A financial analysis of agricultural production systems in the Warm Bokkeveld

Thesis (MCom)--Stellenbosch University, 2019.ENGLISH SUMMARY : The South African deciduous fruit industry is a large source of trade income and a major employer of the country’s labour force. The majority of the industry is situated in the Western Cape, a province that has a typical Mediterranean climate. The Warm- and Koue Bokkeveld are the two regions contributing the largest percentage of pome and stone fruit production in the Western Cape. The Warm Bokkeveld accumulates less cold units throughout the winter period and as a result has lower fruit quality and yields in comparison with the Koue Bokkeveld. The above described phenomenon is known as delayed foliation. Low-chill apple cultivars were bred to overcome the issue of delayed foliation. These apples can be cultivated in areas that accumulate less cold units during winter periods. Currently they are only produced in the Mookgophong area in Limpopo. The orchards are in their third year of production, but the results so far are extremely promising. The Warm Bokkeveld was identified as a region where producers could stand to greatly increase their profitability by cultivating low-chill apples. Thus far the financial implications of incorporating low-chill apples into a farming system are unknown. Therefore, this study sets out to determine the financial implications of cultivating low-chill apples in the Warm Bokkeveld. Farms are extremely complex systems that consist of multiple interrelated components. To accurately model a farming system, a systems approach is required. A whole-farm budgeting model was developed to assess the financial performance of various farming systems in the Warm Bokkeveld. To accurately model farming systems in the Warm Bokkeveld, a typical farm that represents the producers in a homogenous area was established. The typical farm and budgeting model were constructed through personal communication with a multi-disciplinary group of experts. Two farming systems were constructed and evaluated. The first farming system consisted of a typical farm that represents current producers in the Warm Bokkeveld. The second farming system was the same typical farm, but low-chill apples had been incorporated into the farming system. The Internal Rate of Return (IRR) and Net Present Value (NPV) were used to compare the profitability of the two farming systems. Based on the profitability criteria, a farming system that includes low-chill apples is considerably more profitable than the standard farming system in the Warm Bokkeveld. The higher profitability of farming system two is directly attributed to the performance of low-chill apples. To account for possible variations in the performance of low-chill apples, a sensitivity analysis was conducted where the price and yield levels of low-chill apples were altered, and the respective IRRs were calculated. The result of the analysis indicate that the yield would have to drop with 50% and the price level with more than 50%, for farming system one to be more profitable. Hence, the cultivation of low-chill apples can greatly contribute to the profitability of producers in the Warm Bokkeveld.AFRIKAANSE OPSOMMING : Die Suid-Afrikaanse sagtevrugte industrie is ʼn belangrike bron van handel inkomste en skep werk vir die land se werksmag. Die industrie is geografies hoofsaaklik in die Wes-Kaap geleë, met ʼn tipiese Mediterreense klimaat. Die Warm- en Koue Bokkeveld is twee van die belangrikste streke wat betref steen- en kern-vrug produksie. In die Wes-Kaap. Die Warm Bokkeveld se geakkumuleerde koue-eenhede deur die winter is laer as die van die Koue-Bokkeveld met gepaardgaande laer vrugkwaliteit. Die verskynsel staan bekend as vertraagde bot. Laer kouebehoefte appel is geteel om die voorkoms van vertraagde bot te oorkom. Die appels kan dus in areas verbou word wat minder koue-eenhede deur die winter akkumuleer. Tans word die appels kommersieel slegs in die Mookgophong area in Limpopo verbou. Die boorde is tans in die derde jaar na plant, maar vroeë resultate lyk belowend. Die Warm Bokkeveld is geïdentifiseer as ʼn streek waar produsente moontlik winsgewendheid kan verbeter deur laer kouebehoefte appels aan te plant. Sover is die finansiële implikasie van die insluiting van laer-kouebehoefte appels onbekend. Die studie fokus dus op bepaling van die finansiële implikasies van die verbouing van laer kouebehoefte appels in die Warm-Bokkeveld. Boerderye is geweldig komplekse stelsels bestaande uit veelvuldige interverwante komponente. Die stelsels benadering is aangewend om die Boerdery stelsel akkuraat te modelleer. ʼn Geheelplaas, begrotingsmodel is ontwikkel om die finansiële prestasie van verskillende produksiestelsels in die Warm Bokkeveld te evalueer. ʼn Tipiese plaas benadering, wat die produsente in die relatiewe homogene produksie area van die Warm Bokkeveld verteenwoording, is gebruik. Die tipiese plaas identifisering en model ontwikkeling is in samewerking met ʼn multidissiplinêre groep kundiges gedoen. Twee boerderystelsels is ontwikkel en vergelyk. Die eerste stelsel beskryf ʼn tipiese plaas soos wat tans in die Warm Bokkeveld bedryf word. Die tweede stelsel simuleer die insluiting van laer kouebehoefte appels in die produksiestelsel. Die interne opbrengskoers van kapitaal investering (IOK) en die netto huidige waarde (NHW) is gebruik om die finansiële uitkoms te meet. Gebaseer op die winsgewendheid maatstawwe is die stelsel wat laer kouebehoefte appels insluit, na verwagting meer winsgewend as die huidige stelsel vir die Warm Bokkeveld. Die hoër winsgewendheid is direk die gevolg van die laer kouebehoefte appels se insluiting. Om voorsiening te maak vir variasie in die prestasie van die laer kouebehoefte appels is ʼn sensitiwiteit analise gedoen wat verskillende prys en opbrengs vlakke se impak op winsgewendheid toets aan die effek op die IOK. Die resultate dui aan die opbrengs met meer as 50% kan verlaag voordat die huidige produksie stelsel meer winsgewend sal bly. Dit wil dus voorkom of die insluiting van laer-kouebehoefte appels kan bydra tot meer winsgewende produksiestelsels in die Warm Bokkeveld