MANAGING THROUGH A LOWER PAYOUT YEAR

Andrew Cutfield – Investor relations and Supply, Darling Group

As with most horticultural commodities, every season can be different as influenced by a variety of factors, rainfall, temperature at key times, or market returns. As growers, we have a limited ability to influence these factors, especially market returns. What we can influence though is our orchard’s health, productivity, and crop quality which are vital for long term profitability.

Indicatively, 2021-22 is forecast to be a challenging season for market dynamics and returns for the New Zealand avocado industry. It is important to put this into context; Just Avocados is being very conservative at this early point in the season and the marketing team is focussed on maximising the outcome.

For most people, orchard ownership is a long-term game. Decisions made today do not just influence this season, but two to three seasons out as well. At Just Avocados, a key component of our philosophy is that orchard management should not change significantly because of what is happening in the market. Skimping on orchard management might be tempting this season but can have a negative impact in the future.

The Just Avocados Grower Services Team has developed a performance planning template and a guide to the top 10 practices for success to assist in the long-term planning of your orchard. We have also summarised some guidelines below for discussion that can help you keep a focus on the longer-term plan and manage your way through 2021-22.

It is important to note that we realise every orchard and grower situation is different and there will be different drivers and pressures and concerns at play for individuals.

We do stand by a component of our philosophy that says the orchard management should not change because of what is happening in the market – orchard health is the priority for productivity and sustainability; however, we understand the need to consider alternatives at this time.

Get on top of financial management
Feeling “in control” is a key aspect of managing seasonal variation well. Having a good understanding of the financial aspects of your business will aid in gaining this control. If you have not prepared a budget previously, your accountant may well be able to give you a template or similar using your orchard data. Tools like Xero have some very strong capability here. Some points to look at:

  • Prepare your own budgets and have full ownership of them.
  • Monthly cashflow budgets should be monitored closely.
  • Look out to winter next season as the overdraft typically peaks then.

If from the above exercise, you see you may need support from the bank, then communicate this early. Some basic steps may be:

  • Go interest only on some or all of the term debt for 12 to 18 months.
  • Look for short term support e.g., overdraft extensions through a key pinch period.
  • Discuss with your accountant if income equalization is available.
  • Long term considerations:
  • Aggressive debt repayment is practiced during higher payout seasons to reduce risk.
  • Adjustments are made to budgets as tray price changes e.g. capital expenditure or discretionary expenditure.
  • Detailed benchmarking is undertaken – orchardists doing this know how they perform from season to season and against their peers.

Orchard systems are profitable, replicable and simple
Key orchard management decisions need to revolve around profit. A key component of the Just Avocados philosophy is that the orchard system should not change significantly as tray price changes; being profitable no matter the tray price is important. This applies to all orchards from low input systems to high. In order to make management decisions that influence profitability, the orchard systems need to be simple, easy to operate and describe and be replicable. This makes it easier for growers to reduce/eliminate expense items that do not have high enough influence on returns.

Repairs, maintenance, purchases, and contracted services
It is important that machinery and orchard infrastructure is always well maintained to ensure efficacy and also health and safety. Keeping this standard up in good years means spending can be reduced in very low payout seasons.

Some achievable changes that can be made in a low payout season:

  • Where possible, can you complete some of the repairs and maintenance yourself?
  • Review your proposed capital expenditure budget for this season. Can any significant investments be differed?
  • Review the costs of the services you contract out. The primary focus would be on periodic contractors such as shelter topping or removal (note trimming every 12 – 18 months is recommended).

Tree health management is a top priority
Tree health is the absolute priority and specifically, achieving target tree condition at pollination is a critical focus. Maximizing the utilisation of inputs is a key to success.

In a lower pay out year, the fertiliser programme can be tweaked, not wholesale reduced, following analysis of soil and leaf tests. Soil & leaf fertility is very important and block soil testing is common, however where levels are higher than recommended levels, inputs may be reduced.

Regular orchard walks are important as tree health can be reviewed and the data collected can be used to make timely small tweaks over large adjustments that may be necessary if active management has been left for a while.

Pruning strategy
Pruning is a key tool we have for mitigating biennial bearing. Indicatively, bud development is strong for this coming spring across most regions. A decision to defer pruning could impact on the 2023-24 crop, not next season. Re-prioritising some of the pruning activities may be considered to focus on higher tree health areas, post picking.

Poorer health trees may be pruned more aggressively now (or post a select pick), especially if they have smaller or lower quality fruit (generally linked). Indicatively, smaller fruit sizes and Class 2 and 3 fruit may show a marginal return this season. Picking this fruit may be uneconomical and pruning to waste could be considered to encourage good tree recovery for fruit set in 2022-23.

Harvest strategy
Just Avocados advocates 60% to 70% of crop off by flowering. Where you have higher tree health you may look to reduce this percentage to circa 60%, allowing more fruit to size. Alternately, if strip picking, potentially look to defer this marginally if fruit size is smaller.

So far, this season, we are seeing some great pack-out reports, good fruit size profile and strong volume growth again. When we put this in the context of orchard financial performance, we may see this mask some of the downside effects of the indicative market pricing.

Each orchard and orchardists’ situation are unique, specifically in tree heath and fruit size. Close consultation with your grower rep. is recommended to discuss what orchard management aspects are needed to maximize the return from your orchard and what the key nutritional targets are that need to be met. They will also be able to share with you some of the decisions other growers are making to maximize long-term productivity and profitability.

Longer term goals are essential
For most people, orchard ownership is a long-term game. As we know, decisions made today do not just influence this season, but two to three seasons out. Keeping a focus on the longer-term plan is the key, allowing you to achieve these goals. These are some things to work into your planning:

  • Have a clear vision for the future and an understanding of why you are orcharding.
  • Ensure your short and long-term goals are regularly reviewed.
  • Gather good positive people around your business and share information with them. A good team of professionals like bankers and accountants are used to discuss orchard performance and longer-term strategies.

The orchard team is valued, recognized and included
For those growers with staff, it is important to ensure you are able to get the best performance from them also and to ensure they are on the same page as you when it comes to the management of the orchard. Some pointers for your communication with and management of staff:

  • Staff feel and are valued and recognized.
  • Current economic situation is well-communicated to staff and growers seek ideas from the staff on ways to improve the efficiency of the orchard.
  • Orchard managers have open communication lines with orchard owners.
  • The orchard plan is easy to communicate with staff and therefore easy to implement.
  • Staff must take holidays to ensure they get rest and minimize liability.
  • We trust the above gives you some guidelines on the decision-making process. As mentioned, each grower and orchard situation is different. This season we are seeing some great pack-out reports, good fruit size profile and strong volume growth again. When we put this in the context of the orchard’s financial performance, we may see this mask some of the downside effects of the market pricing.

Just Avocados has developed a performance planning template and a guide to the top 10 practices for success to assist in the long-term planning of your orchard. Please contact us to discuss.

If you have any concerns about the season ahead, please contact your grower services rep or if you would like to chat with a fellow grower, please feel free to contact one of the members of the Grower Advisory Group.

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