By Bruce Dick, CEO, Rabobank
Successful farmers operate under the same external conditions as unsuccessful farmers, despite people in agriculture often attributing success or failure to external drivers.
The difference is in the way farmers understand the external environment and develop and implement business strategies that not only navigate the problems, but seize the opportunities to build successful, profitable businesses.
At Rabobank we are confident about the continuing growth of farming in Australia - but that growth and the associated return on investment will not be shared equally among all farmers.
If your farm business is not in the top 25 percent, you would enjoy greater returns if you invested your capital elsewhere. So the critical question is how to get into the top 25 percent?
Farmers operate under many external forces that are beyond their control. Among these are four global megaforces - consumer preferences, competitor activities, currency changes, and climatic events.
As producers, you clearly need to understand your consumers because they are your livelihood.
The most powerful drivers shaping global food markets include consumer demand for safe food (requiring traceability and quality assurance), increasing incomes, particularly in developing countries, and the consumer trend in developed nations towards healthier food.
You also need to know what your competitors are doing because they are after your customers.
Australian agriculture faces strong competition in virtually all of its export markets. Our competitors will do their best to steal our customers in global markets. It is in our interests, clearly, to understand our competitors" strengths, weaknesses and plans.
As an agricultural exporter, currency changes are another area of externally-imposed risk. While I am not forecasting the long-term value of the Australian dollar I think there is little apparent likelihood of the dollar falling significantly in the foreseeable future.
The fourth mega-force, climate, also requires awareness and knowledge. Farmers need to become better informed on long-term climatic trends and what implications these might have for agricultural production.
So, having outlined the minefield of these powerful external forces, how should you negotiate a way through them? The starting point should be to decide your goals; what you are passionate about, and then select your strategies.
Fundamental strategic choices should include:
If you have the capital and management capacity, increasing scale and efficiency is a low risk way of increasing wealth.
Food markets are increasingly segmenting, with consumers paying premiums for discretionary food choices.
An aspect of differentiation is to try and gain a greater share of the consumer dollar by taking positions further along the value chain.
Other income sources, particularly off-farm income, can supplement a business that lacks scale, efficiency or any particular differentiation. However, diversification reduces the management time you can spend in any one enterprise.
This is an edited extract of the speech Bruce Dick delivered to the recent Australian Innovative Farming Conference held in Canberra by the Australian Nuffield Farming Scholars" Association.
For more information: Rabobank, GPO Box 4577 Sydney NSW 2001, www.rabobank.com.au