Attention to detail widens profit margins
GroundCover™ Issue: 111 | Author: Janet Paterson
Two recent studies of farm business in Western Australia have sought to identify the keys to success for profitable, successful enterprises
Top-performing growers in Western Australia’s eastern wheatbelt outperformed the benchmark for the region by about $42 per hectare during a challenging decade of seasons in which average rainfall was just 165 millimetres.
The better performance translated into an extra $243,485 a year in operating surplus – 60 per cent higher than the average for the region.
The findings, which were reported at this year’s Perth Agribusiness Crop Updates, highlight the key qualities of successful farm businesses in WA’s low-rainfall cropping zone.Report author and Planfarm consultant Greg Kirk says the highest-performing growers outperformed their peers financially and in higher yields per hectare in both good and bad seasons.
“It didn’t matter what the season threw at them, the successful businesses did better every year – yielding three times more than poorer-performing businesses and 15 per cent better than the benchmark for the area despite receiving no more rainfall.”
The GRDC-funded analysis examined the qualities of top-performing and poor-performing businesses in the eastern wheatbelt using benchmarking data for the 2006–12 seasons.
While the 14 top-performing growers were not immune to operating losses they generated enough financial strength from good seasons to overcome the challenges incurred in the poorer seasons.
“It wasn’t one thing that made these growers successful, it was an attention to detail across the board and a capacity to manage poor seasons by making good decisions in more favourable years.”
With profit margins in the eastern wheatbelt tight, Mr Kirk says even small changes across the production system can have a large impact on profits.
“Even a 10 per cent change in running costs, grain yield or secured grain price can impact profits by 50 to 60 per cent,” he says.
High-performing farming businesses had significantly lower operating costs than lower-performing businesses.
“These lower costs mean that higher-performing growers need a much lower average yield to break even
“Going into a season knowing that you can comfortably withstand a wheat yield of 0.8t/ha versus needing a 1.4t/ha just to break even, is worth a lot.”
With crop yields inherently low in the eastern wheatbelt, Mr Kirk says one of the best ways to lift profit margins is to reduce input costs and grow more grain per unit of input.
“And often lowering costs really translates into reducing waste, so it is easy money.”
All top-performing businesses surveyed had lowered their fertiliser inputs – particularly phosphorus and nitrogen – and machinery replacement costs in recent years.
Using the seven-year financial performance of the 14 top performers as a base, Mr Kirk carried out a financial analysis to determine the impact of various cost changes on farm profits.
“We found that a profit boost of at least $5.05/ha is possible with a 10 per cent increase in fertiliser efficiency and a further $3.30/ha in profit is available with a similar improvement in herbicide efficiency.”
Mr Kirk says aiming for five per cent higher grain prices is also a realistic target if attention is paid to grain quality and marketing.
“If you can secure a five-per-cent-higher grain price it can increase farm profit by 32 per cent.”
While increasing grain yields in the low-rainfall region is a challenge, Mr Kirk says the better operators have shown it is not impossible: “A 10 per cent increase in yield would require an investment in new technology and practices, but such a move could translate into a $28/ha increase in profits.”
More information:Greg Kirk, Planfarm,
08 9284 1044,
A full copy of the report can be downloaded at www.giwa.org.au/2014-crop-updates
GRDC Project Code PLN00009