Western Australian farm businesses are in good shape despite May to October rainfall declining by 10 to 30 per cent over the past 15 years compared with the previous 90 years, according to Australian Export Grain Innovation Centre chief economist Professor Ross Kingwell.
Speaking at the University of Western Australia’s Farm Ridgefield field day on risk mitigation, Professor Kingwell presented a positive overview of the financial health of WA farm businesses and outlined the agronomic, genetic and economic strategies growers are using to keep abreast of climate and price fluctuations.
“Most farm businesses that have operated in the past 15 years have experienced an environment in which the growing-season rainfall has been much less than for their fathers or grandfathers.
“And yet in spite of this drying trend, farm businesses have been able to improve the efficiency with which they use the rainfall they receive. In recent years many farms have focused on paying off debt, such that average farm equity is now back at about 80 per cent.”
Professor Kingwell said one of the WA industry’s strengths is that most farms operate as mixed-farm enterprises, which helps them cope with variable seasons and variable commodity prices.
He said a range of research and on-farm innovations have contributed to lifting water use efficiency. “These include: higher-yielding varieties such as the recently released Scepter, a replacement for Mace; no-till crop establishment; GPS guidance and controlled-traffic farming; spraying summer weeds; dry and early sowing; plus the economies-of-size advantages from using large seeding gear that allow crops to be sown and harvested quickly.”
He also noted that deregulation of the wheat industry has turned its grain into a “liquid asset” but one that also requires growers to manage price risk: “Many growers now sell their grain over several months rather than just at harvest, so they can take advantage of price fluctuations during each year.”
In recent years extra cash flow has been directed into paying off debt, resulting in rising equity for farm businesses.
“In the past six years, land prices in most districts have not moved much, so the improvement in percentage equity is directly attributable to less debt, not an increase in the value of land.
“With average farm equity at 80 per cent it means there are many farms in WA that are close to being debt-free. Those businesses are now in a really healthy position and able to embrace expansion opportunities,” he said.
Professor Kingwell said the top 25 per cent of WA farm businesses have been generating returns as high as 15 per cent.
“If you’ve got your money in the bank you’re probably earning about three to four per cent interest at best at the moment, so as an investment some farms are doing really well.”
However, there is a huge range between the top performers and the bottom performers and the playing field, in terms of rainfall, is not level. He noted the drier eastern wheatbelt experiences more seasonal extremes, so playing the season in these marginal areas becomes critical for financial success.
Professor Kingwell said the main messages from his research were that most WA farm businesses are coping with climate challenges owing to technical advances and management skill: “If you were to make the assumption that the drying climate has sent businesses backwards in WA, you’d be wrong,” he said.
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