a model and tool for table grapes profitability and ... · table grape variety ha % barlinka 1,2 3%...

A Model and Tool for Table

Grapes Profitability and

Financial Sustainability

Analyses

SATI

August 2019

BFAP Group’s analytical approach Integration & presentation

Farm Level Economics

Consumer Economics

Rural Development

Value Chain Analytics

Commodity Markets and

Foresight

Data Science

Land Use and

Natural Resources

Performance: Agricultural GDP

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

20002002

20042006

20082010

20122014

20162018

20202022

20242026

2028

R bi

llion

(Rea

l 200

0)

% change real Ag GDP Real agricultural GDP Bending the curve

Growth Periods:• International factors:

- New level for international prices – Biofuel & China Economy

- Consecutive droughts in USA & low stocks

• Domestically: - Sustained investment & export

driven expansion

Weak periods:• Global recession• Domestic weather & animal disease

impacts

Going forward:• Short term global support?• Business as usual vs. accelerated

growth

Subsector Performance5 year average share Subsector Performance: Gross Production Value

Maize

Sugar cane

Wheat

Soybeans

Other Field Crops

Poultry

CattleMilk

Other Animal Products

Deciduous Fruit

Citrus fruit

Vegetables

Other Horticulture

0

50

100

150

200

250

300

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

Inde

x (2

000

= 10

0)Field Crops Animal Products Horticulture Agriculture

Agriculture’s contribution to trade balance

Source: World Bank, 2019

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

80

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

on R

ands

Agri & Food Products Other Products

High-growth industries are on trackGross Value of Agricultural Production: 2014-2018

Source: DAFF, 2019

5-year growth10,33%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Cotton

Nuts

Dried fr

uit

Citrus fr

uitBarl

ey

Cattle and ca

lves slaughtered

Wool

Table

Grapes

Sheep an

d goats

slaugh

tered

Pigs sla

ughtered

Fowls s

laugh

teredMilk

Eggs

Soya

-beans

Deciduous a

nd other fruit

Potatoes

Subtro

pical fr

uit

Suga

r cane

Viticultu

reWheat

Sunflo

wer seed

Canola

Maize

Grain so

rghum

Average growth in Gross Value of Production: 5 year Average share in total agricultural Gross Value of Production

Oranges24%

Table Grapes15%

Apples14%

Lemons & Limes8%

Naartjies8%

Pears… Grapefruit5%

Bananas5% Peaches

3%

Blue Berries3%

Avos3%

Plums3%

Mangoes

ApricotsStrawberriesCherries

QuincesOther

2%

0%10%20%30%40%50%60%

0,002,004,006,008,00

10,0012,00

Oranges

Table Grapes

Apples

Lemons &

Limes

Naartj

iesPears

Grapefruit

Banan

as

Peaches

Blue Berries

Avos

Plums

Mangoes

Apricots

Strawberri

es

Cherries

Quinces

Mill

ions

Gross Production Value Avg annual growth (5 yrs)

Fruit: Performance across industriesGross Value of Agricultural Production

Fruit demand overviewExports still primary driver of expansion

0

200

400

600

Avg 2016-2018

2028 Avg 2016-2018

2028 Avg 2016-2018

2028 Avg 2016-2018

2028 Avg 2016-2018

2028

Pears Table Grapes Peaches & Nectarines Plums Apricots

Thou

sand

tonn

es

Exports Processed & Dried Local Fresh Markets

+3%

+10%

-6%

+11%

-11%

• Competition for natural resources

• Competition from South America

SA’s performance in global export marketsCapturing a growing share of global market

7%

8%

10%

6%

6%7%

4%

5%

6%

0%

2%

4%

6%

8%

10%

12%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Citrus Grapes Pomefruit

2005

20102018

Outlook for table grapesØ Planted area is projected to

expand by 7%, resulting in a production expansion of 10% over the period

ØSlower expansion due toØWater, land, margins

Ø9% increase projected in export volumes over the period of outlook

Ø Increasing competition for market share from southern hemisphere competitors (Chile and Peru)

