Process Vegetable Cost of Production
Comparison
Tasmania and New Zealand
A report prepared
for the Department of Economic Development, Tourism and the Arts
February 2011
Davey & Maynard
Agriculture and resource management consultants
ABN 59 009 537 839
E-mail [email protected]
Postal address: PO Box 31, Devonport
Tasmania 7310 AUSTRALIA
Telephone: +61 (3) 6424 9311
Facsimile: +61 (3) 6424 9826
Author(s): Lance Davey
This report may be cited as: Process Vegetable Cost of Production Comparison – Tasmania and
New Zealand, Davey & Maynard, 2011.
This report has been prepared in accordance with the scope of services described in
the contract or agreement between Davey & Maynard (D&M) and the Client. Any
findings, conclusions or recommendations only apply to the aforementioned
circumstances and no greater reliance should be assumed or drawn by the Client.
Furthermore, the report has been prepared solely for use by the Client and Davey &
Maynard accepts no responsibility for its use by other parties.
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ................................................................................................................ I
1.
INTRODUCTION ................................................................................................................... 1
1.1
1.2
1.3
2.
INPUT COSTS ....................................................................................................................... 3
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
3.
INTRODUCTION ........................................................................................................................... 3
LAND ........................................................................................................................................ 3
INTEREST RATES .......................................................................................................................... 4
MACHINERY PRICES ..................................................................................................................... 4
WAGE RATES .............................................................................................................................. 4
FUEL ......................................................................................................................................... 5
FERTILISER ................................................................................................................................. 5
SPRAYS ...................................................................................................................................... 6
ELECTRICITY................................................................................................................................ 6
WATER .................................................................................................................................. 7
CROP INCOME ..................................................................................................................... 8
3.1
3.2
3.3
3.4
4.
BACKGROUND ............................................................................................................................ 1
EXCHANGE RATE ......................................................................................................................... 1
REPORT STRUCTURE..................................................................................................................... 2
INTRODUCTION ........................................................................................................................... 8
CROP YIELDS ............................................................................................................................... 8
PRICES PAID ............................................................................................................................... 9
CROP INCOME .......................................................................................................................... 10
COST OF PRODUCTION .......................................................................................................12
4.1
4.2
4.3
4.4
4.5
4.6
4.7
INTRODUCTION ......................................................................................................................... 12
COST OF PRODUCTION METHODOLOGY ......................................................................................... 12
BEANS ..................................................................................................................................... 14
CARROTS ................................................................................................................................. 17
PEAS ....................................................................................................................................... 20
POTATOES................................................................................................................................ 23
SUMMARY ............................................................................................................................... 26
5.
GROSS & NET MARGINS .....................................................................................................28
6.
CONCLUSIONS ....................................................................................................................32
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Executive Summary
Following recommendations of the McCain community taskforce, The Department of
Economic Development, Tourism and the Arts (DEDTA) commissioned Davey & Maynard
(D&M) to undertake a process vegetable cost of production comparison between
Tasmania and New Zealand.
The findings of this report are based on D&M experience and contacts within the local
industry alongside information obtained from consultants and farmers in New Zealand.
This report is a comparison of on-farm costs of production in Tasmania and New
Zealand. It does not consider processing costs which reportedly make up 40-50% of the
ex factory price of process vegetables.
EXCHANGE RATE
The cost of production comparisons in this report are based on the current (January
2011) exchange rate of NZ$ 1.31 for A$1.00, or A$0.76 for NZ$ 1.00. All prices appearing
in the report have been converted to Australian dollars at these exchange rates.
INPUT PRICES

Land prices
Land prices in New Zealand are higher on average than in
Tasmania, particularly in the North Island (Hawkes Bay and
Auckland). However, in the South Island where around two
thirds of New Zealand’s processed beans, carrots, peas and
potatoes are grown, prices are similar to North West Tasmania.

Interest rates
Interest rates in New Zealand are similar to those in Tasmania,
with farm lending rates currently quoted at around 7.5% to 8%.

Machinery prices
Machinery prices are similar in both places.

Wage rates
Effective farm wage rates in New Zealand are around 35-40%
lower than in Tasmania. This is due to a combination of lower
base rates, lower employer superannuation contributions and
lower workers compensation insurance rates.

Fuel
Net farm diesel prices are similar in both places.

Fertiliser
Fertiliser prices are significantly lower in New Zealand
compared to Tasmania. A simple average of the list prices of
nine base fertilisers was almost 20% lower. Given that
fertilisers are imported from overseas for both areas it is not
immediately obvious why prices are lower in New Zealand.

Sprays
While prices for a range of sprays used in both areas was found
to vary greatly there was no consistent trend of higher or lower
prices for either area.

Irrigation electricity The cost of irrigation electricity is typically around 40% less in
New Zealand than in Tasmania. However there is potential for
larger users in Tasmania to approach the New Zealand rate
under recently introduced competitive tendering processes.
ES.i
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand

