High-density planting case study economic analysis: Sunmar Orchards, Sunraysia

Steven Falivene (NSW DPI) March 2018

Steven Falivene, DPI Citrus Development Officer, economically analysed various high-density planting scenarios based on a case study at Sunmar orchards Sunraysia. An associated article discusses the high-density planting system used by Sunmar (High-density planting and pruning case study: Sunmar Orchards, Sunraysia). The scenarios were analysed using the 20-year NSW DPI citrus budget spreadsheets and based most assumptions on Sunmar’s information. Three scenarios were analysed:

1. Traditional single row layout at 440 tree/ha
   • 6.7 m × 3.4 m
   • Mature tree; year 12, canopy diameter 4.2 m, tractor access 2.5 m and canopy surface cover 63%.
2. High-density single row layout at 600 trees/ha
   • 5.2 m × 3.2 m
   • Mature tree; year 10, canopy diameter 3.3 m, tractor access 1.9 m and canopy surface cover 63%.
3. High-density twin-row layout at 952 trees/ha
   • Mature tree; year 9, canopy diameter (two trees) 5.4 m, tractor access 1.9 m and canopy surface cover 74%.

Note: tractor access is the space between trees along the row that enables machinery to pass through.

The economic analysis is limited to the assumptions chosen in the budget spreadsheets. The production assumptions (for example spray, fertiliser and irrigation use) are based on the NSW DPI citrus budget spreadsheets. The yields and fruit prices for all scenarios have been increased from the NSW DPI budget spreadsheets to better reflect the yields and fruit prices ($650/t) currently achieved at Sunmar Orchards. The assumption differences between scenarios are:

• Each tree in all scenarios from years 0–9 will have the same individual tree yield. The differences in yield per hectare are only due to the differences in the number of trees per hectare.
• The single row traditional layout has the same mature tree yield per hectare in years 10–20 as the single row high-density layout.
• The twin-row layout has a 15% higher per hectare mature tree yield (58 t/ha) than the single row scenarios (50 t/ha).
• All scenarios have the same pruning cost per tree while trees are young. Due to the differences in mature tree size between scenarios, the cost of pruning a mature tree for the traditional single row layout is $1.80, single row high-density is $1.60 and twin-row high-density is $1.30.
• The high-density twin-row scenario mature tree yields are 15% more than the single row scenarios. Although the twin-row scenario trees cover 17% more surface area than the single row scenarios, a 2% reduction in yield is assumed as a result of shading from adjacent trees (17% - 2% = 15%). The 440 and 600 tree/ha single row layouts each cover the same canopy surface area at tree maturity.
• The high-density twin-row scenario has an extra 20% herbicide, irrigation, fertiliser and foliar spray costs due to the extra coverage.
• No interest is charged on the debit in the early years (no finance).

Figure 1 presents the results as a graph outlining the cumulative cash flow for each scenario over 20 years. During the first 11–13 years the enterprise was in debit since substantial cash was spent in buying trees and preparing the land for planting. Although yield might commence in year three, it takes many years of income to repay the land development and planting debit. The high-density plantings had the higher debit due to more trees planted per hectare, but they produce higher yields than traditional density planting in the early years and thus pay off the debt quicker. This results in the cash flow breakeven point being reached 1–2 years earlier for the high-density plantings (years 10–11) compared to the traditional density planting (year 12).

The cumulative yield at year 20 indicates that the high-density twin-row layout scenario has the highest cumulative cash flow followed by the high-density single row layout and the last is the traditional layout (Table 1).

An important way to analyse long-term budgets is net present value (NPV). As the cash flows in Table 1 are representing a 20-year prediction, we must remember that the buying power of $100 today is not the same in 20 years’ time, it will be less due to inflation and the option of putting the $100 in a bank and obtaining interest on it for 20 years. For example, if you put $100 in the bank at 5% interest for 20 years it would be $265. Thinking in reverse, $263 of income in 10 years’ time or $265 in 20 years’ time is actually worth $100 in today’s terms at a 5% discount rate (i.e. put $100 in the bank at 5% interest).

The NPV over the 20-year period in all scenarios provides a positive result and the differences between each scenario are about $10,000 to $20,000 per hectare.

It is a personal choice whether the differences in cash flow and NPV over 20 years are sufficient to justify the extra effort of planting and managing a high-density block. Budgets are very dependent upon the assumptions used and some can significantly change results. For example, growing your own nursery trees can reduce the initial debt and favour high-density planting. Management and cultural practices are also very important considerations. The higher density trees require the extra effort of annual pruning, however, the trees will be smaller than the traditional density trees and be easier to harvest and spray. Picking labour favour smaller trees because they require less or no ladder work, which makes them faster to harvest and results in fewer ladder-related injuries.

To help growers better assess their situation, the Excel spreadsheets used to develop the high-density scenarios are available on the NSW DPI citrus website for growers to customise pricing and management assumptions to their needs. For further information, please contact Steven Falivene at steven.falivene@nsw.dpi.gov.au.