Cropping

Opportunity to increase profit

by
January 25, 2018

Significant opportunity exists for most southern region grain growers to generate stronger levels of profitability from their current resource bases.

That’s according to a study commissioned by the Grains Research and Development Corporation which has identified the key profit drivers in successful cropping businesses.

The project titled The integration of technical data and profit drivers for more informed decisions involved collecting a minimum of three and up to five years of benchmarking data from more than 300 cropping businesses nationally.

The project was led by Rural Directions in the southern region and involved Meridian Agriculture and Macquarie Franklin.

According to Tony Craddock from Rural Directions, a consistent message from the project was that a large gap in financial performance existed between the ‘‘top 20 per cent’’ of businesses and the average business in each agro-ecological zone.

‘‘It demonstrated that there is abundant opportunity for many grain growers to increase profit from the resources that they currently have available to them,’’ Mr Craddock said.

Learnings from the project were detailed to growers and advisers attending GRDC Opportunity for Profit workshops in the southern region in 2017.

Designed to enable growers to better understand the profit drivers in their own businesses and therefore adopt profit-generating changes, the workshops will again be delivered throughout the southern region in 2018-19.

Driven from the agro-ecological zone level upwards to ensure that the key profit drivers reflected the farming conditions relevant to different rainfall zones and soil types, the project explored the management characteristics of cropping operators which influence their decision-making processes and farm business performance.

The study found that four primary profit drivers separated the top 20 per cent of grain businesses — which are consistently retaining 30 per cent of turnover as net profit — from average businesses in the GRDC’s southern region (Victoria, South Australia and Tasmania).

These four primary profit drivers were identified as gross margin optimisation; low cost business model; people and management; and risk management.

Mr Craddock said that in terms of opportunity for enhanced profitability, some businesses may have a yield and revenue opportunity, other businesses may benefit from a more disciplined approach to variable costs, while for others the opportunity could be in managing total plant machinery and labour-related costs.

‘‘While it takes skill, courage and discipline to replicate top 20 per cent performance, it is generally decisions and choices that are well within our control that we can influence to achieve it,’’ Mr Craddock said.

‘‘Low risk, high margin agriculture is possible.’’

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