Costs and profitability of cherry growing at different planting densities

Alessandro Palmieri - University of Bologna (IT)
Technical-scientific committee of Cherry Times

Introduction

The evolution of cherry cultivation towards modern management forms and innovative cultivation techniques has stimulated significant research, including economic analysis, comparing these modern approaches with traditional ones. In particular, several studies have compared wall-trained cherry orchards with different planting densities and covering techniques to identify economically optimal solutions  [1]. 

Conversely, there are fewer studies regarding volume-based cultivation systems because, by their nature, they do not lend themselves to intensification levels comparable to wall-trained forms and also highlight limitations in the application of innovative covering techniques for protection (multi-tasking anti-insect) and in terms of practical management.

However, the still significant presence of volume-based cultivation forms, even in the northern regions of Italy, makes it interesting to synthetically evaluate the economic and financial aspects associated with intensification and the presence of coverings in this type of cultivation.

For this reason, the results of a recent study aimed at highlighting the economic effects of intensification and covering on volume-based cultivation forms are presented, evaluating the results for forms with increasing planting densities without covering, or protected by a combined anti-hail and rain system.

Methodology

The study compared 3 plantations of the common cultivar Grace Star with increasing density (low, medium, and high) and without covering, located between the provinces of Modena and Forlì-Cesena, with the main characteristics outlined in table 1. As noted, the lowest density considered is about 200 units per hectare, in a plantation trained with traditional vase and with an irrigation system for emergency interventions only.

For the medium density, a plantation of 660 plants per hectare, trained with multi-axis pot, was considered, while for the high density, the studied plantation has a density of 1,250 plants/ha. The study is further complemented by the analysis of a fourth cherry orchard with the same characteristics as the medium density one (660 plants/ha), but equipped with anti-hail and rain netting, for appropriate comparisons.

The duration of the plantations was considered to be 30 years for the low density one, 25 years for the medium density ones, and 20 years for the high-density one.

The adopted methodology is that of cost-revenue analysis, which involves defining the annual flows of cash inflow and cash outflow of investments, discounting them (with a discount rate of 5%), and then calculating the main economic and financial indicators.

The technical and economic data were defined based on the average results of the last 5 years (2019-2023), and therefore should be related to the environmental conditions of the reference period.

As observable, with the increase in plant density, similar to wall-trained plantations, there is a progressive increase in the harvesting yield, from about 14 kg/hour for low density to 22 kg/hour for high density. Regarding the two medium-density plantations, a difference of about 1 kg/hour was observed due to the better quality of the fruits harvested in the covered plantation, less prone to hail or rain damage, resulting in faster field selection operations.

RESULTS

Table 2 summarizes the main economic parameters of the surveyed plantations, namely plantation and cultivation costs, average productive yield in full production, corresponding average annual costs in full production phase, and average selling price during the analyzed period.

The most differentiating economic area among the examined plantation types is undoubtedly represented by the plantation and cultivation costs, which, it should be remembered, include not only the costs to be incurred in the year of plantation but also those of the cultivation phase, which from an economic point of view is considered concluded the first year in which the annual revenues exceed the corresponding costs.

That being said, for a low-density plantation, the overall expenditure for planting and years of cultivation is around 25,000 euros/ha, while the cost rises to 45,000 euros/ha for medium density and reaches almost 54,000 euros/ha for high density.

The presence of anti-hail and rain systems inevitably considerably increases the cost, due to the presence of covering nets and related supports, which bring the total expenditure of the medium-density cherry orchard analyzed to around 100,000 euros/ha.

The average annual productive yield in full production phase is equally diversified, starting from 9.5 tons/ha for low density, increasing to 13 tons/ha for medium, and 15 tons/ha for high density.

However, the highest productivity is observable in the covered plantation, which, even considering the presence of a minimal percentage of damage in the years examined, recorded an average yield of 16 tons/ha, about 23% higher than the analogous uncovered medium-density plantation.

The average cultivation costs in full production phase range from 15,000 to 25,000 euros/ha approximately and are largely influenced by the considered productive yield and the consequent harvesting cost, which, as known, constitutes by far the largest expense in cherry farming.

The most expensive plantation is once again the one equipped with covering, both for the higher productive yield and for the management operations of the protection nets, which overall raise the cost by about 14% compared to the analogous uncovered medium-density plantation.

The higher quality of the produced fruits also results in a higher average selling price for the covered plantation, which, based on the values reported in the last five years for the Emilia-Romagna area, is around 3.40 euros/kg, compared to 3.10 euros/kg for the uncovered medium-density plantation.

