4. Results & Analysis

4.1. Kiwifruit

4.1.1. Prioritisation of issues

Technical constraints

The major technical issues facing kiwifruit growers converting to organic production are securing an economic yield (in terms of volume, fruit size and reject rate), managing pests and managing nutrition. Table 4.1.1 provides detail on the technical constraints identified by the workshop and their relative importance to conversion to organic kiwifruit production. The following text provides explanation of the key issues.

Yield

Since the early 1990s conventional kiwifruit growers have been able to overcome problems of biennial bearing and lack of winter chilling by using a budburst enhancing product, hydrogen cyanamide. Organic producers cannot use this product. Consequently, organic producers are more subject to the vagaries of nature. That is, yields in one year are more heavily affected by previous crop yields and the nature of winter and spring conditions. The use of hydrogen cyanamide, because it extends the growing season, also has a positive impact on fruit size and hence on reject rates. Generally, fruit less than 79gm in size is unable to be exported and is rejected from the export crop. Organic growers tend to have lower fruit numbers and smaller fruit size which reduces their marketable yield.

Managing pests and diseases

The range of pests and diseases that affect kiwifruit is modest. This range is also well controlled by a number of "softer" products (e.g. Bt and oils) that are acceptable in an organic programme. However, growers of organic fruit do have concerns that the use of oils may be damaging to the health of their vines. That is, the oil sprays applied to control scale insects (Hemiberlesia lataniae and Hemiberlesia rapax) can create phytotoxic effects in certain conditions. To avoid the risk of any oil damage, growers are prepared to accept higher levels of scale insects on their fruit than would normally be tolerated.

Pest and disease control on organic kiwifruit orchards still has to meet the same strict market requirements for fruit quarantine pest levels even if a higher level of pests would not cause significant crop spoilage.

The presence of pests on fruit in the market is a cause for fumigation, particularly in Japan, the highest revenue market. Fumigation renders previously organically certified product as "non-organic" and it can only be sold as conventional fruit. Therefore, this fruit is unable to be sold at a premium and has to be repackaged as conventional fruit following fumigation. The cost of this is significant, negating the market premium for organic fruit, and must be carried by the grower pool, thereby reducing the overall return to organic growers. Other costs, such as disruption of supply to retailers, also occur but are more difficult to quantify. Strategies to reduce the level of pests on exported fruit are therefore even more important for organic growers.

Conventional growers will commonly apply a fungicide in spring to protect their crop from the fungal disease Sclerotinia sclerotorium. Contrary to initial concerns, organic growers do not seem to experience the losses experienced by conventional growers as a result of this disease. The reasons for the lack of susceptibility to this disease in organic kiwifruit systems are not fully understood but are thought to be associated with greater fungal diversity, including beneficial fungi, arising in orchards that have not had fungicide sprays.

Until the introduction of the KiwiGreen programme, it was common practice for conventional growers to spray a kiwifruit crop with a pre-harvest fungicide to reduce the risk of storage rot caused by Botrytis cinerea. Research indicated that the cultural control of allowing the picking wound to heal prior to the fruit being coolstored enabled all growers to remove this pre-harvest spray from their programme and not experience high levels of botrytis storage rot.

Continuing research into the management of pests and diseases under conventional production methods is focusing on using environmentally `softer', more target specific products. Many of these products are compatible with an organic regime.

Organic growers commented that, in the management of pests and diseases, they had fewer options than their conventional counterparts and as a result had to be more focused and timely in the management interventions they made. Control of pests on the new gold variety is proving more difficult and is a constraint to organic production of the gold variety.

All growers raised the concern about the incursion of new pests or diseases. Options for controlling pests such as fruit fly (e.g. Bactrocera tryoni) are limited under organic regimes. Pest control to meet quarantine pest risk standards rather than avoiding crop spoilage, is the issue. For organic growers, this elevates the importance of strict biosecurity in an attempt to reduce the risk of unwanted pest incursions.

