Benchmarking. 1. Murray Valley Winegrape Cost of Production Prepared for: Murray Valley Winegrowers Inc. By: Mary Retallack, Retallack Viticulture

Transcription

1 Benchmarking 1. Murray Valley Winegrape Cost of Production Prepared for: Murray Valley Winegrowers Inc. By: Mary Retallack, Retallack Viticulture 2. International Winegrape Cost of Production Prepared for: Murray Valley Winegrowers Inc By: Diane Davidson, Davidson Viticulture June 2010

2 Introduction The project reports contained within this document were developed for Murray Valley Winegrowers as part of the Grape & Wine Research & Development Corporation s (GWRDC) Regional Grassroots Solutions program. In the development of the strategic plan for the GWRDC program, Market information - learning about international competitors and regional cost of production were rated as the first & third areas of priority respectively. Project descriptions were developed to investigate the regional cost of production and the international cost of production as described below. Murray Valley Cost of Production Over past seasons many winegrape growers in the Murray Valley have struggled to break even, with drastic reductions in grape prices, increases in costs and the need to buy water; which in 2007/08 reached a cost of approximately $1000 per mega litre. With such dramatic changes occurring, the cost of production reports that previously allowed growers to benchmark their place in the wine industry were out of date, creating an information gap for growers and industry alike. Winegrape growers in the Murray Valley need to make some hard decisions about whether to remain in this industry and the cost of production information was seen as a significant factor in allowing them to assess and review their position in the Australian wine industry. This project aimed to benchmark 10% of the grower population in the Murray Valley based on vineyard location and size. Three hundred growers were randomly selected to participate in the project based on location and size parameters to ensure this project met the 10% grower requirement. The project aimed to collect targeted information from growers, with the expectation of keeping the process simple, time efficient and to ensure the correct answers were gained from the data collected. Data was collected for the 2008/09 financial year. Growers were offered $250 + GST to participate in the project and all data was kept confidential. Despite the monetary reimbursement and the guarantee of confidentiality, there were some gaps in the data collected for the 1-10Ha size range where 50% of the Murray Valley wine growing population exists. This is discussed further in the report.. This project was developed with the assistance of Mary Retallack from Retallack Viticulture using the Wine Grape Growers Australia (WGGA) business model; Vinebiz. Mary Retallack from Retallack Viticulture analysed the data and developed the report contained within this document.

3 International Cost of Production This project was put out to tender and Diane Davidson from Davidson Viticulture was the successful applicant. The project tender included the following requirements: 1. Background: A background should be compiled for each of the countries listed below and should include but not be limited to: Area of winegrapes planted (Ha), bearing and non-bearing, Total tonnes produced per annum for the past three seasons, Major varieties grown, Climatic data (monthly and annual maximum, minimum and mean temperature, rainfall and relative humidity if available), Irrigation type and typical range of usage (ML/Ha), Major trellis types, Harvest operations e.g. mechanically harvested or hand picked, Vineyard management practices, How grapes are sold in each country (e.g. contracts, co-operatives) and are there government subsidies? % of fruit exported and consumed domestically. 2. The range in vineyard costs of production: Red v/s white major grape varieties (all money values should be converted to Australian dollars for comparison). 3. The range in vineyard income: Red v/s white major grape varieties (all money values should be converted to Australian dollars for comparison). 4. Countries: The countries, and selected major growing regions (listed below) to be included in the report were: Australia Murray Valley, Riverland and Riverina Chile - Maipo, Rapel, Curico and Maule Valleys Argentina Mendoza region South Africa Robertson, Worcester and Klein Karoo regions Spain South Central Spain - La Mancha (D.O.) USA California, San Joaquin Valley (Lodi to Fresno regions) France Southern France - Languedoc-Roussillon region Italy - Sicily, Calabria, Apulia, Campania and Basilicata Acknowledgements Murray Valley Winegrowers Inc acknowledges the Grape & Wine Research & Development Corporation for the funding from the Regional Grassroots Solutions Program that was necessary to run both projects reported in this document. It is hoped that the information contained within will be useful to winegrape growers in the Murray Valley.

