Abstract
Growers need reliable information on costs and returns they can expect for a cider apple (Malus ×domestica) orchard suitable for mechanization because specialty cider apples can only be used for making cider, and returns are expected to be lower than for fresh table apples. This study estimates the costs, returns, and net profit that growers may realize by planting cider apples in either a freestanding or tall spindle system that use a mechanical harvester (both systems) and mechanical hedger (tall spindle system only). Results show that both production systems have positive net returns during full production, and their respective break-even returns are lower than the current market price, demonstrating that both systems are potentially profitable investments. Results also show that the tall spindle system is potentially more profitable due to the advantages of earlier start of fruiting and higher crop yield. The estimated net returns of the tall spindle system during full production are nearly 4 times higher than that of a freestanding system. At a discount rate of 10%, the net present value (NPV) of the tall spindle system is positive and payback period is 13 years, whereas the NPV of the freestanding system is negative. The discount rate represents the time value of money and reflects the perception of risk for the investment. The break-even discount rates (i.e., NPV = 0) are ≈6.88% for the freestanding system and 10.78% for the tall spindle system. Sensitivity scenarios found that when all else was constant, profitability increased as market price, crop yield, and production area increase and also when the cost of the harvester decreased. Because mechanical harvesters are expensive, profitability tends to be more favorable for larger farms due to economies of scale. Also, a high picking efficiency is important because fruit that falls on the ground is considered crop yield loss and reduces the gross income from cider apples.
Cider is a fermented alcoholic beverage, containing 0.5% to 8.5% alcohol by volume (ABV). It is regulated by the Internal Revenue Code of 1986, together with other beverages that contain at least 0.5% ABV [Alcohol and Tobacco Tax and Trade Bureau (TTB), 2017a]. Cider is also subject to the Hard Cider Tax Class of $0.226/gal if ABV is 0.5% to less than 8.5%, the carbonation level is less than 0.64 g/100 mL carbon dioxide, and it is made from apples (Malus ×domestica) and pears (Pyrus communis) or apple/pear juice concentrate and water and does not contain any other fruit product/flavoring (TTB, 2017a, 2017b). Apples grown specifically for cider are an emerging crop in the United States, and orchard management generally follows the same guidelines as for table apples (Fitzgerald et al., 2013; Moulton et al., 2010). Because the price for specialty cider cultivars is ≈$0.45/lb whereas the price for table apples ranges from $0.40/lb to $1.82/lb depending on cultivar, increased production efficiencies are necessary for cider apples to be profitable and competitive for them to be considered in a grower’s farm diversification strategy (E. Ritchie, unpublished data; Washington State Tree Fruit Association, 2020). Orchard establishment and maintenance can be especially costly in regions where there are limited numbers of workers with apple pruning and harvest experience and where wages are high (Clark, 2017). For example, pruning of high-density cider apple orchards represented 20% to 25% of annual labor costs and hand harvest accounted for 46% of the total annual variable costs for a cider apple orchard in full production in western Washington (Galinato et al., 2014).
Input prices and wage rates in farm production have been increasing historically, but the upward pressure on prices is more pronounced with the latter. The changes in the level of prices that agricultural producers pay for production inputs increased by an average of 0.01% per year from 2012 to 2021 (U.S. Department of Agriculture, National Agricultural Statistics Service, 2021). On the other hand, the adverse effect wage rate has increased by 4% per year, on average, during the same period (National Council of Agricultural Employers, 2021). Labor costs vary by fruit and vegetable commodity, depending on the labor intensity of production, but in general, labor comprises approximately half of variable production costs. To reduce labor costs, growers can adopt labor aids and mechanization on the farm (Calvin and Martin, 2010).
Labor efficiency and cost reductions could be achieved in cider apple production through mechanized pruning and harvest. Mechanical pruning with a hedger was first reported in Italy in the 1960s and 1970s and is suitable for medium- to high-density orchards planted with dwarfing rootstocks and trained in a tall spindle architecture structure (Masseron, 2002; Sansavini, 1978). Hedging today is used to create a fruiting wall canopy, which provides production benefits such as increased light penetration for improved photosynthesis and fruit quality, better spray deposition of pesticides and foliar nutrient applications, ease of access for hand or mechanical harvest, and reduced time and labor costs (Biddlecombe and Dalton, 2018; Mika et al., 2016; Sander et al., 2018; Sazo and Robinson, 2013). Although hedging can be efficient at removing limbs in the plane of the hedger, supplemental pruning is needed to remove branches that extend along the row and for internal canopy thinning (Ferree and Short, 1972; Mika et al., 2016; Sansavini, 1978). Thus, hand labor is still needed for pruning when an orchard is hedged, but labor needs and overall pruning intensity are reduced, which can improve the profitability of fruit grown for cider production (Bradshaw and Foster, 2020). In a study in New York, summer hedging of ‘Fuji’, ‘Golden Delicious’, ‘Jonagold’, and ‘Gala’ required 5% of the labor hours used for manual pruning (Sazo and Robinson, 2013). In eastern Washington, Whiting et al. (2015) found mechanical pruning in apple and sweet cherry (Prunus avium) orchards to take 57% fewer labor hours per tree than hand pruning and was more time-efficient even when combined with selective hand pruning. In Skierniewice, Poland, Mika et al. (2016) found that time to mechanically hedge ‘Pinova’ apple trees twice in the summer followed by selective hand pruning was the same as hand pruning, likely a result of hedging the trees twice. The same study also found hedged trees had higher yields than manually pruned trees, although fruit size was reduced. Hedging in the summer reduces tree vigor and pruning needs the following season as assimilate reserves are reduced, thereby reducing regrowth (Autio and Greene, 1990; Forshey, 1976; Mika, 1986).
