Focus on fundamentals key to farm business success
Date: 21 Mar 2014
Understanding then concentrating on ‘what pays the bills’ is the first step to achieving farm business success, according to Beaumont farmer and Nuffield scholar Matthew Hill.
“I also believe strongly in the value of key performance indicators (KPIs) and benchmarking against other farmers, as the best way to evaluate your position and track progress if you are attempting to make changes or improvements,” he said.
Mr Hill recently addressed the Grains Research and Development Corporation (GRDC) Farm Business Update in Merredin, providing a grower’s perspective on keys to successful farm business management.
His family runs a mixed farming operation north-east of Esperance, with about 80 per cent of the arable area cropped and livestock comprising the remaining area.
He said that risk management – including significant scale and active grain marketing – as well as communication, use of expert advice, formal employee management and use of technology were things he felt were done well on the farm.
Mr Hill and his wife Angela came to the farm in 2002 and in that year expanded the total farmed area from 4000 hectares to 13,000ha by leasing the neighbouring property.
“This constituted an increase in scale of 325 per cent,” he said
Mr Hill said that such a big increase in scale meant the business became highly leveraged, which came with associated volatility and risk.
“Leverage is a great tool but it works against you, just as well as it can work for you,” he said.
“Increasing equity is a primary goal of my business and needs to be achieved before I would consider it successful.
“Equity is the ‘be all and end all’ of farm business health and the KPI that I focus on most.”
Mr Hill said benefits of increased scale on his farm included increased utilisation of capital and machinery; lower overheads and fixed costs; better spread of geographical risk, soil types and rainfall; better utilisation of labour; and improved access to specialist services and advisers.
“The downsides of increased scale include greater volatility in farm performance, reduced flexibility and timeliness of farm operations and a much greater administrative burden,” he said.
Mr Hill said he did everything he could to manage the risk of adverse commodity price movements and to maximise the benefits of positive price moves.
“After experiencing difficulty with price targeted forward selling of grain, we changed our philosophy to a time-based strategy that considers price,” he said.
“We sell a little bit often; if the price is favourable we sell more and if it is not favourable we sell less.
“However, we always sell – using forward, present and post sales.”
Mr Hill said the use of technology had benefited his farm business and he had been an early adopter of auto-steering, EM38 and radiometrics for targeted lime and gypsum applications, and variable rate technology for fertiliser application.
“But it is important not to get overwhelmed by the sheer volumes of data involved with technology,” he said.
“The fundamentals of farming remain unchanged and technology will only ever be there to service the fundamentals.”
Mr Hill said good family and professional communication and relationships were also crucial to the success of any business.
The GRDC Farm Business Update in Merredin was initiated by the GRDC after its Kwinana East Regional Cropping Solutions Network (RCSN) identified improved business skills, better knowledge of profit drivers and risk management as big priorities for growers in the eastern grainbelt.
Visit www.grdc.com.au/WFBU2014 to read speakers' papers contained in the GRDC Farm Business Update program, available online as a single PDF download (NB. file size is large).
To assist growers and advisers in understanding the capacity, strengths and weaknesses of the farm business enterprise, the GRDC has produced a comprehensive series of fact sheets available at www.grdc.com.au/FBM-factsheets
Audio download: Click on the download box below to hear farmer Matthew Hill talking about his presentation to the GRDC Farm Business Update. Right click the link and select ‘Save as’ to download the mp3 file for playback.
0429 787 025
Natalie Lee, Cox Inall Communications
08 9864 2034, 0427 189 827
GRDC Project Code ORM00009