2023 Economic report: Establishment and production costs for tender fruit in Ontario

Introduction

The results presented in this Ontario publication serve as a general guide for evaluating the cost of establishing and producing tender fruit commodities in the province of Ontario in 2023 (peach, nectarine, plum, apricot and pear). This publication is not intended to be a definitive guide to production practices, but it is helpful in estimating the physical and financial requirements of comparable plantings. Specific production-related methods and procedures were adopted for this study, and these may not fit every situation. Production costs and returns for individual growers may differ; therefore, the results cannot be generalized to represent the population of tender fruit operations in Ontario. Production inputs, costs and re-turns are highly variable for any particular orchard operation due to case-specific:

• capital, labour and natural resources
• crop yields
• type and size of machinery
• input prices
• cultural practices
• commodity prices (based on market price and quality)
• operation size
• management skills

Cost estimation also varies with the intended use of the enterprise budget itself. To avoid drawing unwarranted conclusions for any particular orchard, readers must closely examine the assumptions utilized in this report, and then adjust costs and/or returns as appropriate for their own orchard operation.

Growers that are interested in developing their own cost of production may find the following spread-sheets useful: Cost of production for crops and livestock.

Objectives

The tender fruit industry uses the cost of establishment and cost of production models extensively to determine the profitability of the industry in order to make business decisions and future planting plans. Growers can use the input costs as general guidelines to identify strengths and weaknesses in their own business.

Methods and procedures

The information used in this report was derived from previous economic reports, the Ontario Tender Fruit Growers, surveys with growers, and a collaboration of data from researchers, extension specialists and agribusiness.

Input costs were organized into variable and measurable fixed costs. Variable costs, for example include fertilizers, pesticides, hired labour, tractor and machine costs, and interest on operating capital.

Measurable fixed costs include interest on investment, depreciation and other overhead cost items such as a portion of utilities, equipment storage, insurance, accounting, farm vehicles and general maintenance.

Assumptions

Yield data was given as an attainable average obtained from commercial orchards, using best management practices.

The establishment period of the peach orchard covers a 4 ½ year period: a half of a year for soil preparation, one year for planting and three years to grow the tree to full cropping potential. For high density pears, the establishment period was 7 years (Table 1).

The establishment costs will need to be recovered over the productive life of the orchard. An estimate of the annual cost to recover establishment costs is included in the Total Establishment Costs section of fresh market peach and high density pear. Fresh market peach was amortized over the remaining 15 years of orchard life and high density pear over the remaining 40 years of orchard life at a rate of interest of 4.0%.

In the pre-plant year of establishment, tile drainage and a small amount for laser leveling is included as a land improvement, and also included in the breakeven and profitability worksheet.

High-density orchard specifications — pear

• Architecture: Two-dimensional system (planar canopy)
• Tree spacing: 4 feet
• Row spacing: 12 feet
• Trees per acre: 908
• Orchard size: 80 acres
• Trellis system: Four-wire vertical system. Trellis is 9 feet high, with 12-foot trees. The bot-tom wire is 12 inches from the ground with 32 inches between each wire.
• Irrigation system: Drip irrigation
• Tree guards: Included
• Permanent sod: Established between rows
• Frost protection: Wind machine included (1 per 15 acres)

Hand labour was charged at $20.25 per hour which is comprised of the 2023 Seasonal Agricultural Worker Program (SAWP) rate plus benefits (Worker's Compensation, Employment Insurance, Canada Pension Plan and an allowance for additional costs of air flight, housing, and local transportation). Employer Health Tax is not included based on a 80-acre orchard payroll model.

Harvest (Picking) Labour was charged at $22.30 per hour which is comprised of the 2023 SAWP wage rate plus benefits as above and includes vacation pay. Harvesting costs can be significantly affected by many variables from year to year such as fruit size, crop load and crop distribution.

Hired machine operator labour was charged at $24.20 per hour including benefits.

Estimates on labour hours were based on grower surveys.

Machinery costs were calculated based on the purchase price for 2023, useful life, annual use and trade in value. Machinery and equipment costs were based on a commercial farm size of 80 acres. The 'Machine costs' column in each Operation costs table includes fuel, maintenance and repair.