Water charges
Growers in both places access most of their water supply from
dams, bores or streams and therefore do not pay significant
water charges.
Actual costs paid are a combination of the level of inputs used and the unit price of
those inputs. So while machinery prices are similar in both places, New Zealand’s flatter
topography and generally larger paddocks favours the use of larger and faster
machinery for cultivation, spraying and harvesting. Similarly, for irrigation New Zealand
farmers can often use larger units and, in addition, application rates are lower for some
crops. On the other hand, many growers need to pump from relatively deep bores which
increases both capital and pumping costs.
CROP YIELDS
Yields vary both within and between Tasmania and New Zealand – between farms,
between districts and between years. Hence it is difficult to be definitive about the overall
differences that may exist between the two areas.
However, on the basis of the available information it appears that New Zealand bean and
carrot yields are somewhat less than in Tasmania and that pea and potato yields are higher
(Figure 1). The apparent slightly higher pea yield in New Zealand is possibly due, at least in
part, to different factory weight assessment methods.
Figure 1: Crop yields (t/ha)
100.0
90.0
80.0
70.0
60.0
t/ha
50.0
Tas
40.0
NZ
30.0
20.0
10.0
Beans
Carrots
Peas
Potatoes
PRICES PAID
ES.ii
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Prices paid for all four crops are around 40% lower on average in New Zealand than in
Tasmania (Figure 2) - varying from 34% less for beans to 48% less for peas.
Figure 2: Prices paid (A$/t)
500
450
400
350
300
$A/t
250
Tas
200
NZ
150
100
50
Beans
Carrots
Peas
Potatoes
CROP INCOME
Crop income per hectare in New Zealand is around 40% lower on average than in
Tasmania - varying from 32% less for potatoes to 46% less for carrots (Figure 3). The
difference is largely due to the lower prices paid in New Zealand.
Figure 3: Income received (A$/ha)
18,000
16,000
14,000
12,000
10,000
$A/ha
Tas
8,000
NZ
6,000
4,000
2,000
-
Beans
Carrots
Peas
Potatoes
ES.iii
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Because yield is variable between farms, between districts and between years for both
Tasmania and New Zealand, caution needs to be taken in interpreting these figures.
COST OF PRODUCTION
Costs of production per hectare for the four crops are around 25% less in New Zealand
than in Tasmania, varying from 13% less for carrots to 33% less for beans (Table 1 &
Figure 4).
Table 1: Cost of production (A$/ha)
Item
Tas
NZ
A$/ha
A$/ha
A$/ha
(%)
Beans
3,765
2,535
-1,230
-33%
Carrots
7,525
6,525
-1,005
-13%
Peas
2,550
1,790
-760
-30%
11,640
9,220
-2,420
-21%
average
-24%
Potatoes
Difference
Figure 4: Cost of production (A$/ha)
14,000
12,000
10,000
8,000
$A/ha
Tas
6,000
NZ
4,000
2,000
Beans
Carrots
Peas
Potatoes
Costs of production per tonne for the four crops are around 21% less in New Zealand
than in Tasmania, varying from 1% less for carrots to 34% less for peas (Table 2 & Figure
5). The relatively close cost of production for carrots on a per tonne basis is a result of a
higher yield in Tasmania offsetting the 13% higher per hectare cost.
ES.iv
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Table 2: Cost of production (A$/t)
Item
Tas
NZ
A$/t
A$/t
Difference
A$/t
(%)
Beans
327
253
-74
-23%
Carrots
79
78
-1
-1%
Peas
418
275
-143
-34%
Potatoes
212
159
-53
-25%
average
-21%
Figure 5: Cost of production (A$/t)
450
400
350
300
250
$A/t
Tas
200
NZ
150
100
50
Beans
Carrots
Peas
Potatoes
CROP MARGINS
Two crop margins are described in this report:

Gross margin
Gross income less variable growing costs such as land
preparation, seed & seeding, fertiliser, sprays, irrigation running
costs, and harvesting & cartage; and

‘Net margin’
Gross income less cost of production or gross margin less
overheads (land rental, irrigator ownership and interest on crop
outlay).
ES.v
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
While costs of production per hectare are broadly around 25% lower in New Zealand
than in Tasmania they are not sufficiently low to offset the 40% lower income received,
so New Zealand gross and net margins are lower than in Tasmania.
The gross margin per hectare for the four crops is around 50% less in New Zealand than
in Tasmania with a range from 41% less for potatoes through to 73% less for carrots
(Figure 6).
The net margin per hectare for the four crops is around 80% less in New Zealand than in
Tasmania with a range from 62% less for potatoes through to 100% less for carrots
(Figure 7).
Figure 6: Gross margin (A$/ha)
7,000
6,000
5,000
4,000
$A/ha
Tas
3,000
NZ
2,000
1,000
0
Beans
Carrots
Peas
Potatoes
Figure 7: Net margin (A$/ha)
5,000
4,500
4,000
3,500
3,000
$A/ha 2,500
Tas
2,000
NZ
1,500
1,000
500
0
Beans
Carrots
Peas
Potatoes
ES.vi
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
In the case of carrots and peas, the very low New Zealand net margins suggest that the
gross margins being earned are sufficient to cover land rental, irrigation ownership and
interest on crop outlay – but not other overheads (eg management wage) or to
contribute to an overall profit. There is also no margin for risk. A sustainable business in
this situation would require other enterprises to cover these additional overheads and
to produce an overall profit for the cropping business1.
Assuming that the margins being earned in New Zealand are sustainable, the question
arises as to how that is achieved, given that Tasmanian farmers are not achieving high
profit levels with significantly higher margins. Possibilities include:

Remaining overheads such as management costs are lower cost in New Zealand
and therefore require less margin to cover the cost and produce a profit;

The lower margins earned are applied to a higher number of tonnes or hectares
– ie a low margin/high volume business model; and

Better integration of enterprises may produce an overall business profit despite
inclusion of some lower returning enterprises.
CONCLUSIONS
Without a significant reduction in effective wage rates or a devaluation of the Australian
dollar (both unlikely) it is difficult to see that Tasmania will be able to equal New
Zealand’s lower cost of production. However, there are a number of areas that might be
addressed to close the gap.
To become more competitive Tasmanian growers need to either (1) reduce costs of
production per tonne and/or (2) develop business models that can survive lower prices
and lower margins.
The cost of production per tonne can be reduced by either increasing yield relative to
cost, or reducing input costs without a significant loss of yield. Some areas worthy of
further investigation include:






1
Ongoing research, development and extension aimed at improving crop yields;
Reasons behind lower fertiliser prices in New Zealand;
The potential for reduced fertiliser inputs;
Lowering irrigation costs, including the potential benefits from a competitive
market for electricity;
Reducing potato seed costs; and
The potential for high volume potato harvesting systems in Tasmania;
The profit for the cropping enterprise need not include any return for land which is covered in the land
rental overhead cost, or for a return on the machinery investment which is covered in the machinery
contracting cost, but there should be a return over and above these to cover other overheads and risk and
contribute to profit.
ES.vii
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
At the same time research should be undertaken in relation to business models that can
potentially operate profitably with lower margins. For example:


The potential for larger scale businesses through increased land ownership, land
leasing or some form of co-operative farming operation; and
Better integration of enterprises to produce an overall business profit despite
inclusion of some lower returning enterprises.
ES.viii
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
1. Introduction
1.1 Background
The Department of Economic Development, Tourism and the Arts (DEDTA)
commissioned Davey & Maynard (D&M) to undertake a process vegetable cost of
production comparison between Tasmania and New Zealand.
This project stems from recommendations of the McCain community taskforce
established in November 2009 to explore economic and business opportunities in areas
affected by McCain Foods’ decision to close its Smithton vegetable processing plant over
2010. The taskforce recommended a range of projects from funding business
development activities to further research into opportunities for the region.
In response to these recommendations the Premier of Tasmania announced a range of
initiatives including a cost comparison study between the Tasmanian and New Zealand
vegetable processing industries.
The purpose of the overall vegetable cost comparison study project is to:

Identify and quantify the cost of common key inputs into vegetable production
and processing in Tasmania and NZ at major points along the supply chain, and

To identify any other distinctive competitive advantages or points of difference
between the two growing regions.
Detailed vegetable processing cost information is unavailable. Tasmanian processing
companies have identified the cost of labour, raw materials, power (and other
infrastructure such as water) as areas of concern. The efficiency of plant and equipment
is also an area of concern. This relates, at least in part, to labour award structures in
Tasmania that tend to limit out of hours operation and thereby overall throughput.
This report is restricted to a comparison of on-farm costs of production in Tasmania and
New Zealand. It does not include processing costs which reportedly make up around 4050% of the ex factory price of process vegetables.
1.2 Exchange rate
The cost of production comparisons are based on the current (January 2011) exchange
rate of NZ$ 1.31 for A$1.00, or A$0.76 for NZ$ 1.00.
Figure 1.1 shows movements in the exchange rate over the past 10 years. While the
exchange rates in the early 2000s were similar to present, there has been a 20%
appreciation in the A$ versus NZ$ since around 2005. This has led in part to the current
more competitive situation prevailing for New Zealand.
1
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Figure 1.1 Exchange rate movements over the past 10 years
1.40
1.20
1.00
0.80
A$/NZ$
0.60
0.40
0.20
0.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
1.3 Report structure
The structure of this report is as follows:
Section 2
Presents a summary of input costs for both Tasmania and New Zealand.
Section 3
Shows average yields and prices – and gross income per hectare.
Section 4
Shows cost of production
Section 5
Outlines gross margins and net margins.
Section 5
Presents overall conclusions.
2
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
2. Input costs
2.1 Introduction
The cost of production for each crop is a combination of input levels and input prices.
This section examines input prices by comparing per unit costs of the major crop
production inputs – in Australian dollar terms.
2.2 Land
The land price is defined as bare land price per hectare including water and irrigation
infrastructure, but not including irrigators (travelling gun, rotary boom, linear irrigator or
centre pivot).
Land prices in Canterbury, where around two thirds of New Zealand’s processed bean,
carrot, pea and potato production occurs, are similar to those on the North West Coast
(Table 2.1). Land prices in Hawkes Bay and Auckland are significantly higher than
Canterbury, and in Tasmania the Meander Valley and Northern Midlands have lower
prices than the North West. So while the Canterbury land price is similar to the North
West Coast, overall land prices in New Zealand are higher than in Tasmania.
In assessing vegetable costs of production a nominal land rent has been determined as
4% of land value. This is considered to be a reasonable long-term rent for a whole farm.
In both Tasmania and New Zealand actual one-year rent payment for a higher value crop
can be significantly greater than the figures shown.
For example, in Canterbury a short term lease was quoted as being around A$1,370/ha
with an additional payment of A$1.15-$1.50/mm for irrigation – irrigator, labour,
electricity and repairs. Depending on exactly what is supplied in terms of water and
irrigation equipment, a one year rent for potatoes in Tasmania may be as high as
A$2,000 – A$2,500/ha.
Table 2.1: Land costs (A$)
Tasmania
North West
Deloraine
Northern Midlands
New Zealand
Canterbury
Hawkes Bay
Auckland
Land price
Nominal land rent
(4%)
A$/ha
A$/ha
$23,500
$19,000
$13,500
$940
$760
$540
$23,000
$30,500
$38,000
$920
$1,220
$1,520
3
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
2.3 Interest rates
Interest rates in New Zealand are similar to those in Tasmania. Farm lending rates were
quoted at around 7.5-8.0%.
2.4 Machinery prices
After adjustment for currency, plant and machinery purchase prices in New Zealand are
similar to those in Tasmania. As an example tractor and potato planter purchase prices
(excluding GST) are compared in Table 2.2.
Table 2.2: Plant & machinery prices (A$)
Tractors
125 hp
150 hp
205 hp
Potato planter
4 Row
Tas
NZ
A$
A$
Difference
A$
%
(ML)
87,100
111,000
202,600
85,500
111,000
174,000
84,500
84,500
-1,600
0
-28,600
-2%
0%
-14%
0
0%
Where New Zealand does have a machinery advantage over Tasmania, however, is in its
scope to use larger and faster machines. For example, because of the large flat paddocks
in Canterbury, potato harvesting rates were quoted at up to 20-40 tonnes/hr using a
windrower and Lockwood two row harvester. While capital costs are higher, these rates
are significantly higher than those being achieved in Tasmania.
Another example is in pea harvesting where in the 2009-10 season a similar number of
pea harvesters in Canterbury was able to harvest almost double the amount compared
to Tasmania. This was due to a combination of paddock size and topography.
Furthermore, with no weekend penalty rates, the New Zealand harvesters operated
seven days a week.
2.5 Wage rates
Farm wage rates in New Zealand are around 35-40% lower than in Tasmania. This is due
to a combination of lower base rates and lower add-ons (Table 2.3).
The minimum wage in New Zealand is currently A$9.70/hr compared to A$15.00/hr in
Tasmania.
For a reasonably skilled farm operator in Tasmania (Horticulture Award Level 5) the all
up hourly rate is almost A$25.00/hr. For a similar person in New Zealand the rate is
around A$15.80/hr.
4
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Table 2.3: Wage rates (A$)
Tas
NZ
A$
A$
Difference
A$
Level
%
(ML)
Minimum wage
Base
Superannuation
Workers Comp. Insurance
Total
15.00
1.35
0.68
17.03
9.70
0.19
0.18
10.08
-5.30
-35%
-6.95
-41%
Skilled worker (Level 5)
Base – casual rate
Superannuation
Workers Comp. Insurance
Total
21.13
1.90
0.95
24.93
15.22
0.30
0.28
15.81
-5.91
-28%
-8.17
-34%
For Tasmania the casual rate under the Horticulture Award includes a 21% allowance for
holidays, sick leave etc. Superannuation is 9% and workers compensation insurance for
farm workers is around 4.5%. For New Zealand, the KiwiSaver superannuation scheme is
set at a minimum of 2% (with 4% and 8% options), and there is a national Accident
Compensation Commission (ACC) Levy of 1.9%.
2.6 Fuel
Fuel prices are similar in Tasmania and New Zealand (Table 2.4).
Table 2.4: Diesel price (A$)
Base
Tas
NZ
A$/L
A$/L
1.37
1.01
Less diesel fuel rebate
-0.38
Net price
0.99
1.01
Difference
A$/L
%
(ML)
0.02
+2%
2.7 Fertiliser
Fertiliser list prices in New Zealand in January 2011 were around 19% lower than in
Tasmania. Table 2.5 includes are range of commonly used fertilisers and of those, urea is
the only one with a similar price in both locations and even this may be an anomaly
because of a recent price rise in New Zealand.
Given that the base materials are imported into both countries it is not immediately
obvious why such a difference prevails. Further investigation of the apparent difference
would be worthwhile.
5
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Table 2.5: Fertiliser prices (A$)
Fertiliser
Lime
Super
Triple super
DAP (18-20-0)
MAP (10-22-0)
Urea
Sulphate of Ammonia
Muriate of Potash
Potassium Sulphate