Managing nutrition

An average kiwifruit yield is approximately 25 tonnes per hectare of fruit taken from the property annually. Appendix I provides an indication of the amount of nutrients removed in fruit from a 25 tonne per hectare crop. Logically, the nutrients removed from the orchard in this fruit need to be replaced. To supply these nutrients in a form that is acceptable to organic certifiers may be either economically or practically prohibitive.

Notwithstanding these economic and practical barriers to managing nutrition, organic growers feel that there is a lack of understanding of the processes involved in managing the soil. Conventional research has focused heavily on the chemical aspects of soil management without, it is thought, a thorough understanding of the dynamics of the soil biological, chemical and physical properties.

A few growers were developing new areas of land, either converting to the new gold fleshed variety "Hort 16A" (ZespriTMGold) or new areas of the traditional green variety "Hayward" (ZespriTMGreen). They found the lack of ability to "pump" nutrients onto the new plants a limitation that delayed vine establishment and production.

Table 4.1.1: Technical constraints identified by the workshop, and their relative importance to conversion to organic kiwifruit production

Issue

Comment

Rating*

Canopy management/crop load (yield)

Unable to manipulate the timing and level of budbreak and hence crop load and fruit size.

All

 

Inability to use products to enhance fruit size.

Few

Pest and disease control

Control options can be damaging to overall plant health.

All

 

Have to tolerate higher levels of pests (i.e., scale) to avoid plant damage from oil.

All

 

Have to tolerate higher level of pests (e.g. Passion Vine Hopper) until natural balance re-established.

Many

 

New pests (biosecurity incursions) less easy to manage.

Many

Soil fertility/biology of soils

Lack of fertiliser options.

Many

 

Low nutritional inputs limits fruit size.

All

 

Difficult to build up soil reserves of nutrients.

Many

 

Lack of understanding of soil processes and interactions.

Few

 

Nutrition limits development of canopy in young vines.

Few

Labour management

Required a higher degree of skill in orchard staff to achieve results.

Many

 

Have to be horticulturally more accurate.

Many

Weed control

Less options for controlling woody weeds.

Few

*The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by the workshop

Infrastructure and industry constraints

Key issues of infrastructure important in a growers decision to convert to organic kiwifruit production relate to organic premiums, market access, particularly the issue of fumigation of fruit into Japan, and the reduced income during the conversion period. Table 4.1.3 at the end of this section provides detail on all the infrastructural and industry constraints regarded as important by the workshop.

Organic premium

The premiums paid for organic kiwifruit have dropped dramatically for the 2000 and 2001 crops. Annual reports from Zespri, the single desk marketer of New Zealand kiwifruit, provide detail on this. Table 4.1.2 generated from information in a series of annual reports shows that the premium on a tray of organic kiwifruit has ranged from $3.27 in 1996 to $0.57 in 2000. The average premium paid has been $2.08/tray excluding the 2002 forecast (KNZ 1997, KNZ 1998, KNZ 1999, Zespri 2000, Zespri 2001a, Zespri 2002b).

The reasons for the reduction in premium for organic fruit are manifold. During the time of the reduction in margin there has been a significant increase in organic volumes and also the introduction of the new gold fleshed variety to the market. However, a significant issue relates to fumigation in the Japanese market.

Zespri currently operate three market pools to which they attribute cost and from which they distribute revenue. These pools relate to ZespriTMGreen, ZespriTMGreen Organic and ZespriTMGold fruit products. The operation of these pools has proved problematic and is being reviewed at present. The Kiwifruit Industry Workbook (Zespri, 2001b) cited the issues of equity and cross-subsidisation as continuing difficulties for the industry to work through. A concern raised in the workshop was the risk of the ZespriTMGreen and ZespriTMGreen Organic pools being operated as one. Because growers are paid from these pools on the basis of their fruit size, and because organic growers typically produce smaller fruit, the amalgamation of these pools would disadvantage organic producers by reducing their per tray revenue relative to other green variety growers.