Mechanical harvesters are another mechanical aid that can be used in tree fruit orchards. Several studies have shown the potential of mechanical harvest as an economically viable alternative to hand harvest of agricultural fruit crops. For example, Brotons-Martinez et al., (2018) found that the costs of mechanically harvesting lemons (Citrus limon) were 31% less, on average, than for manual harvest. Searcy et al. (2012) conducted an economic simulation of sweet orange (Citrus ×sinensis) processing industry returns when different proportions of crop yield volumes were mechanically harvested. They estimated that grower returns would be 17% higher when 95% of the total processing volume was mechanically harvested. Gallardo and Zilberman (2016) found that mechanical harvesting of northern highbush blueberries (Vaccinium corymbosum) improved labor productivity and reduced labor costs. Factors that affected technology adoption were picker wages, prices of fresh and processed blueberries (Vaccinium sp.), and crop yield and quality loss. Galinato et al. (2016) conducted a case study of mechanical vs. hand harvest methods of cider apples in western Washington. They estimated that, given 97% picking efficiency of a mechanical harvester, the total harvest cost of cider apples was 22% lower than hand harvest cost, and the net returns were higher by 20%.
Harvest mechanization in the United States is more common in vegetables than in fruits and is also more common when the produce is directed to processing than to the fresh market because external damage (e.g., bruising, small cuts) to the crop is less of a concern when it is processed (Calvin and Martin, 2010). Cider apples are well suited to mechanical harvest because fruit are processed shortly after harvest, and there are minimal adverse effects on juice quality attributes (Alexander et al., 2016; Miles and King, 2014). Yet in the United States, cider apples are harvested by hand even though many cultivars are small-fruited and can take up to 4 times longer to handpick than table apple cultivars (Miles and King, 2014). Mechanical harvest of cider apples is common in European orchards where a shaker clasps a tree trunk to knock the fruit off the tree to the orchard floor, then a self-propelled harvester sweeps and collects the fallen fruit (Alexander et al., 2016; Waterbury, 2018). However, this harvest system poses a food safety risk in the United States. According to the Food Safety Modernization Act (FSMA) Produce Safety Rule, apples that have dropped to the ground before or during harvest cannot be distributed or used for human consumption unless the fruit undergoes commercial processing that adequately reduces pathogens of public health significance (Produce Safety Alliance, 2016; U.S. Food and Drug Administration, 2019). Ewing and Rasco (2018) have made recommendations regarding ground-harvested fruit to help cider apple growers and cider producers ensure food safety and FSMA rule compliance. However, processors may be hesitant to accept ground-fall cider apples in the same facilities as table or juice apples. Further, the shake-and-sweep harvest equipment is not suitable for medium- or high-density orchards where trees are grafted on shallow-rooted dwarfing rootstocks. Thus, this harvesting equipment is not suitable for modern cider apple orchards in the United States.
This study focuses on the shake-and-catch and over-the-row harvesters wherein harvested fruit land onto the machine’s catch plates then are conveyed into bins. A shake-and-catch harvester is a combination of two self-propelled units—a trunk shaker and a matching catch frame. An example of this harvester (Brar, 2020) is shown in Fig. 1. The trunk shaker clamps to the tree trunk with a padded clamping arm and rapidly shakes the tree in a linear direction. The removed fruit drop onto the catch frame (that looks like wings) and then are transported by a central moving track up to an air leg where air is blown through the crop to remove small and light debris. These harvesters are used in the United States for various tree fruits and nuts, including citrus (Citrus sp.), olives (Olea europaea), processing (tart) cherries (Prunus cerasus), and prunes (Prunus domestica). An over-the-row harvester has two rotating drums with vibrating beater bars that straddle a row of bushes or trees (Fig. 2). Fruit are knocked off the tree inside the tunnel of the harvester frame and fall onto catcher plates. Fruit roll by gravity onto conveyor belts, pass through a blower to remove light-weight debris, and are either carried upward to a platform on top of the harvester where workers collect fruit into flats or travel on a conveyer arm to a wagon with bins or bulk collection. Over-the-row harvesters are either self-propelled with the driver on the top platform or pulled by a tractor. This type of harvester is commonly used for berries, especially red raspberries (Rubus idaeus), blueberries, grapes (Vitis vinifera), tart cherries, and olives.
Example of a shake-and-catch harvester used in harvesting pistachios (Brar, 2020).
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Examples of over-the-row harvesters: harvesting cherries using a Littau OR0012 harvester (Littau Harvester, Stayton, OR) (top); and harvesting cider apples using a Korvan 930 harvester (Oxbo International Corp., Lynden, WA) in the proof-of-concept study at Washington State University Mount Vernon Northwestern Research and Extension Center, Mount Vernon, WA in 2020 (bottom).
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Both the shake-and-catch and over-the-row harvesters may be customized and used for cider apples. In a proof-of-concept trial in 2014 with an over-the-row raspberry harvester (OR0012; Littau Harvester, Stayton, OR), Miles and King (2014) found mechanical harvest of cider apples to be 4 times faster than hand harvest, and there were minimal adverse effects on juice quality attributes. Peterson and Wolford (2003) found that training systems influenced how much fruit the mechanical harvester could remove from the tree, and Peterson (2005) predicted that advancement in successful mechanical harvest technology would come from compatible orchard canopies. Compatible canopy structure for mechanical over-the-row harvest can be achieved through mechanical hedging; thus, hedging and mechanical harvest can work in tandem to maximize labor efficiency in cider apple production.
There is imperfect competition in the cider apple market, such that there are relatively fewer growers of specialty cider apple cultivars (sellers) compared with cider producers (buyers of cider apples) (Becot et al., 2016). Because specialty cider apples can only be used for making cider, growers need reliable information on expected costs and returns before establishing an orchard system suitable for mechanization. In this study, we compare costs between two mechanical harvest systems because several studies have already established potential labor cost savings when switching to mechanical harvest. We focus on evaluating the economic feasibility of two orchard production systems common in commercial cider apple orchards in Washington State, freestanding and tall spindle trellis, and we estimate the costs for harvest mechanization (both systems) and mechanical pruning (hedging, tall spindle system only). Mechanization costs are estimated because there are currently no commercial cider apple orchards that we are aware of that are employing these technologies. The objectives of this study are to 1) estimate the costs and returns and evaluate the profitability of cider apple production given two different orchard systems and mechanized orchard practices and 2) estimate the size of the cider apple block, crop yield, price of cider apples, or price of mechanical harvester that will be needed to make the investment in cider apple production economically feasible. Hereafter, a “system” refers to the orchard production systems and the relevant mechanization.
