vineyard cash flows - ncsu
TRANSCRIPT
New grape growers• Contemplating “retirement” or other transitions and
considering viticulture and winemaking
• Alternative crop to existing farm operation
Questions for any new grape grower:1. Do they understand the labor and capital demands?
2. What are their financial expectations? How does grape growing compare to other investment opportunities
3. What is their market?
What information is available to new grape growers
•VT resources•Wine Grape Production Guide for Eastern North
America (NRAES, 2008)•Vineyard Financial Calculator
•Network with industry members
•Experience•Recordkeeping
Rules and reminders
1. You’ve got to give up something to get something.
- Life is a series of tradeoffs!
2. If it costs more than it’s worth, don’t do it.
- Rocket science, huh?
3. Twenty years is a long time…
What does a vineyard cost?
•Why that is a complicated question?
•Materials $
• Labor $$$
•Time scale
Total Costs
•Total cost of operation= Capital Expenditures+ Expenses• Capital Expenditures= long lived and used in normal operations
• e.g. tractor, vineyard
• Expenses= not long lived• e.g. canopy management labor
•Must be able to cover TOTAL COSTS in the Long Runto remain in business• Revenues must be > Total Costs in Long Run
Cumulative Cash Flows
•Costs•Expenses•Fixed assets• Investments
•Revenue•Grape Purchase agreements or vineyard leases
Capital Expenditures
•Vineyard• Total ~$22,000/acre
• Trellis Hardware ~$3,000• Labor : trellis install ~$6,000 (~450 hours)
oVines ~$4,000• Labor : planting vines ~$3,000 (~250 hours)
Deer Fence ~$7,000*Irrigation ~$3,000
Allocated? Fixed costs…Not allocated?
*vineyard size
Capital expenditures
•Equipment•Tractor - $40,000 - $65,000 16,000 hr.•Sprayer ~ $5,000 - $18,000 2,000 hr.•Rotary Mower ~$2,500 2,000 hr.•Hand tools ~$300•Others…
• Utility Vehicle ~$8,500 3,000 hr.
• Herbicide sprayer ~$2,000 1,500 hr.
• Pickup truck ~ $40,000
• Etc.
Annual costs
•Canopy management labor •~300 labor hours/acre
•Skilled labor•~50 hours/acre
•Spray materials, fuel, supplies•~$1,000/acre
•Management cost*•~$1,000/acre
*Economy of scale
Annual costs:labor
Vineyard labor
low estimate high estimate
pruning + tying 40 80
annual trellis maintenance 5 20
shoot thinning 15 30
shoot positioning 15 30
leaf pulling 15 30
crop thinning 15 30
hedging 5 15
harvest 20 30
spraying 14 42
mowing 3 10
scouting 20 52
total hours 167 369
Range (hours per acre)
Revenue
•3 – 5 tons of fruit at ~$2,000• $6,000 - $10,000 income per acre
• Excellent fruit quality• Compromised fruit does not hold this value
How did we do? Annual
•Costs• Canopy management
labor • ~300 labor hours/acre
• Skilled labor• ~50 hours/acre
• Spray materials, fuel, supplies• ~$1,000/acre
• Management cost• ~$1,000/acre
•Revenue• 4 tons of high quality fruit
• 4 x $2,000
• $8,000
$7,000 $8,000
Vineyard Financial Calculator
•Audience•Those not yet in the wine industry•Independent grape grower
•Simple question with a complicated answer•What does it cost to establish a vineyard?
•Planning tool
Vineyard Financial Calculator
User inputs Fill in the yellow cells with your estimated parameters
row width vine spacing
9 5
968
500
yes
30
1.5
3.8
2,000$
300
13.50$
1,000$
6%
Labor rate (per hour)
Spray costs (fuel and materials) {$500 - $1,500/per acre/per year}
Cost of capital
Acres
Crop production (crop per foot of row){suggested values:1-2 lbs.}
Yield (tons per acre) [calculated - do not modify cell]
Price per ton
Labor hours per acre at full production {Estimated 200-400 hours}
Modify the grey cells with discretion - these factors may be out of your
controlVine density (feet)
Vines per acre [calculated - do not modify cell]
Row length (feet)
Deer fence (yes, no)
Search engine “Vineyard Financial Calculator”
Recommendations
•Owners must appreciate that a vineyard is a labor-and capital-intensive enterprise
• It takes considerable time (10 to 15 years) for a vineyard to become profitable, perhaps never if scale of operation is too small relative to capital investment.
•Row spacing and vine training, which affect yield, will have a major impact on vineyard profitability.
•Capital and operating costs discourage many from this enterprise.
Ideal Vineyard
•Excellent vineyard site
•Equipment matches the scale of the operation
•Experienced management
•Excellent variety to site matching• In some cases, a mixed portfolio of varieties allowing high
yields of high quality fruit
Al’s 3 Secrets to Economics
1. You’ve got to give up something to get something.
- Life is a series of tradeoffs!
2. If it costs more than it’s worth, don’t do it.
- Rocket science, huh?
3. Just because you can pay for it doesn’t mean you can afford it.
- Look at all the costs involved
- what time frame is used
*Slide from Dr. Alex White
Control
1. Planning
2. Recordkeeping
3. Control• The process of measuring performance , and comparing
performance with the standards established in the plan , and making adjustments to achieve the desired goals
Execution
Recordkeeping
Compare
Plan to records
Planning
Length of Run
• Short Run• Immediate future (today) to the next few years
• Long Run• The long term future
•All costs are variable in the long run
Business plan
•Roadmap for the business• Operations• Management• Finance• Marketing
Sensitivity Analysis
This table projects the annual net income from the entire vineyard acreage in year 10 (full production) with a number of different crop levels and crop values. This table uses the fixed cost projections.
Whole vineyard net income in year 10
Yield (tons/acre)
Crop value ($/ton)
1.9 2.3 2.6 3.0 3.4 3.8 4.1 4.5 4.9 5.3 5.6
$ 1,400
$ (127,616)
$ (111,866)
$ (96,116)
$ (80,366)
$ (64,616)
$ (48,866)
$ (33,116)
$ (17,366)
$ (1,616)
$ 14,134
$ 29,884
$ 1,600
$ (116,366)
$ (98,366)
$ (80,366)
$ (62,366)
$ (44,366)
$ (26,366)
$ (8,366)
$ 9,634
$ 27,634
$ 45,634
$ 63,634
$ 1,800
$ (105,116)
$ (84,866)
$ (64,616)
$ (44,366)
$ (24,116)
$ (3,866)
$ 16,384
$ 36,634
$ 56,884
$ 77,134
$ 97,384
$ 2,000
$ (93,866)
$ (71,366)
$ (48,866)
$ (26,366)
$ (3,866)
$ 18,634
$ 41,134
$ 63,634
$ 86,134
$ 108,634
$ 131,134
$ 2,200
$ (82,616)
$ (57,866)
$ (33,116)
$ (8,366)
$ 16,384
$ 41,134
$ 65,884
$ 90,634
$ 115,384
$ 140,134
$ 164,884
$ 2,400
$ (71,366)
$ (44,366)
$ (17,366)
$ 9,634
$ 36,634
$ 63,634
$ 90,634
$ 117,634
$ 144,634
$ 171,634
$ 198,634
$ 2,600
$ (60,116)
$ (30,866)
$ (1,616)
$ 27,634
$ 56,884
$ 86,134
$115,384
$ 144,634
$ 173,884
$ 203,134
$ 232,384