Brambles - Production Management and Marketing

Bulletin 782-99

Chapter 6 Marketing

Economics

The demand for fresh and processed raspberries and blackberries is increasing. Recent reports indicate that prices and sales are rising (Cross et al., 1993). Black, red, and purple raspberries can be grown successfully in Ohio. Black and red raspberries are the most popular. Blackberry acreage and yield are increasing as blackberries become more popular. Purple and yellow raspberries are less widely grown than the others, but demand is strong. Growers are talking about expanding their acreage over the next five to 10 years to meet the demand.

Figure 65. Small tractors and sprayers are available for closely spaced rows.

The decision to expand the raspberry or blackberry planting must take into consideration the soil, site, climate, disease, and plant spacing. These are the biological factors. The purchase of land, equipment, irrigation, and labor requirements are economic decisions. The allocation of land, labor, and capital are the responsibilities of the manager or the owner of the farm business. Economically, raspberries or blackberries are considered to be a medium- to high-risk investment because of a high initial investment, a delay for two or more years in returns, the biological factors including the climate (weather extremes), and the high volume of fixed costs.

The study, whose results are reported here, was carried out for the benefit of new growers, who wish to enter the business, and for the established grower who wants to employ new technology and to expand the operation. This report deals with the expected rate of return over a 12-year period of investment. Cash flows are important and will be included in a complete report. Growers need to consider the annual costs and expected returns.

Ohio enjoys the opportunity to market its fresh fruit to the millions of consumers who live in our 12 major cities. However, with more two-income families, opportunities for hand- or mechanically harvested fruit for fresh or processed markets are increasing rapidly. Consumers are time poor. Many consumers want their food delivered for easy and quick access. Consumers want different goods that are fresh, full of flavor, and good for their health. Therefore, this study was designed to consider three different markets-(1) pick-your-own, (2) ready, or hand-harvested, for either on- or off-farm sales, or (3) mechanically harvested for local immediate processing or individually quick frozen (IQF) for storage.

Each Marketing Option Has Risk

Pick-your-own (PYO) marketing opportunities may be limited if your location is away from a large population, but it has a low investment (Funt et al., 1988). Weather can hinder the amount of PYO berries. Hand-harvested marketing requires the management of additional seasonal workers. Mechanical harvest requires a business that can handle large volumes of berries in one day. Processed berry prices tend to change more rapidly than fresh berry prices.

The Facts About This Study

Individual costs were based on early 1997 prices. All raspberry or blackberry fields had trickle irrigation, tile drainage, and raised beds. Each system had the same insect and disease problems and weed management. Costs did not include a land charge, fumigation, or interest charge. Cost estimates were calculated for each year, with year zero as the year before planting and year one as the planting year. Costs in year zero include fertilizing the soil, soil cultivation, raised bed preparation, and soil establishment. Plants, trickle irrigation, trellis (if any), and weed control are some of the costs in the first year. From year one to year 12, labor, material, equipment, and overhead costs were estimated for each marketing system and farm size. Labor costs were hourly plus benefits with $11.00 plus 30% for the operation and $7.44 plus 15% for field labor. Tile drainage, a pickup truck, and a computer were considered overhead costs and were depreciated over their expected life. Other overhead components, as a telephone, marketing, road repair, and other costs, were anticipated annual costs. Overhead costs were different for small, medium, or large farms (Table 8 and 9).

The cost to refrigerate berries was calculated on systems having the floor ready for installation. The amount of berries stored per day and the number of days of storage use were estimated to indicate the relative cost of refrigeration (Table 10). The cost of refrigeration was included in the internal rate of return analysis for hand and mechanically harvested berries. The cost per pound to refrigerate berries was higher ($0.08/pound) for a 20-acre farm and lower for an 80-acre farm because of the amount of berries and days of use per year.

Equipment size and costs per hour varied among farm sizes (data not shown). Equipment prices were obtained from dealers in late 1996. Straight-line depreciation, insurance, repairs, housing, fuel, and lubrication were calculated for their expected life and as a per-hour cost. The number of hours of use increased, and the total years of life decreased as farm size increased. Fuel and lubrication were calculated at $1.26 per gallon of diesel fuel plus 20% for engine oil, filter, and labor. An annual water cost for irrigation and chemical application varied per farm size. This covered the initial construction cost, pump and pump repairs, and electricity.

Internal rates of return for each farm size, yield per acre, and price per pound received were calculated by using a Lotus 1-2-3 software program and personal computer. This method indicates the rate of return on the investment for the number of years that were calculated.