Cover crops — Most growers cultivate their orchards and use an annual cover crop instead of using a permanent grass when the trees are mature.

Fuel costs were based on the size of each tractor, truck or self-propelled machine used in the production operation. The following farm-gate fuel prices were used: gasoline 1.35 cents/litre and diesel 1.35 cents/litre. Fuel costs are net of all 2023 Provincial and Federal rebates.

The interest rate applied to the operating capital of 7.7% was based on the prime lending rate plus one percent. Interest on operating capital is compounded annually until the orchard generates revenue to first pay down the accumulated interest and then the outstanding principal. Operating capital includes cost of materials, fuel, repairs, labour and other cash items but does not include farm overhead expenses.

Interest on investment was calculated at 4.0 %, which was the average interest rate paid by chartered banks on Guaranteed Investment Certificates.

Consulting fees were included but rates varied depending upon crop and whether it was full service or partial service. Consulting fees might include soil and /or leaf sampling as well as a full or partial pest monitoring service.

Irrigation costs were included as a variable cost for some of the tender fruit crops. Irrigation included both the variable and fixed costs associated with owning and operating irrigation equipment. Information on the costs associated with drip irrigation is available and can be provided by OMAFRA.

Miscellaneous items used for some crops included foliar sprays, soil or leaf lab diagnostic costs, mulch, bees for pollination and bird control.

Food safety costs were included based on the following:

• Average audit price for a 1-day audit, including auditor travel expenses
• Annual audit certification program fee (option C: production, packing & storage — GFSI benchmarked)
• CanadaGap — Annual program fee
• CanadaGap — Fruit and Vegetable Growers of Canada annual fee

Note: Costs do not include any additional retail specific addendum requirements, costs of corrective actions, time grower spent preparing for audits and food safety procedures.

Cold storage costs for fresh market crops have been included under the fixed costs in the annual estimated costs of production. The fixed costs start in the first year of harvest to reflect the first year that cold storage would be built and used. No costs were allocated to processing crops since they do not require the use of on-farm cold storage.

Packing costs were based on custom packing from MB16FV macro bins.

Gross Revenue Prices — are derived from marketing data collected by the Ontario Tender Fruit Growers for the 2023 crop year. Fresh market Ontario grown tender fruit prices are calculated net of shipper commission, service charges and containers.

Production Insurance was included for all commodities, with the exception of apricots, based on Agricorp's 2023 Claim Prices/Premium Rates and at the 85% Enhanced Basic coverage level.

The contribution margin was obtained by subtracting the total variable costs from the gross revenue. Contribution margin is the amount of funds that the crop contributes to cover fixed costs and provide returns for owner management and investment.

Due to rounding, figures may not add to total shown.

Items not included in the 2023 Economic Report

Land costs and carrying charges were not included as part of the establishment or production costs because of the extreme variance in land prices.

Land ownership and rental prices vary considerably from farm to farm depending upon road location, services, soil types, access to water and the potential for urban development or establishing a fruit market. For this reason, a space was provided for the user to insert land rental cost in the variable cost section and land ownership in the fixed cost section.

Existing trees may need to be removed prior to planting a new orchard. The cost to remove an existing orchard is estimated to be $750 per acre, this cost is not included in the cost of production.

A management allowance was not included as a cost.

Other income stabilization programs were not calculated in the cost of production. It can be included in the individual grower's cost of production if applicable.

Tart cherry was not included due to lack of enough data to provide an industry average. Future COP up-dates will revisit whether tart cherry will be re-added.

Changes from the 2018 Economic Report

Yields improved for fresh peach from 8 to 10 tons per acre, nectarines from 7.5 to 9.0 tons per acre and plums from 6 to 7 tons per acre.

Food safety costs were added.

The number of trees per acre for pear orchards were modified from 1,117 trees per acre to 908 trees per acre.

Summary

The assumptions reflect the current practices in the industry and do not necessarily represent recommendations from the contributors Newer plantings of tender fruits may involve higher tree densities, dwarf rootstocks, alternative training systems, new cultivars and other innovative cultural practices.

For more information and resources, please visit:

• Ontario Tender Fruit Growers
• Ontario Ministry of Agriculture, Food and Rural Affairs