Improve labour efficiency to increase farm business profitability
The profitability of a farm business can be improved through a focus on labour efficiency.
This was farm consultant John Francis’ message to the audience at a recent Grains Research and Development Corporation (GRDC) Farm Business Adviser Update in Bendigo, Victoria.
The consultant with Holmes Sackett, Wagga Wagga, NSW, told the audience to focus their attention on labour efficiency, before considering expansion options.
“It’s costly to expand regardless of whether it happens through leasing or land purchasing,” he said.
“It can require far more capital and therefore far more risk.”
Boosting production or improving overhead cost efficiencies such as labour efficiency was the first step in improving profitability by lowering the cost of production, he said.
“Ask yourself: do you need to improve income, or do you need to become more efficient at what you do?”
Labour made up the majority of a farm business’ overhead cost base, Mr Francis said.
“Regardless of whether you can pay a wage or salary, there’s an opportunity cost to you being on the farm. This occurs because you’re not generating income elsewhere.”
Holmes Sackett considers a labour unit 240 days by eight hours per day. This allows for weekends and holidays and illness.
The labour efficiency target for most farm business owners with grain enterprises is more than 1500 hectares of crop per labour unit.
Benchmarkinging the labour efficiency of your own business against this target is an important tool for farmers, Mr Francis said.
“Our benchmarking shows that even the most profitable of producers have gains to be made in labour efficiency.”
“Some farm managers are cropping only half or less of the area that they have the capacity to crop.
These farmers should be looking to generate off-farm or contract income or increasing the area under management.
Keeping a log of where your time is going is a good way to start tracking labour efficiency, Mr Francis said.
“What you’ll find is a whole lot of inefficiencies in the business: go to town for a bolt, a 20 minute job, and chew up half a day.”
Production efficiency was also a key area to focus on.
“Take sowing for instance and whether you do this early, on time, or late.
“It doesn’t cost a business more or less to sow early or late and yet the majority of studies show if you sow early or on time, yields will increase.”
He advised the audience to consider expansion when they were good at what they do.
“Get better at what you do – then get bigger.”
The Bendigo Farm Business Update was the first of two to be held in the southern cropping region this financial year. The second is likely to be held in Adelaide in May 2011.
Advisers wanting to find out more about the GRDC’s Farm Business Management Update initiative can do so by visiting www.grdc.com.au or www.orm.com.au or by phoning 03 5441 6176.
Caption: John Francis, farm consultant with Holmes Sackett, Wagga Wagga, NSW.
• For more information contact ORM on 03 5441 6176
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