Rather than spruiking up the industry, the report gives a balanced view of an industry undergoing extraordinary growth, tempering it with some cautionary notes around supply risk, resources and cropping risks.
With 3750ha of SunGold licences to be issued over the coming five years, including 750ha allocated for this year, investors are advised to balance the risk of increased supply and competition with a sector needing to maintain a premium price bracket to remain viable as intense overseas competition starts to ramp up.
That includes the looming Chinese giant, expected to be a net exporter of fruit within several years as horticultural skills and crop varieties improve.
So the report’s authors urged caution about what constitutes a sustainable price for SunGold on a longer-term basis.
Amidst processor concerns over fruit volumes, caution has also been expressed about the structural shift the major lift in SunGold volumes is going to mean in a few years, particularly around land, water, labour and processing capacity.
While wages costs between SunGold and Green orchards have started to converge for many growers, the report cautions wage costs per hectare are likely to increase in coming years, with the lift in minimum wages to $20 an hour and higher demand for seasonal labour to work in the increased cropping area coming under the licensing programme.
Automation is cited as one solution with robotics in the process of being commercialised in the industry already.
The report also notes the premium prices being paid for orchards and anecdotal reports from the industry suggest prices up to $300,000 a hectare being pitched in bids for more SunGold area.
Bay of Plenty land values have doubled in some cases, with Green orchards ranging from $300,000- $450,000 a hectare and SunGold from $700,000 to $1 million a hectare.
However, diminishing land supply in Bay of Plenty also creates the opportunity for greenfield development in Northland, Gisborne and Hawke’s Bay.
But the mathematics of creating a greenfield development are not for the faint hearted.
The report put the cost of a SunGold development at about $125,000 a hectare to buy suitable land, plus a further $250,000 for a SunGold licence.
Additional funds of $100,000 would be required to develop the orchard infrastructure, and a further $100,000 to meet the growing costs incurred before the vines become mature enough to bear fruit, about four years.
The $575,000 a hectare total would be staged over the development life of the orchard.
Calculations are that payback for a SunGold orchard to deliver an economic break-even is seven years.
The industry’s aging ownership structure has also been highlighted as an area posing a succession challenge when considering the high capital entry cost.
With 53% of growers aged over 60 the authors urge that to happen sooner rather than later to avoid a surge in orchard liquidity.