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22 Appendix1 Backgroundinformationflyersfor winegrowers

23 CapacityBuildingforAustralianWineGrapeGrowers CostofProductionProjectFlier MurrayValleyWinegrowers InciscarryingoutaCostofProductionProjectusingtheWGGAdatacollectiontemplate.Thisfollows onfromasimilarprojectin2008andhasbeenmadepossibleviafundingfromthegrapeandwineresearchanddevelopment Corporation. Whatwillitachieve? Accurate,uptodateinformationontherealcostsofgrowingwinegrapesintheMurrayValley. Aclearerpictureofhowincomeandcostshavechangedoverrecentyearsandhowtheprofitabilityofwinegrapeshasbeen affected. Agreaterinsightintothegrossmarginforwinegrapesfromvineyardsofdifferentsizesandmanagementstructures. Moreinformeddiscussionswithwineriesongrapeprices,thesustainabilityofwinegrapeproducersandtheindustryingeneral. Howdoweintendtocollectthisinformation? Weareseekinghelpfrominterestedgrowerstoprovidetheirvineyardincomeandcostfiguresfortheproject. Growerswillbesentatemplatefordataentrytoentertheirfinancialdata(eitherelectronicallyormanually),oryoucanprovide rawdataforustoenter. Alldatawillbecombinedandarrangedsoyouwillnotbeidentified. THESHEETSWILLBECODEDTOENSUREDATAISKEPTANONYMOUSANDCONFIDENTIAL Whatdoyougetoutofit? Acopyoftheregionalcomparativeanalysissummary. Thesatisfactionthatyouarehelpingyourgrowerorganizationachieveamoretransparent,equitableandsustainablewinegrape industry. WorkshopsarescheduledtobeheldbyRetallackViticultureinSwanHill,RobinvaleandMildurainDecembertopresentan analysisofthedatawehavecollected. Whatdointerestedgrowersdonow? Backgroundinformationandadataentrytemplateareattached.PleasecontactLizSinghifyouhaveanyquestions. PleaseforwardyourfinancialdatatotheMVWIofficebyFriday23 rd October,2009. LizSinghIndustryDevelopmentOfficer POBox2745,Mildura,Vic,3502 Ph:(03) Fax:(03)

24 CapacityBuildingforAustralianWineGrapeGrowers CostofProductionProject BackgroundInformation Step1DataCollectionTemplate GrowersareaskedtoentertheirenterpriseincomeandcostdataintoasimpleExceltemplate,fromeithertaxreturn Profit andloss(income) statementsorfarmrecords(mostrecent2008/09)andpriorseasons(ifavailable). The template categories are broadly divided into Operating (variable) costs and Overhead (fixed) costs (descriptors are includedinthetemplate).ifyouwishtosupplyyour raw datawecancollatethisonyourbehalf(furtherinfobelow). Confidentiality Financial data supplied is coded so it cannot be traced back to an individual grape grower when this data is published. Growersareaskedtoprovidetheirenterprisedata(incomeandcosts)alongwiththeareainproductionforgrowingwine grapes.thisdatacanthenbereportedona$/hectarebasisprovidingastandardisedunitforreportingwhilemaintaining confidentiality. Growersareaskedtoanswertwosimplebackgroundquestions.Thisallowsthedatatobecodedandassessedonaregional basisby: Themanagementstructureofthebusiness; Thesourceofwaterforirrigationpurposes. Step2 DataManagementandReporting Oncedataisreceiveditwillbeconsolidatedintoacomprehensiveregionaldataset.Averagevaluesforeachinputcostcan thenbepresentedasfeedback. Average$/hacostsaregraphedtoprovideavisualsummaryoftheincomeandcostsforgrowingwinegrapes,overrecent seasons(orforindividualseasons). Asummarypageforeachgrowerwhocontributesdatatothisprojectcanbeprovidedonrequest,detailingtheirownincome andproductioncostsalongsidetheregionalcostofproductiondata. Partofthisprojectistoassessregionalvineyardincomeandproductioncostsandtocalculategrossmargins($/ha)fora rangeofvineyardsizesandmodels.workingcloselywithgrowersensuresthefinancialinformationcollectedisbothcurrent andreflectiveofarangeofvineyardenterprisemodels.

