There are similarities between the top-performing grain growers in southern Australia, according to a three-year research project that benchmarked more than 300 grain businesses nationally.
GRDC has invested in the roll-out of information from the research project as part of a series of 'Opportunity for Profit' workshops, where growers could discuss the profit drivers for the top 20 per cent of businesses and identify how the data related to their own agro-ecological zone.
More information about profit drivers can be found at the GRDC's online farm business management hub, which also contains links to many resources, including videos and podcasts.
The 'Opportunity for Profit' workshop project collated data from 2009 to 2013. Key outcomes included a focus on maximising efficiencies to drive profit.
Dr Kate Burke, of Think Agri, was one of the workshop presenters.
She brought a workshop to Sale in September 2019 for Gippsland grain growers.
Getting the best from the business
"Many people get fixated on the things they can't control - such as weather or price - or fixated that scale is an important key profit driver," Dr Burke says.
"A poorly run business continues to show low returns when scaled up. Similarly, a well-run business scaled down still returns reasonable margins.
"There is significant opportunity for most growers to extract higher levels of profitability from their existing resource base."
The project reported a 30 per cent retention of turnover as profit among the top performers, compared to a 10 per cent industry average.
Some of the key differences in thinking unveiled by the research and contributing to the key profit drivers were across:
- variable cost control;
- machinery and labour utilisation;
- operational timeliness; and
- best land use.
Case studies illustrated how the top 20 per cent of grain growers are operating their businesses to effectively manage these aspects.
There is significant opportunity for most growers to extract higher levels of profitability from their existing resource base.
Dr Burke compared grain growing operations with a dairy farm to discuss profit drivers.
In particular, given that more than 60 per cent of Australia's dairy farms are dependent on pasture-based systems to reduce the variables of input costs, farmers' commitment to a cropping and grazing plan drives their profit.
In a cropping system, however, grain growers tend to treat all crops uniformly - applying the same level of fertiliser across all paddocks irrespective of merit - which risks increasing costs of production because spending is not matched to the variables.
The requirements of wheat in one paddock might differ from the requirements of wheat in another paddock of the same farm with variables as diverse as soil type, cultivation, water retention, disease and frost impact, among other considerations.
"If you know the crop is going to yield three tonnes per hectare, feed it like it's a 3t/ha crop," Dr Burke says.
"Don't feed a 3t/ha crop like it's your highest-yielding 7t/ha crop. Understand what bang for your buck you get for spending on inputs.
"Complexity in systems is a risk to profit. Farms with multiple cropping commodities tend to realise lower profits than those that are growing only a few crops."
One example interrogated the pros and cons of spreading lime across the farm in rotational application.
Business model costs
Another highlight was a discussion about equity. Business model costs varied based on land ownership and other variables, such as leasing and share farming.
"Paying down as much principal as possible to increase equity reduces your debt level but also has to be compared to the sustainability of your business model," Dr Burke says.
Each business model also had to compare its cost and profit variables when investing in and utilising plant and equipment - either in an ownership model or utilising reliable contractors.
"Making a decision about what assets you will invest in and how to manage those maintenance costs, against using reliable contractors, impacts on your equity," Dr Burke says.
"You can calculate machinery costs and use per tonne of crop yielded or per labour unit employed.
"Ultimately, the pros and cons of machinery investment have to be assessed against an efficient ratio to income generated."
This led into a discussion about labour units.
The research demonstrated that farmers who practice good people management allow for a 10 to 30 per cent contingency for weather, machinery breakdown and effective use of labour.
Often, people management was diminished by approaches that allowed people to do jobs as they wanted to do them, rather than prioritising work.
"Risk management changes and adaptability need to be based on changing climate and weather patterns," Dr Burke says.
"Many businesses calculate their risk against the ability of the business to withstand two severe climate or weather events in a row.
"It's a similar story about equity. Does the business model have a buffer to withstand two years of cost of production variables that exceed income, or an increase in interest rates?
"Risk is about personal appetite as well as ownership responsibility, particularly about debt. Analyse trends in detail to understand whether it will be an effective change for your business.
"This data tells us it is possible to have good returns from low-margin, high-risk agriculture, but it's about appetite and management."
Dr Burke suggested grain growers ask their business advisers to compare the case studies illustrated by the project against their own business and deliver their view of where the operation sits against the modelling.
GRDC Research Code RDP00013