Australian wheat international benchmarking

Photo of harvesters in paddock
Australia's wheat productivity and profitability compares well with its international counterparts. Photo: Paul Mathews

Data from the global benchmarking network, agri benchmark cash crop, shows Australian wheat production and profitability compares well with our international competitors.

This international analysis is part of the GRDC project AAM00001 and covers the five years from 2011 to 2015.

Agri benchmark is a global network of professionals in agriculture from the major grain-growing regions of the world.

The network’s aim is to improve the understanding of grain production systems worldwide through benchmarking.

The network is administered and managed through the Thünen Institute of Farm Economics in Germany (www.agribenchmark.org).

Participants establish a ‘typical farm’ for a defined region. These are virtual farms that reflect what would be considered typical for the targeted region in terms of scale, crops grown, rotations, inputs, operations, machinery, labour, costs and income.

Each year the data is updated according to the prevailing seasonal conditions.

The data is then compiled into a single database by staff at the Thünen Institute.

Financial data is converted into US dollars and euros based on the average exchange for the year.

This study includes 41 typical farms in the European Union (21), Canada (4), the US (1), Ukraine (2), Russia (1), Argentina (3), Uruguay (2) and Australia (7).

This report focuses on wheat and includes summaries of:

  • yields and yield variability;
  • farmgate grain prices;
  • crop income and production costs; and
  • enterprise margins.

Australian representation

The location of the seven virtual ‘typical farms’ within Australia analysed by the agri benchmark cash crop global benchmarking network are shown in Figure 1.

Map showing the location of seven wheat 'typical' farms within Australia
Figure 1 Location of seven virtual 'typical' farms within Australia analysed by the benchmark cash crop global benchmarking network. Source: Thunen Institute of Farm Economics, agri benchmark resuts database

High yield variability between years is a stand-out feature of the Australian farms.

Australian wheat yields have been the most variable over the past five years, with an average coefficient of variation (CoV) of 25 per cent over this period (ranging from 9 per cent AUQld to 44 per cent AUNSW).

Graphic showing average wheat yields and grain prices (US$/t farmgate) for the five years 2011 to 2015
*Figure 2 Average wheat yields and grain prices (US$/t farmgate) for the five years 2011 to 2015. Source: Thunen Institute of Farm Economics, agri benchmark resuts database

In general, yields on EU, North American, Argentinian and East region (Russia and Ukraine) farms have been relatively stable with an average CoV of 12 per cent, 13 per cent, 15 per cent and 12 per cent respectively.

The highest level of yield variation within the dataset was recorded on an AUNSW farm, reflecting the extreme fluctuations
of seasonal conditions in the study period. The recorded yields for this farm ranged from 0.8 to 2.9t/ha.

Yield

The five-year average yields of wheat in this analysis (Figure 2) range from 1.6 tonnes per hectare (AUVic) to 9.7t/ha (EU), with the EU standing out as the highest-yielding region with a range of 4.7 to 9.7t/ha.

Wheat yields from the non-EU farms ranged from 1.6t/ha (AUVic) to 5.4t/ha (Ukraine).

Price

Grain prices are presented on a farmgate basis per tonne, net of freight to end point, and include all selling costs. The price reflects the total value of grain produced, including premiums or discounts for quality or grade.

The wheat price has been relatively consistent across regions (Table 1).

Table 1 Average farmgate wheat price (US$/t) for the years 2011 to 2015.
Typical farm regions Farmgate price (US$/t)
Average 25th percentileMedian 75th percentile
AU4000WB $236    
AU4500SC $247    
AU3000NSW $237    
AU1550QLD $241    
AU2800SA $243    
AU3500VIC $233    
AU5500WA $259    
Australia $242    
East Europe $181    
EU $235 $223 $238 $247
North America $225    
Argentina $114    
Uruguay $164    
All farms $219 $214 $225 $245

SOURCE: Thunen Institute of Farm Economics, agri benchmark resuts database

The combined average for the Australian farms of US$242/t compares very well to other countries. This is particularly significant given the generally high cost of getting Australian grain from farm to port.

Income and costs

The average wheat income and production costs across typical farms are shown in Figure 3.

To meaningfully compare farms and regions, costs, income and profit margins are calculated on a tonne of production basis. On this, EU farms are no longer distinctive as a group and Argentinian farms are the lowest-cost producers. Total costs of production ranged from US$107/t (Argentina) to US$206/t (AUNSW).

As a region, Australia had the highest cost of production, with an average of US$169/t ranging from a low of US$124/t to US$215/t (AUWA).

Graphic showing average wheat income and costs per tonne (US$) of productoin 2009 to 2013
*Figure 3 Average wheat income and costs per tonne (US$) of production 2009–13. Source: Thunen Institute of Farm Economics, agri benchmark resuts database

There is a high level of variation in costs per tonne of production within the Australian group.

The high average cost for AUNSW resulted from the exceptionally poor yield in 2013 of 0.8t/ha. This will have a disproportionate effect on the average costs per tonne in the short term, assuming that such a yield occurs far less frequently than one in four years.

One common feature across all farms is the high cost of fertiliser and machinery. While there is some variation between individual farms, these were consistently the highest-cost items at the regional level (Table 2).

The high production costs of the AUWA farm are relatively consistent across years and are primarily due to a high cost structure across the board. Fertiliser, in particular, is the highest cost in the dataset at US$74/t, reflecting a high-input system.

East region farms have a cost base of US$120/t, which is about US$40/t less than the Australian average. This difference is primarily driven by low fertiliser, pesticide and labour costs.

However, wheat prices recorded were approximately US$60/t less, which has eroded some of the competitive advantage.