25 Areyouinterestedinparticipating? Weacknowledgethereareanumberofissuesinvolvedincollectingfinancialdataandcanofferthefollowingcomments: Confidentiality.Weunderstandtheimportanceofkeepinggrower sdataanonymous.vineyarddatasuppliedwillbe handled confidentially and will not be able to be traced back to individuals when used in this project. Eachdatasetiscodedpriortoanalysistoensureconfidentiality. Scopeofdata.Enterprisedataissoughtforthe2007/08and2008/09seasons(whereavailable). Format.Astandardisedtemplateisprovidedforthecollationofdataoryoumaywishtoforwardacopyofyour Profit andloss(income) statementtomvwisotheycanallocatethesecosts. Thenextstep Ifyouwouldliketoparticipateinthisprojectthiscanbedoneinanumberofways(choosethemethodwhichbestsuitsyou). 1. Sendacopyofyourenterpriseproductionincomeandexpensesdataenteredintothesuppliedtemplate. - Enteryourdataintothesuppliedtemplate.Thisprocesstakesabout30minutes(toallocatecoststothespecified headings). 2. Ifyouwishtosupplyyour raw datawecancollatethisonyourbehalf. - Sendacopyofyourenterprise ProfitandLoss(Income) statementfromyoutaxrecords. - Ifyoucurrentlyuserecordkeepingsoftware,pleasesendaprintacopyofyourfinancialsummary. Ifyousendrawdata(notusingthesuppliedtemplate)pleaseprovidethefollowingdetailswithyourfinancialinformation. Answerstoenterprise backgroundinformation questions Clearlydatethefinancialyearofthedatasuppliedie2008/09 Thesizeofyourproperty(areaplantedtovinesandanyothercrops) Thisinformationwillbehandledconfidentially. If you have any concerns youmay wish to remove your company name from the header of any information supplied. Onaseparatesheetofpaperyouwillbeaskedtosupplyyournameandcontactdetails.Thiswillbeusedtosendcollated regionalcostofproductionresultstoyouandinviteyoutothepresentationofthefinalreportandfindingsinyourlocalarea. PleaseforwardyourfinancialdatatotheMVWIofficebyFriday23 rd October,2009. Step3 Feedback PresentationofProjectResults YouwillbeinvitedtoapresentationinDecemberwhichwilloutlinetheresultsofthisregionalcostofproductionproject. Comments Recentcircumstancesincludingchangingseasonalconditions,drought,market(supplyanddemand)etchavehadanover ridingeffectonagrowerscapacitytogenerateincome(priceandtonnage)andmanagetheirproductioncosts(wateretc). Theresultofthisshiftisthatpastcostofproductiondatawillbeofinterestbutperhapsoflimiteduseforfutureprojections. Oursenseisthatproductioncostsareas lean asgrowerscanachievetogrowtheirfruittospecification(waterbeingthe exception).therealvariableinthisequationisthepotentialforgrowerstogenerateincometocoverthesecosts(andany ceilingonthecapacitytodoso).giventheextentofthesevariables,itisimportantforsmallergrowerstohaveamechanism toassesstheircapacitytogenerateasuitablemargintocoverallenterprisecosts(operational,overheadanddebtservicing). WGGA svinebizprogram Ifyouareinterestedinfindingoutmoreaboutyoufinancials,WineGrapeGrowersAustralia(WGGA)havedevelopedthe VineBiz Financial Ready Reckoner that captures both enterprise and management unit costs. The Ready Reckoner is a powerfultoolwhichcanbeusedtomeasureagrower sfinancialsdatainastandardisedwayandhelpwithdecisionmakingin thefuture. VineBizWorkshopswillberunintheMurrayValleyinearlyOctober2009.

26 CapacityBuildingforAustralianWineGrapeGrowers CostofProduction CheckListandContactInfo CheckList 1.IhaveansweredthetwoVineyardEnterpriseBackgroundInformationquestions(Sheet1) 2a.Ihaveattachedmyenterprisefinancialdatafor2007/08(and2008/09ifavailable). Datahasbeenenteredintothesuppliedtemplate(onetemplateperfinancialyear)(Sheet2),OR 2b.Ihaveattachedphotocopiesofmy ProfitandLoss(Income) Statements Ihaveclearlystatedthefinancialyearandareaofwinegrapesinproduction(ha). 3.Pleasefillinyourcontactdetails(below)sowecanprovidefeedbacktoyouattheendoftheprojectand inviteyoutoapresentationoftheregionalresultsindecember2009. Yourenterpriseandcontactinformationremainsconfidential Name Address Pleasereturnthissheet(withattachmentslistedinthechecklist)byFriday23 rd Octoberto: MurrayValleyWinegrowers IncCostofProductionProject LizSinghIndustryDevelopmentOfficer POBox2745,Mildura,Vic,3502 Ph:(03) Fax:(03) Tick

