Apple imports could slash grower incomes by one third: peak body

Faced with the prospect that imports could cost growers a third of their income, Apple and Pear Australia has unveiled its strategy, the Aussie Apple Accord, to help the industry survive apple imports.

It envisages domestic production will be about 11% lower and farm income will be about 32% lower by 2014.

The average Australian orchard is 9.4 hectares and produces about 31 tonnes per hectare annually from about 1200 trees per hectare. The strategy, written by the Centre for International Economics, suggests apple consumption in Australia could be 17% higher, but adds there is a likelihood of imports achieving a 22% market share by about 2014.

The price of domestic apples is estimated to be 35% higher than the potential landed price of imported apples, although domestic wholesale prices are unlikely to fall by the full extent of the differential.

The accord, presented to Federal Agriculture Minister Joe Ludwig last week, outlines a $124 million plan, with funds from government and industry to help make the industry more competitive through investment in computerised irrigation, environmental covers, accelerated depreciation and packing house consolidation.

"It's going to be a tough time. We're not saying bail us out with a hand out," says general manager of Apple and Pear Australia, Jon Durham.

The Centre for International Economics report notes the relaxation of quarantine restrictions was expected to see the introduction of imported apples from China, New Zealand and the United States within the next few years.

“This represents a significant challenge for the Australian apple industry as the industry is uncompetitive by international standards,” it says.

The report estimates farm gate prices will be about 21% lower and wholesale prices will be about 13-14% lower after the relaxing of quarantine restrictions by 2014.

It noted Australian growers lag behind international competitors on productivity, its product quality is inconsistent, and the supply chain is highly fragmented, preventing Australian producers from taking advantage of economies of scale in packing and marketing.

Based on ABS data and industry consultation, the CIE identified the need within industry of a gradual transition towards more commercially favoured varieties, such as Pink Lady, Gala, Granny Smith, Jazz and Fuji. High density planting would lead to productivity improvements when combined with more intensive or more effective orchard management.

The report said Australian producers had been slower than international competitors, particularly some European countries and New Zealand, in transitioning to higher-density production.

It suggested the trend over the past eight years was for the number of orchards to decrease at a rate of 3% each year.

The report noted yield per hectare was one of the leading indicators of the current competitiveness of the Australian industry.

Many costs on a per-kilogram basis fall as yield improves.

“Yield has a strong link to profitability because as the tonnage per hectare rises so too does the first quality yield for which producers receive a higher return.

“Strong performing enterprises have pack out rates around 85% with approximately 75% of product recovered in class one markets.

“In Australia, second quality product receives between 35 and 75% less than first quality product depending on the variety.”

The percentage product graded first quality has been relatively high in Australia compared with competing nations, however, this may be because of less stringent specifications on a range of indicators of eating quality.

Australian producers tend to have higher production costs than competitors, due largely to the cost of labour. Labour comprises two thirds of total costs, with the on-farm labour equating to one third of total variable costs.

“Because quarantine restrictions limit imports, they allow domestic producers to charge higher prices than they could if the restrictions were not in place,” it noted.

“Domestic apple prices will continue, to an extent, to be supported through quarantine requirements that add to the cost of exporting to Australia.

“The relative isolation of Australian markets to international producers, particularly the United States, will also offer some support.

“The bottom line is that imported apples are likely to be more competitive in Australian markets after quarantine restrictions are relaxed to an extent which permits trade,” it says.

The ABS estimates total tree numbers in Australia in 2008–09 was approximately 10.45 million.

In 2009, Australia exported just 1.5% of its total apple production to overseas market.

Prior to 2004, exports were significantly higher, averaging between 8% and 13% of total production. Analysing the average volume and prices of Australian apples sent to overseas

markets, the report notes the United Kingdom accounted for an average of 13% of apples. The average price received over this period was A$3.27 per kilogram. Indonesia, which received 13% of total export volumes, had export prices averaging A$2.57 per kilogram over the period.

About 68% of apples exported over the past three years were valued at less than A$1.80 per kilogram and about 39% were valued at less than A$1.20 per kilogram. Almost half of apples exported in the past three years were Red Delicious from Tasmania.

Under current plant protection regulations, exporters in foreign countries wishing to send fresh fruit or vegetables to Australia must first lodge an application with the Australian government.

Decisions to permit or reject an import application can be made only on sound scientific grounds.

These arrangements mean Australia’s domestic industries are insulated from import competition until appropriate quarantine arrangements have been put in place.

In August 2010, the WTO ruled that Australia’s phytosanitary measures for New Zealand apples were not justified.

The Australian government appealed, however, the appeal was lost in November 2010.

In December the Australian and New Zealand governments agreed that a review by the Director of Quarantine would be completed on August 17 this year.

Although some quarantine restrictions on apple imports have already been relaxed, Chinese apple imports have not yet hit the Australian market, with November tipped as the likely month for imports to begin.

Apples from the United States could arrive in the Australian market as early as 2012, most likely in late September or early October.