Table 4.1.2: Total volume and prices paid for conventional and organic kiwifruit for the period 1996-2002

Year of harvest

1996

1997

1998

1999

2000

2001

2002*

Conventional fruit

              

Volume sold (million)

57.18

57.13

60.701

48.393

53.1

54.7

  

Class 1 fruit price ($/tray)

4.41

5.82

5.55

6.97

5.70

6.08

6.86

Organic fruit

              

Volume sold (million)

0.857

0.940

0.959

1.313

3.1

2.5

  

Class 1 fruit price ($/tray)

7.68

8.33

8.32

9.03

6.26

7.39

8.72

Organic premium ($/tray)

3.27

2.51

2.77

2.06

0.57

1.31

1.86

* Includes 50 cents per tray premium contribution from the ZespriTMGreen pool which costs the green pool 2 cents per tray.

Market access

Issues of market access largely relate to the management of quarantine pests for kiwifruit growers. Access into the Japanese market is particularly important to kiwifruit growers because it is by far the highest paying market. This is the key issue to be resolved for organic kiwifruit growers if their premium is to be maintained or in fact improved. These issues are discussed in detail earlier in Section 4.1.1.

Conversion period income

To achieve organic certification, the property must undergo a period of a minimum of three years where an organic regime is applied to the property. This period is termed the conversion or transition period. There is now no premium extracted by Zespri or collaborative marketers from the marketplace for this "transition" fruit and it is sold in the conventional pool. Historically, transitional fruit was included in the organic pool, and for a short period following that a specific premium was paid for transitional fruit. Currently, while the grower is unable to achieve premiums for this fruit, they experience the yield and fruit size reductions described. Fruit payments are affected by fruit size, which reduces average payments for organic growers. Therefore, growers converting to organic production are faced with a minimum of three years where they have to sustain lower revenue due to lower yields and smaller fruit size, with no compensating organic premium. Workshop participants affected by this commented that if they had known the significance of this conversion period on their cashflow prior to conversion they may never have converted. Similarly, they comment that the severity of this cashflow reduction limits the opportunity for them to dip in and out of organic production in response to current premium levels.

Table 4.1.3: Infrastructure and industry - constraints identified by the workshop and their relative importance to conversion to organic kiwifruit production

Issue

Comment

Rating*

Organic premium

Needs to be sufficient to compensate for reduced yield.

All

Market access

Kiwifruit fumigated for pests on entry into Japan cannot be sold as organic fruit.

All

 

The cost of repackaging fumigated fruit into conventional packaging is greater than the potential margin for organic fruit in the Japanese market.

All

Conversion period income

During the conversion period, there is no premium paid for conversion fruit. Growers are subject to reduced yield and fruit size but receive no benefit in terms of organic premium.

All

Fruit payments

Zespri pays varying amounts for fruit depending on the size of that fruit, smaller amounts are paid for the smaller fruit.

Many

Biosecurity

Organic growers have a limited range of control options available to them in event of a major biosecurity breach.

Many

Lack of "parallel development" in other crops on the property

Kiwifruit is a relatively easy crop to grow organically. Organic status for other crops on the property is more difficult, creating certification issues.

Few

Certification integrity

Growers need to be confident that the certifier that they chose is recognised in all export markets.

Few

 

The marketers need to simplify inventory, therefore market product certified to BioGro standard only.

Few

*The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by the workshop

4.1.2 Bay of Plenty kiwifruit model

The financial analysis compares organic green kiwifruit to the MAF BOP kiwifruit model budget by preparing an organic model budget. The MAF BOP kiwifruit model budget represents an established owner-operator property in the BOP. The model orchard is a 5 hectare property comprising two varieties - Traditional Hayward, ZespriTMGreen variety occupies 4.5 hectares and the new gold fruit ZespriTMGold occupies 0.5 hectares. The orchard is managed and worked by the owner with casual or contract workers for pruning, picking and some other activities. Fruit packing is done on contract by a packhouse entity. The unit of production is the tray that weighs approximately 3.5kg.