27 Appendix2 Datacollectiontemplateusedtocapturethe costofproduction

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29 Sheet 1: Murray Valley Winegrowers' Cost of Production - Vineyard Enterprise Background Information Q1 Location of Vineyard (Circle Region) Mildura Region Robinvale Region Swan Hill Region Management Strucutre (please circle) Owner Manager Small Vineyard Owner/operator who does not employ any outside permanent labour but does use contractors/casuals for some tasks ie harvesting, pruning. Owner Manager Medium Vineyard Owner/operator who has one or two permanent workers (for example vineyard hand or tractor driver) and uses casuals and contractors. Q2 Owner Manager Large Vineyard The owner manages the business but employs a full time vineyard manager for operational work, monitoring, planning etc. Contractors and casuals are also used. Corporate/Investor Owner Large Vineyard A full-time vineyard manager is employed plus permanent employees, casuals and contractors (similar to No. 3 but Corporate or Investor owned, which will (may) have different overhead costs) Q3 Water Source (please circle) Private Water Diverter Irrigator within Pumped Districts Water is sourced directly from a river or bore, annual water access fees are usually low but pumping costs (power) are high. Water is sourced from an irrigation water provider who supplies water to the farm gate. Annual water fees are usually high but pumping costs (for the grower) are low. Q4 Do you have a grape purchase contract for the upcoming season? (Circle) Yes No I will speculate on the spot market Q5 I have off farm income (Circle) Yes No Occasionally Variety Ha Q6 List the winegrape varieties grown on your property. Variety Ha Q7 Did you mothball any varieties for the financial year listed? If so, please list varieties and area (ha). Variety Tonnes Q8 Did you harvest any fruit onto the ground in the financial year listed? If so, please list varieties and estimated volume (tonnes). Crop Ha Q9 Do you grow crops other than winegrapes? If so, please list the crops grown and the area (ha) Q10 Comments

30 Year: Vineyard Area (ha) Sub Unit Total Property Area (ha) Wine grapes (ha in production) Wine grapes (ha not in production) INCOME Sub Unit Wine Grape Sales Wine Sales OPERATING (VARIABLE) COSTS Sub Unit Farm Labour Contract Labour Fruit Transport Levies Chemicals Nutrition / Fertiliser Vineyard Floor Management Sundry Materials and Supplies Machinery Expenses Machinery Fuel Machinery, Plant & Equipment Hire Water and Drainage Costs Water Lease Vineyard Repairs & Maintenance OVERHEAD (FIXED) COSTS Sub Unit Permanent Management Owner's Labour Land Rates and Taxes Power (Buildings) Insurance Professional Services Office/Administration Lease or Rent Payments OH&S Requirements Staff Development Environment Overhead Repairs & Maintenance Debt Servicing (Interest and Finance Sheet 2: Murray Valley Winegrowers' Cost of Production Project - Data Collection Template 2008/09 Enter the financial year ie 2008/09 (ie 1st July, 2008 to 30th June, 2009). This also includes vintage To convert acres to hectares divide by 2.47 ie if you have 10 acres divide by 2.47 = 4.05 ha. Enter the income from Wine Grape Sales (this will be used to calculate the gross margin) and Wine Sales separately. Wine Sales are sales made from winegrapes converted to wine in the listed financial year Description for each category Employee labour costs Contractor labour costs Freight or cartage costs from vineyard to fruit processor. Research and development (GWRDC $2/tonne), grower organisation levies (MVWI $1.95/tonne). Often levies are deducted automatically from grape payments as a $/tonne amount. If you are converting winegrapes into wine add the relevant levies. Fungicide, insecticide, weedicide, bait, pest control. Fertiliser application, foliar nutrient, petiole testing. These tasks are often carried out an on annual basis. Soil testing, soil amelioration o at o (lime/gypsum), broadcast fertiliser, cover crop/seed, mulch. These are normally longer term tasks s ie not carried out an on annual basis. s Sundry hand tools, miscellaneous items, repairs <$100 ea. Oil, gas and grease, basic servicing and maintenance of vineyard machinery (tractors, utes, ATV, pumps). Fuel (diesel or petrol) for vineyard machinery (tractors, utes, ATV, pumps). This is separated to allow for environmental accounting. Water delivery costs and electricity to power pumps (include water rates or standing fees). Separate from Power (buildings) which is an overhead cost. Annual water lease (permanent water purchases should be recorded separately as a capital expense). Separate from Land Rates and Taxes which is an overhead cost. Vineyard repairs and maintenance including re-planting dead vines, trellis repairs (do not include major capital expenses). Description for each category Permanent management (including owner or manager who predominantly manages rather than carrying out 'hands on' tasks). Estimation or actual. Don t duplicate this amount if it has already been captured in 'Permanent Management'. See calculation over the page. Don t include water rates (or standing fees) insert these costs into water and drainage costs (operating). Electricity (other than power used for pumps/irrigation system). Public liability, property, contents or crop insurance. Consultant, research, accountant, legal, secretarial, auditor fees. Phone, software, stationary, postage, registration. Land or machinery. Personal Protective Equipment (PPE), fire extinguishers, safety signage. Human resource costs, staff training, subscriptions, memberships, course fees, travel and accommodation. Revegetation, water treatment, catchment management. Fences, roads, firebreaks, sheds, ground maintenance. Interest paid on loans, bank fees & charges. Do not include capital or principal repayments.