ØDomestic demand is projected to increase by 14% (small base) by 2028

0

50

100

150

200

250

300

350

400

-

5

10

15

20

25

20112013

20152017

20192021

20232025

2027

Thou

sand

tonn

es

Area

: Tho

usan

d he

ctar

es

Years

Total production (rhs) Table grape hectares Exports (rhs)

Table grape age distribution change over time

Ø0-3: Non-bearing increased substantially and then plateaued

Ø4-9: Knock-on effect from dramatic change in non-bearing

Ø10-15: Decline possibly due to changes in consumer preferences – earlier replacement

Ø16+: expansion in new establishments and earlier than expected lifting of 10-15 year old vines led to increasing volume of older, productive vines.

195% 42% -22% 29%

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

0-3 4-9 10-15 16+

Hect

ares

per

age

cat

egor

y

Age distribution category (years)

2012 2013* 2014 2015 2016 2017 2018 2012-2018 change

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Rand

per

tonn

e

Local price on fresh produce markets Net export realisation price Dried price

Real Table Grape Prices

Table grapes local versus exports

ØReal (inflation adjusted) prices lower over outlook

Ø3% growth in realprices on domestic fresh markets up until 2028

ØNominal value of exports is projected to increase by 58% in 10 years to approach the R9.6bn mark

ØValue of the local market expected to expand by 95% to surpass R550m by 2028

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

0

2 000

4 000

6 000

8 000

10 000

12 000

20112013

20152017

20192021

20232025

2027

Pric

e (R

/ton

)

Nom

inal

Mar

ket V

alue

(R m

illio

n)

Local Nominal Value (lhs) Export Nominal Value (lhs)

Real net export realisation price (rhs) Real local price (rhs)

High reliance on EU & UK, fast growth in Asia

Fruit type Share of production exported (%)

EU & UK CombinedShare of exports (%)

Oranges 74% 40%Soft Citrus 68% 54%Grapefruit 67% 43%Lemons & Limes 67% 38%Table grapes 88% 76%Plums 77% 74%

Blueberries 71% 95%Avocado 53% 95%Nectarines 34% 80%

Table grapes exports

ØShift away from traditional markets such as the EU with additional cartons

ØShift towards UAE, Saudi Arabia, Hong Kong, China, Malaysia, Thailand, Russia, USA and Canada

ØAccess to new lucrative markets will have to be expanded

ØPosition in existing market space not to be compromised by access to new markets

0

10

20

30

40

50

60

70

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

Mill

ion

Expo

rt c

arto

ns (4

.5kg

equ

ival

ent)

EU/Russia Middle East Far East North America Other

Perspectives on export pricesAverage export price vs. Unit value of trade (SARS)

0

5000

10000

15000

20000

25000

30000

35000

2009/2010

2010/2011

2011/2012

2012/2013

2013/2014

2014/2015

2015/2016

2016/2017

2017/2018

2018/2019 YTD*

2019/2020

2020/2021

2021/2022

2022/2023

2023/2024

2024/2025

2025/2026

2026/2027

2027/2028

Rand

per

tonn

e

Export Relaisation Price Unit Value of Trade - Rand

Orange River FinSim prototypeØThe BFAP farm-level FinSim model for table grapes is based on:

Ø 56 ha under table grapes productionØ Establishment cost were calculated at R 423 720 per hectare (netting

cheaper than in WC and drainage not standard)Ø Production cost per hectare amounts to R 388 226 per hectare (including

packaging material and allocation of overheads to production hectares) Ø Fixed assets and moveable assets were allocated accordingly to the

production unit’s requirements to service the investment, along with its operational activities