Table 4.1.4 provides the production and income parameters for the MAF BOP kiwifruit model and the variance used in developing the organic model.

Table 4.1.4: Production, income per tray and orchard areas for the MAF BOP kiwifruit model and the organic model

Key parameters

ZespriTMGreen

ZespriTMGold

ZespriTMGreen organic

Variance compared with conventional*

Production (export trays/ha)

7,100

7,900

5,500

23% down

Total production (export trays)

31,950

3,950

27,500

  

Total revenue ($/tray)

6.22

6.89

7.72

$1.50 per tray up

Area in Green variety (ha)

4.5

0.5

5.0

  

*ZespriTMGreen has been used as the benchmark for comparison as ZespriTMGold has not yet reached mature production in the BOP kiwifruit model and also ZespriTMGold is not marketed separately as organic fruit in significant volumes.

The organic model is not specific to one year. The changes made in constructing the model reflect the average changes growers might expect relative to the MAF kiwifruit model.

The organic model production is reduced by 23 percent to 5,500 trays per hectare compared with the ZespriTMGreen yield of 7,100 trays per hectare.

The organic model price is $1.50 per tray or 24 percent higher than the BOP kiwifruit model price paid for ZespriTMGreen. This estimate is based on the historical premium paid for Organic Green and the Zespri agreement to pay a premium for ZespriTMGreen Organic for the 2002 and 2003 seasons.

Table 4.1.5 shows the cash orchard revenue and cost comparisons for the MAF BOP kiwifruit model and the organic model.

Table 4.1.5: Comparison of MAF BOP kiwifruit model and the organic model (year ending March 2002)

Revenue

BOP kiwifruit
model ($)

Organic
model ($)

Green

198,729

  

Gold

27,216

  

Organic

  

212,301

Other fruit crops

3,900

3,900

Rebates/hire

2,900

2,900

Gross orchard revenue

$232,745

$219,101

Orchard working expenses

    

Wages

36,500

46,355

Picking wages

9,693

7,425

Grade and packing

52,055

39,875

Freight to packhouse

1,795

1,375

ACC

2,156

2,738

Electricity

725

725

Spray & chemicals

4,800

6,096

Pollination

4,750

4,750

Fertiliser

6,450

11,030

Vehicle costs

5,390

5,390

Repairs & maintenance

9,000

7,000

Rates

2,630

2,630

Communication (phone & mail)

1,545

1,545

Insurance

1,700

1,700

Accountancy

2,650

2,650

Legal & consultancy

760

760

Other administration

980

3,480

Other expenditure

600

600

Cash orchard expenses

$144,179

$146,124

Cash orchard surplus

$88,566

$72,977

Income for the BOP kiwifruit model is $13,644 (6 percent) more than the organic model, with the BOP kiwifruit model income at $232,745 compared with the organic model of $219,101. The reduction in the ZespriTMGreen Organic yield is compensated for, to some extent, by the increase in its price compared with ZespriTMGreen. The BOP kiwifruit model is influenced by the ZespriTMGold income. If the BOP kiwifruit model was based solely on ZespriTMGreen the income is reduced to $227,610, or $5,135 less than the BOP MAF model which is closer to the organic income.

The organic model does not include ZespriTMGold.

The expenses for the organic model are $146,124. This is $1,945 (1 percent) higher than the BOP model. A detailed explanation for the changes in expenses is provided in Table 4.1.6.

Table 4.1.6: Changes in expenses, assumptions and explanations

Cash orchard expenses

Comments

BOP kiwifruit
model ($)

Organic
model ($)

Wages

Higher for organic model because it is more labour intensive.

36,500

46,355

Picking
wages

Less for organic model because of fewer trays to pick. Per tray picking charges are the same.

