says excellent climatic conditions, together with a slight increase in production area, have seen a 13 percent increase in production over the previous year.

Duane Redward says due to this high production, exports are estimated to reach a record 21 million cartons in 2004 – 65 percent of the total production – and higher than the previous record of 18.6 million cartons.

Export prices, however, fell dramatically this year – largely due to the aforementioned appreciating exchange rate, the oversupply of product and increased competition from other Southern Hemisphere producers.

Due to the industry’s reliance on exports, exchange rates have a major impact on returns.

Market prices decreased considerably in all the major markets, particularly Continental Europe and North America where prices in New Zealand dollars per carton decreased by $3.64 and $10.50 respectively.

Looking out to 2008, the SONZAF report says marketing the expected 24 million cartons in 2008 based on current and projected plantings will present a major challenge to the industry. However, some growers may exit the industry due to poor returns, reducing national production.

Market prices are expected to decrease slightly in most major markets in 2006, but more favourable exchange rates should offset the decrease in market price, resulting in marginally increased export returns out to 2008.

“Grower returns closely mirror export returns,” says Duane Redward. “Therefore free-alongside-ship returns are forecast to increase slightly in 2005 and 2006. Forecast returns of $17.10 per carton in 2005 will, however, still not produce a profitable return for many growers.

ENDS

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