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Publication #FE837

Sample Avocado Production Costs and Profitability Analysis for Florida1

Edward A. Evans and Sikavas Nalampang2

Introduction

The avocado industry is an important tree fruit crop to the agricultural economy of Florida and second only to citrus. Annual farm gate sales are worth between $12 and $14 million.3 At the wholesale end of the market, the Florida avocado industry is worth upwards of $30 million per year.4 Approximately 85 percent of the crop is sold outside of the state; hence, the industry brings in a substantial amount of "new dollars" to the state, resulting in an overall economic impact of approximately $54 million per annum.5 Florida's avocado industry consists of about 7,400 acres, representing about 60 percent of the total tropical-fruit crop acreage. There are about 951 growers6 and 35 registered avocado handlers and shippers.7 Of these 7,400 acres, over 98 percent are located in southwest Miami-Dade County. The range in orchard size is from 0.1 to over 500 acres.8 However, 93 percent of the farms are 15 acres or less, and the most common farm size category is 1–5 acres. Although avocado varieties produced in South Florida look similar due to their "green skin" and are easily distinguishable from the "purplish-black skin" varieties grown in California, they differ somewhat and fall into one of three main types: West Indian, Guatemalan, and Mexican. These three avocado types collectively comprise some 60 major and minor commercial varieties that mature at different times during the season in various weights and sizes. As a consequence, yields per acre vary among producers, depending on the production techniques and varieties grown. There is also a tendency of alternate-year bearing, implying high yields one year and lower yields the next. In recent years, there has been an upward trend with respect to average yields. Trees are being replanted with higher-yielding varieties and closer planting density. This practice intensified after the devastation to the industry caused by Hurricane Andrew in 1992.

This article provides an estimate of the costs and returns associated with avocado production in Miami-Dade County and a brief analysis of the profitability of the industry. Our sample budget is based on a five-year average marketable yield of 14,025 pounds, or 255 bushels (1 bushel = 55 pounds), per acre (assuming a pack-out rate of 85%) and on estimates of the current average F.O.B. price in South Florida of $0.40 per pound, or $22 per bushel. The budget does not make any provision for establishment costs. Although the assumptions made in computing the costs reflect the practices of the avocado growers in the area, the information provided here is intended only as a guide to facilitate estimating the financial requirements of maintaining avocado groves. Data used in the analysis were obtained from interviews with growers and Extension specialists.

Cost of Production

Table 1 illustrates a sample budget, indicating a total pre-harvest cost of $2,415.50 per acre, or $0.17 per pound of avocados produced (on the tree).

Table 1. 

Sample budget for avocado production

Item

Quantity

Value per Acre

Value per Pound

 

(pound)

($/acre)

($/pound)

REVENUE

     
 

Yield (pounds/acre)

14,025

   
 

FOB price

   

0.4

   

Total Revenue

 

5,610

 

OPERATING COSTS

     
 

Fertilizer

 

446

 
 

Fungicides

 

179

 
 

Herbicide

 

105

 
 

Insecticide

 

22

 
 

Tree replacement

 

18

 
 

Top, head, and prune trees

 

200

 
 

Irrigation

 

50

 
 

Mow middles

 

200

 
 

Grove work and hand labor

 

25

 
 

Growers association fees

 

8

 
 

Interest @ 10% per annum

 

208

 
   

Total Operating Cost

 

1,460

0.1

FIXED COSTS

     
 

Land rent

 

500

 
 

Supervision

 

155

 
 

Overhead (taxes, insurance, utilities, etc.)

