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Evaluation of Economic Efficiency of Apple Orchard Investments Sustainability 2015, 7, 10521-10533; doi:10.3390/su70810521 OPEN ACCESS sustainability ISSN 2071-1050 www.mdpi.com/journal/sustainability Article Evaluation of Economic Efficiency of Apple Orchard Investments Dorin Badiu 1,†,*, Felix H. Arion 2,†,*, Iulia C. Muresan 2,†, Ramona Lile 3,† and Viorel Mitre 1,† 1 Department of Horticulture and Landscape Architecture, University of Agricultural Sciences and Veterinary Medicine Cluj-Napoca, 3-5 Manastur Street, 400372 Cluj-Napoca, Romania; E-Mail: [email protected] 2 Department of Economic Sciences, University of Agricultural Sciences and Veterinary Medicine Cluj-Napoca, 3-5 Manastur Street, 400372 Cluj-Napoca, Romania; E-Mail: [email protected] 3 Department of Economics, Faculty of Economic Sciences, “Aurel Vlaicu” University of Arad, 77 Bdul. Revolutiei, 310130 Arad, Romania; E-Mail: [email protected] † These authors contributed equally to this work. * Authors to whom correspondence should be addressed; E-Mails: [email protected] (D.B.); [email protected] (F.H.A.); Tel.: +40-744-170-222 (F.H.A.). Academic Editors: Andrei Jean Vasile, Popescu Catalin and Zaharia Marian Received: 4 May 2015 / Accepted: 30 July 2015 / Published: 5 August 2015 Abstract: The tree-growing sector is considered to be an important supplier of food and raw material for industry worldwide. Increasingly competitive decisions regarding international investment in orchards depend on business analysis. This study compares three apple orchards situated in Cluj-Napoca, on the Eastern limits of the Transylvanian Plain, Romania. While the climatic and soil conditions are relatively consistent among the three orchards, the technical and economic results (expressed in hectares) vary due to the use of three different technological systems of apple production: extensive, intensive, and super-intensive. The study compares the life cycle, starting with age of fructification, production level (quantity and quality), costs (investment and production costs—divided into material costs, mechanical costs, human costs, and overhead costs), income, profit (including rate of profit), and investment efficiency: Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PP). It was observed that the most economically efficient technological system in terms of investments is the super-intensive one, with a higher production level, a higher share of Extra Class apples, and a younger age of initial fructification. However Sustainability 2015, 7 10522 certain inconveniences of this system—such as a more expensive investment, a higher cost of running the business throughout the year, and a reduced life cycle—cannot be ignored. Keywords: technological system; Romania; comparative analysis; apple cultivation technology; costs 1. Introduction The most common fruit tree in Europe is the apple tree, which covers 35% (450,000 hectares) of the total orchard area [1]. In 2013 the EU-28 produced around 12 million tons of apples [1]. The leading apple producer in EU-28 was Poland with more than 3,000,000 tons, followed by Italy and France. Romania had an annual production of 503,000 tons of apples. In Romania, productivity is an obstacle. Apple production in the country decreased by 43% between 2003 and 2012 [2]. The apple production area in Romania represents 11% (51,226 hectares) of the total apple production area of the EU, while the French apple production area represents only 8% of the total EU area. However, France has a production level four times higher than that of Romania [1]. The area harvested with apple trees decreased during the last 24 years in the European Union and in Romania. In Romania the area harvested with apple decreased by 33%, while at the EU level by 15%. The decrease of the harvested area with apple can be explained by the increase of the yield. In Romania the apple yield increased by almost 8% from 1990 until 2013; this represents an average annual increase rate of 0.32%. At the EU level the apple yield increased by 12% during the same period (Figure 1). 