Materials and methods
Mechanical pruning and harvest are not currently used in cider apple orchards in the United States. Thus, for this study, budget assumptions were developed based on a cider apple enterprise budget for central Washington (Galinato and Miles, 2017) and augmented using data from three growers each with 10 to 13 years of experience growing cider apples and with operations ranging between 8 and 40 acres of diverse cider apple cultivars. Costs for apple training systems were obtained from the literature, and prices for a mechanical hedger and harvesters and harvester attributes (e.g., picking efficiency, maintenance costs, life of unit) were obtained from suppliers. Additional data were included from an ongoing proof-of-concept study with a hedger and over-the-row harvester in a tall spindle trellis cider apple orchard at the Washington State University Mount Vernon Northwestern Washington Research and Extension Center, Mount Vernon, WA (WSU NWREC).
Tree spacing and tree size are important considerations when integrating mechanical harvest into the design of an orchard. Table 1 shows the assumed production specifications of the two orchard systems used for this study. Trees planted in each system are on dwarfing rootstocks. The tree spacing in each system is different, and consequently so are tree density, horticultural management, and gross crop yield. The life span of the plantings is 25 years. The first crop year for the freestanding system is in the fourth year of production (Year 4), and in the third year for the tall spindle system (Year 3). Full production is achieved during the sixth year in both systems (Year 6). The timing of harvest is based on input from cider apple growers in Galinato et al. (2014) and Galinato and Miles (2017). Different cropping systems (rootstocks, training systems, and densities) will reach first harvest at different times and have different maximum potentials, but generally they achieve their full production at the same time (Robinson, 2004). The tall spindle system has greater crop yields, attributed to tree density and efficiency in the conversion of light energy into fruit that are both higher than a freestanding system (Robinson, 2004; Robinson and Lakso, 1991; Robinson et al., 2007). All these specifications are factored in the estimation of production costs and returns.
Assumed specifications of a 10-acre cider apple block of freestanding and tall spindle systems used in the economic analysis of the two systems.
The mechanical harvesters available in the United States are not typically used for cider apples, so we conducted an informal survey of manufacturers and suppliers of mechanical harvesters in the United States for shake-and-catch and over-the-row harvesters, including Littau Harvester Inc., Oxbo International Corp. (Lynden, WA), Orchard Machinery Corp. (Yuba City, CA), and Erick Nielsen Enterprises, Inc. (Orland, CA) (F. Brown, personal communication; S. Korthuis, personal communication; D. Mayo, personal communication; E. Nielsen, personal communication; Oxbo International Corp., unpublished data). Interviews were conducted by e-mail to gather data about harvesters, such as prices, picking efficiency, and types of fruits or tree nuts harvested.
The cost of a shake-and-catch harvester in the United States ranges between $220,000 and $275,000 excluding delivery fees and applicable taxes. For our analysis, we use $220,000 because this is the best-case scenario for harvester cost and is also consistent with the cost range of the over-the-row harvester we used in our analysis (we used the lowest cost harvesters for both scenarios). The purchase costs of over-the-row harvesters in the United States range from $95,000 to $430,000. The harvester is less expensive when it is pulled by a tractor compared with when the harvester is a self-driven unit. A self-driven over-the-row harvester used for berries costs more than $300,000, has smaller cup capacities, and will only be suitable for small-fruited apples such as crabapple (M. ×domestica) cultivars Hewe’s Virginia Crab, Dolgo, Manchurian, Evereste, and Puget Spice (Miles and King, 2014). Over-the-row harvesters that are used for cherries, olives, and grapes have bigger cups that can accommodate the various sizes of cider apple cultivars. The price of an over-the-row harvester customized for cider apples will be dependent on specifications, and for this study, we used the Korvan 930 (Oxbo International Corp.) tree fruit harvester that costs $95,000 if purchased new and customized for apples. A tractor with at least 63 horsepower and power-take off compatibility is needed to pull this harvester. This harvester is being used in the proof-of-concept experiment at WSU NWREC and preliminary data are included in this study.
The shake-and-catch harvester is assumed to harvest 90% of the total yield, and the remaining 10% are knocked off the trees but not captured and fall to the ground. This picking efficiency is the average rate for harvesting tree nuts and small fruits based on data collected from our informal survey (D. Mayo, personal communication; E. Nielsen, personal communication) and from Vossen and Ferguson (2016), and it was adopted for cider apples in this study as a conservative baseline. The over-the-row harvester is assumed to harvest 70% of the total yield; 10% are left on the trees and are manually harvested afterward, and the remaining 20% fall out of the harvester onto the ground (Kendall et al., 2021).
The freestanding orchard is pruned manually, and a hedger is used to prune the tall spindle system to maintain the tree shape necessary for the over-the-row mechanical harvester. For this study, we used cost information obtained from the manufacturer of the hydraulically driven single-sided hedger used in the proof-of-concept study at the WSU NWREC cider apple research orchard and data collected for the use of the hedger in that study (Kendall et al., 2022). The same tractor is used for the hedger and the over-the-row harvester. Table 2 summarizes the information of the mechanical harvesters and hedger used in this study.
Description of mechanical harvester and hedger for harvest and pruning of cider apples used in the economic analysis of freestanding and tall spindle systems.
In addition to the assumptions presented in Tables 1 and 2, the following assumptions are made for both the freestanding and tall spindle orchard systems: 1) the area of the total farm operation is 100 acres of mixed fruit trees, which is the average orchard size in Washington in 2020 (Kershner, 2021; Washington Apple Commission, 2021); 2) production costs are based on a 10-acre cider apple block within a 100-acre orchard because this is the median operation size of the three cider apple growers interviewed for this study; 3) the total value of bare agricultural land (including water rights) is $15,000/acre; 4) cultural practices, except pruning in the tall spindle system, are done by hand; 5) the irrigation infrastructure is a dual system—drip and sprinkler, and water is provided through a public irrigation district; 6) the gross return is $378 per 900-lb bin or $0.42/lb based on grower interview; 7) physical damage (bruises and cuts) to the mechanically picked fruit is considered negligible if fruit are pressed immediately, so no fruit are discarded; therefore, yield loss is only represented by ground-falls due to the FSMA rule; 8) management cost is valued at $500/acre by a foreman or head supervisor overseeing the entire 100-acre farm; and 9) interest on investment represents a 5% opportunity cost to the enterprise, which represents forgone earnings for investing money in the orchard rather than in an alternative activity, and funds borrowed to finance the investment. Unless specified, the listed assumptions are adopted from Galinato and Miles (2017).
