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Faced with all manner of economic worries — from Trump to freshwater policies — where might investors put their hard-won savings in the hope of a better than deposit rate return? Might cherries — the horticultural darling of the moment in Central Otago — be the answer? Mark Price sought out two opinions.
Ross and Sharon Kirk are cherry industry consultants trading as Hortinvest Ltd. They have the biggest netted orchard under management in Central Otago (close to 40ha), and are in the process of planting two 80ha, ‘‘fully-netted’’ development
Suitability for Central Otago
Q: What are the basic requirements for cherries to thrive?
A: Low rainfall over harvest, good winter chilling, reasonable soils (nutrient), adequate water, reasonable shelter from wind, and netting (to keep out birds).
Q: Which requirements does Central Otago meet?
A: All of the above, although the bird netting is expensive.
Q: Which does it not meet so well?
Q: Are there parts of Central Otago better suited to cherries than other parts?
A: Ancedotely from our buyers overseas, the cherries from the Cromwell Basin are considered better.
Q: Can you say what is the establishment cost of a cherry orchard?
A: Between $150,000 and $200,000 per hectare depending on the cost of land, water and various other inputs.
Q: What is that cost made up of?
A: Land, land preparation, trees, irrigation, bird netting, equipment (such as tractors, sprayers), husbandry costs (labour, chemical, fertiliser), management costs.
Q: How important are the nets, and for what reason?
A: Very important; they shelter the orchard reduce bird damage, protect from hail.
Q: Are cherries more or less demanding than other horticultural crops or pastoral land uses, in terms of water, fertiliser, sprays?
A: Similar to other tree crops.
Q: Are there organic orchards in Central Otago?
A: One that we know of.
Q: How much more difficult is it to manage an organic orchard?
A: Growing an organic orchard is simply another growing method. Both methods have their challenges.
Q: How has the amount of land planted in cherries increased in, say, the last 10 years?
A: We have no actual figures on this, but there has been a significant increase in the number of trees planted in the last 10 years.
Q: How has the number of cherries trees grown in the same time?
A: There is a range of plantings from very close to traditional 5x3m.
Q: Are orchardists finding ways to increase the density of planting?
Q: Are cherries and grapes competing for the same land in Central Otago?
A: Yes and no. Some grapes are planted up the side of hills, but cherries wouldn’t be.
Q: What financial arrangements are occurring in the Central Otago cherry industry?
A: Some syndicated blocks, and existing orchards planting, and some are borrowing.
Q: What generally are investors looking for?
A: A solid, sensible, vertically integrated investment model that will bring all proceeds back to the investors. Also looking for diversification in their portfolio.
Q: Which is the main market?
A: Taiwan, China, Vietnam, Thailand are the main markets.
Q: Where are the potential markets?
A: Indonesia, India, USA, Europe, Middle East
Q: What advantages/disadvantages do New Zealand cherry growers have in the world market?
A: Alternative season to northern hemisphere growers, faster time to market than big competitors such as Chile, well-known New Zealand brand, Quality of product, and Chinese New Year that creates a demand for our premium product.
Q: What chance is there of market oversupply?
A. There is always a chance of oversupply at some point, which is why we are constantly driving for new markets, and new opportunities within existing markets.
Q: What does a kilo of cherries fetch on the world market/inJapan/peak season?
A: Japan is a small market for New Zealand now (it used to be our main market). Parts of Europe, China and Taiwan are big-money markets providing up to $NZ25 per kilogram FOB.
Q: What does a kilo of cherries fetch on average?
A: $20NZ per kilogram FOB.
Q: How does the return on cherries compare with, other crops, i.e. grapes, apricots etc.
A: Significantly higher.
Q: What is the biggest issue facing the cherry industry and what might be the solution?
A: Labour supply. The best solution is a sympathetic government.
Booms and busts
Q: We’ve seen boom and bust cycles in apples, deer, sheep meat, wool, kiwi fruit, angora goats, black currants, etc. Could it happen to cherries?
A: All industries are in a cycle so we will at some stage expect to see movements up or down. However, the Hortinvest model is for full integration, that comes out of the bust cycle of other industries (i.e. grower/packer/ marketer fully integrated, with enough volume to be able to programme sales into market places as opposed to relying on the wholesale markets). The booms and busts are things that as developers we are acutely aware of and work very hard to mitigate or plan against right at the start, e.g. well set up orchards, modern, good quality equipment and systems, use of technology and leading edge systems, focused marketing.