 

300

 
   

Total Fixed Costs

 

955

0.07

   

Total Pre-Harvest Cost

 

2,415

0.17

HARVEST & MARKETING COSTS

     
 

Sales charge @ 10% FOB price

 

701

0.05

 

Pick, haul, and pack

 

1,683

0.12

   

Total Harvest & Marketing Costs

 

2,384

0.17

TOTAL COST

 

4,800

0.34

GROSS MARGIN

 

1,766

0.13

ESTIMATED NET RETURNS

 

810

0.06

Of the total pre-harvest cost, operating costs totaled $1,460 and fixed costs were estimated at $955 per acre. The main operating costs were for fertilizers, fungicides, and herbicides, with shares of 30.5 percent, 12.6 percent, and 7.2 percent, respectively. This is not surprising, given that many of the trees in Miami-Dade County are grown in calcareous soils and require generous applications of fertilizers. In addition, precautionary measures taken to prevent foliar and fruit diseases caused by fungi usually mean that all susceptible parts of the plants must be thoroughly coated with an expensive fungicide before infection occurs.9 Included under fixed costs were land rent, supervision, and overhead expenses. Although the majority of farmers own the land, an opportunity cost for the land is included equal to the existing land rental rate ($500 per acre). This reflects the standard practice of valuing the contribution of the land.

When harvesting and marketing costs are added to production costs, the total per-acre cost increases to almost $4,800 (98.7%). This translates into a cost of $0.34 per pound to produce, harvest, and market avocados ($0.17 per pound is added to the $0.17 per-pound cost of production to cover harvesting and marketing costs). The main contributor to the harvesting and marketing costs is the cost associated with picking, hauling, and packing, including the cost of the packing material. Together, these account for 71 percent of the harvest and marketing costs and as much as 35 percent of the overall cost to produce and market avocados. The high harvest and marketing costs are due to avocado harvesting methods and federal regulations. Because the fruit is easily bruised and scratched, avocados are hand-picked, which makes harvesting a highly labor-intensive operation. Federal Marketing Order 915, in existence since 1954, regulates production practices and harvesting procedures, such as those governing the size and quality of the fruit, as well as packing and shipping containers, and shipping dates. The Order is aimed at increasing grower returns by promoting orderly marketing conditions while at the same time ensuring consumer satisfaction.

Figure 1 illustrates the proportion of costs by category. Harvest and marketing costs account for approximately 50 percent of the total cost of producing and marketing the crop. The cultural cost, such as pruning, fertilization, and pest control, is about 26 percent; fixed or overhead cost accounts for 20 percent; and, interest on capital is 4 percent.

Figure 1. 

Proportion of production costs


[Click thumbnail to enlarge.]

Returns and Profitability Analysis

Currently, average yield is estimated at about 16,500 pounds (300 bushels) per acre. With a pack-out rate of about 85 percent (rate varies from 70% in a poorly-managed orchard to about 99% in a well managed orchard), the quantity of saleable avocados is estimated at 14,025 pounds (255 bushels) per acre. Assuming an F.O.B. price of $0.40 per pound, the gross revenue is calculated at $5,610 per acre. Subtracting the total cost of production and marketing ($4,800) from the net revenue ($5,610) gives a net return to the growers of about $810 per acre, or between $0.05 and $0.06 per pound of marketable fruit (Table 1 ). This represents a return of 17 percent on the total cost of producing and marketing avocados. Given that most Florida avocado growers (91%) produce on farms less than 15 acres and 72 percent of growers produce avocados on farms less than 5 acres, total net returns for the majority of growers are less than $15,000 per annum. It should be pointed out that many of the growers who own their land tend to ignore the fixed costs and instead focus on the gross margin (i.e., the difference between total revenue and operating and marketing costs). Following such an approach implies a return of about $0.13 per pound ($0.40 – $0.10 – $0.17 = $0.13), or about $1,766 per acre. While such a return appears more favorable, it is only a short-term strategy that is insufficient for maintaining a full-time operation. It easily can be assumed that some growers remain in the industry for land speculation and more than likely have other sources of income.