Estimated costs and returns are entered in spreadsheets (Excel; Microsoft Corp. Redmond, WA) and calculated. Production costs are classified into variable costs, comprising orchard operations, harvest activities, materials, and maintenance and repairs; and fixed costs, including depreciation on capital, interest, taxes, insurance, management, and amortized establishment costs. The fixed costs of land and physical capital, excluding the mechanical aids, are calculated for the whole 100-acre farm enterprise and allocated across each unit of production. The purchase costs of mechanical aids (harvester in both orchard systems, and hedger in the tall spindle system) are allocated for the 10-acre cider apple block only. The calculation of interest and depreciation costs for the mechanical hedger account for the asset’s estimated useful life of 25 years, tied to the life of the cider apple planting, whereas those costs for the mechanical harvesters account for a useful life tied to the total number of years with harvest. These are 22 years in the freestanding system, and 23 years in the tall spindle system. Repairs and maintenance, interest, and depreciation costs of the harvester are incurred starting in the fourth year of production in the freestanding system and in the third year of production in the tall spindle system, which mark the respective system’s first fruit harvest.
Break-even return is the level of return at which the gross return exactly covers the production costs (i.e., gross return = production cost), thus there is neither loss nor gain. Break-even returns during full production are calculated at four levels: the return required to cover total variable costs; the return necessary to cover total cash costs assuming no outstanding loans or land rent; the return required to cover total cash costs and machinery depreciation; and the return required to cover total production costs associated with cider apple production. The economic feasibility of investing in the cider apple orchards is further assessed by using the net present value (NPV) and discounted payback period. The NPV is a common investment criterion used to evaluate whether a change in practice is more profitable than business-as-usual, such as adoption of precision technology in agriculture (Larson et al., 2016; Shockley et al., 2019). The NPV is also used to evaluate whether a new crop enterprise, such as cider apples, is economically feasible (Farris et al., 2019), or which among different orchard systems is a relatively more profitable investment opportunity, such as comparing different cultivar–rootstock combinations, tree planting densities, cultivar performance in newly planted orchard vs. top-grafted established orchard, or organic and integrated fruit production systems (Bechtel et al., 1995; Bradshaw et al., 2016; Robinson, 2008; Robinson et al., 2007).
The NPV is the sum of net cash flows (revenue minus costs) over the lifetime of the investment (assumed to be 25 years in this study), discounted to the present day. A positive NPV means that the investment is profitable. If comparing investment options or scenarios, the ones with larger NPVs signal that they are better investments. The discounted payback period gives the number of years it would take to recoup an investment. Discounting is used to estimate the present value of future payments: present value = future dollar amount /(1 + d)n, where d is the discount rate and n is the number of years before the expected payment is received (Bechtel et al., 1995). The interest rates used by the seven studies cited earlier to discount cash flows range from 5% to 15%. In this study, we use the midpoint of the range, 10%, to calculate the NPV of the base scenarios. It is the same discount rate used by Larson et al. (2016) for their baseline analysis and close to the rates that Bechtel et al. (1995) and Farris et al. (2019) used, which are 9% and 12%, respectively. There is inherent financial risk in establishing a specialty cider apple orchard, and this risk is augmented by an orchard design that integrates mechanical aids. For this reason, the midpoint discount rate is used rather than the rates toward the lower bound of the range. Further, we undertake financial risk analysis by examining the sensitivity of expected profit to uncertainty in the following variables: discount rate, output price, crop yield, production area of cider apples, and harvester cost.
Results
Estimated costs and returns
The estimated annual costs and returns for a 10-acre block of cider apples given two orchard systems are presented side by side in Fig. 3. During the first year of establishment (Year 1), the variable costs are quite high, ≈$10,000/acre in freestanding and $23,000/acre in the tall spindle system. Approximately 80% of these costs are attributed to soil preparation and planting. Over the life of the orchard, the variable costs of the tall spindle system are higher than that of the freestanding system, due to the cost of field activities associated with maintaining a higher tree density orchard (≈2.5 times more trees per acre than the freestanding system). The total production costs per year, on average, during full production (i.e., Year 6 to Year 25, or Year 6+ hereafter) are estimated as $9109/acre for the freestanding system and $10,736/acre for the tall spindle system.
Comparison of the estimated annual costs and returns of the free standing (FS) and tall spindle (TS) cider apple orchard systems during the first five years of establishment (Year 1 to Year 5) and full production years (Year 6+); 1 tree/acre = 2.4711 trees/ha, $1/acre = $2.4711/ha.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
The fixed costs in Year 2 through Year 6+ are 67% and 57% of total production costs, on average, in the freestanding and tall spindle system, respectively, and thus are significant. Figure 4 presents the different components of fixed costs during Year 6+, demonstrating each component’s magnitude relative to others within each system. All depreciation and interest costs of machinery and building requirements make up 32% of total fixed costs in the freestanding and 17% of total fixed costs in the tall spindle system. Of these figures, the share of the mechanical harvester in the freestanding system is 25% and the shares of the mechanical harvester and hedger (and its fork attachment) in the tall spindle system are 10% and 1%, respectively. The highest shares in total fixed costs are attributed to the amortized establishment cost in both systems, incurred during the establishment years (minus any revenues in those years) that must be recaptured during Year 6+ of the cider apple block.