Simple average
Tas
NZ
Difference
Crop
A$/t
A$/t
A$/t
%
35
392
871
871
871
574
519
766
1,080
24
247
726
769
784
549
410
672
843
-11 (ML)
-145
-145
-102
-87
-25
-109
-94
-237
-33%
-37%
-17%
-12%
-10%
-4%
-21%
-12%
-22%
-19%
January 2011 list prices
2.8 Sprays
Spray prices were compared for a range of products used in both Tasmania and New
Zealand.
While there were significant differences between prices in both locations it was difficult
firstly, to determine whether exactly the formulations were being compared, and
secondly, lower prices for some chemicals in each area were roughly balanced by higher
prices for others. For these reasons it is not possible to conclude that there are any
overall difference in spray prices between Tasmania and New Zealand. This is an area
that might also warrant closer inspection.
2.9 Electricity
The cost of irrigation electricity in New Zealand is around 40% less than in Tasmania.
Table 2.6 shows an indicative cost of electricity for a 40 hectare linear irrigator operating
for 1,500 hours to apply 4.0 Ml/ha, and using 58,500 kWh. The New Zealand costing
assumes an overall cost of A$0.11/kWh as quoted by local consultants and farmers.
Table 2.6: Irrigation electricity (A$)
Service charge
Power cost*
Total
Average c/kWh
Tas
NZ
A$
A$
$955
$10,045
$11,000
18.8c
Difference
A$
Crop
%
(ML)
$6,700
11.5c
-$4,300
-7.3c
-39%
-39%
* For Tasmania 45% peak/55% off-peak
While the cost of electricity is significantly less in New Zealand than in Tasmania, the
overall cost of irrigating may or may not be. The overall pumping cost is impacted by a
6
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
range of other factors including the type of irrigation system (travelling gun, rotary
boom, linear irrigator and centre pivot) and the total head required to get water to the
irrigator. On average, New Zealand may have greater static head because much of its
water comes from relatively deep wells. However, there will be a wide range of
irrigation pumping costs both within each area as well as between them.
For larger operators in Tasmania there is scope for price reductions under competitive
tendering. A recent quote under Tranche 4 (150 MW pa) was for an effective price of
around A$0.10/kWh, including off peak rates of A$0.06/kWh for 8 hours per day during
the week plus for the whole weekend, with the remainder of the irrigation season being
able to be covered by the shoulder rate of A$0.15/kWh. Apparently a new Tranche 4a
tender will be available shortly which will allow total consumption of 50 MW per annum.
2.10
Water
Most vegetable growers in both New Zealand and Tasmania obtain their irrigation water
for “free”. That is they use water from their own dams or bores or directly from a
stream. However, this is not uniformly so. Some vegetable growers in Tasmania’s
Northern Midlands currently pay around A$30-40/ML for water from the Cressy
Longford Irrigation Scheme. Some North West Coast growers are currently paying
significantly more than this for water from Cradle Mountain Water, and in the future will
be paying for at least some of their water from the Sassafras Wesley Vale Scheme and
other proposed schemes.
No cost has been included for buying water in the cost of production estimates in this
report.
7
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Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
3. Crop income
3.1 Introduction
The crop income for each crop is a influenced by yield levels and output prices. This
section compares crop income for the four process vegetable crops under consideration.
For Tasmania, the yields and prices used in calculating gross income per hectare are
based on Simplot average yields and contract prices for 2010-112.
New Zealand yield and price estimates were provided by local consultants and farmers,
with some backup from Horticulture NZ gross margin estimates and the Lincoln
University Financial Budget Manual. Yield figures in this report are a composite of these
sources. While these figures are likely to be reasonably accurate, they are possibly not
as reliable as the Tasmanian estimates.
The New Zealand figures were provided by contacts in the South Island and will
therefore mainly reflect the Heinz Wattie factory in Christchurch for beans, carrots and
peas, and the McCains factory in Timaru for potatoes.
3.2 Crop yields
Yields vary significantly within both Tasmania and New Zealand – between farms, between
districts and between years. Hence it is difficult to be definitive about the overall
differences that may exist between the two areas.
However, it appears that New Zealand bean and carrot yields are less than in Tasmania and
that pea and potato yields are higher than Tasmania (Figure 3.1). The slightly higher pea
yield in New Zealand is at least partly due to different factory weight assessment methods
in both areas.
8
2
Jeff Yost, Simplot, December 2010.
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Figure 3.1: Crop yields (t/ha)
100.0
90.0
80.0
70.0
60.0
t/ha
50.0
Tas
40.0
NZ
30.0
20.0
10.0
Beans
Carrots
Peas
Potatoes
3.3 Prices paid
Prices paid for the four crops are around 40% lower on average in New Zealand than in
Tasmania (Figure 3.2) - varying from 34% less for beans to 48% less for peas.
Figure 3.2: Prices paid (A$/t)
500
450
400
350
300
A$/t
250
Tas
200
NZ
150
100
50
Beans
Carrots
Peas
Potatoes
9
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
3.4 Crop income
In broad terms crop income per hectare in New Zealand is around 40% lower than in
Tasmania - varying from 32% less for potatoes to 46% less for carrots (Table 3.1 and
Figure 3.3). The difference is largely due to the lower prices paid in New Zealand.
Table 3.1: Crop yields and prices (A$)
Crop
Tas
NZ
Difference
Amount
Beans
Yield
Price
Income
Carrots
Yield
Price
Income
Peas
Yield
Price
Income
Potatoes
Yield
Price
Income
(t/ha)
(A$/t)
(A$/ha)
(t/ha)
(A$/t)
(A$/ha)
(t/ha)
(A$/t)
(A$/ha)
(t/ha)
(A$/t)
(A$/ha)
Percent
11.5
444
5,110
10.0
294
2,940
-1.5
-150
-2,170
-13%
-34%
-42%
95
127
12,065
83
79
6,545
-12
-48
-5,520
-13%
-38%
-46%
6.1
471
3,070
6.5
244
1,815
+0.4
-227
-1,255
+7%
-48%
-41%
55.0
287
15,780
58.0
186
10,800
+3.0
-101
-4,980
+5%
-35%
-32%
Figure 3.3: Income received (A$/ha)
18,000
16,000
14,000
12,000
10,000
A$/ha
Tas
8,000
NZ
6,000
4,000
2,000
-
Beans
Carrots
Peas
Potatoes
10
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Some caution needs to be taken in interpreting these figures, because yield is variable
between farms, between districts and between years for both Tasmania and New
Zealand.
11
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4. Cost of production
4.1 Introduction
As outlined below (Section 4.2) the cost of production described in this report includes
land rent, land preparation, seed and seeding, fertiliser, sprays, irrigation, harvest and
cartage and interest on crop outlay.
In effect the methodology used treats the overall farm business as three distinct
operations -land ownership, machinery contracting and cropping. The cropping cost of
production outlined here includes land ownership and machinery contracting as costs
along with seed, fertiliser, sprays etc.
A nominal land rent has been included at 4% of bare land value including water supply,
pumps, and irrigation mains but not irrigators. Whereas some higher value crops may
pay more than this on a one-year basis the longer-term rent used here is a more
appropriate figure when multiple crops are being considered. Ultimately what is
important is that the crop rotation is able to at least cover this average annual rent.
For the shorter term crops (peas and beans) where there is the ability to earn further
income in the same year, the rent cost has been included at 50% of the annual total.
As far as possible all cropping operations have been included on a contract basis. This
effectively includes a machinery ownership component as well as fuel repairs and
wages. In addition the irrigation cost includes a component for ownership of the
irrigation equipment (amortised over 10 years).
The irrigation ownership costs used are for typical linear irrigators applicable to either
area. However, irrigation ownership and application costs are quite variable. This
variability is the result of of different in irrigation systems (travelling gun, rotary boom,
linear irrigator and centre pivot) and the total head required to get water to the irrigator
as well as power costs etc. This is an area where further assessment of options for
minimising total costs could be worthwhile.
4.2 Cost of production methodology
For the purposes of this report, farm cost of production is made up of the following
components:

Land rent
Nominal land rent determined as 4% of bare land value
including water supply, pumps, and irrigation mains but
not irrigators;

Land preparation
Contract rates;

Seed
Cost of seed including any seed storage and treatment
plus the contract cost of drilling/planting;

Fertiliser
List price of fertiliser plus contract cartage and
spreading;
12
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand

Sprays
List price of sprays plus contract application;

Irrigation
Electricity, repairs and labour plus an irrigator ownership
cost for either centre pivot and/or gun irrigator;

Harvesting & cartage
Contract rates; and

Interest
Interest on growing costs.
When deducted from total income received the calculated cost of production results in a
‘net margin’ which is required to cover management and other farm overheads. The net
margin is less than a gross margin in that it allows for land rent, irrigator ownership and
interest on crop growing costs which are not normally included in a gross margin
calculation. In addition the use of contracting rates in determining growing costs allows
for machinery ownership costs as well as fuel, repairs and labour.
In effect this methodology treats the overall farm business as three distinct operations land ownership, machinery contracting and cropping. Land ownership and machinery
contracting form part of the cost of production for the cropping enterprise.
13
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4.3 Beans
Bean cost of production per hectare
The calculated cost of production for beans in New Zealand is 33% less on a per hectare
basis than in Tasmania (Table 4.1 and Figure 4.1).
Table 4.1: Cost of production – beans (A$/ha)
Item
Tas
NZ
Difference
A$/ha
A$/ha
A$/ha
(%)
Land rent
432
507
+75
+17%
Land preparation
195
154
-41
-21%
Seed & planting
686
866
+180
+26%
Fertiliser
826
293
-533
-64%
1,024
346
-678
-66%
540
330
-209
-39%
0
0
0
0%
62
38
-24
-39%
3,765
2,535
-1,230
-33%
Sprays
Irrigation
Harvesting & cartage
Interest
Total
Figure 4.1: Cost of production – beans (A$/ha)
4,000
62
3,500
540
3,000
2,500
1,024
A$/ha 2,000
826
Interest
38
330
Harvest/Cartage
346
Sprays/Spraying
293
Fertiliser
1,500
Irrigation
Seed/Drilling
866
1,000
686
500
195
154
432
507
Tas
NZ
Land Preparation
Land Rent
0
14
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Bean cost of production per tonne
The calculated cost of production for beans in New Zealand is 23% less on a per tonne
basis than in Tasmania (Table 4.2 and Figure 4.2).
Table 4.2: Cost of production – beans (A$/t)
Item
Tas
NZ
A$/t
A$/t
A$/t
Land rent
38
51
+13
+35%
Land preparation
17
15
-2
-9%
Seed & planting
60
87
+27
+45%
Fertiliser
72
29
-42
-59%
Sprays
89
35
-54
-61%
Irrigation
47
33
-14
-30%
Harvesting & cartage
0
0
0
0%
Interest
5
4
-2
-30%
327
253
-74
-23%
Total
Difference
(%)
Figure 4.2: Cost of production – beans (A$/t)
350
5
300
47
250
89
200
4
33
Harvest/Cartage
35
A$/t
29
150
Interest
Irrigation
Sprays/Spraying
Fertiliser
72
Seed/Drilling
87
100
60
50
17
38
Land Preparation
Land Rent
15
51
0
Tas
NZ
15
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Bean summary – per tonne
New Zealand’s overall A$74/t lower cost of production is made up as follows:

Land rent
A$13/t higher - higher land prices (on average);

Land preparation
A$ 2/t lower - lower contracting costs;

Seed and seeding
A$27/t higher - higher seed price;

Fertiliser
A$42/t lower - lower overall application and prices;

Sprays
A$54/t lower – fewer applications, less expensive
fungicides:

Irrigation
A$14/t lower – mainly in ownership costing;

Harvesting & cartage
no cost to farm;

Interest
A$2/t lower – lower input costs.
16
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4.4 Carrots
Carrot cost of production per hectare
The calculated cost of production for carrots in New Zealand is 13% less on a per hectare
basis than in Tasmania (Table 4.3 and Figure 4.3).
Table 4.3: Cost of production – carrots (A$/ha)
Item
Tas
NZ
A$/ha
A$/ha
Difference
A$/ha
(%)
Land rent
850
1,013
163
+19%
Land preparation
410
459
49
+12%
Seed & planting
350
296
-54
-15%
Fertiliser
686
815
129
+19%
Sprays
857
745
-112
-13%
Irrigation
747
702
-45
-6%
3,420
2,310
-1,110
-32%
206
182
-24
-11%
7,526
6,524
-1,003
-13%
Harvesting & cartage
Interest
Total
Figure 4.3: Cost of production – carrots (A$/ha)
8,000
206
7,000
182
6,000
Interest
3,420
2,310
5,000
Harvest & cartage
Irrigation
A$/ha 4,000
747
3,000
857
2,000
686
1,000
350
410
850
702
Sprays/Spraying
Fertiliser
745
Seed
815
Land Preparation
296
459
Rent
1,013
17
0
Tas
NZ
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Carrot cost of production per tonne
The calculated cost of production for carrots in New Zealand is 1% less on a per tonne
basis than in Tasmania (Table 4.4 and Figure 4.4). This is less than the 13% on a per
hectare basis because of the assumed higher yield.
Table 4.4: Cost of production – carrots (A$/t)
Item
Tas
NZ
Difference
A$/t
A$/t
A$/t
(%)
Land rent
8.9
12.2
+3.3
+36%
Land preparation
4.3
5.5
+1.2
+28%
Seed & planting
3.7
3.6
-0.1
-3%
Fertiliser
7.2
9.8
+2.6
+36%
Sprays
9.0
9.0
-0.1
-1%
Irrigation
7.9
8.5
+0.6
+7%
36.0
27.8
-8.2
-23%
2.2
2.2
-0.0
+1%
79.2
78.6
-0.7
-1%
Harvesting & cartage
Interest
Total
Figure 4.4: Cost of production – carrots (A$/t)
90.0
80.0
2.2
2.2
70.0
60.0
27.8
36.0
Harvest & cartage
Irrigation
50.0
A$/t
8.5
40.0
30.0
Interest
7.9
9.0
20.0
7.2
10.0
3.7
4.3
8.9
9.0
Sprays/Spraying
Fertiliser
Seed
9.8
Land Preparation
3.6
5.5
Rent
12.2
0.0
18
Tas
NZ
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Carrot summary – per tonne
New Zealand’s overall similar cost of production for carrots is made up as follows:

Land rent
A$3.30/t higher - higher land prices (on average);

Land preparation
A$1.20/t higher – some destoning costs;

Seed and planting
A$0.10/t lower – NZ seed cost requires confirmation
(could in fact be higher);

Fertiliser
A$2.60/t higher - higher overall application partly offset
by lower prices;

Sprays
A$0.10/t lower – more applications but less expensive
fungicides:

Irrigation
A$0.60/t higher – despite slightly lower application;

Harvesting & cartage
A$8.20/t lower – lower contract costs and lower
wastage factor used;

Interest
A$0.00/t lower – lower input costs per hectare offset by
lower yield.
19
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4.5 Peas
Pea cost of production per hectare
The calculated cost of production for peas in New Zealand is 30% less on a per hectare
basis than in Tasmania (Table 4.5 and Figure 4.5).
Table 4.5: Cost of production – peas (A$/ha)
Item
Tas
NZ
A$/ha
A$/ha
Land rent
348
502
154
+44%
Land preparation
200
68
-132
-66%
Seed & planting
590
558
-32
-5%
Fertiliser
465
100
-365
-78%
Sprays
366
166
-200
-55%
Irrigation
540
371
-168
-31%
0
0
0
0%
41
24
-17
-41%
2,549
1,790
-760
-30%
Harvesting & cartage
Interest
Total
Difference
A$/ha
(%)
Figure 4.5: Cost of production – peas (A$/ha)
3,000
2,500
41
540
Interest
2,000
366
Harvest/Cartage
24
371
A$/ha 1,500
465
Sprays/Spraying
166
100
Fertiliser
558
Land Preparation
1,000
590
Irrigation
Seed/Drilling
Land Rent
500
200
348
68
502
20
0
Tas
NZ
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Pea cost of production per tonne
The calculated cost of production for peas in New Zealand is 34% less on a per tonne
basis than in Tasmania (Table 4.6 and Figure 4.6).
Table 4.6: Cost of production – peas (A$/t)
Item
Tas
NZ
A$/t
A$/t
A$/t
Land rent
57
77
+20
+35%
Land preparation
33
11
-22
-68%
Seed & planting
97
86
-11
-11%
Fertiliser
76
15
-61
-80%
Sprays
60
25
-35
-58%
Irrigation
88
57
-31
-35%
Harvesting & cartage
0
0
0
0%
Interest
7
4
-3
-44%
418
275
-143
-34%
Total
Difference
(%)
Figure 4.6: Cost of production – peas (A$/t)
450
400
7
88
350
300
Interest
60
4
250
A$/t
57
76
150
Irrigation
Sprays/Spraying
25
15
200
Harvest/Cartage
Fertiliser
Seed/Drilling
97
86
Land Preparation
Land Rent
100
33
50
57
11
77
0
Tas
NZ
21
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Pea summary – per tonne
New Zealand’s A$143/t lower cost of production for peas is made up as follows:

Land rent
A$20/t higher - higher land prices (on average);

Land preparation
A$22/t lower - lower contracting costs;

Seed & seeding
A$11/t lower - lower seed /drilling cost;

Fertiliser
A$61/t lower - lower overall application and prices;

Sprays
A$35/t lower –lower overall cost;

Irrigation
A$31/t lower – mainly in ownership costing;

Harvesting & cartage
no cost to farmer;

Interest
A$3/t lower – lower input costs.
22
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4.6 Potatoes
Potato cost of production per hectare
The calculated cost of production for potatoes in New Zealand is 21% less on a per
hectare basis than in Tasmania (Table 4.7 and Figure 4.7).
Table 4.7: Cost of production – potatoes (A$/ha)
Item
Tas
NZ
A$/ha
A$/ha
Difference
A$/ha
(%)
Land rent
835
1,094
+259
+31%
Land preparation
335
380
+45
+13%
Seed & planting
2,210
1,558
-652
-30%
Fertiliser
2,060
1,702
-358
-17%
Sprays
1,940
1,102
-838
-43%
830
702
-128
-15%
3,110
2,424
-686
-22%
320
258
-62
-19%
11,640
9,221
-2,419
-21%
Irrigation
Harvesting & cartage
Interest
Total
Figure 4.7: Cost of production – potatoes (A$/ha)
14,000
12,000
320
10,000
Interest
3,110
258
8,000
830
2,424
1,940
702
A$/ha
Harvest & cartage
Irrigation
Sprays/Spraying
6,000
4,000
Fertiliser
1,102
Seed
1,702
Land Preparation
2,060
Rent
2,000
0
2,210
1,558
335
835
380
1,094
Tas
NZ
23
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Potato cost of production per tonne
The calculated cost of production for potatoes in New Zealand is 25% less on a per tonne
basis than in Tasmania (Table 4.8 and Figure 4.8).
Table 4.8: Cost of production – potatoes (A$/t)
Item
Tas
NZ
A$/t
A$/t
A$/t
15
19
+4
+24%
Land preparation
6
7
+1
+8%
Seed & planting
40
27
-13
-33%
Fertiliser
37
29
-8
-22%
Sprays
35
19
-16
-46%
Irrigation
15
12
-3
-20%
Harvesting & cartage
57
42
-15
-26%
6
4
-1
-23%
212
159
-53
-25%
Land rent
Interest
Total
Difference
(%)
Figure 4.8: Cost of production – potatoes (A$/t)
250
200
6
57
150
A$/t
Interest
4
15
42
12
Fertiliser
19
Seed
37
29
50
0
Irrigation
Sprays/Spraying
35
100
Harvest & cartage
40
27
6
15
7
19
Tas
NZ
Land Preparation
Rent
24
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Potato summary – per tonne
New Zealand’s A$53/t lower cost of production for potatoes is made up as follows:

Land rent
A$4/t higher - higher land prices (on average);

Land preparation
A$1/t higher – NZ cost includes some destoning;

Seed & planting
A$13/t lower – lower seed price & lower rate;

Fertiliser
A$8/t lower – similar rate, lower prices;

Sprays
A$16/t lower – lower pest & disease cost despite
precautionary spray for TPP(Tomato Potato Pysillid)

Irrigation
A$3/t lower – mainly lower rate;

Harvesting & cartage
A$15/t lower – contracting rates lower;

Interest
A$1/t lower – lower input costs.
25
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
4.7 Summary
Costs of production per hectare for all four crops are around 25% less in New Zealand
than in Tasmania, varying from 13% less for carrots to 33% less for beans (Table 4.9 and
Figure 4.9).
Table 4.9: Cost of production (A$/ha)
Item
Tas
NZ
A$/ha
A$/ha
A$/ha
(%)
Beans
3,765
2,535
-1,230
-33%
Carrots
7,525
6,525
-1,005
-13%
Peas
2,550
1,790
-760
-30%
11,640
9,220
-2,420
-21%
average
-24%
Potatoes
Difference
Figure 4.9: Cost of production (A$/ha)
14,000
12,000
10,000
8,000
A$/ha
Tas
6,000
NZ
4,000
2,000
Beans
Carrots
Peas
Potatoes
26
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Costs of production per tonne for all four crops are around 21% less in New Zealand
than in Tasmania, varying from 1% less for carrots to 34% less for peas (Table 4.10 and
Figure 4.10).
Table 4.10: Cost of production (A$/t)
Item
Tas
NZ
A$/t
A$/t
Difference
A$/t
(%)
Beans
327
253
-74
-23%
Carrots
79
79
-0
-1%
Peas
418
275
-143
-34%
Potatoes
212
159
-53
-25%
average
-21%
Figure 4.10: Cost of production (A$/t)
450
400
350
300
250
A$/t
Tas
200
NZ
150
100
50
Beans
Carrots
Peas
Potatoes
27
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
5. Gross & net margins
Two crop margins are described in this report:

Gross margin
Gross income less variable growing costs such as land
preparation, seed & seeding, fertiliser, sprays, irrigation running
costs, and harvesting & cartage; and

