Input - Apple & Pear Growers Association of South ...



|Business Case for the Netting of Apple Orchards in the Adelaide Hills |

|Grower |

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|Developed using the Apple and Pear Growers Association of South Australia Business Case Development Tool for Orchard netting |

|Prepared by: |

|GROWER or REPRESENATIVE |

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|Date: |

|Wednesday, 13 October 2015 |

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|[pic] |

Purpose

This business case considers the investment of $xxx thousand over the period 20xx-20xx to establish permanent netting enclosures across xx.xx hectares of orchard owned and operated by GROWER at LOCATION.

This business case has been developed using the Apple and Pear Growers’ Association of South Australia (APGASA) - Business Case Development Tool for Orchard Netting.

The Business Context

The Adelaide Hills is a key apple and pear growing region in South Australia - generating around 85% of the state’s total pome (apple and pear) fruit - worth some $39 million at the farm gate (2008).

The APGASA and its members, including GROWER, seek to maximise their productive capacity while continually improving their farming systems to increase sustainability and efficiency through the adoption of world’s best practice - and in doing so increase the productive capacity of the industry.

GROWER, current has xx.xx hectares of X, Y & Z varieties, in their orchard(s) located at Xxxx - producing an average of xx.x tonnes fruit per annum (depending on seasonal conditions). The majority of GROWER plantings were established between XXXX and YYYY.

GROWER’s first and second class produce is packed at Xxxx, and sold into the Xxxx & Yyyy markets. ‘Juice’ product fruit is sold to Xxxx.

GROWER, currently generates annual revenues of around $XXX from first and second class produce sales and around $XXX per annum from juice fruit sales. (Refer to Appendix A – GROWERS Financial Statements 20xx/20yy) The GROWER enterprise returns $XXX (NBT) annually. Its current asset valuation is $XXXXXX. This enterprise employs XX full-time equivalent staff.

The long term object of GROWER is to:

• Consolidate its current business by improving the production capacity and profitability of orchard holdings

OR

• Strategically expand its orchard business purchase/development of new plantings and by improving the production capacity and profitability of its current orchards.

The Case for Change

Netting of XXX Hectares of Apple/ Orchards (name of Block)

Existing Arrangements

As indicated, GROWER, has XX.xx hectares of X, Y & Z varieties that are currently un-netted - producing an average of XXX tonnes fruit per annum (depending on seasonal conditions).

GROWER’s business object of is to:

• Consolidate its current business by improving the production capacity and profitability of orchard holdings

OR

• Strategically expand its orchard business purchase/development of new plantings and by improving the production capacity and profitability of its current orchards.

Presently GROWER’s annual orchard crop / productivity / profitability are exposed to impacts from (most significantly) sunburn, bird, hail and to a lesser degree wind damage; which, depending on seasonal conditions, reduce GROWER’s harvested yield, pack out and average price for their orchard produce.

The Drivers for Investment in Permanent Netting Enclosures

The Business Case Development Tool for Orchard Netting has been based on a comprehensive literature review which considers the drivers for investing in permanent netting and provides a consolidated position which is relevant to the Adelaide Hills environment, while allowing each grower to add information on their specific enterprise and operational conditions. The grower’s drivers for investment are summarised here and underpin the CBA model which has been utilised to generate the economic valuation.

Increase to potential total harvestable yield;

• By increasing water availability, resulting in current yield increases of 7.5%.

• By decreasing crop heat stress, resulting in current yield increases of 2.5%.

Reduce crop losses, as a result of (obtain damage t/ha from CBA tool “Yield, packout & price” worksheet)

• a 50% reduction in sun damage based on current sun damage of XXXXXt/ha;

• a 50% reduction in wind rub, based on current wind rub damage of XXXXXt/ha

• XXXXXt/ha current bird damage to a negligible level; and

• A 20 year average of XXXXXt/ha hail damage to an almost negligible level.

And will also:

• Improve product quality, including fruit colour and skin finish – which will increase the premium price-point of the produce; and

• Improve long term storage of produce.

In addition to understanding the role which the above drivers play under the current circumstance, the analysis which has been completed and the CBA model also includes the trends in these drivers through to 2030, refer Appendix B.

Proposed Scope

GROWER proposes to establish permanent netting enclosures over XX.xx hectares of it orchards in Y phases:

• Phase 1 20XX XX.xx Hectares $XXXXX

• Phase 2 20XX XX.xx Hectares $XXXXX

• Phase Y 20XX XX.xx Hectares $XXXXX

NOTE: The initial base capital cost[1] of netting an orchard can range from $45,000 per hectare for Trellis-release, to $42,500 to $55,000 per hectare for Flat-top enclosures depending on the size of netting. Variables which impact the capital cost include; the scale of development, whether sides are installed on the netting enclosure and the nature of the site (slope and if the site is irregular in shape). For example a flat-top structure with 16 mm mesh, with sides, on a flat, one ha site, the estimated cost would be $71,250 (i.e. $47,500 plus 50 per cent).