Breakdown of fixed cost components during full production (Year 6+) of cider apples as percentage of total fixed costs in the freestanding and tall spindle orchard systems. *Sum of corresponding depreciation and interest costs.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Fruit harvest begins in Year 4 for the freestanding system, and during Year 3 for the tall spindle system. In both cases, the cider apple orchard is anticipated to achieve full production in Year 6. Both orchard systems generate positive net returns once they reach Year 5. Crop yield is a key factor affecting profitability. There is a yield reduction of 10% and 20% in the freestanding and tall spindle systems, respectively, based on the assumptions regarding the efficiency of the harvesters. Thus, in Year 6+ the net yield is 24,300 lb/acre in the freestanding and 36,000 lb/acre in the tall spindle system. Because of the higher net yields in the tall spindle system, the gross returns are also higher than the freestanding system (Fig. 3).
Break-even return during full production
Table 3 shows the break-even returns for different levels of cost recovery during full production. The first break-even return is the amount required to cover total variable costs—$0.13/lb and $0.12/lb, respectively, for the freestanding and tall spindle systems. Below this level, it is not economically feasible to produce cider apples even in the short run. The second break-even return is the amount necessary to cover total cash costs, assuming no outstanding loans or land rent, which would provide financial viability in the short run. The third break-even return represents the amount required to cover total cash costs and depreciation of fixed capital (excluding land), which would provide financial stability over the long run. The fourth break-even return is the most important because it means the grower can recover total production costs, including the opportunity cost of investments on land, machinery, and management. This break-even return is $0.37/lb for cider apples in the freestanding system during full production, assuming a net yield of 24,300 lb/acre. For the tall spindle system, the total cost break-even return is $0.30/lb, assuming a net yield of 36,000 lb/acre.
Break-even return at different levels of enterprise costs during years when the orchard is in full production (Year 6+) for cider apples grown in a freestanding or tall spindle system.
The fourth break-even returns are lower than the current market price of $0.42/lb by 11% for freestanding and 29% for the tall spindle system. This result implies that receiving a price above the total cost break-even returns will generate a profit, which is the return over and above all costs associated with producing cider apples.
NPV and payback period
As an investment criterion, the decision rule for the NPV is to move forward with the investment when NPV is greater than or equal to zero and reject the investment if otherwise. If NPV is neutral (= 0), that means the cider apple orchard investment neither results in gains nor losses for the grower. If NPV is positive, that means the present value of the revenues is greater than the present value of the costs, thus the investment generates a profit (Boardman et al., 2014).
Given the assumptions in this study and a discount rate of 10%, the NPV of the 10-acre cider apple orchard investment over its 25-year lifetime is negative (–$123,922) for the freestanding system and positive for the tall spindle system at $41,074. These results mean that at this discount rate, the freestanding system is not economically feasible. In contrast, for the tall spindle system the payback period is 7.48 years, considering total cash costs only, and 21.14 years when accounting for all production costs (Table 4). At a 5% discount rate, on the other hand, the NPVs of both systems are positive, although the NPV of the tall spindle system is higher. The payback period of total production costs is 19.51 years in the freestanding system and 13.08 years in the tall spindle system.
Assessment of economic feasibility of freestanding and tall spindle cider apple orchard investments based on net present value (NPV) and payback period, and different discount rates.
How do we reconcile the positive estimated net profit and low break-even return of the freestanding system, both pointing to its profitability, with its negative NPV at 10% discount rate? It must be noted that NPV will be affected by the choice of discount rate, which is determined by the investor’s assumptions about inflation, risk, and potential earnings of alternative investments (or opportunity costs). There is inherent financial risk in planting specialty cider apples, and using mechanized harvest and pruning introduces an extra risk. The break-even discount factors, where NPV = 0, are ≈6.88% for the freestanding system and 10.78% for the tall spindle system.
Figure 5 plots the cumulative discounted profits of the cider apple orchard for the two systems over 25 years at 10% discount rate. The payback period is the point where the profit curve intersects with time (x-axis). The cumulative profits of the freestanding system are higher than in the tall spindle system until Year 5 due to its lower production costs, after which the profit curve for the tall spindle system is greater due to its higher yields.
Comparison of payback periods of the cider apple block investment for the freestanding vs. tall spindle orchard system over the expected 25-year productive life of the orchard; 1 tree/acre = 2.4711 trees/ha.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Output price sensitivity analysis
We estimated the impact of changes in the price of cider apples, all else constant, on the profitability of investment. As expected, the NPV of the tall spindle system is higher than that of the freestanding system at all price points shown (Fig. 6, top). For NPV > 0, the price needs to be at least $0.51/lb in the freestanding system and at least $0.41/lb in the tall spindle system. Figure 7 shows the cumulative net returns of the two systems over the life of the orchard. If the price is $0.54/lb, the payback period for the freestanding system is ≈20 years, compared with ≈17 years if the price is $0.58/lb. Similarly, the payback period for the tall spindle system is ≈13 years if the price is $0.54/lb and ≈11 years if the price is $0.58/lb.
Assessment of economic feasibility of the freestanding and tall spindle cider apple orchard investments based on the net present value, given different market prices of cider apples (top), different rates of crop loss during the fruit bearing years (center), and different production areas (bottom); $1/lb = $2.2046/kg, 1 acre = 0.4047 ha.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Comparison of payback periods of the freestanding cider apple orchard system (top) and the tall spindle cider apple orchard system (bottom) over the expected 25-year productive life of the orchard given different output prices; $1/lb = $2.2046/kg.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Harvested yield sensitivity analysis
Figure 6 (center) illustrates the changes in expected profit given different levels of harvested yield, which are attributed to the efficiencies in mechanical harvesting, when all else is constant. The higher the picking efficiency, the lower the crop loss, and hence, the higher the harvested yield. At 10% discount rate, the NPV of the freestanding system is negative even if there is no crop loss. On the other hand, the NPV of the tall spindle system becomes negative when crop loss is ≈24%, translating to 76% picking efficiency. Figure 8 shows the cumulative net returns for the two orchard systems. When crop loss is 20%, the payback period is ≈21 years in the tall spindle system, but if there is no crop loss, the payback period is ≈14 years.