‘Net margin’
Gross income less cost of production or gross margin less
overheads (land rental, irrigator ownership and interest on crop
outlay).
While costs of production per hectare are broadly 20-25% lower in New Zealand than in
Tasmania they are not sufficiently low enough to offset the 40% lower income received,
so New Zealand gross and net margins are lower than in Tasmania (Table 5.1, Figures 5.1
and Figure 5.2).
The gross margin per hectare for all four crops is around 50% less in New Zealand than in
Tasmania with a range from 41% less for potatoes through to 73% less for carrots.
The net margin per hectare for all four crops is around 80% less in New Zealand than in
Tasmania with a range from 62% less for potatoes through to 100% less for carrots.
28
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Table 5.1: Gross & net margins per hectare (A$)
Crop
Beans
Gross income
Variable costs
Gross margin
Overheads
Net margin
% income
Carrots
Gross income
Variable costs
Gross margin
Overheads
Net margin
% income
Peas
Gross income
Variable costs
Gross margin
Overheads
Net margin
% income
Potatoes
Gross income
Variable costs
Gross margin
Overheads
Net margin
% income
Tas
NZ
A$/ha
A$/ha
5,110
2,730
2,380
1,035
1,345
2,940
1,780
1,160
750
405
26%
14%
12,065
6,055
6,010
1,470
4,540
6,545
4,915
1,630
1,610
20
38%
0%
3,070
1,745
1,325
805
520
1,815
1,130
680
660
25
17%
1%
15,780
10,070
5,710
1,580
4,135
26%
10,800
7,455
3,345
1,770
1,580
Difference
A$/ha
%
-2,170
-950
-1,220
-280
-70
-940
-42%
-35%
-51%
-27%
-70%
-5,520
-1,140
-4,375
140
-4,515
-46%
-19%
-73%
+9%
-100%
-1,255
-615
-645
-145
-495
-41%
-35%
-49%
-18%
-95%
-4,980
-2,615
2,360
195
-2,560
-32%
-26%
-41%
+13%
-62%
15%
29
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Figure 5.1: Gross margin (A$/ha)
7,000
6,000
5,000
4,000
A$/ha
Tas
3,000
NZ
2,000
1,000
0
Beans
Carrots
Peas
Potatoes
Figure 5.2: Net margin (A$/ha)
5,000
4,500
4,000
3,500
3,000
A$/ha 2,500
Tas
2,000
NZ
1,500
1,000
500
0
Beans
Carrots
Peas
Potatoes
In the case of carrots and peas, the very low New Zealand net margins suggest that the
gross margins being earned are sufficient to cover land rental, irrigation ownership and
interest on crop outlay – but not other overheads (eg management wage) or to
contribute to an overall profit. There is also no margin for risk. A sustainable business in
this situation would require other enterprises to cover these additional overheads to
produce an overall profit for the cropping business3.
30
3
The profit for the cropping enterprise need not include any return for land which is covered in the land
rental overhead cost, or for a return on the machinery investment which is covered in the machinery
contracting cost.
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
Assuming that the margins being earned in New Zealand are sustainable, the question
arises as to how this is achieved, given that Tasmanian farmers are not achieving high
profit levels with significantly higher margins. Possibilities include:

Remaining overheads such as management costs are lower cost in New Zealand
and therefore require less margin to cover the cost and produce a profit;

The lower margins earned are applied to a higher number of tonnes or hectares
– ie a low margin/high volume business model; and

Better integration of enterprises may produce an overall business profit despite
inclusion of some lower returning enterprises.
31
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand
6. Conclusions
In general terms New Zealand costs of production for process vegetables (beans,
carrots, peas and potatoes) are around 20-25% less than Tasmania, while their growers
are paid 40% less than in Tasmania. This report has highlighted a number of the factors
driving these differences. The main drivers include:

New Zealand’s lower input prices in A$ terms for wages (35-40%), fertiliser
(20%) and irrigation electricity (40%)

Machinery prices, interest rates and diesel prices are similar in both areas, but
New Zealand’s generally flat topography and larger paddocks allow for larger
machinery and more efficient operation.

On average, land prices are higher in New Zealand, however prices in North
West Tasmania are similar to those in the South Island, where around two thirds
of New Zealand’s process beans, carrots, peas and potatoes are grown.

While it is difficult to be definitive, it appears that New Zealand bean and carrot
yields may be somewhat less than in Tasmania whereas pea and potato yields
are higher than Tasmania.

Adverse exchange rate movement over the past five or so years has reduced
Tasmania’s competitiveness by around 20%.
Despite the lower costs of production in New Zealand, margins per hectare and per
tonne are also less than for Tasmania – because of the low prices received. This tends to
suggest that the remaining overheads that need to be covered are less, or that the lower
margins earned are able to spread over a larger number of hectares or tonnes, or that
an integrated rotation may still produce an overall profit despite inclusion of some lower
returning enterprises.
Without a significant reduction in effective wage rates or a devaluation of the Australian
dollar (both unlikely) it is difficult to see that Tasmania will be able to equal New
Zealand’s lower cost of production. However, there are a number of areas that might be
addressed to close the gap.
To become more competitive Tasmanian growers need to either (1) reduce costs of
production per tonne and/or (2) develop business models that can survive lower prices
and lower margins.
The cost of production per tonne can be reduced by either increasing yield relative to
cost, and/or reducing input costs without a significant loss of yield. Some areas worthy
of further investigation include:


Ongoing research, development and extension aimed at improving crop yields;
32
While electricity prices in New Zealand are lower than for Tasmania, the overall irrigation cost differential
is not clear cut. New Zealand growers often access water from relatively deep (expensive) bores but on
the other hand application rates are lower and with the advent of competitive tendering in Tasmania,
larger users may be able to access rates similar to those in New Zealand.
DEDTA
Process Vegetable Cost of Production Comparison – Tasmania and New Zealand





Reasons behind lower fertiliser prices in New Zealand;
The potential for reduced fertiliser inputs;
Lowering irrigation costs, including the potential benefits from a competitive
market for electricity;
Reducing potato seed costs; and
The potential for high volume potato harvesting systems in Tasmania;
At the same time research should be undertaken in relation to business models that can
potentially operate profitably with lower margins. For example:


The potential for larger scale businesses through increased land ownership, land
leasing or some form of co-operative farming operation; and
Better integration of enterprises to produce an overall business profit despite
inclusion of some lower returning enterprises.
33