A concept design for the installation of the netting project outlined above has been obtained from SUPPLIER/INSTALLER and the cost estimated at $XXXXX based on the specific design and site features (Refer to Appendix C – Permanent Netting Enclosure design – GROWER and Appendix D – Project Cost Estimate - SUPPLIER/INSTALLER)

Predicted Business Benefits

Based on the benefits of netting (as discussed above) this investment in permanent netting enclosures will result in: (obtain highlighted values t/ha from CBA tool “Results” worksheet

1. An increase in total pack out conservatively estimated at XX% (YYY tonnes) per annum

2. An increase in premium pack out conservatively estimated at XX% (YYY tonnes) per annum – valued at an average $ZZZZ per tonne

3. An increase in enterprise revenues of $XXX (median) gross pa over the life of the asset (20 years).

4. An increase in production costs of $XXXX (median) pa over the life of the asset (20 years) – due largely to additional grading, packing and marketing costs of the increased produce volume - resulting in;

5. A (median) increase in gross margin of $XXXX pa to the business over the life of the asset.

Investment Performance

This investment/development offers:

1. A Benefit Cost Ratio of XXX

2. An Internal Rate of Return of XXX; with a

3. C43 year payback period.

Appendix A – GROWERS financial statements 20xx/20yy

Appendix B- trends in drivers for investment

Netting enclosures increase the potential total yield due to increases in water availability and reduced plant heat stress.

Netting will most likely result in a water savings of 20 per cent (due to improved water use efficiencies) with a corresponding 7.5 per cent immediate increase in yield. With projected changes in climate, this increase in yield will be offset by decreased water availability by 2030. This would mean that without netting there would be zero yield gain/loss now trending to a 7.5 per cent reduction in yield by 2030.

Heat waves and unseasonal hot weather can have a number of impacts on fruit trees. A reduction of daytime temperatures of 1-3oC on warm days or up to by 3-6oC during hot periods under netting has been utilised, with a corresponding 2.5 per cent increase in yield. Under netting, by 2030, it is assumed that the increase in temperature will be offset by the shading effect of the netting, i.e. a 2.5 per cent improvement in yield now trending to zero per cent improvement by 2030. Without netting, increases in temperature and the occurrence of heatwaves will lead to a conservative 2.5 per cent yield reduction, i.e. zero yield improvement now trending to a 2.5 per cent decrease in yield by 2030.

Permanent netting enclosures reduce the cull percentage and can significantly increase the harvestable yield– leading to increased orchard profitability.

Once picked the harvested yield is graded during the packing process. The quality of fruit intended for the fresh market is expressed as Pack-Out percentage. A pack-out of 80% generally means that 80% of the fruit can be sold in the fresh market (at $1000-$2000/tonne for Premium Class fruit and $600 -$800/tonnes for ‘seconds’) with the balance of 20% sent for juicing (at $0-$100/t) or to waste.

With packing costs at around $800/tonne, growers clearly need to achieve the highest pack-out for premium class fruit and if premium pack-out falls below 40-50% as a result of climatic or other impacts, an entire bin will generally be sent to juice, to minimise packing and storage costs.

Specifically, sunburn, bird, hail and wind damage can be significantly reduced by permanent netting enclosures. For example;

Netting will most likely reduce culls due to sunburn by 50%. By 2030 the incidence of sunburn will increase under both netted and un-netted blocks. For the ‘without netting’ scenario it was assumed that by 2030 the damage from sunburn would increase over current levels by 7.5 per cent, whereas the ‘with netting’ scenario it was assumed the damage from sunburn would increase over current levels by 2.5 per cent.

The much more variable bird damage can be as high as 90% without netting and will be reduced to negligible level with netting.

Into the future it can be expected that more crops will be netted, and pressure on un-netted blocks will increase. It was assumed for the ‘without netting’ scenario, the increase in damage would be 7.5 per cent over current levels by 2030. For the ‘with netting’ where the net has no sides, the damage levels would be 10 per cent of current un-netted damage increasing to 15 per cent of current un-netted damage.

Hail damage an equally unpredictable event from as high as 60% without netting and will be reduced to an almost negligible level with netting.

In the model, it was assumed that the pin hail netting and the 12 mm and 16 mm netting on flat top structures reduced the impact from hail to zero, whereas it was assumed that the 20 mm mesh on flat-top structures had no impact on hail damage.

Permanent netting enclosures improve fruit quality and increase pack-out

The literature generally indicates that the types of impacts to yield also have flow on impacts in terms of quality and therefore on packouts. There is very little quantitative data on the effect on packout, however the general consensus is that if these impacts become more severe, then the quality of the fruit is reduced and if these impacts are lessened, the quality of the fruit improves. In this model it has been assumed that any losses to harvested yields is reflected in an equivalent loss to export/class 1 packout, cascading down the grades if all the losses cannot be absorbed by the preceding grade.

Appendix C- Permanent netting enclosure design

Appendix D- Project cost estimate

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[1] The base price for a structure covering a 4 ha non-sloping site, rectangular in shape and no sides to netting.

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