Linking natural capital with farm profitability

Shan Goodwin
By Shan Goodwin
January 23 2022 - 8:00pm
Grazier Tim Wright believes natural capital accounting will be vital to the future of livestock production.

SINCE the late 1990s, Tim and Suzanne Wright have had natural capital at the forefront of management of their 3300 hectare superfine wool property, Lana, at Balala on the NSW Northern Tablelands.

The Wrights run 2000 self-replacing Merinos and shear every eight months to produce 5 kilograms of 16.5 to 17 micron wool per ewe.

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They also run 400 beef breeders, the majority of which are owned by others.

Lana is undulating granite country with rocky outcrops. It is well-timbered with native pastures and is a declared wildlife refuge.

The holistic farming principles under which Lana is run focus on making decisions that ensure the whole landscape, from the water cycle and soil carbon to tree cover and bird life, are protected, Mr Wright said.

There is no sowing of pastures and no fertiliser used. The property was fenced in a way to reduce worm burdens and to control weeds. Input costs have been slashed by 70 per cent.

"Effectively, we are minimal chemical and mechanical and maximum ethical and ecological," Mr Wright said.

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"Our decision to go this way was driven by severe drought in the 1980s, when declining terms of trade meant our costs of production were higher than our returns - we were only marking time because of the big input costs.

"Since then we've always had a policy of being understocked so we have a buffer.

"We may have smaller numbers of stock and less turnover but we have wiped out costs so profitability is far stronger.

"Because the country is looked after during drought, we recover faster. Within a month of the last drought breaking we had enough feed not just for the flock but to take cattle on agistment."

Production efficiencies and economic viability may have been a major driver of the Wright's approach, but looking after the landscape was always a big part of the deal.

Today, of course, there are payments to be had for the natural capital they've built, such as biodiversity and carbon credits.

The Wrights sequester far more carbon than they sell, so will never be subject to a carbon tax.

While Mr Wright believes factoring in natural resource enhancement will be the future of farming in a world where climate change is locked in, he says the key will be crunching the numbers to prove the link with long-term farm profitability.

That's why he is willing to share what he has done, and open his business books, as part of a cutting-edge major study on natural capital accounting and farm profitability.

PwC Australia is working with the Macdoch Foundation and the National Farmers Federation to conduct what will be one of the biggest research programs of its kind in this field.

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Called Farming for the Future, the multi-year research program aims to test and quantify, on a wider scale and across different agricultural sectors and regions, the limited evidence to date that Australian producers have experienced increased profits by investing in their natural capital.

"Natural capital accounting is the scientific proof this is the way towards far more profitable farming, healthier food and a better environment," Mr Wright said.

Sheep grazing winter feed at Tim Wright's Lana on the NSW Northern Tablelands.

The people behind Farming for the Future say that while there is some evidence that improving natural capital delivers financial gains on farm and beyond the farm gate, this research is small-scale, and actionable large-scale research specific to Australian conditions is required to develop a compelling case for change.

A discussion paper outlining the program cites research which indicated farms that enhanced natural capital were able to increase their average annual net income by more than 40 per cent.

In this big research project, more than 1500 farms across Australia will join the Wrights in sharing their experiences. The work will involve comprehensive natural capital measurement and assessment across participating farms.

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The aim will be to develop practical and accessible information and an easy-to-use benchmarking tool for producers, to help them make decisions about their own natural capital in order to run more resilient and profitable businesses.

Macdoch Foundation chief executive officer Michelle Gortan said the potential for significant gains would flow with greater investment into improving on-farm natural capital as opposed to continuing to battle against an increasingly harsh landscape.

National Farmers Federation chief executive officer Tony Mahar said Australian farmers were on the front line of the impacts of climate change but they were also in the box seat to benefit from the opportunities of a reduced emissions future.

Environmental challenges

Environmental challenges have led to profit losses of an estimated 23pc over the past 20 years, while the risk of receiving low returns has doubled relative to the 1950-2000 period, according to Farming for the Future.

PwC Australia partner Martin Stokie said the challenges posed by climate change were not confined to inside the farmgate.

"Climate change puts stakeholder capital at risk, as investors seek other opportunities that mitigate the impact of this risk," he said.

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"Add to that, governments internationally are increasingly willing to introduce new regulatory measures for producers who are having a negative impact on the environment - and Australian producers have found themselves in regulatory crosshairs to meet international standards."

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Shan Goodwin

Shan Goodwin

National Agriculture Writer - Beef

Shan Goodwin steers ACM’s national coverage of the beef industry. Shan has worked as a journalist for 30 years, the majority of that with agricultural publications. She spent many years as The Land’s North Coast reporter and has visited beef properties and stations throughout the country and overseas. She treats all breeds equally.

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