The Argentinian farms have the lowest costs per tonne of production with an average of US$109/t (dataset median US$156/t), which is driven for the most part by significantly lower machinery and labour costs. A key point of difference on these farms is the exclusive use of contractors for all cropping activities. Machinery costs include fuel, repairs, contractors and depreciation.

Table 2 Average and median production costs per tonne of wheat production for 2011–15.
Region/farm Cost per tonne of production (US$)
SeedFertiliserPesticidesLabourMachineryTotal
AU4000WB $11 $41 $33 $32 $60 $179
AU4500SC $8 $45 $20 $15 $52 $144
AU3000NSW $14 $43 $34 $38 $74 $206
AU1550QLD $5 $40 $19 $31 $62 $163
AU2800SA $7 $25 $26 $18 $47 $124
AU3500VIC $10 $31 $34 $35 $41 $154
AU5500WA $18 $74 $36 $25 $61 $215
Australia $10 $43 $29 $28 $57 $169
East Europe $11 $26 $10 $17 $56 $120
EU $13 $36 $22 $33 $53 $160
North America $16 $46 $21 $13 $49 $154
Argentina $13 $41 $17 $4 $34 $109
Uruguay $28 $46 $24 $4 $62 $165
All farms $14 $38 $22 $25 $52 $155

SOURCE: Thunen Institute of Farm Economics, agri benchmark resuts database

Key messages

This study shows that wheat production in Australia tends to be high cost, with high levels of yield variation between years compared with other major wheat-exporting regions. Australia is not a low-cost producer of wheat despite the generally large-scale nature of the Australian production system. Despite this, the average wheat enterprise margin for Australian farms of US$73/t was above the dataset average and median (US$67/t and US$64/t) and similar to that of the EU and North American farms (US$79/t and US$71/t excluding decoupled payments) (Figure 4).

The key strength of Australian farms lies in the value achieved for grain sales. Over the five-year study period, Australian farms achieved the highest average price in the dataset at US$242/t farmgate. The median price of the dataset was US$225/t. EU farms had median prices of US$238/t and North American farms US$225/t farmgate.

Bar chart showing average wheat enterprise margin (US$) per tonne of prodouction of wheat from 2011 to 2015, including decoupled payments
*Figure 4 Average wheat enterprise margin (US$) per tonne of production of wheat 2011–15, including decoupled payments. Source: Thunen Institute of Farm Economics, agri benchmark resuts database

This implies that Australian wheat is highly valued and, on average, it is accessing higher-value markets. Therefore, expectations of achieving better pricing relative to the general market in the future are probably unreasonable.

One of the key messages is the need to preserve or protect existing markets and the value of Australian wheat.  Australian farms are unlikely to be able to compete with the low cost of production in Russian and Ukraine production systems. These areas have fundamentally low costs for inputs and labour, which are not likely to change for some time. In addition, there is the prospect of significant productivity gains to be achieved within these regions in the medium term.

While cost control and yield improvement remain a priority, the main message for the broader industry is that the high-value grain price needs to be preserved to maintain competitive profitability, particularly for lower-yielding growers.

Enterprise margin

The average wheat enterprise margin is shown in Figure 4.

Australian wheat profitability generally compares favourably to farms from Canada, the US and the EU. The margin for AUSC and the AUSA were within the group of the highest margins at US$104/t and US$119/t respectively (Table 3).

Profitability was highly variable within the EU group with margins ranging from US$16/t to US$139/t. The median profit
for the EU group was US$78/t.

The average profit margin for the North American farms was US$71/t.

Decoupled payments refer to income that was received independently of production, such as subsidies.

Decoupled payments added US$37/t to US$59/t to the profitability of the EU farms. This increased the median profit margin to US$127/t of the EU farms.

Despite having some of the highest production costs and lowest yields in the dataset, the profit margin on Australian farms was just above the average for the dataset. This is attributable to the relatively high grain price achieved over the period.

Although South American farms had the lowest production costs, they also recorded exceptionally poor pricing resulting in very
low margins.

Interestingly, the average margins for the EU, North American and Australian farms are similar (US$79/t, US$71/t and US$73/t).

However, when decoupled payments are taken into account the EU farms have a US$48/t advantage.

Table 3 Summary of wheat enterprise margin (US$) per tonne of production.
Typical farm regions Wheat enterprise margin (US$/t)
Average 25th percentileMedian 75th percentile + decoupled
AU4000WB $57     $59
AU4500SC $104     $105
AU3000NSW $31     $31
AU1550QLD $79     $79
AU2800SA $119     $119
AU3500VIC $79     $79
AU5500WA $43     $43
Australia $73     $74
East Europe $61     $62
EU $79 $58 $78 $102 $125
North America $71     $72
Argentina $5     $5
Uruguay –$1     –$1
All farms$67$48 $64$94$90

SOURCE: Thunen Institute of Farm Economics, agri benchmark resuts database

GRDC Research Codes ORM00015, AAM00001

More information:

Ashley Herbert, Agrarian Management
ashley@agrarian.com.au

*Legend for Figures 2, 3 and 4
RegionCode Australian state / Country
Australia AUWB WA – Kellerberrin
AUSC WA – Esperance
AUNSW NSW – Gulargambone
AUQLD Queensland – Dalby
AUSA SA – Freeling
AUVIC Victoria – Sea Lake
AUWA WA – Tenindewa
East RU Russia
UA Ukrain
European Union BG Bulgaria
CZ Czech Republic
DE Germany
DK Denmark
FR France
HU Hungary
PL Poland
SE Sweden
UK United Kingdom
North America CA Canada
US United States of America
South America AR Argentina
UY Uruguay