Profit study highlights power of R&D
GroundCover™ Issue: 107 | Author: Asa Wahlquist
One of the first studies into how growers are adjusting to climate change has highlighted the impact of grower innovation and enterprise flexibility
A study into how Western Australian growers managed through the difficult first decade of this century found the most profitable farms were larger, had shifted more into wheat and had made the most use of technology.
Co-author of the study David Feldman, a senior economist with the Department of Agriculture and Food, WA (DAFWA), said the researchers were surprised at just how well farm businesses were doing overall, despite an extremely difficult decade.
The research team examined the physical and financial performance of a diverse set of 242 farm businesses over the period 2002–11. During this time, growers faced a warming and drying trend, increased frost events and market price volatility.
Despite the challenging conditions, 60 per cent of the farm businesses examined were classified as ‘growing’ or ‘strong’. Mr Feldman said that while there were variations in the results, a high percentage of the group studied improved their productivity during this period and made sufficient profits to reinvest.
He said the survey was unique because the farms were compared with their own past records, rather than a group average.
“The biggest variations between farms were their individual goals and resource base, and their location,” Mr Feldman said.
“But when you compare the farm with itself, you are getting a very accurate representation of the effects of their management decisions.”
Mr Feldman said the biggest single factor driving the productivity growth was increasing scale, followed by specialisation. “The best farms were the ones that had strongly specialised in cropping, exploiting the natural adaptability of wheat.”
While profitability for cropping farms rose, as it did for some sheep farms, the productivity of sheep farms overall was flat.
Mr Feldman said it was not just a matter of getting bigger: “The best farmers achieved better yields and better figures across a range of indicators … better timing of herbicides and sowing, better matching of in-crop decisions with the conditions. They showed up as very small differences between farmers, but added up to a substantial result.”
Generally, the researchers found the most profitable farms were larger with a higher rate of return on capital and equity. They carried less debt per hectare and were slightly more crop-dominant.Other common factors contributing to sustained profitability included:
- a high level of crop management innovations;
- greater use of leasing, contractors, financial instruments such as farm management deposits and farm business software;
- better use of existing technology, especially technology offering economies of scale;
- greater commitment to maintaining equipment and machinery;
- high involvement in the local community; and
- high awareness of work/life balance.
Mr Feldman said the question now was whether growers would reach a limit in their capacity to adapt or innovate. “People are optimistic and believe we will have a run of better years soon, but if that doesn’t happen it is going to increase pressure on farmers to do as well in the future as they have in the past.”
The research team concluded that provided growers continued to have access to improved crop varieties and technologies, and to farm management and business training and education, and that terms of trade did not deteriorate, then those who rely on crop production were likely to be able to continue to adapt profitably to climate change.
The research was conducted by the Australian Export Grains Innovation Centre, the University of WA and DAFWA.
More information:David Feldman,
08 9368 3333,
GRDC Project Code AEG00002