A dangerous complacency

20 Oct, 2014 11:00 PM
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David Sackett, managing director of Growth Farms, speaking at the NFF 2014 Congress in Canberra.
A dream (farm) business that doesn’t make money is a nightmare
David Sackett, managing director of Growth Farms, speaking at the NFF 2014 Congress in Canberra.

A CARGO-cult belief that rising demand from Asia is about to sweep farmgate prices to record levels is encouraging many producers to ignore the need to lift on-farm profit margins.

That was the blunt message to the National Farmers' Federation (NFF) Congress in Canberra on Monday from David Sackett, managing director of Growth Farms which has $360 million of farm assets under management.

Despite all the hype about a looming golden age for agriculture driven by Asia’s cashed up middle classes, Mr Sackett said the reality was that farmgate prices wouldn’t double in the next 20 years.

Farmers wanting to improve their profitability only had to look at what the top 20 per cent of producers were doing, he said. They need to focus on profit margins, not prices.

Using wheat and beef to illustrate his point, Mr Sackett said the average producer grew a tonne of wheat for $205 a tonne and $1.11 for a kilogram of beef liveweight. In contrast, the top producers were growing a tonne of wheat for $114 and a kg of beef for 80c.

The top producers were also doing much better from the sale of their produce: $265 a tonne for wheat compared with $220 for the average, and $1.90 a kg for beef compared with $1.84 for the average.

So the key to lifting on-farm profitability was to copy what the best farmers were doing, rather than looking to Asia for a major boost in prices.

If producers ignored the need to increase their on-farm profit margins they would be handing their destiny to what happened in overseas markets.

Mr Sackett said while the pursuit of off-farm policies such as better grain transport infrastructure and free trade agreements were important, the way to lift profitability “overnight” was to get on-farm profit margins “right”.

And a more profitable farm sector would encourage both more investment capital and more people wanting to work in the industry.

“A dream (farm) business that doesn’t make money is a nightmare,” he said.

Pip Job, winner of this year’s national RIRDC Rural Women’s Award and NSW Central West beef producer, said a disaster during the 2006 drought had completely changed her view of farming.

After being forced to sell stud beef heifers at Dubbo saleyards for $188 a head she decided she and her family would no longer be price takers.

They swapped stud cattle for cattle trading, buying and selling cattle in the same market to give full control of their costs and profit targets.

She learnt the key to success in agriculture was to take a holistic view of the farm business, the environment in which it operated and the people who worked in the business.

Life on the farm wasn’t just all about farmgate returns, she said.

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FarmOnline
Vernon Graham

Vernon Graham

is the group editor of Fairfax Agricultural Media
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READER COMMENTS

GFA
21/10/2014 4:55:48 AM

Need a much closer investigation of the cost and income figures from David Sackett before getting too excited. For example, can he show that the top 20% he talks of are the same people over a ten year period? Is he comparing the same product, because if the top income wheat growers are growing durum wheat, it would be totally ridiculous to say all wheat growers could or should switch to durum. I see nothing said about the biggest cause of poor business margins - that is the fact that we carry in our P& L's, the regulated burdens of Govt welfare in a deregulated market for our outputs.
Qlander
21/10/2014 6:03:56 AM

God I'm sick of this lazy nonsense. Last year my gross wool return was %40 higher then this year. Why? - It was dry but not too dry = fine wool with high yield, low VM, and low CV, which sold into an unexpected spike in the market. This year was a disaster - 30 lambs from a joining of 3,000 very late break in the season = dusty, drought fine, tender wool. Last year I was a genius, and you all should my follow example. This year I'm a moron, and should get out of farming.
Qlander
21/10/2014 6:15:02 AM

Even in good consistent country, with a low operating cost base, and high quality, high value turn off. The YIELD ON ASSETS is low because that country costs so much. The top 20% of lotto players make a fortune - So we all should give up farming and buy lottery tickets. If I'm wrong prove it - Publish the yield on asset figures, for farms that have been in the top 20% every year for the last 10 years. Hell just name a farm that has been in the top 20% (of yield on asset)every year, for the last 10 years.
THE FARMER
21/10/2014 7:46:30 AM

I tend to think these top 20 are mythical .They never have names or faces .Where do they come from ? Must be the land of milk & honey full of honey's ..Can't be any in Queensland given they have been in drought for ever or W.A wheatbelt or anyone who owns a sheep or a dairy cow .Sorry for your bad year Qlander , hope better things for next year .
Percy
21/10/2014 10:06:55 AM

Because we have experts like Holmes & Sackett doing these comparisons then all farmers are expected to match up or get out. Sorry but too many younger people are, after watching how hard Mum & Dad have struggled, deciding that a farm career is not for them. Farmers have carried this nation many times and will be dumped by any government when times get tough (like now). One vote -one value means that politicians will pander to areas where the votes count ie city areas. Farmers will continue to get screwed especially when farmer organisation don't care about the smaller operator.
Philip Downie
21/10/2014 10:24:34 AM

The Farmer or beef for that matter. I suspect their 20% comes from statistics, accept a normal distribution bell curve there is always 20 % at the top end but the steepness of the sides is the issue. That is why we never know who they are it is just maths.
Barcoo Battler
21/10/2014 12:21:39 PM

David S- everyone knows that with computers,garbage in=garbage out.Q'lder -good points.show me a producer that "ignores the need to lift onfarm profit" Only those space cadets in Canberra dreaming of a "golden age" while on full pay to attend and all flown in on someones Tab to sell out the rank and file down the toilet. Don't bother lecturing me Davey old boy- I've forgotten more hard lessons in PP than you have even dreamed of and am only just hanging on. Coles sponsering this junket is the ultimate insult imo!Just dissapear NFF and we might start to sort out some problems!
Geronimo
21/10/2014 2:20:10 PM

So based on this article, do we assume it's the top 20% that have a whopping $3.2 billion stashed in FMDs? Who owns all the money in the FMDs?
John from Tamworth
21/10/2014 3:22:35 PM

The cost of production numbers are of course complete nonsense. Mr Sackett has not disclosed his sources for this misinformation.
GFA
21/10/2014 4:33:56 PM

Yes Philip Downie, and the 20% mentioned likely differs every year based on seasonal and other circumstances outside the control of producers. That makes the David Sackett statement about copying the top 20% a nonsense statement, because there is nothing to say that a producer in the top 20% one year is not in the bottom 20% a year or two later. That is why I said not to get too excited about his main line of argument.
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