UNDERSTANDING THE COSTS AND RISKS OF CONVERSION TO ORGANIC KIWIFRUIT AND APPLE PRODUCTION SYSTEMS
MAF Technical Paper No: 04/02
Prepared for MAF Policy
by Agriculture New Zealand Ltd
ISBN 0-478-07799-8
ISSN 1171-4662
March 2004
Disclaimer
The information contained in this report by the Ministry of Agriculture and Forestry is based upon the best information available to the Ministry at the time it was drawn up and all due care was exercised in its preparation. Because it is not possible to foresee all uses of this information or to predict all future developments and trends, any subsequent action in reliance on the accuracy of the information contained in it is the sole commercial decision of the user of the information and is taken at his/her own risk. Accordingly, the Ministry of Agriculture and Forestry disclaims any liability whatsoever in respect of any losses or damages arising out of the use of this information or in respect of any actions taken.
Requests for further copies should be directed to:
Publication Adviser
MAF Information Bureau
P O Box 2526
WELLINGTON
Telephone: (04) 894 0100
Facsimile: (04) 894 0720
This publication is also available on the MAF website at www.maf.govt.nz/publications
© Crown Copyright - Ministry of Agriculture and Forestry
Project team
Sandy Scarrow, Agriculture New Zealand, Tauranga
Ruth Underwood, Agriculture New Zealand, Tauranga
Jack Ripley, Agriculture New Zealand, Tauranga
Heidi Steifel, Agriculture New Zealand, Hastings
Jack Hughes, Agriculture New Zealand, Hastings
Greg Dryden, Agriculture New Zealand, Richmond
Assisted by:
Evelyn Hurley, MAF Policy, Palmerston North
Irene Parminter, MAF Policy, Hamilton
Duane Redward, MAF Policy, Hastings
Dennis Crone, MAF Policy, Nelson
Acknowledgements
The project team would like to thank the producers, contractors, consultants and agribusiness people who gave up their time, contributed their enthusiasm and were prepared to share their knowledge on both conventional and organic farming systems.
1. EXECUTIVE SUMMARY
Organic kiwifruit and apples comprise about 4 percent of current New Zealand production of these crops. Both crops are grown primarily for export markets. This project investigated the costs and risks of converting to organic kiwifruit and apple production. Grower workshops were used to identify issues and their implications. Financial analysis constructed an organic model for each sector to compare to the MAF Farm Monitoring models.
Both kiwifruit and apples receive a significant revenue premium for organic fruit. This applies once the orchard has completed a three-season transition process and is certified organic. Both experience a drop in yield under organic production, which arises from the first season of the organic conversion process. Historically, premium payments for transition fruit and high premiums for certified organic fruit have helped fuel conversions. Conversion has now slowed. The kiwifruit organic area is declining, particularly as urban-fringe orchards become residential properties. For apples, some further growth in organic production is expected but mainly from maturing orchards rather than additional conversions.
Key industry and infrastructure constraints identified to organic production are declining revenue premiums, financing the conversion period and effectively addressing the technical constraints.
Key technical constraints identified are the reduced yield of organic orchards, addressing pest and disease control, nutrition and tree and vine management issues such as thinning, fruit numbers and fruit size.
Financial analysis showed that the organic kiwifruit produced a lower cash orchard surplus by $15,589 (18 percent). Key influences are the 23 percent yield reduction under organics, which more than negated the organic premium used of $1.50/tray (24 percent).
Key technical issues for organic kiwifruit production are achieving pest-free fruit that does not get fumigated in the key, high-paying market of Japan and achieving adequate yields and fruit size. Organic orchard expenses are little different to the MAF Bay of Plenty (BOP) kiwifruit model as higher spending categories are offset by lower yield-related costs. Historically, kiwifruit from orchards in transition to organic certification were paid the revenue for organic fruit. Later, a smaller premium was applied specifically to transition fruit but now transitional fruit receives no premiums and attracts less revenue because of the small fruit size. Premiums received for organic fruit have been declining mainly due to pest problems in the Japanese market and increasing total organic kiwifruit production.
Financial analysis showed that organic apple production is considerably more profitable than conventional production. For apples, the organic financial model produced a cash orchard surplus $137,000 (99 percent) higher than the MAF Hawkes Bay pipfruit model. Key influences are the $11.30 per carton (55 percent) higher revenue for organic fruit, which is more than sufficient to compensate for the 22 percent lower organic yield. Operating costs under organic apple production are lower, mainly due to lower yield-related costs more than offsetting higher spending such as on labour in the organic model. Premiums for organic fruit are reportedly declining but it is difficult to obtain comparable time-series data from the various exporters.
Yields of both apples and kiwifruit drop under current organic methods and a revenue premium is required to maintain similar viability to conventional orchards. Growers consider more research would improve organic performance and provide results also applicable to conventional growers.
For both apples and kiwifruit, lower financial performance during the three-season transition period is a key constraint to expansion of the organic orchard area. The drop in yield under organic production is significant and immediate and combines with lower unit revenue due to smaller fruit size, to significantly reduce orchard revenue for the three transition years.
Technical constraints to organic conversion common to apples and kiwifruit are the limited range and limited effectiveness of tools for pest control, tree and vine management and nutrition. Preserving existing pest and disease control options is considered important, as is developing new methods. Both sectors are concerned about possible biosecurity pest incursions impeding market access, and possible acceleration of caterpillar resistance to the insect disease Bacillus thuringiensis (Bt) if crops with the Bt-gene incorporated become widespread.
Apples are more difficult to grow under organic methods than kiwifruit due in particular to a wider disease and pest spectrum affecting apples. Technical issues identified during the workshops for organic apple growers that did not arise for kiwifruit growers were disease control, high energy use, incompatibility with urban neighbours due to frequent smelly sprays and difficulty attracting workers to organic apple orchards. The debilitating impact on tree performance of the organic fungicides currently available is of great concern to organic apple growers. There is the fear that in the long term, organic apple production may become unsustainable due to the plant damaging affects (phytotoxicity) of fungicides used.
Widespread adoption of organic production methods for kiwifruit and apples would require some changes in infrastructure and if the effect of increased total organic production was to significantly reduce market premiums, financial viability would be impaired. Less obvious implications of widespread adoption raised were frequent spraying required of unpleasant, smelly products by organic apple growers, the need to manage leachate from compost making, implications for management of neighbouring or public land such as herbicide weed control in drains and possible focus on holistic sustainability issues such as comparative energy use under organic production.
Compared with the agricultural sectors studied separately, kiwifruit and apples face many similar issues. The increased risk due to a limited range of tools available to respond to unforeseen events is a key common issue. For apples and kiwifruit, lack of an analogous activity to storing feed as hay or silage increases production risk when compared with livestock sectors.
The financial modelling of organic apples and kiwifruit carried out shows the lower yield and required premiums within the ranges expected. One key difference for kiwifruit and apples is that lack of processing facilities is not the most important constraint it is for livestock and milk products, as the highest value is for the fresh fruit.
Contact for Enquiries
Kay Brown
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0695
Fax: +64 4 4 894 0746
Contact this person