9,693

7,425

Grading and packing

Less for organic model because of fewer trays to pack. Per tray packing charges are the same.

52,055

39,875

Freight to packhouse

Less for organic model because of lower yield.

1,795

1,375

ACC

Increased for organic model because of higher labour input.

2,156

2,738

Spray and chemicals

Increased by 27% for organic model as organic sprays need to be applied more often and products are more expensive.

4,800

6,069

Pollination

No change. Although the possibility of higher costs for the organic model were discussed, bee keepers did not confirm the opinion.

4,750

4,750

Fertiliser

Organic fertilisers are more expensive.

6,450

11,030

Repairs and maintenance

Reduced for organic model as recent BOP kiwifruit model reflects a significant increase in repairs and maintenance spent catching up on deferred expenditure. While income streams support this, heavier crops require more R & M to support structures.

9,000

7,000

Other
administration

organic model increased by $2,500 being the cost of organic certification levies.

980

3,480

The cash orchard surplus for the organic model is $72,977 or $15,589 (18 percent) less than the MAF BOP kiwifruit model surplus of $88,566.

For the cash surplus of the two models to be similar the organic model revenue needs to increase by about 57 cents per tray to $8.29, a $2.07 per tray (33 percent) premium over ZespriTMGreen. Alternatively, the yield would have to increase by 535 trays (10 percent)

The financial analysis indicates that organic kiwifruit production is significantly less profitable than conventional production under the present price, yield and cost structure.

4.1.3 Risk and the impact of risk on financial performance

For organic kiwifruit growers, the risks with respect to organic kiwifruit production relate to their ability to secure a reliable yield of good size fruit, market access and the ability of the marketer to extract significant premiums for organic fruit out of the market.

As discussed in section 4.1.1, the yield achieved in kiwifruit is influenced by the previous years yield and the climatic conditions. An example of this is the effect of the mild winter in 1998. The warm winter temperatures in that year reduced the yield considerably by reducing the quality of the budburst. The impact of this for one of the workshop participants was for yield to reduce from an average of 6,350 trays per canopy hectare to a yield 40 percent below this at 3,875 trays per canopy hectare. A yield reduction of this magnitude reduces the cash orchard surplus for the organic model by 66 percent to $24,633. A reduction in yield of 58 percent will reduce the cash orchard surplus to zero. Reductions of this magnitude were not unheard of in conventional production prior to the widespread use of hydrogen cyanamide since 1990, but now are less common except after very high yields.

Organic growers typically grow smaller fruit, which reduces the number of trays produced. Smaller fruit sizes also receive lower revenues per tray. Currently, the organic revenue pool buffers the impact of the smaller organic fruit size compared with conventional fruit size. There is concern that these organic and conventional green pools may be amalgamated, removing this buffering effect. The impact of this is difficult to quantify but may average 20-30 cents per tray and could be as much as $1.50 per tray.

Market access will continue to be an issue for organic kiwifruit growers, particularly for fruit into Japan as discussed earlier in section 4.1.1. The impact of fumigation of kiwifruit that is found to be carrying insect pests is significant. In 2001, only 40 percent of the organic kiwifruit sent to Japan could be sold as organic (Zespri, 2001b). This may not be the case in the future. The cost due to loss of organic premium and repackaging the fruit are therefore born by the pool, not the individual whose fruit is fumigated. This reduces the overall revenue available to be distributed from the pool and therefore the premium per tray paid to all organic growers. Currently, despite their fruit being fumigated, individual growers are still paid an organic premium.

On average the premium paid for organic kiwifruit has been $2.08 per tray. The lowest premium of $0.57 per tray in 2000 reduces the cash orchard surplus of the organic kiwifruit model to $47,402. This is $41,164 (46 percent) less than that generated by the BOP kiwifruit model. Given the payments currently being received by conventional growers, the organic model will still generate a cash orchard surplus of $31,727 if no premium for organic fruit was extracted from the market.

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