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NZ growers show resilience despite challenges

Embargoed until 3pm, 6 October 2008

NZ growers show resilience despite economic challenges

New Zealand growers are showing their resilience and flexibility despite changing economic conditions, says a report launched by the Ministry of Agriculture and Forestry (MAF) today.

The Horticulture and Arable Monitoring Report 2008 shows that despite increasing costs many growers in the horticulture and arable sectors had an improved financial outcome for the 2008 harvest season.

Lower global supplies, due to unfavourable weather conditions and other factors, resulted in higher prices for apples, blackcurrants, lemons, cereal grains, and honey. High yields and increased producing areas for avocadoes, honey and Marlborough wine grapes delivered record production levels for these crops in 2008.

Paul Stocks, Deputy Director General Policy at MAF, said growers have responded well to the challenges.

``Last season was challenging for New Zealand growers with rising expenses and the continued strength of the New Zealand dollar. Despite these factors, many sectors have demonstrated their resilience and ability to respond flexibly to market conditions,’’ said Mr Stocks.

While the majority of fruit and arable crop growers had an improved outcome, the report shows growers of most vegetable crops experienced a poorer financial outcome due to increasing costs that could not be matched by greater yields or prices.

“Despite the improvement in financial performance for the 2008 season, the short-term profitability of some crop sectors remains challenged, with businesses struggling to generate adequate funds for reinvestment. Growers on small-scale properties in particular are more and more reliant on off-farm income and investments,” said Mr Stocks.

The report finds that growers expect further cost increases in the year ahead, and are seeking to manage this by maximising income through improved yields and quality and by the more efficient use of inputs. In sectors where good profit levels were achieved in 2008 – such as wine grape production in the Marlborough region, and arable cropping – growers are using the extra funds to improve the efficiency of their businesses and consolidate future income.

``While considerable challenges face the sectors, there are also many opportunities. World demand for food products with assurances of safety and environmental sustainability is increasing, and the decline in world cereal stocks and the expansion of the dairy sector in New Zealand are providing growers of vegetable and arable crops, in particular, with opportunities to increase income,’’ Mr Stocks said.

The Horticulture and Arable Monitoring Report is compiled by MAF annually and provides an overview of the economic performance of orchards, vineyards and arable farms throughout New Zealand for the annual growing season. Forecasts for the 2008 season in the report are based on growers’ views collected in May this year.


A fact sheet and a copy of the report can be found on the MAF website:

Fact sheet
1 Horticulture and Arable Monitoring Report 2008
3 Key Highlights

• Favourable climatic conditions led to increased yields of pipfruit in the Hawkes Bay and Nelson regions in 2007. However, poor market returns for Braeburn and the strength of the New Zealand dollar constrained revenue. The model Hawkes Bay orchard obtained modest profits while the model Nelson orchard experienced losses.
• The 2008 growing season was characterised by two severe frost events in Hawkes Bay, reducing gross yield in the model orchard by 15 percent. Export yield for Braeburn – the variety most affected – is down by 40 percent. The Nelson region escaped any significant frost damage with good export recovery rates.
• Demand is strong for New Zealand pipfruit in overseas markets in 2008, influenced by the reduced export crop from New Zealand and other southern hemisphere countries. Growers are confident market prices will improve, forecasting an average return of $22.40 or above per export carton – higher than at any time in the past six years.
• Orchard profitability continues to be challenged by rising input costs. Increased costs of fuel, electricity and labour are impacting directly but also indirectly through post-harvest charges.
• The model Nelson orchard forecasts a significant improvement in profitability for 2008, which will provide funds for ongoing development and debt reduction. Forecast profit levels for the model Hawkes Bay orchard are similar to 2006, limiting the scale of redevelopment into new varieties and intensive plantings without incurring significant new debt.

• In 2007/08, production per hectare on the model orchard rose by 11 percent, compared with the previous season, as a result of good seasonal conditions. Production in 2008/09 is expected to rise by a further 4 percent. New management techniques are leading to sustained increases in average yields per hectare.
• Orchard gate returns per tray fell in 2007/08 as a result of unfavourable exchange rate movements, increased crop volume, smaller fruit size in the green variety, and higher post-harvest and shipping costs. Prices are expected to improve in 2008/09 due to favourable opening market conditions in the European Union (EU), good fruit size and quality, an early start to the season and reduced foreign exchange rate impacts.
• Orchard working expenses fell by 6 percent in 2007/08 on the model orchard, but are expected to rise by a similar percentage in 2008/09 due to increased wage rates and input prices. Growers cut spending in 2007/08 in response to lower revenue, aided by seasonal factors such as reduced fruit thinning and frost-fighting requirements.
• The model orchard made a loss before tax in 2007/08, and is expected to make a small taxable profit in 2008/09.
• These profit levels are well below those achieved in the period from 1999/2000 to 2003/04, and are primarily the result of an exchange rate related fall in orchard gate returns, rather than falling international prices.
• The model orchard’s surplus for reinvestment remains negative in 2007/08 and 2008/09. However, orchard maintenance and development is continuing, albeit at reduced levels, as many growers have off-orchard income and/or investments, and most have high equity levels, which provides a degree of financial resilience.