Comparison of payback periods of the freestanding cider apple orchard system (top) and the tall spindle cider apple orchard system (bottom) over the expected 25-year productive life of the orchard given different rates of crop loss.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Production area sensitivity analysis
All fixed costs in the baseline scenario are allocated to the entire 100-acre diverse orchard operation, except for the mechanical harvester (both systems) and hedger (tall spindle only) that are only used for the 10-acre cider apple block. We estimated the change in cider apple production area, all else constant, on the profitability of growing cider apples given the two different orchard systems. An increase in production area translates to an increase in the production units of cider apples. Figure 6 (bottom) shows that it is not economically feasible to produce cider apples when the production area is less than 31 acres in the freestanding system. On the other hand, the tall spindle system is not economically feasible if the cider apple block is less than 8 acres. Figure 9 shows the payback periods given changes in the production area of cider apples. The payback period is ≈24 years if the production area of the freestanding system is 35 acres. For the tall spindle system, the payback period is 19 years if the production area is 15 acres and 16 years if the production area is 35 acres. As production area becomes larger, more cider apples are produced, and the cumulative total costs decline due to fixed costs declining as these costs are spread over a larger scale of production.
Comparison of payback periods of the freestanding cider apple orchard system (top) and the tall spindle cider apple orchard system (bottom) over the expected 25-year productive life of the orchard given different production areas; 1 acre = 0.4047 ha.
Citation: HortTechnology 32, 3; 10.21273/HORTTECH04964-21
Harvester cost sensitivity analysis
The purchase costs of the mechanical harvesters are sizeable: $220,000 for the shake-and-catch harvester in the freestanding system, and $95,000 for the tractor-pulled over-the-row harvester in the tall spindle system. Using a 10% discount rate, NPV = 0 for the freestanding system if the harvester purchase price is about $39,000, which is 83% lower than the baseline. For the tall spindle system, NPV = 0 if the harvester price is 58% higher than the baseline, amounting to about $150,000. Given a lower discount rate of 5%, the NPV = 0 if the harvester price is 64% higher in the freestanding system and 568% higher in the tall spindle system compared with their respective baseline prices.
Discussion and conclusions
At present, mechanical harvesters and hedgers are not used in cider apple orchards in the United States; however, they are commonly used in Europe where cider apple production is well established. Through this study, we provide information on the costs, returns, and net profit that growers may realize if they plant cider apple orchards suitable for mechanization. The study’s goals are to provide cider apple industry members ideas for how mechanization could be economically feasible for their enterprise, and to inform cider apple growers that harvest mechanization is available and could be adapted or customized for their crop.
The analysis was carried out for two orchard systems that have different production specifications and requirements and given current prices of commercial machinery. We evaluated the economic feasibility of the freestanding and tall spindle orchard systems that use mechanization in their pruning (tall spindle system) and harvest activities (both systems). On the basis of the assumptions of the study, results show that a 10-acre cider apple block planted in either of the orchard production systems and using mechanization technology, is potentially an economically feasible investment depending on the investor’s assumptions about risk, inflation and opportunity costs. Net returns during full production are positive. The break-even returns of producing cider apples in both systems are lower than the current market price of cider apples—$0.37/lb for freestanding and $0.30/lb for tall spindle system compared with the baseline price of $0.42/lb. All these results suggest that both systems are profitable ventures. However, using a baseline discount rate of 10%, the NPV of the freestanding system is negative, whereas the tall spindle system has a positive NPV, implying that in the case of the freestanding system, a grower would be better off investing in an alternative enterprise. Note that the discount rate used in evaluating an investment over its lifetime reflects the perception of risk for that investment—that is, the higher the rate, the higher the perceived risk. An NPV ≥0 in the freestanding and tall spindle system was achieved only when the discount rates used in evaluating the investments are equal or less than 6.88% and 10.78%, respectively.
Sensitivity analyses show the conditions when each system would be economically feasible (i.e., NPV ≥0). In the case of the freestanding system, one of the following must be met, while holding all else constant: the market price of cider apples does not go below $0.51/lb; production area is more than 31 acres; or the mechanical harvester price is 83% lower than the base price. In the case of the tall spindle system, one of these conditions must be satisfied: market price of cider apples is greater than $0.41/lb; crop loss is not greater than 24%; production area is at least 8 acres; or the mechanical harvester costs no more than $150,000, which is ≈58% higher than the baseline price.
Results also show that the tall spindle system is more profitable. Its estimated net returns during full production are nearly 4 times higher than that of the freestanding system. A grower can recoup total production costs in ≈13 years. The greatest advantages of the tall spindle system are an earlier start of fruiting, which begins in Year 3 compared with Year 4 in the freestanding orchard, and a higher crop yield that is almost twice more per acre than that of the freestanding system. An added advantage of hedging in the tall spindle system is reduced reliance on labor for pruning, which may become more significant as labor costs increase.
Benefit–cost considerations of mechanization are the primary determinants of its adoption in cider apple orchards. Mechanical harvesters are expensive, estimated to comprise 25% and 10% of total fixed costs in freestanding and tall spindle systems, respectively. Utilization of the technology tends to be more favorable for larger farms due to economies of scale—that is, as the scale of operation increases, the cost is spread over larger volumes of output. The sensitivity analysis of profit considering production area supports the economies of scale, where the NPVs are higher and the payback periods are shorter while the production area increases.
Cider apples are well suited to mechanical harvest because fruit are immediately pressed, thus any bruises or slices due to the machinery are negligible to processors. However, the net yield is an important factor driving the gross returns, which means that the picking efficiency of the harvester is also important. Harvester efficiency could potentially be improved for cider apples. For example, for the over-the-row harvester included in the proof-of-concept study at WSU NWREC, adjustments are being tested to prevent loss of fruit due to falling out of the harvester.
The main limitation in our analysis is that both types of harvesters are not currently used to harvest cider apples in commercial orchards, which introduces uncertainty in economic outcomes at the farm level. For this reason, we examined sensitivity scenarios of the effects of changes in important economic variables on farm profit—specifically, output price, harvested yield tied to picking efficiency, production area, and harvester cost. Furthermore, the proof-of-concept study at WSU NWREC collects data to address this limitation for the over-the-row harvester. In the case of the shake-and-catch harvester, the only available information at present is based on applications to small-fruited crops like prunes, pistachios (Pistacia vera), and olives. In this study, we assumed that the average picking efficiency for cider apples was the same as for these crops. Field trials using a shake-and-catch harvester are recommended to address this caveat and obtain more precise data in relation to harvesting cider apples. Other considerations for growers regarding the suitability of mechanical harvest for cider apple orchards include orchard structure compatibility, topography limitations, and general machinery maintenance (Caplan et al., 2014).
