Determining the feasibility of organic apple production in the southern United States

Héctor Germán Rodríguez, Ph.D.Jennie Popp, Ph.D.Curt Rom, Ph.D. (Presenter) Heather Friedrich, M.S.Jason McAfee, M.S.

Innovation in Integrated & Organic Horticulture - ISHS Symposium Avignon University, France

June 8-12, 2015

Center for Agricultural and Rural SustainabilityDivision of Agriculture - University of Arkansas

Fruit Production Budgets

Tools used to assess costs and revenues associated with production

Traditionally paper based

Require large amount of information from producers to work

Interactive Sustainable Apple Budget

Interactive Budgeting: Computer based; User specifies input, tool

automatically makes calculations

User Friendly Little computer knowledge required Little data input needed

True Decision Support Assess costs, revenues as well as break-even points,

sensitivity analysis and risk analysis

Interactive Sustainable Apple BudgetVisit the Specialty Crop Section of the Center for

Agricultural and Rural Sustainability (CARS) website

www.cars.uark.edu

or

e-mail cars@uark.edu

For a free copy

Presentation Objective

Describe the benefits of the Interactive Sustainable Apple Budget

Walk through an example

Interactive Sustainable Apple BudgetBudgetTool/ Capability

Apple

Annual Calculations X

Multi Year Calculations X

Modification of inputs by year X

Breakeven Analysis X

Sensitivity Analysis X

Risk Analysis X

What does this mean?

Capabilities

Multi-year present value of net benefits In addition to giving annual return values,

the tools calculate what the value of all net revenues generated over all years are worth today

Input Modifications User can modify or enter new inputs

(activities, quantities and prices) each year. The budget will be updated automatically.

Breakeven Analysis

Breakeven Point Point at which cumulative total costs and

cumulative total revenues are equal

Can be calculated for Breakeven Price Breakeven Yield

Breakeven Price

Given yields and total costs, what price do I need (on average over time) to break even?

Total Cost Over Time

Expected Average Yield

Over Time

Breakeven Price

Breakeven Yield

Given market prices and total costs, what yield do I need (on average over time) to break even?

Total Cost Over Time

Expected Average

Market Price Over Time

Breakeven Yield

Sensitivity Analysis

“What if” analyses How different values of an input impact net

returns

“What if”: My yields over time are actually higher/lower

than I predict? The market price for the fresh/processing

market over time is higher/lower than I predict?

Risk Analysis

A technique that calculates the probability of obtaining a net present value of returns greater than a specific dollar target

What is the probability that I will earn a net present value greater than $90,000 during the life of the orchard?

Importance of The Tool

Allows the user to make more informed decisions by Comparing costs/revenues of different production

practices Estimating impacts of changes in yield/prices on

the solvency of the operation Assess the economic risk associated with a

particular production system Assessments can be made hypothetically;

without having to actually change practices

Example

Interactive Sustainable Apple Budget

Main Menu

Quick Start Menu

Quick Start Menu

Start Menu

Start Menu

Help Menu

Help Menu

User’s Guide

User’s Guide – PDF Version

This guide explains how to use the tool (step by step). It is linked to the tool so it can be accessed at any time.

User Input Userform opens without information. User needs to enter his/her own information or click

“Demo” to fill the grey boxes before running the model.

User Input: Run Once data are entered or selected, click “Run”

Summary The tool will generate gross returns, variable costs,

fixed costs, total costs and net returns for each year

Summary – Net Returns Calculator

The tool will generate, variable costs, fixed costs, total costs, gross returns and net returns for each year.

The “cumulative column” will show what year the enterprise starts to be profitable (in green).

How to Change Levels of Activity or Prices Here you can enter:

new activities new quantities new prices

Once changed, the tool will recalculate all costs and returns

Results Results are presented in graphical and tabular forms

Breakeven Analysis Click the Breakeven Analysis icon located in the

“economics screen” to see calculations in more detail. These calculations will be updated if initial inputs are

edited or new input is entered. Expected values are estimated by using the input

entered by the user

Breakeven Analysis Results

Sensitivity Analysis

“What if” analyses How different values of an input impact expected

net returns

“What if”: My yields over time are actually higher than I

expected? The market price for the fresh market over time is

higher than I expected?

Sensitivity Analysis

Click the Sensitivity Analysis icon located in the “economics screen” to change yield and price information.

Increase Fresh Market Price to $1.20/lb (before $1.00/lb)Increase Processed Market Price to $0.20/lb (before $0.15/lb)

BEFORE AFTER

Risk AnalysisThe tool also calculates the risk associated with this operation by entering some required information.

Risk Analysis

Risk AnalysisClick the Risk Analysis icon located in the “economics screen” to change yield and price information.

For instance, let’s change “Most Likely” yield each year From: 36 lbs/tree To: 40 lbs/tree

Risk Analysis

Risk Analysis

By increasing the “most likely” yield each year from 36 lbs/tree to 40 lbs/tree, the probability that the apple orchard generates at least $90,000 will increase from 60.2% to 72.7%.

The user can change yields and prices and compare scenarios against the baseline (default values).

Lots to this Tool! The capabilities of this tool are great

But at the same time it can be used to answer very simple questions alone

Built to be flexible, based on the needs of the user

Visit Our Website

Center for Agricultural and Rural Sustainabilitywww.cars.uark.edu

Fruit budgets can be found on the “Interactive Budgets for Fruit Crops” pagehttp://cars.uark.edu/ourwork/Specialty-Crop-Production-and-Marketing/fruit_budget.aspx

Thank You

For more information…

Jennie PoppJhpopp@uark.educars@uark.edu

Hector German Rodríguezhrodrig@uark.edu cars@uark.edu

Curt Romcrom@uark.educars@uark.edu

Center for Agricultural and Rural Sustainabilitywww.cars.uark.educars@uark.edu