• Marlborough Sauvignon Blanc continues to captivate international markets, which ensured yet another profitable result for Marlborough growers. The Hawkes Bay vineyard is more challenged in its underlying profitability and, through strategic changes to its grape variety mix, is seeking incremental improvements.
• The Marlborough vineyard achieved a remarkable 37 percent increase in yield per hectare for 2007/08 after an excellent growing season. In contrast, the Hawkes Bay vineyard recorded a significant drop in yield, due mainly to widespread frosts in October 2007.
• The Marlborough vineyard’s net cash income for 2007/08 rose 54 percent on the back of a substantial jump in yields, a lift in price paid per tonne for Sauvignon Blanc and a small expansion in the vineyard’s producing area. The Hawkes Bay vineyard’s revenue dropped as a direct result of tonnage being down due to frosts.
• Vineyard working expenses increased by 29 percent on a producing hectare basis in 2007/08 on the Marlborough vineyard and by 13 percent on the Hawkes Bay vineyard. The main cost increases were in labour, weed and pest control, and those costs linked directly or indirectly to fuel and electricity, such as contract machine work, frost protection and irrigation control. Growers are forecasting further cost increases in 2008/09, although they will try to control some costs by limiting expenditure on repairs and maintenance.

• Gross farm revenue per hectare increased 28 percent in 2007/08 on the model farm, due to improved crop prices. These prices are forecast to further improve in 2008/09, increasing revenue by 20 percent.
• Farm working expenses per hectare increased 15 percent in 2007/08, due mainly to energy and fertiliser price rises. The forecast 23 percent rise in farm working expenses in 2008/09 is likely to be conservative, given recent general input price increases.
• Input price increases are encouraging farmers to use fertiliser, fuel and water more efficiently, which also helps reduce adverse environmental impacts.
• The arable model reflects a general trend towards increasing crop areas and reducing sheep numbers, with a greater focus on supplying the growing dairy industry with feed and grazing.
• Intensive arable farms are in a sound financial position, which is lifting farmer morale. Farmers are responding to the current global lift in grain prices in a positive but prudent way by investing time and capital in improving the efficiency of their businesses.

Process and fresh vegetables
• Gross margins for many vegetable crops fell in 2007/08 compared with the previous year. The main exception was the marked improvement in financial outcome for fresh potato production.
• The lower gross margins were mostly caused by lower prices and, in some cases, lower yields, and higher input costs.
• Low rainfall over the growing season reduced yields in some crops, although irrigation was used to counter the dry conditions over most of the country.
• Growers are concerned about their business viability, following many years of low returns and the prospect of further cost increases.

Other export fruit
• Financial performance in 2007/08 improved across a number of the fruit crops covered in this chapter, as prices and/or yields increased sufficiently to offset increased production costs. However, high exchange rates constrained export returns, especially for those crops traded in US dollars.
• Record volumes of avocados and cherries were produced and exported in 2007/08.
• The 2007/08 summer was dry in many regions, which sometimes reduced fruit size but also enabled timely harvest of high-quality crops.
• Higher wage rates and fuel costs are eroding growers’ margins, both directly and through increased prices for other inputs. Growers expect further cost increases in 2008/09.
• Industry groups are working hard to develop new markets, progress research into new varieties and sustainable production, satisfy market-access requirements, and improve product differentiation.

• Grain yields were down 5 percent and silage down 10 percent in 2007/08 due to the wet spring and dry summer.
• The total area of maize grown increased by 20 to 25 percent in 2007/08.
• Farmgate prices increased significantly due to high global commodity prices, a high dairy payout and the demand for feed during the drought.
• Costs for both grain and silage rose 15 percent, mainly due to global increases in fuel and fertiliser prices.
• The grain gross margin was 28 percent higher in 2007/08 than in 2006/07, while the silage gross margin was unchanged.
• The forecast gross margin is expected to double for maize grain and increase by 139 percent for maize silage, due to higher product prices and a return to average yields.

• The financial performance of much of the apiculture sector improved in 2007/08 compared with 2006/07, due to a record honey crop and increased prices.
• World honey prices increased over 30 percent compared with last year. This is because world supply was reduced, due to unfavourable weather in a number of exporting countries, the impact of Colony Collapse Disorder on hives in the US, and increased domestic demand in most countries, including China and India.
• Revenue from higher international honey prices was constrained by the unfavourable movements in the New Zealand exchange rate.
• Live packaged bee exports to Canada rose 49 percent over last season, and live bee packages were also successfully exported to Germany.
• Hive numbers increased by almost 10 percent in 2007/08, with little change in the number of beekeepers.
• Higher wage rates and fuel costs have increased the cost of production for all operations.
• In April 2008, varroa was found south and east of the Nelson Controlled Area. In September 2008 varroa was found in Canterbury. MAF Biosecurity New Zealand is currently reviewing the response to determine how to best respond to the new situation.


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