Gross Margin Analysis
An essential tool for comparing
returns from agricultural inputs
Simon Leake BScAg(HonsI)
Principal: Sydney Environmental and Soil Laboratory
Product (crop yield) vs Input
Typically a polynomial curve-
Flat response at low Inputs
Return
Diminishing return at higher inputs
Rising rate with moderate input
Input
“Ideal” compost yield curve
Pasture Y ield vs Input
Grass dm/ha/annum
14.0
y = -0.0005x 3 + 0.0106x 2
+ 0.1981x + 7.4656
12.0
10.0
R2 = 1
Yield t/ha/annum
8.0
Poly. (Yield
t/ha/annum)
6.0
4.0
2.0
0.0
0
10
20
Input
t/ha
30
Gross Margin on Agrichar
• Using data from NSW DPI
- zero char gave 1.2g/pot grass yield
- 10t/ha gave 1.6g/pot grass yield
- interpolate other points
- set max yield at 11.7t/ha of grass
- set cost of Agrichar at $70/t spread
Gross Margin Analysis for Grass
fed beef using Agrichar
Agrichar t/ha
Grass yield
t/ha/annum
Beef @ $2/kg Gross Margin
20%fce
$/ha
0
7.5
$ 2,986
$ 2,986
2
7.9
$ 3,160
$ 3,020
5
8.7
$ 3,464
$3,114
10
10.0
$ 4,004
$3,304
15
11.1
$ 4,456
$ 3,406
20
11.7
$ 4,671
$ 3,271
Gross Margin vs Input Rate
Agrichar Beef return @$70/t
$3,450.00
$3,400.00
Beef return $/ha
$3,350.00
$3,300.00
$3,250.00
$3,200.00
$3,150.00
$3,100.00
$3,050.00
$3,000.00
$2,950.00
0
5
10
15
Ag rich ar t/h a
20
25
NPK Fertiliser Gross Margins
at $1000/t spread
NPK kg/ha
Beef at $2/kg lw
(20% fce)
Gross Margin @
$1000/tonne
0
$ 2,986
$ 2,986
60
$ 3,160
$ 3,100
150
$ 3,464
$ 3,313
300
$ 4,004
$ 3,704
450
$ 4,456
$ 4,006
600
$ 4,674
$ 4,071
Compare the two farm inputs
Fertiliser vs Agrichar
$5,000.00
Fertiliser return
Beef Return $/ha
$4,500.00
$4,000.00
$3,500.00
Agrichar return @$70/t
$3,000.00
$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0
2
4
6
Ad ditio n increment
8
Analyse the price of Agrichar
Beef return vs cost of Agrichar
$4,000.00
No Agrichar line
Beef Return $/ha
$3,500.00
$3,000.00
$2,500.00
Beef return
$2,000.00
Expon. (Beef return)
$1,500.00
$1,000.00
$500.00
$0
50
100
150
Co st o f Agrichar $/ t
200
Conclusions
• Using this yield increment curve the nil return
cost for Agrichar is $100/tonne spread
• Using the same yield increment curve shape
NPK fertiliser has a significantly higher gross
margin return
• These yield curves are theoretical and the
conclusions illustrative only
What is needed?
• Good incremental yield curve experiments
• Understand why Agrichar can increase yield
(liming value, potassium content what?)
• Include a greater range of combinations eg
compost, agrichar, fertiliser combinations
looking for synergistic effects
• Use a range of soil types and combinations
• Gross margin analysis based on real data
• Compare alternative systems eg compost,
green manure cropping
Remember
• Farmers run businesses, base your claims on
things relevant to their business.
• Forget the warm glow stuff this has a narrow
appeal only.
• The modern farmer will believe good trial data
and buy products that give genuine positive
returns.
• Public extension officers will only endorse
genuine products giving positive returns.