Units
Literature cited
Alcohol and Tobacco Tax and Trade Bureau 2017a TTB Cider industry federal compliance training 2017 CiderCon. 7–10 Feb 2017 Chicago, IL
Alcohol and Tobacco Tax and Trade Bureau 2017b TTB Publishes industry circular explaining changes to criteria for hard cider tax rate TTB News and Events. 23 Dec. 2021. <https://www.ttb.gov/news/changes-to-hard-cider-rate-criteria>
Alexander, T., King, J., Scheenstra, E. & Miles, C. 2016 Yield, fruit damage, yield loss and juice quality characteristics of machine and hand harvested ‘Brown Snout’ specialty cider apple stored at ambient conditions in northwest Washington HortTechnology 26 5 614 619 https://doi.org/10.21273/HORTTECH03474-16
Autio, W. & Greene, D. 1990 Summer pruning affects yield and improves fruit quality of ‘McIntosh’ apples J. Amer. Soc. Hort. Sci. 115 3 356 359 https://doi.org/10.21273/JASHS.115.3.356
Bechtel, L., Barritt, B.H., Dilley, M.A. & Hinman, H.R. 1995 Economic analysis of apple orchard management systems with three varieties in central Washington. Washington State Univ Res. Bull. (Int. Comm. Northwest Atl. Fish.) XB1032 6 http://ses.wsu.edu/wp-content/uploads/2015/02/xb1032.pdf
Becot, F.A., Bradshaw, T.L. & Conner, D.S. 2016 Apple market expansion through value-added hard cider production: Current production and prospects in Vermont HortTechnology 26 2 220 229 https://doi.org/10.21273/HORTTECH.26.2.220
Biddlecombe, C.T. & Dalton, A. 2018 To investigate the effect of four timings of mechanical pruning on yield and fruit quality compared to a hand pruned control in an intensive ‘Gala’ M9 orchard planted as a fruit wall Acta Hort. 1228 97 104 https://doi.org/10.17660/ActaHortic.2018.1228.13
Boardman, A.E., Greenberg, D.H., Vining, A.R. & Weimer, D.L. 2014 Cost benefit analysis: Concepts and practice 4th ed. Pearson Harlow, UK
Bradshaw, T.L., Berkett, L.P., Moran, R.E., Garcia, M.E., Darby, H.M., Parsons, R.L., Kingsley-Richards, S.L., Griffith, M.C., Bosworth, S.C. & Görres, J.H. 2016 Long-term economic evaluation of five cultivars in two organic apple orchard systems in Vermont, USA, 2006–2013 Acta Hort. 1137 315 322 https://doi.org/10.17660/ActaHortic.2016.1137.44
Bradshaw, T.L. & Foster, J. 2020 Modified pruning intensities may reduce labor costs and improve profitability of growing dessert apple cultivars for cider production Acta Hort. 1281 243 250 https://doi.org/10.17660/ActaHortic.2020.1281.33
Brar, G. 2020 Pre-harvest, harvest, transport, trash, processing and grading 6 Dec. 2021. <https://ucanr.edu/sites/2020PistachioShortCourse/>
Brotons-Martinez, J.M., Martin-Gorroz, B., Torregrosa, A. & Porras, I. 2018 Economic evaluation of mechanical harvesting of lemons Outlook Agr. 47 1 44 50 https://doi.org/10.1177%2F0030727018762657
Calvin, L. & Martin, P. 2010 The U.S. produce industry and labor: Facing the future in a global economy U.S. Dept. Agr., Econ. Res. Serv. ERR-106
Caplan, S., Tilt, B., Hoheisel, G. & Baugher, T.A. 2014 Specialty crop growers’ perspectives on adopting new technologies HortTechnology 24 1 81 87 https://doi.org/10.21273/HORTTECH.24.1.81
Clark, M. 2017 Washington state’s agricultural labor shortage 13 Nov. 2020. <https://www.washingtonpolicy.org/publications/detail/washington-states- agricultural-labor-shortage>
Ewing, B.L. & Rasco, B.A. 2018 Food Safety Modernization Act produce safety rule compliance for United States hard cider producers using ground-harvested apples HortTechnology 28 6 698 705 https://doi.org/10.21273/HORTTECH04096-18
Farris, J., Peck, G.M. & Groover, G. 2019 Assessing the economic feasibility of growing specialized apple cultivars for sale to commercial hard cider producers Virginia Coop. Ext. AREC-46P. 6 Dec. 2021. <https://vtechworks.lib.vt.edu/handle/10919/47428>
Ferree, D.C. & Short, T.H. 1972 A slotting saw for mechanical pruning. Fruit crops research summary 60 1 2 Ohio Agr. Res. Dev. Ctr., Ohio State Univ. Columbus
Fitzgerald, J., Berrie, A., Jay, C., Copas, L., Worle, J., Arnold, G. & Thatcher, J. 2013 Developing cider orchards for modern cider production Asp. Appl. Biol. 111 1 3
Forshey, C. 1976 Training and pruning apple trees Cornell Coop. Ext. Bul. 112. 3 Jan. 2022. <https://ecommons.cornell.edu/handle/1813/17817>
Galinato, S.P., Gallardo, R.K. & Miles, C.A. 2014 2013 Cost estimation of establishing a cider apple orchard in western Washington Washington State Univ. Ext. Publ. FS141E
Galinato, S.P. & Miles, C.A. 2017 2015 Cost estimates of establishing and producing specialty cider apples in central Washington Washington State Univ. Ext. Publ. TB35
Galinato, S.P., Miles, C.A. & Alexander, T.R. 2016 Feasibility of different harvest methods for cider apples: A case study for western Washington Washington State Univ. Ext. Publ. TB32
Gallardo, R.K. & Zilberman, D. 2016 The economic feasibility of adopting mechanical harvesters by the highbush blueberry industry HortTechnology 26 3 299 308 https://doi.org/10.21273/HORTTECH.26.3.299
Kendall, A., Alexander, T.R., Lahue, G.T. & Miles, C.A. 2022 Summer mechanical hedging is effective for pruning of eight cider apple cultivars HortTechnology (in review)
