Ground Cover Supplement : GC Supplement - Profit drivers
4 Issue 132 | Jan -- Feb 2018 | GRDC GROUNDCOVER SUPPLEMENT: PROFIT DRIVERS GROUNDCOVER PROFIT DRIVERS The interaction of the four primary profit drivers is crucial to achieving strong results. There are many instances where growers generate high gross margins but the overall financial outcome is compromised by high overhead costs. Sometimes the potential from the existing resource base is not realised, and high levels of income are forgone. Undisciplined variable cost management also compromises profitability. Decisions and choices within growers' control ultimately make a difference. GROSS MARGIN OPTIMISATION Gross margin optimisation is a key profit driver in grain businesses across Australia. It requires the generation of as much revenue per hectare as possible, in a cost-effective manner. Growers achieve this by selecting enterprises that suit best land use and highest return in a region. Excellent timeliness and crop agronomy, and matching chemical and fertiliser inputs to seasonal conditions in a disciplined way, also contribute. In the northern region, soil moisture storage efficiency, which impacts on frequency and sequence of crop types, is a major contributor to optimising gross margins. Gross margin optimisation does not necessarily mean including the highest-priced commodities. Rather, it is what creates the best gross margin given the capabilities and environmental characteristics of the property. Key management factors that drive gross margin optimisation are: n creating a robust rotation through careful enterprise selection; n a year-round focus on operational timeliness, including summer and in-season spray applications, optimum sowing date and time of harvest; n excellent crop agronomy and monitoring; n a balanced approach to inputs, based on a realistic view of yield potential; and n crop sequence and frequency -- in the northern region increasing frequency of summer and winter crops does not always result in the best margin given available resources. LOW COST BUSINESS MODEL Developing a low-cost-based business through structural efficiency provides an opportunity to increase farm profit. Top 20 per cent businesses nationally utilise their investments in machinery and labour to full potential. Top 20 per cent growers are collectively 25 per cent more efficient. They manage more hectares with less capital invested per hectare, yet do not compromise operational timeliness. This contributes to gross margin optimisation. It is not necessarily scale that drives high machinery and labour utilisation, it is how the investment in machinery and labour is matched to the size of the business. Accessing cost-effective lease land, and the grower's debt position, impact on the farm's overhead cost structure. Lack of profit is a barrier to growth. Being able to expand in a sustainable manner without compromising the low-cost Top 20% FIGURE 2 Southern region -- profit as a percentage of turnover. % SOURCE: RURAL DIRECTIONS PTY LTD, MACQUARIE FRANKLIN, MERIDIAN AGRICULTURE Average SA Mid North Lower Yorke Eyre SA Victorian Mallee Tasmanian Grain-growing NSW Central NSW South West Slopes Victorian High Rainfall Southern regional average 35 30 25 20 15 10 5 0 Top 20% FIGURE 3 Northern region -- profit as a percentage of turnover. % SOURCE: AGRIPATH Average NSW North East & Queensland South East NSW North West & Queensland South West Central Queensland Northern regional average 25 20 15 10 5 0 FROM PAGE 3 PHOTO: VANESSA SIZE SOMETIMES THE POTENTIAL FROM THE EXISTING RESOURCE BASE IS NOT REALISED, AND HIGH LEVELS OF INCOME ARE FORGONE.
GC Supplement - More profit from crop nutrition 17