Scaling up reaps rewards for farmers

11 Mar, 2015 01:00 AM
Large farms now account for only 10pc of broadacre and dairy farms but produce 50pc of the value

GETTING bigger is paying off for Australia’s largest broadacre farmers who are regularly achieving at least twice the rate of return on capital compared with smaller and medium-sized farm businesses.

But the difference is not so stark among the top 25 per cent of broadacre farms, where the average return on capital (excluding capital appreciation) is expected to reach 4.6pc in 2014-15.

Figures released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) at last week’s Outlook conference in Canberra showed that small (annual sales of less than $450,000 a year) and medium (sales of between $450,000 and $1 million) farms are expected to outperform large farms (sales over $1m) in some broadacre categories among the top 25pc of producers.

Medium-sized broadacre crop specialists in the top 25pc group are tipped to return 4.9pc on capital this financial year compared with 4.3pc for large businesses.

The story is the same for sheep producers, with medium farms predicted to earn a rate of return of 6.6pc compared with 3.3pc for large farms.

Top 25 small (4.2pc) and medium-sized (4.4pc) sheep-beef specialists are both predicted to outperform their larger counterparts (3.7pc). Large farms in the top 25pc group are expected to do best this financial year in beef (a rate of return of 5.7pc) and mixed livestock and crops (5.2pc).

While most of the farm in the top 25pc are large, size is no barrier to making strong returns on capital, ABARES' assistant secretary of farm analysis, Peter Gooday, told Outlook.

Top performing farms have achieved average farm cash incomes of more than $200,000 (in real terms) in 19 of the past 20 years. They produced 60pc of the total value of output from broadacre farms in 2013-14 compared with just 6pc from the bottom 25pc.

The latest data from ABARES demonstrated that returns on agricultural investment were often equivalent to, or higher, than investing in alternative assets generally available to the broader community, Mr Gooday said.

He said larger farms generally generated higher rates of return because of economies of scale, access to new technologies and better management skills.

“We know that some farms earn risk-adjusted returns that are comparable with those generated by alternatives such as bank deposits and shares, but many farms generate relatively low or negative returns,” Mr Gooday said.

“Understanding the causes that underlie differences in farm profits will be essential to improving farm performance, developing appropriate policy settings and attracting investment across the sector.”

Large farms now account for only 10pc of broadacre and dairy farm numbers but produce 50pc of the value of total outputs.

Farm aggregation in recent times has focused on purchasing medium-sized properties, which now number 20pc of broadacre and dairy farms and produce 27pc of the value of total output from the sector.

The bulk of properties are small (70pc) which produce 24pc of total sales receipts. Mr Gooday said many small farms were close to towns which raised their value and often were underpinned by off-farm income.

Meanwhile, the rate of return for large dairy farms is expected to decline to 3.8 per cent in 2014-15 compared with 1.6pc for medium-sized dairies and minus 1.7pc for small dairies. But small dairies in the top 25pc category are predicted to earn a rate of return on capital of 5.5pc in 214-15 compared with 3.1pc for medium and 4.6pc for large farms.

Vernon Graham

Vernon Graham

is the group editor of Fairfax Agricultural Media
Date: Newest first | Oldest first


Farmer Joe
11/03/2015 6:06:43 AM

More shifty numbers from ABARES. I note with interest that the figures are not including capital gain on land. Lucky for the figures given we have seen 20 to 50% decline in ag land prices over the past 5 years with exceptionally poor liquidity in the market. These trading figures belie debt to asset ratios that have blown out for many who sought to increase scale. Scale is not the answer, irrespective of the glib headline.
angry australian
11/03/2015 7:42:19 AM

Farmer Joe I agree with you, ABARES wouldn't know what a profit was, let alone return on investment. If these rates of return are available why aren't companies listing on the stockmarket, why aren't the clever kids at places like Macquarie raking it in?
11/03/2015 7:51:11 AM

I may not be very smart, but I have done a Business degree and I can never understand the figures ABARES use. What the hell is farm cash income? What about ABARES using standard terms like net, gross or taxable income instead. I assume farm cash income may be net income, why not just use the term net income?
11/03/2015 9:59:11 AM

Good points, ABARE are guilty of ignoring the failures that should be attributed to successive government's policies - no farmers who 'up-scaled' at the insistence of government are better off in the sugar industry...including us. It is a farce, the banks are also culpable and are charging obscene interest rates and charges and stifling farmer's ability to farm...with impunity...a law unto themselves...and the governments condone and enable their piracy and treachery.
11/03/2015 10:20:30 AM

are the figures after interest costs being removed? would an overseas owner with access to cheaper finance/no finance at all, show up in the top grouping?. Its interesting to note the 2 "big guys" of Australian farming have property for sale. Regarding the comment about better management, what are u smoking?
Rob Moore
11/03/2015 11:21:33 AM

ABARES is a joke. It used to be compulsory to do the annual AGsensus- then they took to doing samples -then modelling. The samples are ridiculously small and the figures are meaningless. The ATO could furnish these figures accurately across all commodities in a flash simply by tweaking the industry codes and business owners taxable income. The Primary production income is always isolated from any other business income so this would be the TRUE report card for a 12 month period/without all the hype spin and snake oil to keep the delusion ongoing. My13-14 Taxable Inc=$7K yet I'd be in top 5% of PP.
11/03/2015 12:05:05 PM

A much more interesting (and accurate) report is that by Ross Kingwell and co out of DAFWA/AEGIC. Which takes the real data from 259 farms in WA, not ABARE estimates. ions/broadacre-farmers-adapting-c hanging-climate


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