Among the uncovered cherry orchards, the one with medium density is capable of achieving the highest remuneration for the quality (size) of its fruits. The high-density plantation is priced at around 3 euros/kg on average, while the low-density one is just below, at 2.95 euros/kg.

The differences, in any case, are quite contained regarding the effect on sizes due to intensification, while the plus due to the presence of covering (+10%) is decidedly more significant, resulting in less presence of waste product. Once the economic parameters are defined, Table 3 reports the main financial indicators defined by discounting the cash flows.

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The Net Present Value (NPV), given by the simple sum of discounted cash flows, is a first eloquent indicator of the economic feasibility of any investment and, among the 4 examples analyzed, it always turns out to be largely positive, demonstrating how cherry trees, in the considered area, are in any case capable of offering a good level of economic margin.

In particular, among the uncovered orchards, the NPV rises from 96,000 euros/ha for the low-density one to 142,000 euros/ha for the high-density one. The medium-density orchard shows an NPV of around 130,000 euros/ha without coverage and just below 175,000 euros/ha with coverage.

The Internal Rate of Return (IRR), a reference indicator for evaluating the profitability of invested capital, stands just below 17% for the medium-density orchard with coverage, evidently due to the significantly higher initial expenditure, while in other cases without coverage, the observed return is between 21 and 23%.

The values reported refer to the average liquidation prices mentioned earlier, but it is very useful to assess the sensitivity of the different orchards to changes in price, defining threshold values that allow for a positive NPV. Defining the minimum price that allows the investment to recover the costs incurred is, in fact, an important parameter for evaluating riskiness.

Among the cases considered, it is precisely the medium-density orchards that show the highest threshold prices, respectively amounting to 2.04 and 2.22 euros/kg, due to the relationship between productive yield and planting and cultivation costs. For the high-density orchard, on the other hand, minimum prices of 1.83 euros/kg are sufficient, and for the low-density one, 1.93 euros/kg.

Regarding the comparison between orchards, the NPV and IRR are certainly useful for a direct comparison of the two case studies with intermediate density, respectively with and without coverage, since the economic life of the investments is the same. Conversely, the different duration of the investment found in the comparison between the different densities of the considered orchards makes these indicators unsuitable for direct comparison.

More useful in this case is the analysis of the indicator known as Equivalent Annual Annuity (EAA), which expresses the NPV in the form of an annuity, allowing for a comparison between investments of different duration. In the cases examined, the indicator assumes a value directly proportional to the density of the orchard, ranging from 6,300 euros/ha for the low-density one to 9,300 euros/ha for the medium-density one, up to almost 11,500 euros/ha for the high density one.

Equally useful is the consideration of the time to recover invested capital (TRC), which confirms what is already present in the literature for wall orchards, namely a faster return of invested capital observable for high density, despite the higher initial expenditure.

However, since the differences in density are rather small compared to wall orchards, the TRC varies by only one year, from 7 years for high density to 8 for medium and low density. Orchard coverage, on the other hand, increases the TRC to 10 years, despite highlighting the highest value of EAA (12,400 euros/ha).

CONCLUSIONS

As clearly shown by the concise data presented, it can certainly be affirmed that cherry trees in Emilia-Romagna are still a profitable investment, unlike most fruit species that have long seen their economic sustainability undermined.

Regarding the comparison between different densities for volume forms, however, it can certainly be concluded that there is no single answer, as the different orchards present strengths and weaknesses that make the choice quite subjective. The increase in density generates a higher initial expenditure, but under the conditions of the last five years, it also determines overall higher economic and financial parameters, as well as a faster return of invested capital.

Weather conditions, increasingly unpredictable, certainly play an important role in guiding choices towards orchards with coverage: the significant increase in cost registered for orchards in volume obviously requires a higher minimum price to reach the break-even point and slows down the return of capital, however, remaining the most performing investment among the 4 examined in terms of average annual economic return (EAA).

In the case of further increases in extreme weather events (frequency of hailstorms and concentration of rainfall), the convenience indicator will increasingly move towards coverage, also due to the well-known consequences of cracking damage on harvesting efficiency and, consequently, on production costs.

Alessandro Palmieri, Andrea Casalboni
Department of Agri-Food Sciences and Technologies - University of Bologna (IT)

[1] See, for example: R. Ghelfi, A. Palmieri (2015). Cost and profitability analysis. Does quality pay off? Fruit-growing Magazine (3), W. Monari et al. (2021). Lights and shadows on the new cherry orchard covering systems. Fruit-growing Magazine (4), R. Ghelfi, A. Palmieri (2022). The cherry orchard planting: a sustainable investment? Fruit-growing Magazine (4), R. Ghelfi, A. Palmieri (2022). Planting a new cherry orchard system: evaluation of economic efficiency. Italus Hortus (29)

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