800000 700000 600000 Romania Area harvested 500000 HA 400000 Romania Yield Hg/Ha 300000 200000 European Union Area harvested HA 100000 European Union Yield 0 Hg/Ha Year Figure 1. Time evolution of apple production indicators in Romania and the European Union. Source: after [3]. The average yield in Romania during the analyzed period displays larger fluctuations from year to year than in the European Union, mainly because of the lower level of controlling for climacteric and Sustainability 2015, 7 10523 environmental factors (such as drought, frozen, soil pollution, and so on). This is mainly a direct result of out-of-date production technology. As a lack of resources for investment influenced the decision-making process for production technology options, The National Rural Development Plan 2014–2020 of Romania focused on the importance of orchard modernization, allocating more than 400 million Euros to two different specific measures: Measure 04—“Investment in physical assets” (Under-measure 4.1a “Investments in tree farms”), and Measure 09—“Formation of producers groups in tree sector” (Under-measure 9.1a “Formation of producers groups in tree sector”) [4]. In this context the question arises of how efficient the system of apple production in Romania is. Apple growing requires high capital investment [5] and the choice of production system (organic or conventional) has a direct impact on apple orchard productivity [6]. Organic farming is increasing in popularity around the world and plays an important role in agriculture [7]; it is seen as an alternative to conventional farming, as well as a solution for sustainable development [8]. Previous studies have not revealed any differences in soil organic matter between conventional and organically grown apples [6]. The critical factors of apple production are: organic fertilizers, farmers’ experience, and labor which, together, represent around 48% of the cost production [9]. Other researchers have argued that the six factors influencing the profitability of apple production are: yield; quality of the apples (as graded results); orchard size; number of cultivars; production costs; and specialization in organic production and/or farm gate sales [10]. Due to the farmers’ lack of knowledge and access to proper technologies, in many cases fertilizers are used in excess [11] to the detriment of the environment. Organic farming and small agribusinesses benefit from higher prices and, ultimately, economic efficiency [10], but just because a production system is organic does not mean that its stability is ensured [12]. In order to be sustainable it is necessary to produce adequate, high-quality yields to be profitable, to protect the environment, to conserve the resources, and to be socially responsible in the long term [12]. In most regions of the world the apple growers have, instead, adopted the intensive system [13]. During the last 50 years the planting density in apple orchards rose from 40 trees/acre to more than 3000 trees in some cases [14]. The high-density system is expensive to establish, the highest cost being for the trees. Producing one’s own trees reduces the initial cost, but the yields are delayed by one year [14]. The low-density apple system is disadvantaged by the slow development of full orchard production (5–8 years) [13]. The plating system is influenced by several factors: geographic location, variety and species, soil type, rootstock, local cultural and economic concerns [15]. While the social pillar of sustainable development is relatively unexplored territory, some of the work highlighted above suggests that a broad understanding is emerging regarding key concepts and policy objectives. This awareness is rooted in social policy discourse and has been transposed onto the social sustainability discourse, work that represents a major contribution to our appreciation of the social pillar. The cultivation technology of apples has effects not only on production [16] but on economic efficiency, as well [17]. The more intensive the production system, the higher are the investments in the production. The objective of this paper is to investigate which apple production technology is the most economically-efficient in Romania and how it can be improved at the farm level. This is achieved by comparing production levels, costs, profits, and investment efficiency: Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PP). The aim of the paper is to offer information to scholars for further studies and to farmers for investment decision-making. Sustainability 2015, 7 10524 Sustainability is based on three pillars: the environmental, the social and the economic, and this paper confronts each of them; the environmental and social pillars indirectly (based on references, mentioning that the social pillar is relatively unexplored territory related mainly to common policy objectives [18]), and the economical pillar directly though the conducted analysis. The different production systems should be used as a management tool in order to increase the competitiveness of production [19]. The new Common Agricultural Policy proposes to increase the competiveness of the agricultural sector and its sustainability [20]. To achieve this, it is necessary to obtain high quality production while also preserving the natural environment [20]. The social component of sustainable development aims to enhance the living standards of the community. This can be achieved
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