When comparing rates of return among prices, yields, or farm sizes, a 1% or higher return is considered significantly different. Growers should consider a system having a 12 to 15 percent return because this amount would be needed to purchase medium-priced land since no land charge was added to the cost. For persons not considering the purchase or rental of land, a rate of return higher than a bank certificate of deposit is considered a reasonable rate. However, when there is a high rate of inflation and/or increases in production costs, a new analysis should be completed. The reason for the internal rate of return analysis is to be able to compare different cost and return streams among systems, and therefore, more fairly consider the risk among different investments. By measuring the benefit of earning a dollar today rather than tomorrow or sometime in the future, the internal rate of return (a discounting procedure) will be higher when a return is earlier in the life of the planting, even though the same amount is earned later in the life of the planting given the same investment.

The Results of This Study

For raspberries, two systems are compared. The fall bearing 'Heritage' system has no trellis; bearing canes are mechanically pruned with a rotary mower. This system has the lowest annual production cost. The June-bearing raspberry system has a trellis for support and is hand pruned; bearing canes are removed by hand in the winter after harvest. Among the harvesting methods, the pick-your-own (PYO) system has the lowest cost since berries are harvested by the consumer.

A 2,000-pound average PYO yield per year over the life of the Heritage planting had the highest rate of return at $1.20 per pound (Table 11). For all farm sizes, the 3,000-pound average per acre at $1.10 and the 4,000-pound yield at $1.00 had a more desirable rate of return than 2,000 pounds at $1.20. In comparison, the June-bearing raspberry trellised system was not considered to be profitable at 2,000 pounds at $1.40 per pound for PYO (Table 14). Since there is a 3% higher return for every $0.10/pound increase in selling price, growers who produce an average of 2,000 pounds per acre should consider a PYO selling price of $1.70 or higher in 1997.

When considering hand-harvested Heritage or June-bearing trellised systems, it appears growers need to charge at least $1.00 more per pound for hand-harvested berries than PYO-harvested berries (Table 12 and 15). This is the price at the farm gate and does not include transportation to another location. However, for hand-harvested berries, a refrigeration cost is added to the cost (data not shown).

Machine-harvested raspberries are generally considered to be taken to a processor for freezing or juice. Low yields and few hours of machine usage per year increase the cost of machine-harvested berries. Both Heritage and June-bearing trellised systems have negative rates of return under these conditions (Tables 12 and 15). However, when growers with small farms are capable of producing an average of 3,200 pounds or more per acre, they are able to compete with larger farms. These growers should consider having their berries custom harvested with an efficient harvester as compared to ownership of a small inefficient machine.

Eastern thornless blackberries have increased in price and acreage in Ohio in recent years. While susceptible to low winter temperatures, they can have high average yields. In this study, growers having 4,000 pounds per acre of PYO blackberries should receive more than $1.30 per pound for a reasonable rate of return (Table 16). For growers who can average 5,000 pounds, $1.10 per pound is needed. For hand-harvested blackberries, an average yield per acre per year of 5,000 or 6,000 pounds should receive $2.00 per pound (Table 18).

With a large acreage per farm, thornless trellised blackberries may be mechanically harvested at $1.70 per pound (Table 19). Very firm ripe blackberries can be mechanically harvested and show potential for both a fresh or processed product based on a 1996 demonstration.

Conclusion

The demand for raspberries and blackberries is increasing. The initial establishment cost can exceed $5,000 per acre. The cost of producing berries has increased due to increases in labor, equipment, health, and family living costs. Growers need to be aware of their expected costs before they make a financial investment.

Estimated costs and returns over 12 years were used to determine the price that growers would need to make a profit or positive return on their investment. Growers need to compare different production systems and marketing options before they make a high investment.

They must consider the biological factors as much as the economical projections.

In this study, PYO 'Heritage' fall-bearing systems had the lowest annual cost and can be profitable for most growers at $1.20 to $1.40 per pound. June-bearing trellised systems require $1.50 to $1.70 per pound for PYO marketing if they produce an average of 2,000 pounds per acre. Hand-harvested berries require $1.00 to $1.10 more than the PYO selling price to have an equal rate of return.

Mechanically harvested raspberries and blackberries have shown great promise in Ohio. Machines need to harvest as many berries as possible in a short period of time, but must be used for about 120 hours per year. Machine-harvest costs can be lower than hand harvest under these conditions.

References

Cross, T., B. Turner, B. Strik, and D. Kaufman. 1993. Red raspberry economics. The cost of establishing and producing red raspberries in the Willamette Valley. Bulletin EM 8534. Oregon State University. pp. 1-17.

Funt, R. C., S. Bartels, H. Bartholomew, M. A. Ellis, S. T. Nameth, R. L. Overmyer, H. Schneider, W. J. Twarogowski, and R. N. Williams. 1988. Brambles: Production, Management and Marketing. Bulletin 783. Ohio State University Extension. pp. 54-57.