ORANGE RIVER PROTOTYPE FARM

TABLE GRAPE VARIETY HA %Prime 14 26%Sweet Globe 9 17%Early Sweet 5 9%Flame 7,5 14%Thompson Seedless 7,5 14%Allison 5 9%Midnight 5 9%TOTAL 56 100%

Ø Normalised establishment distribution

Ø 20 year production life cycle

Ø Variety distribution vary between different farmsLABOUR

38%

FERTILIZER6%

FUEL & ELECTRICITY7%

CHEMICALS5%

PACKAGING & MARKETING38%

REPAIRS & DIVERSE3%

MANAGEMENT3%

Breakdown of production costs/ha

Orange River prototype: Net Farm Income/ha

Ø On current cultivars and current pricesØ Peru supply to European markets will continue to create price problems for early table grapes, but the

expectation is that producer will reorganise themselves within different export markets Ø Based on August 2019 sector model projectionsØ As netting becomes more and more the standard, the establishment costs increase substantially

-

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

R/ha

Nominal Net Farm Income: R/ha

Hex River prototype FinSimØThe BFAP farm-level FinSim model for table grapes is based on:

Ø 42 ha under table grapes productionØ Establishment cost were calculated at R 612 015 per hectare (including

nets and drainage)Ø Production cost per hectare amounts to R 384 467 per hectare (including

packaging material and allocation of overheads to production hectares)Ø Fixed assets and moveable assets were allocated accordingly to the


HEX RIVER PROTOTYPE FARM

TABLE GRAPE VARIETY HA %Barlinka 1,2 3%Autumn Crisp 1,5 4%Red Globe 3,5 8%Crimson 18 43%Thompson Seedless 5,5 13%Sable 6 14%Sweet Celebration 6,3 15%TOTAL 42 100%



Ø Variety distribution vary between different farms LABOUR45%

FERTILIZER6%


CHEMICALS6%


REPAIRS & DIVERSE3%

MANAGEMENT4%


Hex River prototype: Net Farm Income/ha

Ø On current cultivars and current pricesØ Crimson the steadfast money maker for this areaØ Based on August 2019 sector model projectionsØ As netting becomes more and more the standard, the establishment costs increase substantially

-

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

R/ha


Berg River FinSim prototype

ØThe BFAP farm-level FinSim model for table grapes is based on:Ø 45 ha under table grapes productionØ Establishment cost were calculated at R 518 271 per hectare (netting and

drainage not standard)Ø Production cost per hectare amounts to R 374 734 per hectare (including

packaging material and allocation of overheads to production hectares) Ø Fixed assets and moveable assets were allocated accordingly to the


BERG RIVER PROTOTYPE FARM

TABLE GRAPE VARIETY HA %Crimson Seedless 13,5 30%Thompson Seedless 6 13%Autumn Crisp 7,2 16%Adora 6,2 14%Scarlotta 4,2 9%Sable 4,9 11%Midnight 3 7%TOTAL 45 100%



Ø Variety distribution vary between different farms

LABOUR42%

FERTILIZER6%


CHEMICALS6%


REPAIRS & DIVERSE3%

MANAGEMENT4%


Berg River prototype: Net Farm Income/ha

Ø On current cultivars and current pricesØ Slightly higher labour cost per hectare and more variation in productive land than Hex negatively impacts NFIØ Based on August 2019 sector model projectionsØ As netting become more and more the standard, the cost in establishment increase substantially

0

20 000

40 000

60 000

80 000

100 000

120 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

R/ha


Table grape scenarios

August 2019

Impact of Exchange Rate: Nominal Prices

R0

R20

R40

R60

R80

R100

R120

€ 0

€ 2

€ 4

€ 6

€ 8

€ 10

€ 12

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019YTD*

Value/carton - Euro (lhs) Value/carton - Rand (rhs)

Exchange rate scenario: Export Prices

-1,0%

1,0%

3,0%

5,0%

7,0%

9,0%

11,0%

13,0%

15,0%

0

5000

10000

15000

20000

25000

30000

35000

40000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Rand

per

tonn

e

% change - Baseline vs. Scenario (Right Axis) Baseline Exchange Rate Depreciation

• Baseline Exchange Rate 2019: R14.24 (annual avg.)

