1. Fruit Production: Using Interactive
Budgeting Tools to Assess Costs,
Revenues and Risks
Jennie Popp, Ph.D.
Hector G. Rodríguez, Ph.D.
Curt Rom, Ph.D.
Heather Friedrich, M.S.
Jason McAfee, M.S.
Missouri Organics Association Annual Meeting
February 6, 2014
Springfield, MO
Center for Agricultural and Rural Sustainability
Division of Agriculture
University of Arkansas

2. Fruit Production Budgets
• Tools used to assess costs and revenues
associated with production
• Traditionally paper based
• Require large amount of information from
producers to work

3. New CARS Decision Support Tools
• Interactive Budgeting:
– Computer based; User specifies input, tool
automatically makes calculations
• User Friendly
– Little computer knowledge required
– Little data input needed
• True Decision Support
– Assess costs, revenues AND risks

4. Fruit Production
Decision Support Tools

5. Presentation Objective
• Describe the benefits of CARS Decision
Support Tools
• Walk through an example for apple
production

6. Traditional Budget Sections
Variable Costs Fixed Costs Total Costs
Yield Relevant Price Total Revenue
Total Revenue Total Cost Net Revenue

7. • Net Revenues may be calculated for one
year
• Present value of net benefits
– Calculates what the value of all net revenues
generated over time are worth today
Traditional Budget Sections

8. New Section: Breakeven Analysis
• Breakeven Point
– Point at which costs and revenues are equal
• Can be calculated for
– Breakeven Price
– Breakeven Yield

9. Breakeven Price
• Given yields and costs, what price do I need
(on average over time) to break even?
Total Cost Over
Time
Expected Yield
Over Time Breakeven Price

10. Breakeven Yield
• Given market prices and costs, what yield do I
need (on average over time) to break even?
Total Cost Over
Time
Expected
Market Price
Over Time
Breakeven Yield

11. New Section: Sensitivity Analysis
• “What if?” analyses
– How different values of an input impact final
result
• What if:
– My yields over time are actually higher/lower than
I predict?
– The market price for the fresh/processing market
over time is higher/lower than I predict?

12. New Section: Risk Analysis
• A technique that calculates the probability of
obtaining a net present value of returns
greater than a specific dollar target
• What is the probability that I will earn a net
present value greater than $90,000?

13. Importance of The Tool
• Allows the user to make more informed decisions
by
– Comparing costs/revenues of different production
practices
– Estimating impacts of changes in yield/prices on the
solvency of the operation
– Assess the economic risk associated with a particular
production system
• Assessments can be made hypothetically;
without having to actually change practices

14. Decision Support Tool Example
Organic Apple Production

16. Quick Start
Menu

17. Help
Menu

18. User’s
Guide

19. Start
• Tool can be run two ways:
– User input
– Demo

20. Start
• Tool can be run two ways:
– User input
– Demo

21. By clicking on the Full Production
Yield button, a new screen will
appear that allows the user to
change the expected yields for the
fresh and processing markets for
each production year.

22. Similarly, annual prices can
be changed by clicking the
Full Production Price button.

23. Run
Once data are entered (or demo is chosen) click
run.

24. Summary
• The tool will generate net returns for each
year of production

25. How to Change Levels of Activity or Prices
• Click on a
gray button
associated
with one of
the years

26. How to Change Levels of Activity or Prices
Here you can
change
- Quantities
- Prices
- Activities
Once changed,
the tool will
recalculate all
costs and
returns

27. How to Change Levels of Activity or Prices
Added
- Poultry
Litter
- 1 ton/acre
- $12

28. Before
After

29. After
Economic Analyses
Click on the Gray Economics Button at
the top of the Summary screen

30. Economic Analyses
Shows a Summary of the Current Situation and a Breakeven Analysis

31. CASE ONE
Full Production - 45 lbs/tree; Fresh Market 80% ($1.0 lb.);
Processed Market 10% ($0.15/lb.)

32. CASE TWO
Change - 5 lbs yield increase per tree each year
Full Production – 50 lbs/tree; Fresh Market 80% ($1.0/lb.);
Processed Market 10% ($0.15/lb.)

33. CASE ONE
Full Production - 45 lbs/tree
Fresh Market 80%
Processed Market 10%
Constant Price
CASE TWO
Full Production – 50 lbs/tree
Fresh Market 80%
Processed Market 10%
Constant Price

34. Comparing Cases
Shows a Summary of the Current Situation and a Breakeven Analysis

35. CASE ONE CASE TWO
Total Costs $162,066 (18-yr)
To breakeven - cover total costs
• 23.13 lbs per tree each year or
209,942 lbs
$162,066/209,942 lbs = $0.77/lb.
Cover total costs but no profits
However, producer is expecting:
• $1.00/lb. fresh market and
• $0.15/lb. processed market
• 45 lb...... per tree/year
With those prices and yields, the
orchard will breakeven after
7 years or when costs and
revenues are each $67,902
After year 7, the orchard produces
profit every year
Net Profit $96,756 (18-yr)
Total Costs $163,731 (18-yr)
To breakeven - cover total costs
• 23.11 lbs per tree each year or
209,725 lbs
$163,731/209,725 lbs = $0.78/lb.
Cover total costs but no profits
However, producer is expecting:
• $1.00/lb. fresh market and
• $0.15/lb. processed market
• 50 lb...... per tree/year
With those prices and yields, the
orchard will breakeven after
6 years or when costs and
revenues are each $58,024
After year 6, the orchard produces
profit every year
Net Profit $127,457 (18-yr)

36. Risk Analysis
We can also calculate the risks associated with this operation by answering
some questions under risk analysis

37. Yield Usage Fresh Price
Processed Price Costs

38. Risk Analysis
We can also calculate the risks associated with this operation by answering
some questions under risk analysis
EXAMPLE: suppose we raise most likely yields in the first three years only
by 5 lbs/ac

39. Risk Analysis
If expected yield increases, we increase the likelihood of getting returns of
$90,000 or more over the life of the orchard.
Before With Higher Yields
33.3% chance 46.5% chance

40. Risk Analysis
We can calculate the risks associated with this operation by answering
some questions under risk analysis
ANOTHER EXAMPLE: Suppose we raise our desired net returns to $100,000
over the life of the orchard?

41. Risk Analysis
If expected returns increases, we decrease the likelihood of reaching that level
Expecting $90K Expecting $100K
46.5% chance 17.2% chance

42. Lots to this Tool!
• The capabilities of this tool are great
• But at the same time it can be used to answer
very simple questions alone
• Built to be flexible, based on the needs of the
user

43. Get Your Decision Support Tool for
Apple Production Now!
• Take CD with you today
• Send an email to CARS (cars@uark.edu) to request
• CD copy of tool
• Web link to download
the tool
• Electronic copy of this
presentation

44. Tools for Blackberries, Raspberries
and Blueberries in Development
• Blackberry and Raspberry tools coming late
spring
• Blueberry tool coming end of year
• Watch CARS website for announcements of
releases

45. Visit Our Website
Center for Agricultural and Rural Sustainability
www.uark.edu/ua/cars
Look under Food Industry Program pages for
more information

46. Thank You
About the Tool
Hector Germán Rodríguez
hrodrig@uark.edu
About CARS
Jennie Popp
jhpopp@uark.edu
For More Information….