Strong dollar hurts wine, fruit exporters

As a result pipfruit growers are deferring expenditure where they can and assessing alternative business models Annette Carey, senior policy analystMany orchardists and winegrowers are feeling the pressure of lack of profitability or threat of disease.

The Ministry of Agriculture and Forestry (MaF) has released kiwifruit, pipfruit and winegrowing analyses as part of its annual Farm Monitoring Report series. The reports provide models and an overview of the financial performance of typical orchards and vineyards, based on information gathered from a sample of growers and industry stakeholders.

MaF senior policy analyst Annette Carey said the relatively high value of the New Zealand dollar against key trading currencies was having a significant negative impact on the export-focused kiwifruit, pipfruit and wine industries. "Exporters are unable to raise prices high enough to compensate because of competing supplies overseas and options for consumers to substitute products," she said.

Many pipfruit growers suffered a financial loss in the 2010 calendar year as a result of adverse climatic conditions combined with insufficient returns for late-season varieties sold in Europe. The models showed a typical Nelson owner-operated orchard suffered its second significant loss in a row - with a deficit of $126,200, and an equivalent Hawke's Bay business suffered a loss of $5000.

Despite most markets performing well this year, the high New Zealand dollar will erode export returns resulting in poor financial outcomes again for many growers in 2011.

The ministry's orchard models show Nelson growers face another large trading loss - estimated at $54,100, while Hawke's Bay growers could make a small profit of $15,700.

"As a result pipfruit growers are deferring expenditure where they can and assessing alternative business models, Ms Carey said. "We expect further rationalisation to occur due to some unsustainable balance sheets."

The outlook for the medium term was encouraging, with potential for market expansion in Asia, particularly China and India, and the possibility of selling apples in Australia for the first time in decades, she said.

Wine growers were working hard to ride out the current period of low profitability caused by the global oversupply and tough economic conditions in the main markets, which the ministry's model shows reduced average grape prices by 8 per cent.

The forecast for the coming financial year is for profit for typical Hawke's Bay vineyards of $3900 and Marlborough vineyards of $171,700.

"To achieve this, growers are keeping a tight rein on expenditure, with significant savings continuing to be made through reducing labour requirements," Ms Carey said. "Many expect it will take three to five years to return to more sustainable profit levels. In the meantime, businesses with high debt levels may be forced into asset sales."

On a positive note, according to MaF's model the typical kiwifruit orchard business achieved its highest profit level for a number of years in the 2010/11 financial year, at $54,840 for the year to March 31. Favourable climatic conditions have lifted kiwifruit yields for the 2011 harvest to record levels, helping to buffer against some reduction in prices and increased orchard expenses. The projection for a typical owner-operated business is a profit of $33,010 for the year to March 2012. However, kiwifruit growers are dealing with considerable uncertainty in the ongoing battle against the vine disease Psa.