Ag News

‘Top 20%’: low risk, high margin cropping is possible

  • By: "Prime" Ag News
  • Jan 16, 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 (GRDC) which has identified the key profit drivers in successful cropping businesses.

The project – 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 Pty Ltd 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 percent” 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,” said Mr Craddock.

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% of grain businesses – which are consistently retaining 30% 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.

In terms of gross margin optimisation, Mr Craddock said this was driven by two main factors – income (or turnover) per hectare and variable costs per hectare. “Therefore, it is all about optimising yield in a cost-effective manner,” he said.

“The Top 20% are often generating 10% more crop yield per hectare from a common or lower overall investment into variable costs per hectare. This enables the Top 20% businesses to generate gross margins which are 15% to 20% stronger than the average business in the dataset.”

Developing a low cost business model also provides g...
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