• Scenario Exchange Rate in 2019: R15.50 (annual avg.)

• Depreciation Scenario vs. Baseline of 8.8% - retained for entire outlook

Scenario results at farm-level

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

-

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

NFI

R/h

a

Orange River NFI R/ha.

% change Orange River Orange River Scenario


0%

20%

40%

60%

80%

100%

120%

140%

-

50 000

100 000

150 000

200 000

250 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

NFI

R/h

a

Hex River NFI R/ha.

% change Hex River Hex River Scenario


0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

-

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

NFI

R/h

a

Berg River NFI R/ha.

% change Berg River Berg River Scenario

Scenario results at Orange River farm-levelThe what: farm level testing of quality orientated productionThe why: with packaging and labour being major cost drivers, how can we restructure ourselves to use less of it without negatively impacting NFI/ha. The how: what will the testing change from the baseline

• Reduced overall quantity per hectare: 7% reduction• Reduced overall labour per hectare: 7% reduction• Higher pack-outs at packhouse level: 3% increase in exports and 3% less cellar/raisons• Higher price per carton in export market: 3% increase in export price for higher

quality/less claimsThe effect on NFI/ha over the outlook period Orange: R4700/ha increase with 3.95% less cartons exported per annumBerg: R5100/ha increase with 3.87% less cartons exported per annumHex: R5800/ha increase with 3.64% less cartons exported per annum

Scenario results at Orange River farm-level

• In low profit years, the % change in NFI is higher

• Almost always at least giving you an additional return equivalent to the bank savings interest rate

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

100 000

2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

/ha

NFI

R/h

a

Orange River: Quality at reduced quantity scenario – NFI/ha

R/ha R/ha Scenario % Increase in NFI/ha

Scenario results at Berg River farm-level• In low profit

years, the % change in NFI is higher


• Slightly smaller impact than Orange River in percentage terms, because of smaller transport component in cost structure

0%

1%

2%

3%

4%

5%

6%

7%

8%

-

20 000

40 000

60 000

80 000

100 000

120 000

2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

/ha

NFI

R/h

a

Berg River: Quality at reduced quantity scenario – NFI/ha

R/ha R/ha Scenario % change in NFI/ha

Scenario results at Hex River farm-level

• In low profit years, the % change in NFI is higher


0%

1%

2%

3%

4%

5%

6%

7%

8%

0

20000

40000

60000

80000

100000

120000

140000

160000

2020 2021 2022 2023 2024 2025 2026 2027 2028

% c

hang

e in

NFI

/ha

NFI

R/h

a

Hex River: Quality at reduced quantity scenario – NFI/ha

R/ha R/ha Scenario % change in NFI/ha

Application of BFAP including Table Grapes

• 2011 - National Development Plan 2030• 2012 - De Doorns (Minimum wage)• 2013 - Thailand (Market access closure) • 2016 - Phakisa• 2017 - Agricultural Workstream • 2018 - Land Reform – expropriation without

compensation

NDP matrix

Non-labour intensive<0.01 labour / ha

Labour Intensive>1.3 labour /ha

High growth potential

Low growth potential

Soya beansCanola

Forestry

Groundnuts,Sugar cane

CottonYellow maizeBarley

ApplesPears

WineLucerne, Oats, Hay

Tobacco

PeachesApricots

SunflowerWhite maize Wheat Sorghum

Nectarines

Table Grapes Raisins

Citrus

MacadamiasAvocados

Bananas

Vegetables

Poultry Sheep

CattleEggs

Dairy Pigs

Pecan Nuts

12

34

Wool

Our vision: NDP’s score sheet

NDP Target Indicator

Land reform No

Jobs & growth:High-value & field crops, livestock

Yes

Jobs & growth:Under-utilised land, homelands etc.

