Top croppers meet benchmark targets in South Australian Mallee

National benchmarking study identifies profit drivers in top performing cropping operations

Farm Business
Todd and Bec Niejalke with William, Adele and youngest daughter Emily on the family's 2100-hectare property at Pinnaroo in the South Australian Mallee. PHOTO Clarisa Collis

Todd and Bec Niejalke with William, Adele and youngest daughter Emily on the family's 2100-hectare property at Pinnaroo in the South Australian Mallee. PHOTO Clarisa Collis

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Low-cost business model earns place in top 20 per cent of Australian grain growers.

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SNAPSHOT

  • Growers: Todd, Bec, Jeff, Esma Niejalke
  • Location: Pinnaroo, South Australia
  • Area: 2100 hectares
  • Average annual rainfall: 300 millimetres
  • Soil types: sands, sandy loam, red clay
  • Soil pH: 6.5 to 7.5
  • Crops: wheat, barley, lentils, lupins, vetch
  • Livestock: 300 Merino ewes

Outstanding long-term return on farm business equity performance has seen the Niejalke family's 2100-hectare property at Pinnaroo, South Australia, ranked in the top tier of Australian cropping operations.

Helping secure a place for Todd and Jeff Niejalke among the country's top 20 per cent of grain growers is their ability to retain about one-third of farm business turnover as profit. In contrast, average cropping operations retain about 10 per cent of annual turnover as profit.

These are the findings of GRDC-invested collaborative research that benchmarked more than 300 grains operations nationally, drawing on five years of data to identify the main profit drivers in different agro-ecological zones.

Todd says the benchmarking research, led by agribusiness consultancy Rural Directions in the SA Mallee region, helped define the profitable cornerstones of their business structure that also provide a foundation for other top-performing cropping operations.

For instance, a common thread linking the financial viability of the Niejalke farm to other grains businesses across the country is a low-cost business model, with emphasis on gross margin optimisation.

Examining the thinking that shaped this model on the Niejalkes' Mallee property, Todd says their risk-averse approach to farm business management is framed within a multi-layered strategy.

Peeling away the layers of their strategy, its main profit drivers are cost-benefits that stem from the management tactics they apply to farm machinery, labour and crop inputs, as well as discipline in the timeliness of their cropping operations.

Machinery investment

Todd and his father Jeff invest in second-hand farm machinery as part of their low cost business model. PHOTO Clarisa Collis

Todd and his father Jeff invest in second-hand farm machinery as part of their low cost business model. PHOTO Clarisa Collis

For example, they invest in second-hand farm machinery, which Todd estimates provides a 50 to 75 per cent saving compared with investment in new machinery. The Niejalkes have bought a second-hand truck, harvester, front-end loader and tractor in the past five years.

Of this outlay, Todd says the benchmarking data has provided an important measure of structural efficiency in the business that is now used to better inform their decisions on machinery expenditure.

The research showed the top 20 per cent of SA grain businesses had a machinery investment to income ratio of between 0.7 to 0.8:1. This means that for every $1 of business turnover, 70 to 80 cents was invested in machinery. Businesses with average performance, however, had a machinery investment to income ratio of more than 1:1.

"The benchmarking figures indicate whether we can afford to upgrade our machinery or not," Todd says. "It showed our outlay on machinery was on track, which has given us more confidence in the choices we are making."

Labour cost-savings

The Niejalke father-and-son team manufacture, modify and repair machinery on-farm. PHOTO Clarisa Collis

The Niejalke father-and-son team manufacture, modify and repair machinery on-farm. PHOTO Clarisa Collis

The cost-savings secured through second-hand machinery investment are supplemented by the labour efficiency the father-and-son team ekes out of the business, reinforcing its low-overhead cost structure.

"We do all the machinery maintenance ourselves to help keep costs down. We're very focused on manufacturing, modifying and repairing machinery," Todd says, citing on-farm work overhauling a mother bin, grader, fuel trailer and sheep ramp.

The financial gains derived from the Niejalkes' focus on machinery and labour match the benchmarking analysis that found these two areas of management were the largest profit drivers in high-performance businesses.

As such, they are also the main areas of business management contributing to the large gap between the financial performance of the nation's top croppers and their average counterparts.

The top 20 per cent of operators kept total plant machinery and labour (TPML) costs below one-quarter of annual business turnover, the research found. Average business operators saw TPML costs equivalent to 35 per cent of turnover.

Another outcome of the research was a target for profitable labour use: to generate more than $600,000 of turnover per full time equivalent (FTE) labour unit, standardised at 40 hours per week. Todd and Jeff each do the work of 1.8 FTE labour units, averaging 70 hours a week. In other words, together, they do the work of more than three people, totalling 140 hours a week.

Todd says the analysis highlighting the labour cost-benefits of the partnership also put into perspective the need for improved work-life balance. "The benchmarking has allowed us to see where we need to pull back, but also where we can go harder in terms of expenditure."

For example, using the machinery investment to income ratio (0.7 to 0.8:1) as a tool, the Niejalkes found they could not justify the outlay on a second-hand self-propelled sprayer.

But their low expenditure on farm labour meant they could instead justify the cost of employing a contractor with a self-propelled sprayer. The decision has improved work-life balance by allowing Todd to spend fewer hours spraying.

Cropping inputs

Todd aims to spend between $23 and $25 on chemical inputs per tonne of wheat yield. PHOTO Clarisa Collis

Todd aims to spend between $23 and $25 on chemical inputs per tonne of wheat yield. PHOTO Clarisa Collis

Todd says the research has also set new farm business targets for investment in cropping inputs, particularly fertiliser and herbicide.

For instance, they aim to spend $30 on nitrogen and phosphorus fertilisers for every tonne of wheat yield per hectare. This benchmark target is calculated by measuring long-term average fertiliser costs against long-term average wheat yield.

The research found that, in most situations, the phosphorus and nitrogen requirements of all crops grown in rotation can be supplied for $30 per tonne of wheat yield (based on a diammonium phosphate price of $770/t and a urea price of $500/t).

This target, which includes a small fertiliser allocation for building nutrient reserves in the soil, can generally be applied to both low and high-yielding cropping situations. For instance, investing $60 per hectare in nitrogen and phosphorus-based fertilisers is a profitable practice in the relatively low-yielding SA Mallee region, where the long-term average for wheat is about two tonnes per hectare.

The Niejalkes also aim to spend between $23 and $25 on chemical inputs per tonne of wheat yield - a benchmark target that is calculated by measuring long-term average chemical costs against long-term average wheat yield. But Todd says meeting this target, prescribed for both low and high-rainfall cropping situations, can be difficult due to the limited yield potential and high weed burden on their Mallee farm.

The research, titled: The integration of technical data and profit drivers for more informed decisions benchmarked cropping operations across 14 agro-ecological zones in southern, northern and western growing regions with five research partners.

These agribusiness consultancies included Rural Directions, Macquarie Franklin and Meridian Agriculture in the southern grains region; Agripath in the northern grains region; and Corporate Agriculture Australia in the western grains region.

GRDC Research Code RDP00013

More information: Todd Niejalke, todd.niejalke@bigpond.com, 0429 308 253

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