Kendall, A., Alexander, T.R., Scheenstra, E. & Miles, C.A. 2021 Mechanization of cider apple production HortScience 56 9S S155 S156 (abstr.), https://doi.org/10.21273/HORTSCI.56.9S.S1
Kershner, J. 2021 Apple farming in Washington Washington State Historical Society. 27 Sept. 2021. <https://www.historylink.org/File/21288>
Larson, J.A., Velandia, M.M., Buschermohle, M.J. & Westlund, S.M. 2016 Effect of field geometry on profitability of automatic section control for chemical application equipment Precis. Agr. 17 1 18 35 https://doi.org/10.1007/s11119-015-9404-y
Masseron, A. 2002 Pommier, le Mur fuitier, hortipratic Centre Technique Interprofessionnel des Fruits et Legumes Paris, France
Mika, A. 1986 Physiological responses of fruit trees to pruning Hort. Rev. 8 337 378 https://doi.org/10.1002/9781118060810.ch9
Mika, A., Buler, Z. & Treder, W. 2016 Mechanical pruning of apple trees as an alternative to manual pruning Acta Sci. Pol. Hortorum Cultus 15 1 113 121
Miles, C.A. & King, J. 2014 Yield, labor, and fruit and juice quality characteristics of machine and hand-harvested ‘Brown Snout’ specialty cider apple HortTechnology 24 5 519 526 https://doi.org/10.21273/HORTTECH.24.5.519
Moulton, G., Miles, C., King, J. & Zimmerman, A. 2010 Hard cider production and orchard management in the Pacific Northwest Pacific Northwest Ext. Publ. PNW621
National Council of Agricultural Employers 2021 Data and statistics—the AEWR national average 1 Sept. 2021. <http://www.ncaeonline.org/resources/data-and-statistics/>
Peterson, D.L. 2005 Harvest mechanization progress and prospects for fresh market quality deciduous tree fruits HortTechnology 15 1 72 75 https://doi.org/10.21273/HORTTECH.15.1.0072
Peterson, D.L. & Wolford, S.D. 2003 Fresh-market quality tree fruit harvester part II Apples. Appl. Eng. Agr. 19 5 545 548 https://doi.org/10.13031/2013.15314
Produce Safety Alliance 2016 FSMA produce safety rule regulatory reference table 16 Sept. 2021. <https://www.govinfo.gov/content/pkg/FR-2015-11-27/pdf/2015-28159.pdf>
Robinson, T.L. 2004 Effects of tree density and tree shape on apple orchard performance Acta Hort. 732 405 414 https://doi.org/10.17660/ActaHortic.2007.732.61
Robinson, T.L. 2008 The evolution towards more competitive apple orchard systems in the USA Acta Hort. 772 491 500 https://doi.org/10.17660/ActaHortic.2008.772.81
Robinson, T.L., DeMarree, A.M. & Hoying, S.A. 2007 An economic comparison of five high density apple planting system Acta Hort. 732 481 489 https://doi.org/10.17660/ActaHortic.2007.732.73
Robinson, T.L. & Lakso, A.N. 1991 Bases of yield and production efficiency in apple orchard systems J. Amer. Soc. Hort. Sci. 116 2 188 194 https://doi.org/10.21273/JASHS.116.2.188
Sander, G.F., Magro, M., Macedo, T.A., Peters, F.K., Rufato, L., Rufato, A.R. & Robinson, T.L. 2018 ‘Gala’ apple performance with mechanical hedging in southern Brazil growing conditions Acta Hort. 1228 109 112 https://doi.org/10.17660/ActaHortic.2018.1228.15
Sansavini, S. 1978 Mechanical pruning of fruit trees Acta Hort. 65 183 197 https://doi.org/10.17660/ActaHortic.1978.65.28
Sazo, M. & Robinson, T. 2013 Recent advances of mechanization of the tall spindle orchard system in New York state New York Fruit Qrtly. 21 1 15 20
Searcy, J., Roka, F.M. & Spreen, T.H. 2012 The impact of mechanical citrus harvester adoption on Florida orange juice growers 1 Sept. 2021. <https://ageconsearch.umn.edu/record/124711>
Shockley, J., Dillon, C. & Shearer, S. 2019 An economic feasibility assessment of autonomous field machinery in grain crop production Precis. Agr. 20 2 1068 1085 https://doi.org/10.1007/s11119-019-09638-w
U.S. Department of Agriculture, National Agricultural Statistics Service 2021 NASS – Quick Stats [Data set] 6 Dec. 2021. <https://quickstats.nass.usda.gov/>
U.S. Food and Drug Administration 2019 FSMA final rule on produce safety: Standards for the growing, harvesting, packing, and holding of produce for human consumption 16 Sept. 2021. <https://www.fda.gov/food/food-safety- modernization-act-fsma/fsma-final-rule- produce-safety#exemptions>
Vossen, P. & Ferguson, L. 2016 Mechanical harvesting of California olives 25 Oct. 2021. <http://cesonoma.ucdavis.edu/files/27479.pdf>
Washington Apple Commission 2021 Washington orchards: Meet your grower 27 Sept. 2021. <https://bestapples.com/washington-orchards/growers/#>
Washington State Tree Fruit Association 2020 Annual crop summary 2019–20 marketing season Washington State Tree Fruit Assoc. Yakima, WA
Waterbury, M. 2018 WSU developing orchard system for mechanical cider apple harvest 1 Sept. 2020. <https://www.capital press.com/specialsections/innovations/wsu-developing-orchard-system-for-mechanical- cider-apple-harvest/article_3d27b159-e2b0- 539a-8ccc-89fba80c1169.html>
Whiting, M., Gordon, J., Lewis, K. & Musacchi, S. 2015 Mechanically pruning apple and sweet cherry increases efficiency HortScience 50 9S S226 (abstr.), https://doi.org/10.21273/HORTSCI.50.9S.S1