31 Calculating Owner's Labour Estimation of Owner's Labour Estimated % of time spent running vineyard? Base Salary Superannuation + Workcover Check the current % requirements. Superannuation and Workcover Calculation Full Time Salary (Including 'on costs') Formula % Salary (including 'on costs') Comments Estimate % up to a total of 100% (full time) Select a base salary (use $40K as a minimum starting point) Grape growing example: (9% Superannuation, 3.2% Workcover + 0.6% OHS&W registration fee). B X C B + D E X A Owner's Labour Example Owner's Labour (your calculation) A B C D E Insert this figure into the worksheet 50% $ 40, % $ 5,120 $ 45,120 $ 22,560 $ - $ - $ - Description It is important to allocate a value to owner s labour (if this has not already been done in Permanent Management). To use the calculator, estimate the percentage of time spent running the vineyard over the year, select a base salary (this starts at $40K) and calculate the total salary (including on costs ) using the formula provided.

32 Appendix3 Vineyardcodingform

33 REGIONALVINEYARDCOSTINDICATORS BLOCKCODES Eachdatasetcollectedfromdatasuppliers/growerswillbecodedinsuchawayastoidentifythe followingattributes: 1. LABOURSTRUCTURE Thefollowingcategorieswillbeusedtodefinewhatlabourstructureisinplaceinthevineyard business.thisisoftenrelatedtovineyardsizebutnotalways.ithasanimportantimpactonhow thelabourcostsaredealtwithinthisanalysis.thenumberassociatedwiththeclosestdescription oftheenterpriseisusedinthecode. CODE LABEL DESCRIPTION OwnerManager SmallVineyard OwnerManager MediumVineyard OwnerManager LargeVineyard Corporate/Investor Owner LargeVineyard Owneroperator who does not employ any outside permanent labour but does employ the services of contractors/casuals for certain tasks suchasharvesting. Owneroperator who has one or two permanent workers (for example vineyardhandortractordriver)andusescasualsandcontractors. The owner manages the business but employs a full time vineyard managerforoperationalwork,monitoring,planningetc.contractorsand casualsarealsoused. 2. IRRIGATIONWATERSOURCE Itisofsomeinteresttoknowhowavineyardoperatorsourceswaterforirrigationpurposes.Two broadcategoriesareproposedforthecode. CODE LABEL DESCRIPTION 1 2 PrivateWater Diverter Irrigatorwithin pumped districts Fulltime vineyard manager plus permanent employees, casuals and contractors(similartono.3butcorporateorinvestorowned,whichwill (may)havedifferentoverheadcosts) Water is sourced directly from the rivers or bores, annual water access feesareusuallylowbutpumpingcosts(power)arehigh. Water is sourced from irrigation water providers who supply water to farm gate at various pressures. Annual water fees are usually high but pumpingcosts(forthegrower)arelow. 3. VINEYARDBLOCKNUMBER Thisisasequentialnumberattachedontotheendofthecodetodifferentiateblocksofsimilar description.

34 RetallackViticulturePtyLtd ABN SheoakRoad,CRAFERS WESTSouthAustralia5152 Mob:+61(0) Tel: Fax:

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