No

Jobs & growthAgro –processing

Yes?Irrigation expansion of 142 000 ha NOT 500 000 ha

Employment in agricultureStill a significant gap to NDP target

0

500

1 000

1 500

2 000

2 50020

08 Q

2

2009

Q2

2010

Q2

2011

Q2

2012

Q2

2013

Q2

2014

Q2

2015

Q2

2016

Q2

2017

Q2

2018

Q2

2019

Q2

NDP

2030

Thou

sand

Jobs

Agri Processing Workers Agriculture, Forestry & Fisheries - Adjusted

Agriculture, Forestry & Fisheries (StatsSA)

Total 20081.58 million Total 2012

1.36 millionTotal 2019

1.46 million

Total 20302 million

Source: Stats SA, 2019

Application of BFAP system – agri workstream (2016)

Hectare Expansion

TotalApples

TableGrapes

WhiteWine Citrus Avocados

Macademias Pecans

WAS savings 3,000 9,000 3,000 4,700 7,300 27,000

Brandvlei 1,000 500 2,000 3,500

ClanWilliam 1,000 500 2,500 4,000

Total expansion 3,000 2,000 1,000 13,500 3,000 4,700 7,300 34,500

Irrigation efficiency (WC)

291%

2%

43%

- 500 1 000 1 500 2 000 2 500

Shadenetting

Tunnels

Shadenetting

Tunnels

Orc

hard

Vege

tabl

e

Orchard VegetableShadenetting Tunnels Shadenetting Tunnels

2013 559 261 1302017 2 185 153,26 267 186

% change from 2013 to 2017 indicated

Source: WCDoA 2013 & 2017 Flyover data

Application of BFAP system Land Reform (May 2018)

Ø Decrease of 34.72% with Low Road (non-transparent land reform policies)

Ø Economic and political uncertainty

Ø Business and industry confidence

One size does NOT fit all!Net revenue per hectare (National 5-year averages)

-

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

180,0

-

100,0

200,0

300,0

400,0

500,0

600,0

700,0

800,0

900,0

Extensive livestock Grains&Oilseeds(Dryland)

Grains&Oilseeds(irrigation)

Vegetables(Tomatoes etc.)

Orchards (Orangesetc.)

Gro

ss M

argi

n R'

000/

ha

CAPE

X &

OPE

X; R

'000

/ha

CAPEX OPEX Gross Margins

Farm size

• Overview of complex nature of land reform & clear description of failures, corruption, lack of clear plan etc. over past 2 decades

• Mixed tenure model: a continuum of rights from freehold and communal as well as multilevel ownership arrangements……. the report acknowledges the importance of property rights.

• Various tenure systems, description of beneficiaries (acknowledging categories ranging from household, small scale to large-scale farmers) and the variety of demand for land, urban land reform etc.

• Acknowledgement of lack of accurate data and the desperate need for a comprehensive land audit.

• Proactive and targeted commodity and area-based approaches with production capacity informed by agro ecological and land use analysis and the establishment of a land reform fund.

• Challenges with EWC, Land Ceilings and lack of clear strategy on under-utilised resources

Land panel report

Our future: NDP Performance (2012-2019)

0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8 9 10

Jobs

(ind

ex: 1

to 1

0)

Growth (index: 1 to 10)

Land reform & under-utilised land

Smallholdersubsistence producer

Secondary jobs -formal value chains

Non-labour intensive commercial crops & livestock

Emerging producers

Secondary jobs -informal value chains

High-value labour-intensive export

?

Land value contrast: R1000 / ha vs. R1 mil / ha

Thank youAcknowledge SATI financial support

Contact: [email protected]

www.bfap.co.za

a model and tool for table grapes profitability and ... · table grape variety ha % barlinka 1,2 3%...

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