Investing in horticulture
Q: What is your advice for those considering investing in agriculture/horticulture?
A: Do your homework on the particular industry you’re looking at particularly about the market the product will be sold to, and how many suppliers there are. Seek professional advice. Generally if the returns look too good to be true, they probably are. Just because there is a cherry orchard or a vineyard down the road, it does not mean a property you are looking at nearby will be suitable. There can be large differences in micro climate that can effect flowering, pollination, frost, and ripening as examples.
Q: What are the pitfalls?
A: With any agricultural/horticulture/viticulture you are dealing with Mother Nature. No two seasons will be the same. Horticultural products are perishable and need to be at the markets within a certain period of time. Cherries preferably need to be to market within 24 to 48 hours of harvest to maximise value. Markets come and go based on human preferences.
Alistair King is a Wanaka accountant and financial adviser with a family background in horticulture.
Investing in cherries
Q: What are the main issues for investors to consider?
A: Mostly it’s about the market.—
★ Where will the cherries be sold and by whom?
★ Export marketable yields.
★ Fruit size, colour and quality equal price. Getting this wrong will have a major impact to cashflow and profitability.
★ What varieties will be planted and what is their estimated longevity in the market?
★ People. Who will manage the property, who will sell the cherries, where will the labour come from to harvest?
★ With people come accommodation issues. Where will staff live?
★ Cost of entry is high.
★ How will the investment be financed? Equity versus debt.
★ Make sure the property is suitable for cherry production. Consider site, water, soils, frost issues, and climate to ripen the fruit.
★ Who/how will the post-harvest production be handled? Your own packhouse, contract packing, or a co-operative approach?
★ Budget, budget, budget, then measure against actual in real-time.
★ Growing production in other countries, such as Chile.
Q: How well supplied is the market at present?
A: Due to the relatively successful previous few seasons, there have been a number of new entrants to the industry.
Estimates are for 100s of hectares coming into production and to be planted. At present there is good demand for cherries in International markets, particularly Asia. Industry commentators are indicating there should be continued good demand. Whether there is more supply than demand all depends on the end consumer.
New Zealand grows about 3% of southern hemisphere sweet cherry production, compared to Chile at 78%. We need to focus on a super-premium position in international markets, particular China. Otago has 85% of the total cherry-growing area in NZ under production.
Q: How can you tell when the market has become saturated?
A: If you have the right exporter/marketer in place, they should let you know. Generally the price goes down quickly as suppliers look to quit stock.
Q: Is it likely cherries will be another boom and bust industry?
A: In agriculture, everything goes in cycles depending on suppliers to the market and the consumer. How long the grow portion of this cycle continues is unknown. You need to keep as informed as possible about market conditions and try to read the cycle and keep in-front of it.
A: First-mover advantage, yes. However, it’s also about relationships and quality of product. Strong supplier/ market relationships go a long way to get you through the downward part of the cycle. There are a number of growers that have survived boom and bust cycles because of the depth of their relationships with markets/consumers.
Q: Would you personally put your hard-earned savings on the line for cherries?
A: I’m a fourth-generation orchardist, so yes.
Q: Are you aware of how the banks regard investment in cherries?
A: Generally banks have been in favour of lending to strong investment proposals. However, recently due to the Reserve Bank of New Zealand restrictions on banks lending to horticulture, lending has been harder to obtain.
Q: Growing cherries seems to be in the hands of corporate entities rather than individual landowners. Is that a good thing/an uncommon thing in agriculture?
A: Firstly, define corporate? The few syndicated companies are getting more of the press airtime. The industry is actually dominated by individual investors.
Q: Would you be able to specify the cost per hectare of establishing a cherry orchard, the costs over, say, 10 years and the return over 10 years?
A: Would rather not because there are so many variables. Biggest variables are site, planting system (traditional or upright shoot offset, varieties, proximity to labour, own or contract packhouse.
Q: Is the cherry industry a good investment now?
A: The majority of growers are making good returns. That can change with weather events such as frost, rain over harvest, market demand, and price.