Cost of Establishing a Fruit Orchard and National Fruit Market Trends 4/2/2017 Cost of Establishing a Fruit Orchard and National Fruit Market Trends R. Karina Gallardo WSU-Tree Fruit Research and Extension Center, School of Economic Sciences, Wenatchee Presentation at the WA Chapter of American Society of Farm Managers & Rural Appraisers Leavenworth May 5, 2011 Template I-Green curve

Cost of Establishing a Fruit Orchard

Content Budget Process Where to find these studies? Assumptions made Study components Summary of findings Use of budgets

Budget Process Convene a group of growers The budgets are not a survey Representation of location, size of operations, and experience

Budget Process (2) Determine the production scenario Puts everyone on the same page when it comes to our assumptions

Budget Process (3) Costs depend on the assumptions Numbers are a reflection of expected costs under a strict set of assumptions

Where is it? http://extecon.wsu.edu/

Cost Estimates of Establishing and Producing Gala apples are available in both Excel and PDF http://extecon.wsu.edu/pages/Enterprise_Budgets

Assumptions for Gala Study Gala on 9 series Dwarf rootstock Block size: 40 acres Orchard size: 160 acres Irrigation system Overhead and under tree drip sprinklers Public irrigation district Architecture Two dimensional system (planar canopy), randomly trained w/18-in radius from tree center In-row space: 4 feet Between row: 10 feet Life of planting: 15 years Density: 1,089 trees per acre

Data on Costs during a Full Production Year for a 40-Acre Gala Block   Cost per Unit ($) Units per Acre Cost per Acre ($) Number of Acres Total Cost Per Acre ($) Total Cost for Block ($) Chemicals & Fertilizer*[1] 900.00 40 36,000.00 Irrigation Water* & Electricity [2] 100.00 4,000.00 Pruning (dormant) labor cost per tree 0.55 1,089 598.95 23,958.00 Green Fruit Thinning 0.60 653.40 26,136.00 General Farm Labor [3] 500.00 20,000.00 Machinery Repair, Fuel & Lube 325.00 13,000.00 Irrigation & Pump Repair 70.00 2,800.00 Wind Machine & Alarm System Repair 40.00 1,600.00 Pond Maintenance 50.00 2,000.00 Beehives 45.00 2 90.00 3,600.00 Harvest Costs (per bin) picking (multiple picks) 23.00 50 1,150.00 1,700.00 68,000.00 checkers & tractor drivers 5.00 250.00 hauling [4] 6.00 300.00 Crop Insurance 86.52 3,460.80 Land and property taxes 75.00 3,000.00 Insurance (all farm) Management salaries 400.00 16,000.00

Summary of Costs By Categories – Gala Apples ($/acre) Fixed Costs

Estimated Net Returns per Acre at Various Prices and Yield - Gala   Price ($/bin) Yield (bins/acre) 200 225 250 275 300 35 -3,193 -2,318 -1,443 -568 306 40 -2,381 -1,381 -381 618 1,618 45 -1,569 -444 680 1,805 2,930 50 -757 492 1,742 2,992 4,242 55 1,430 2,805 4,180 5,555 60 867 2,367 3,867 5,367 6,867 [1] Includes amortized establishment costs. [2] Assumes pack-out of 20 packs/bin (all grades) and 925 lb/bin 

Cost Estimates of Establishing and Producing Sweetheart Cherries are available in both Excel and PDF http://extecon.wsu.edu/pages/Enterprise_Budgets

Assumptions for Sweet Cherry Study Sweetheart on Mazzard rootstock Block size: 10 acres Orchard size: 150 acres Irrigation system Overhead and under tree drip sprinklers Public irrigation district Architecture Two dimensional system (planar canopy), randomly trained w/18-in radius from tree center In-row space: 10 feet Between row: 16 feet Life of planting: 25 years Density: 272 trees per acre

Summary of Costs Sweetheart Cherries by Categories ($/acre) Fixed Costs

Estimated Net Returns per Acre at Various Prices and Yield – Sweetheart Cherries   Price ($/ton) Yield (tons/acre) 800 1,600 2,400 3,200 4,000 2 -6,379 -4,779 -3,179 -1,579 21 4 -6,060 -2,860 340 3,540 6,740 6 -5,742 -942 3,858 8,658 13,458 8 -5,424 976 7,376 13,776 20,176 10 -5,106 2,894 10,894 18,894 26,894 12 -4,788 4,812 14,412 24,012 33,612 [1] Includes amortized establishment costs.

