Report says WA ag in good shape

19 Aug, 2018 04:00 AM
Bankwest's new head of rural and regional banking Greg O'Brien (left) and Planfarm managing director Graeme McConnell at the launch of the 2017-18 Planfarm Bankwest Benchmarks in Perth last Friday.
Bankwest's new head of rural and regional banking Greg O'Brien (left) and Planfarm managing director Graeme McConnell at the launch of the 2017-18 Planfarm Bankwest Benchmarks in Perth last Friday.

DESPITE a difficult and patchy last season, WA’s agriculture industry “is in great shape” the 2017-18 Planfarm Bankwest Benchmarks revealed recently.

Planfarm managing director Graeme McConnell pointed out to a business breakfast on Friday that the top 25 per cent of the 520 farms in the annual survey achieved an average cash return on capital of 12.2pc last season.

Some in the lower east of the central Wheatbelt, which particularly benefitted from late winter rains that rejuvenated crops, achieved cash returns on capital as high as 28pc, Mr McConnell said.

“That’s just awesome in anybody’s language,” he said.

The survey average return on capital across all regions was 5.2pc last season, the Benchmarks report showed.

Over the past 10 years, the top 25pc of WA farmers have averaged 10.6pc cash return on capital, it showed.

“I think that is just fantastic,” Mr McConnell said.

“The returns from agriculture are surprisingly good and one of the best kept secrets around,” he said.

The State average over that period was 5.5pc, according to the report.

Mr McConnell said cash returns on capital quoted in the report included allowances for wages and management and for depreciation and machinery – always a significant cost in farming.

But he said they were not inflated by land value changes.

Mr McConnell said uneven seasonal conditions meant “a massive variation” in financial results across the State, linked mainly to rainfall and its critical timing.

“What saved us last year was a very kind spring,” he said.

“But some farmers were luckier than others in receiving rains in sufficient time to have crops recover.

“The spread between the top 25pc and the bottom 25pc is as big as we’ve seen since at least 2013 because there were isolated pockets of good rain.

“If you were in those pockets you had some of the best results ever, but if you were on the fringes or in the northern Wheatbelt you had some of the worst results we’ve seen (Planfarm has been collecting farm data for about 45 years).

“(That variation) really comes out in the regional results.

“That low-rainfall northern Wheatbelt region actually had the worst result in the State, I think for the first time since about 2006-07.”

Mr McConnell said farms running sheep benefitted from the additional income from record wool prices last season.

Sheep and wool made up almost 20pc of farm income, the highest level since the last time wool prices reached sustained record levels in 2010-11.

“We are starting to see the sheep part of the business providing a really large proportion of the income - and that’s with relatively solid grain prices,” he said.

“The income from sheep is increasing both in dollar terms and proportionate terms.

“I think sheep are really earning their place and I think that will continue because of their benefit (in a cropping rotation).”

Mr McConnell said slightly higher average farm debt levels last season were interpreted as farmers investing in plant and technology.

“I’m really comfortable with debt levels at the moment, I don’t think you’ll see it much lower,” he said.

“There are very, very few (farm) businesses that are under financial stress.

“There’s actually very few people who have made a loss last year (and) it was a pretty tough year.

“The hallmark of our top 25pc of farmers is that in a really tough year they just don’t make losses, or if they do, only small ones.

“When it’s an average year they make pretty healthy returns that everyone is happy with.

“When it’s an exceptional year, they really excel.”

One area that did need attention, Mr McConnell said, was farm operating costs which, while down 5.5pc as a percentage of gross farm income over the past 10 years, were still too high at 69-70pc last season.

“If we’re going to compete with what the guys who did the CBH tour of Russia have seen recently and the potential threat that’s coming from that, then I think we need to find ways of getting operating costs down to 55-60pc,” Mr McConnell said.

He admitted he did not know how it could be achieved, but suggested one area to be investigated was more efficient investment in machinery.

“On the basis of plant investment per hectare and the price of plant, paying $800,000 for a header we use six weeks of a year is crazy.

“Can we get better use out of our machinery?” he asked.

“The agriculture industry is in great shape now, but we’ve got some challenges coming,” Mr McConnell said.

“We don’t want to rest on our laurels.

“We need to get the message out there about how good agriculture is to make sure some of the bright young kids going through school and university and looking at the careers they are going to take, are interested in agriculture and see agriculture as a good place to focus on.”

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