A Hortgro-funded project initiated by independent cultivar-evaluation company Provar aims to create an economic model to help growers compare the merits of new cultivars.
Provar intern Maréze Smit is developing the model for her MSc in agricultural economics, under the supervision of Dr Willem Hoffmann of Stellenbosch University and the co-supervision of Dr Iwan Labuschagne of Provar. The project initially looked at apples and plums.
Smit presented her preliminary findings at the 2023 Hortgro Research Showcase and a recent Provar information day. The Provar event also included a discussion of the economic implications of cultivar selection, where Smit was joined by Hortgro Group Operations Manager Mariette Kotzé and well-known stone-fruit grower Grant Smuts.
No margin for mistakes
"Your choice of cultivar is one of the main drivers of farm-level – and industry – profitability," said Kotzé. "The combination of cultivar and rootstock drives your production and pack-out to a large extent. Your export percentage and storability are key aspects that give you consistency and continuity – something everybody wants."
Smuts agrees that cultivar choice is something growers must get right. "We may have been able to afford mistakes 10 or 20 years ago," he commented, "but our margins are just getting too small."
One problem is that growers are as prone as anyone to the sunk-cost fallacy: they are reluctant to cut their losses on a non-performing orchard and pull it out. "You can keep the wrong cultivar in the ground for years, and every year, you're making a loss," said Smuts. "So, we must make sure that we plant the right cultivars that work for us."
The financial impact of a non-performing orchard extends further than its direct loss. It comes at an opportunity cost and consumes resources that could be better used elsewhere. Land and water are scarce – the sustainability of the fruit industry depends on the optimal use of these and other resources.
Hortgro recognises the importance of cultivar selection for its members. This is why they have partnered with Provar and continue to invest in the independent evaluation of scion and rootstock cultivars. The economic model can help growers benefit even more from evaluation results by placing cultivar information in an economic context.
Whole-farm budgeting
Smit built her model as a whole-farm budget. A whole-farm budget identifies the farm's important physical and financial components and determines their relationships. It considers all the resources available for production when generating income and expense estimates for a given allocation of those resources.
Inputs to whole-farm budgets include estimates of income and variable costs from all the different activities – called enterprises – on the farm. These figures are derived from enterprise budgets, which also provide estimates of the resource requirements for a specific activity.
Whole-farm and enterprise budgets are nothing new, but the key innovation in this project is incorporating cultivar characteristics. "The core concept that makes this model special is the translation of horticultural concepts into financial equivalents," said Smit.
The first step was to identify which cultivar characteristics and other factors affect cultivar choice so that these variables could be integrated into the model. Smit interviewed 27 industry stakeholders about their approach to choosing apple and plum cultivars. This allowed her to incorporate realistic insights and knowledge across the value chain.
"I asked them which characteristics that differ between cultivars will impact per-hectare pack-out percentage and input cost, and how does this influence their planting decisions," explained Smit.
She sifted through the results to find the cultivar characteristics suitable for inclusion in a 25-year whole-farm budget model. Fortunately, Provar already evaluates these characteristics, so their data can easily be incorporated in the model.
'The next step was the validation of the model," said Smit. Two panels – one for apples and one for plums – of 8 – 12 experts were convened to evaluate and confirm the logic behind the model. The people on these panels were different from the original interviewees.
The panellists examined each cultivar characteristic to assess if the relevant assumptions and calculations were correct. Participants suggested changes where necessary, and the model was iterated until everyone reached a consensus.
Smit is currently evaluating the model's sensitivity using scenarios with different cultivar choices.
The bottom line
"I was fortunate to be part of one of the panels," reported Smuts. "The different topics discussed were exciting for me as a producer. There are so many variables that are so important in the decision about what cultivar to plant."
There is no single cultivar that will always be the best option – cultivar selection is about matching a scion and rootstock combination to a particular site within a farming operation that has specific needs and resources. Any one orchard is part of a team. It must fit in with all the other orchards and activities while also contributing its share of export fruit.
"The one thing we always have to remember is that the fruit pays for everything," said Smit. "If you play around with the model, you see that anything that touches fruit yields or quality will cause your downfall."
One way the model can help during cultivar selection is by highlighting characteristics detrimental to gross margins in the enterprise budget. This information could already be applied to screen cultivars during evaluation.
Individual growers could use the enterprise budgets within the model to compare different cultivars on a per-hectare basis. This will show which cultivars have the best potential gross margins. The most promising cultivars can then be assessed at the level of the whole-farm budget, to see if they fit into the bigger picture of available resources and production flows.
Smit points out that growers must balance the inputs required to farm a cultivar and the expected return. If a cultivar requires more inputs, its market performance must justify those additional costs. But growers can only make this decision if they have reliable evaluation data.
The end goal is to make the model accessible to producers, but Smit cautioned that it is not easy to use. "It's not something I can email to you. A well-informed person who understands cultivar characteristics would have to apply the information, input the whole-farm environment, and then discuss what could become a best-case scenario."
"Deciding on which cultivar to plant is not that simple, and the conversation about cultivar choice should go further than just the performance of one particular cultivar," concluded Kotzé. "I think this model is very relevant because it's a tool to assist growers in making better-informed decisions about a complex issue."
