Eastern grainbelt study reveals profitable practices

Author: Natalie Lee | Date: 24 Mar 2014

Planfarm managing director Greg Kirk conducted a GRDC funded project investigating what can be done to improve the profitability of farming in the low rainfall eastern grainbelt region of WA.

Key Points

A strong business in the eastern grainbelt needs to:

  • Have a low break even yield at average grain prices;
  • Be able to capitalise on good seasons and prices, when they happen;
  • Be conservatively geared to cope with the inevitable poor season.

A ‘near enough is not good enough’ attitude to management decisions was a common sentiment expressed by top performing eastern grainbelt farmers analysed in a recently completed study.

Funded by the Grains Research and Development Corporation (GRDC) and conducted by Planfarm, the study also found that relatively small percentage changes in key areas can equate to big percentage changes in overall profitability.

Planfarm managing director Greg Kirk presented the study’s findings to the Agribusiness Crop Updates, supported by the GRDC and Department of Agriculture and Food.

“The study was conducted to investigate how high performing farmers in the eastern grainbelt achieve profitability and to look closely at what can be done to lift profitability across the region,” he said.

The performance of 14 top and 20 low performing businesses in the region was reviewed for the years 2006 to 2012.

It found that top businesses generated $42.56 per hectare more than the average of those in the Planfarm Bankwest Benchmarks for the region.

This translated into an extra $243,485 per annum in operating surplus – 60 per cent higher than the average for the region.

“Despite receiving no more growing season rainfall, these farmers outperformed their peers financially and in higher yields per hectare in both good and bad seasons,” Mr Kirk said.

He said that cost savings across all aspects of the businesses needed to be a key priority as they presented low risk opportunities to make significant improvements to overall profitability.

“We were able to identify that there was no one large component that resulted in people being successful,” he said.

“However, the most common areas of cost savings introduced in recent years by the top performing farmers were reduced fertiliser inputs and lower machinery replacement costs.”

The average land use for the top group was 65 per cent cereal crops, 20 per cent pasture (for sheep) and 8 per cent canola, with the balance made up of oats, lupins, fallow, triticale and peas.

“On average, the group dry seeded 25 per cent of their annual cropping program,” Mr Kirk said.

“While 95 per cent of the group used auto-steer technology, few had yet adopted controlled traffic farming (CTF) and/or variable rate technology (VRT).

“Their average equity at the start of 2013 was 84 per cent and they tend to have a conservative approach to debt.

“When asked about the reasons for their success, common responses were preparedness to work hard, a conservative approach, low cost, getting the big decisions right and paying attention to detail.”

Mr Kirk said that as part of the study, researchers and extension people active in the region were asked to identify key management practices with the potential to increase profitability that could be more widely adopted in the region.

“Practices they identified included CTF, VRT, liming and fallow,” he said.

“Future profit opportunities are likely to come from continued rapid advances in technology driving both labour and machinery efficiencies.

“Corporate farming was also identified as potentially offering risk management opportunities via contract farming.”

View a video of GRDC western regional panel chairman Peter Roberts and Planfarm’s Greg Kirk speaking about the Agribusiness Crop Updates and new findings presented at the event.

The GRDC study is available at www.giwa.org.au/2014-crop-updates

Other useful GRDC resources on farm business management include farm business fact sheets available at www.grdc.com.au/FBM-factsheets or the Farm Business Management hot topic at www.grdc.com.au/FBM

GRDC Project Code PLN00009

Region West