The replacement of traditional varieties, especially Braeburn, with the new, redder apples is a response to market signals, managing director Andy Borland said.
As the new planting strategy is implemented there will be a fall in total production volumes for three to four years before returning to current levels in 2023. The group also exports apples on behalf of other growers.
Scales subsidiary Mr Apple has two new premium varieties, Dazzle and Posy, in the market for the first time, in small volumes selling well in China.
The new varieties were developed by the industry and Scales has opened up plantings to as many independent growers as it can. Planting levels have been meaningful, Borland said.
“We want this to be successful and that means you need big volumes and each year there will significant production increases.”
Dazzle has been 20 years in development, Scales said in its annual report. With its high colour, sweet taste and big size it is aimed at the Asian market. Posy is pinky red, sweet, harvested at the start of the season and also aimed at Asia.
Mr Apple has 50ha of productive Dazzle on its own orchards, with another 41ha last year out of 68ha of total new plantings and another 85ha will be planted this year and next.
They will replace about 70ha of Braeburn apples as well as low-performing orchard blocks.
Braeburn used to be the biggest volume variety for Mr Apple but has been replaced by Royal Gala varieties in recent years.
In the push for redder apples the demand for Braeburn has fallen but remains substantial with 742,000 trays produced last year compared to 758,000 in 2017 and there will always be reasonable production levels.
In 2018 premium apples New Zealand Queen, Pink Lady, Fuji and red Royal Gala provided 1.9m trays (116 apples a tray) for export, up from 1.6m trays a year earlier, for an impressive 18% growth rate for Mr Apple’s owned and leased orchards. The group believes using the latest planting techniques, including tree spacing, will improve yields with earlier crops and easier picking.
Traditional varieties, mainly Braeburn and standard Royal Gala, provided 1.966m trays, up from 1.928m, a growth rate of 2%.
The numbers highlight the change in the export balance and the premium uptick helped achieve an average 7% increase in export prices.
About 590 million apples were picked on Mr Apple orchards last year, a record for the business.
The group provides about 18.7% of the national crop and with its post-harvest and export activities is the biggest apple business in NZ.
Borland reported a good quality apple harvest in this season though fruit size is variable, with a good outlook for the pack-out rate.
On export numbers, the annual report forecasts a total of 3.62 million trays from the group’s own orchards (1.73m traditional and 1.88m premium) in the 2019 year, down from a 3.87m tray total in 2018, as the varietal replantings are made. Further out, forecasts are for 3.598m in 2020, 3.59m in 2021 and 3.74m in 2022 before surpassing the 2018 figure in 2023 with a forecast 3.9m trays.
Over this period, premium exports will increase by an estimated 23.4% from 2018 levels while traditional variety exports will be about 21% lower.
During the period of reduced volumes the Scales team expects a return to long-run average pack-out rates (after reduced 2018 levels) and an increase in average pricing, assuming positive market conditions continue.
As well as producing redder premium apples for the Asia markets Mr Apple is working on a more consumer-centric brand in China, working with its China-based shareholder and strategic partner, China Resources Ng Fung and working through the Primary Collaboration NZ group. There will be more focus on social media and in-store promotions and exhibitions and e-commerce sale channels will be extended.
Asia and Middle East are the biggest markets for Mr Apple, taking 53% of exports in 2018, though that was lower than the 54% in 2017. European sales increased to 34% from 31% of the total after a decision to send fruit to that market earlier than usual.
Britain took 9% of exports in the latest year and North America 4%.
Horticulture is the biggest of Scales’ operating divisions, providing $42.6m of underlying operating earnings (Ebitda) out of a group total of $67m in the 2018 year.
The Scales directors believe the underlying measure is the best guide to group performance because it is based purely on the operating business and excludes non-operating measures such as fair-value gains required by international accounting standards. Group underlying Ebitda has increased 68% since 2014, the year it listed on the NZX, for an average growth rate of 14%. The share price has risen 77% over the last three years.
Horticulture revenues were $254.5m, making up 54% of group revenues of $464.7m.
