Grains Research and Development

Date: 01.01.1997

Farm outlook depends on 'farm fitness'

By the year 2000, financially fit farmers across Australia will be pursuing a 10-point 'business health' plan. In particular, they will be sweating on lowering their operating costs. Fit farmers are those who understand the health of their enterprises, their strengths and weaknesses and how they compare with other farmers.

In the past, maximum production and price had been their prime targets. But a farming fitness regime can be compared to a physical fitness program — involving 10 measures of health, dealing with family profit, farm productivity and efficient use of resources.

The financial fitness of Australia's farms is being demonstrated through several years of intense research carried out nationally in the FAST project — supported by the Rural Industries Research and Development Corporation, the National Landcare Program and the Grains Research and Development Corporation (GRDC).

Bendigo-based project coordinator Neil Clark said clear results on farm fitness have emerged from seven years of tax return data from 120 farming families in Victoria and southern NSW. This financial data was analysed against eight years of paddock and crop-rotation records by the FAST (Farm Management 500 and Sustainable Technology) team.

These outcomes are now being validated by results starting to emerge from FAST research in the other mainland states. The project began with 50 measures

"The exciting breakthrough is that you do not need to be strong in all 10 indicators," Mr Clark said. "It is the balance that counts. For example, the business may be carrying high levels of debt. High debt is acceptable if it is balanced with good performance in other indicators.

"There are strong relationships between the indicators, so no one indicator should be considered in isolation. However, after identifying business components for further attention in a farm fitness program, individual indicators can be explored further to fine-tune opportunities for business growth."

Family profit is the goal

"When using the top 10 indicators to assess farm business health, we should be mindful of the influence of personal goals. Family profit is the driving force to longer term viability. However, individual businesses set different targets to achieve their financial security.

"When average disposable income per family is above $60,000 then longer-term viability enables flexibility of investment and lifestyle choices. However, when it is less than $30,000, a farm business is treading water. It has difficulty maintaining its capital base and may therefore jeopardise future viability unless change can be identified to improve farm business health," he said.

Operating costs to income

A major finding is that farmers will have to be extremely careful how they invest in operating costs. The operating-costs-to-income measure must be maintained at less than 60 per cent. Inflation has made cost containment extremely challenging.

Mr Clark said the FAST Project was helping define cost-to-income benchmarks to enable farmers to tailor inputs against risks associated with price fluctuations, climatic variability and poor performing 'bottom paddocks'. A major GRDC investment has been made in FAST to enable the research project to develop business performance indicators for all states.

Family ProfitUnitWeakAverageStrong
1 Disposable Income per Family$'000<3030-60>60
2 Non-farm Income$'000<55-15>15
Farm Productivity
3 Operating Surplus (x100)/Land Value%<88-15>15
4 Farm Income per Hectare per 100mm GSR%<6060-90>90
5 Operating Costs/Income%<6060-50>50
Resource use
6 Land Value per Family$'000<400400-800>800
7 Machinery Ratioratio>1.21.2-0.8<0.8
8 Income per Labour Unit$'000<100100-150>150
9 Financing Cost/Income%>1515-7<7
10 Return on Capital%<22-8>8