Sensitivity Analysis

Table 2 presents a sensitivity analysis of net returns to a grower on a per acre basis. In the best-case scenario, where both price and yield are assumed to increase by 10 percent, net return per acre would increase from $810 to $1,750. In the worst-case scenario, where both price and yield decline by 10 percent, net return per acre would decrease from $810 to a loss of about $17 per acre. Other combinations of changes on prices and yields and their impact on net return per acre are shown in the table as well. However, it should be noted that at the industry level, a 1 percent increase production usually results in about a 1 percent decrease in the price received by the growers.

Concluding Remarks

Our estimate of total annual production cost for avocados in South Florida is $4,800 per acre, or about $18.82 per bushel. With a gross revenue of $5,610 per acre ($22 per bushel), this implies a net return to the growers of about $810 per acre, or $3.18 per bushel. Since most growers sell their crop to the packing houses, they are somewhat restricted in their ability to influence the price they receive; however, they can adopt practices that will increase their pack-out rates and, consequently, the profitability of their operation. The recent threat from the discovery of the Red Ambrosia Beetle and Laurel Wilt Disease within miles of the major avocado production areas10 is of grave concern since any major addition to production costs associated with the management of this pest and disease could easily cause many of these operations to become unprofitable.

References

Bronson, C. 2010. Cooperative Agricultural Pest Survey Trapping Program Identifies Redbay Ambrosia Beetle in Miami-Dade County. Florida Department of Agriculture and Consumer Services, Tallahassee, FL. http://www.doacs.state.fl.us/press/2010/03092010.html
Pal Brooks. 2009. Personal communications. Brooks Tropicals, Inc., Homestead, FL. (June 10).
Jonathan Crane. 2010. Personal communications. University of Florida, Tropical Research and Education Center, Homestead, FL (January 7).
Crane, J.H., C.F. Balerdi, and C.W. Campbell. 2001. The Avocado. Electronic Data Information Source (EDIS) MG213 [Circular 1034]. Department of Horticultural Sciences, University of Florida, Gainesville, FL. http://edis.ifas.ufl.edu/MG213
NASS/USDA. 2008. Noncitrus Fruits and Nuts: 2008 Preliminary Summary, FrNt1-3(09)a. National Agricultural Statistic Service, United States Department of Agriculture, Washington, D.C. http://usda.mannlib.cornell.edu/usda/nass/NoncFruiNu//2000s/2009/NoncFruiNu-01-23-2009_revision.pdf
NASS/USDA. 2009. 2007 Census of Agriculture, Florida State and County Data, Volume 1: Graphic Area Series, Part 9. National Agricultural Statistical Service, United States Department of Agriculture, Washington, D.C. http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_State_Level/Florida/flv1.pdf

Tables

Table 2. 

Sensitivity analysis, net returns per acre

Yield

Wholesale Price

(pounds/acre)

(dollars/pound)

   

0.36

0.38

0.40

0.42

0.44

   

(–10%)

(–5%)

(base)

(+5%)

(+10%)

12,623

(–10%)

–17

235

487

740

992

13,324

(–5%)

116

382

648

915

1,181

14,025

(base)

249

530

810

1,091

1,371

14,726

(+5%)

382

677

972

1,266

1,561

15,428

(+10%)

516

824

1,133

1,441

1,750

Footnotes

1.

This is EDIS document FE837, a publication of the Food and Resource Economics Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL. Published June 2010. Reviewed February 2013. Please visit the EDIS website at http://edis.ifas.ufl.edu.

2.

Edward A. Evans, assistant professor, and Sikavas Nalampang, economic analysis coordinator II, Food and Resource Economics Department, University of Florida, Tropical Research and Education Center, Homestead, FL; Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL 32611

3.

National Agricultural Statistics Service, United States Department of Agriculture [NASS/USDA 2008]

4.

P. Brooks, personal communication

5.

Authors' calculation

6.

USDA/NASS 2008; NASS/USDA 2009; J.H. Crane, personal communication

7.

P. Brooks, personal communication

8.

NASS/USDA 2009

9.

Crane, Balerdi, and Campbell 2001

10.

Bronson 2010


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