Cost Estimates of Establishing and Producing Anjou Pears WILL SOON be available

Assumptions for Anjou Study 12-year old pear orchard Orchard size: 40 acres Irrigation system Micro sprinkler on tubing on every row and 14-ft spacing in the tree row Public irrigation district Architecture In-row space: 7 feet Between row: 15 feet Operating period: 20 years Density: 350 trees per acre; 25% of the planted trees are pollenizer trees (Bartlett)

Break-even Return per Bin Break-even Return per Bin to Cover Production Cost – Anjou Pears   Cost per Acre Break-even Return per Bin 1. Total Variable Costs $5,344.24 $167.01 2. Total Cash Costs[1] = Total Variable Costs + Land and Property Taxes + Insurance + Fees and Dues $6,175.24 $192.98 3. Total Cash Costs + Depreciation of Irrigation System, Machinery, Equipment and Building $6,650.24 $207.82 4. Total Cost = Total Cash Costs + Depreciation + Interest[2] + Management Cost $9,684.13 $302.63 [1] If there are other cash costs on an individual's orchard, these costs must be identified and included in the cash cost break-even return calculation. [2] Interest costs include some actual cash interest payments.

Estimated Net Returns per Acre at Various Prices and Yield - Anjou   Price ($/bin) Yield (bins/acre) 200 225 250 275 300 20 -5,111.05 -4,611.05 -4,111.05 -3,611.05 -3,111.05 32 -3,284.13 -2,484.13 -1,684.13 -884.13 -84.13 40 -2,066.18 -1,066.18 -66.18 933.82 1,933.82 50 -543.75 706.25 1,956.25 3,206.25 4,456.25 60 978.68 2,478.68 3,978.68 5,478.68 6,978.68 [1] Assumes 1,100 lb/bin.

REMEMBER: Use of These Budgets Growers Starting point for comparison and creation of own budgets Policy makers Educational tool for understanding the different cost centers in tree fruit production Lenders and investors Illustration on operating loans and projected costs and returns Other researchers Financial feasibility of new technologies

National Fruit Market Trends

U.S. Domestic Per Capita Consumption 4/2/2017 U.S. Domestic Per Capita Consumption Lbs/person Years Source: USDA, cited by Desmond O’Rourke 2010 Template I-Green curve

U.S. Consumer Trends Stagnant per capita consumption of major fruits: apples, oranges and bananas. Other fruits such as berries, table grapes and sweet cherries are gaining. Wider Consumer interest in super fruits, tropical fruits (like pineapples, mangos and papayas) and exotic fruits (like durians, ugly fruit, berries, etc.) Source: Adapted from Desmond O’Rourke, 2010

Competition from Manufactured Snack Foods and Beverages ITEM 1997 2008 Change Value of Shipments ($billion) (percent) Snack Foods (baked goods, cookies, crackers, nuts, ice cream, yogurt, chocolate and confectionery, etc.) 65.8 95.5 + 45.1 Snack Beverages (coffee, tea, soft drinks, bottled water, beer, wine, brandy, etc.) 61.2 82.0 + 34.0 Major Fruits (Apples, Oranges and Bananas) 7.6 10.5 + 38.1 GRAND TOTAL, selected snacks 134.7 188.1 + 39.7 Source: Desmond O’Rourke, 2010

Source: USDA FAS, Outlook of the US Apple Industry

New Varieties New varieties to be released by breeding programs in Washington State, New York, Minnesota, Belgium, Holland, Germany, Italy, Australia, New Zealand, South Africa, and so on. Traditionally breeding programs have focused on “supply side” characteristics, and not too much on demand side characteristics. Source: Adapted from Desmond O’Rourke, 2010

RosBREED: Enabling Marker Assisted Breeding In Rosaceae Socio-Economic Goals The Socio-Economics Team will identify valuable breeding trait targets Based on knowledge of what industry sectors and consumers value to inform breeding decisions Accelerate and increase efficiency of cultivar development and adoption. New cultivars will have targeted appeal, be more quickly accepted, and have enhanced commercial impact. RosBREED

RosBREED Household data analysis 2010 Breeder survey 2010 What trait is my next breeding target? We like disease resistant apple trees! We like firm tart cherries that pit well! RosBREED’s Socio-Economics Team will determine trait values Breeder survey 2010 Producer survey Fall 2010/Winter 2011 Market Intermediary survey Fall 2010 Household data analysis 2010 Consumer survey 2012 I like tasty strawberries! RosBREED

Export Markets Little growth expected in domestic markets because: Slow growth expected in U.S. population. Per capita consumption of fresh apples is stagnant. With rising incomes, consumer tend to choose competing fruits and snacks. Source: Adapted from Desmond O’Rourke, 2010

Growth in Fresh Apple Imports, Key Regions, 1996-98 to 2006-08 Source: Adapted from Desmond O’Rourke, 2010

Thank You R. Karina Gallardo 4/2/2017 Thank You R. Karina Gallardo Washington State University Tree Fruit Research and Extension Center, School of Economic Sciences 1100 N. Western Ave. Wenatchee, WA E-mail: karina_gallardo@wsu.edu Phone: (509) 663–8181 x 261 Template I-Green curve