Benchmarking and Passion: What the
top farmers say about their
substantial profits
Graeme McConnell Planfarm Pty Ltd, Northam graeme@planfarm.com.au
Chris Carter DAFWA, chris.carter@agric.wa.gov.au
Peter White, DAFWA, peter.white@agric.wa.gov.au
Key Messages



The top farming businesses are generating 174% of the operating surplus of the
average farming business.
The difference in profitability between the top farmers and the average farmers is not
due to external factors such as rainfall or soil type.
The top farmers have an uncompromising commitment to focussing on what drives
profit, being highly prepared, making major decisions outside of high stress periods,
attention to detail and being positive about the future.
Aims
DAWFA’s Bridging the Yield Gap Project (BYG) has a goal to increase the profitability of grain
production in the high rainfall regions of Western Australia. The goal is based on analysis that
shows a gap between the realised average yield and the potential water limited yield.
BYG commissioned Planfarm Pty Ltd (Planfarm) to compile a report based on the analysis of
financial details and face to face interviews with their top 26 farmers in the high and medium high
rainfall zones. The report illustrates the difference in profitability and production of a group of top
farmers compared with the average farmers group. It presents some characteristics of how the
top farmers manage their business and farm, based on farm financial data and responses to
interview questions. The report fills a vital role in understanding what is possible for WA farmers.
This paper presents a part of the data and some key findings from the full report.
Method
Planfarm analysed the farm businesses of clients based in the high and medium high rainfall
zones. Clients were ranked based on the profitability of their farm business for 6 years (2005 to
2010) over two (partially overlapping) six year data sets. The 26 farmers who were the most
profitable during the period were then selected for interview. To qualify farm businesses needed:
1. Minimum long term data of at least 4 years and
2. Farm located in the medium or high rainfall zones of Western Australia
The financial measures used to rank clients were:



Return on Capital (ROC) – favours lower rainfall with a lower land value
Operating profit/ha – favours high rainfall (ex water logging)
Operating profit/ha/mm of effective rainfall – favours medium rainfall
The number of top farmers in each of the agro-ecological zones is presented in
Table 1.
Table 1: The numbers of clients interviewed from each zone
Zone
H1
H2
H3/4
M1
M2
M3
M4
Total
N of ‘Top Farmers’
1
3
4
3
5
3
7
26
Each of the three measures have a tendency to favour a particular region, yet in conjunction, they
present a fair measure of business performance. The financial and production details of the 25 of
the top farmers were compared with the average of the other farmers on the Planfarm client list in
the same regions. While the initial cohort was 26 farmers, the financial data of one farmer was
removed for the analysis because it included high intensity livestock operation and that skewed
the averages for the profitability data.
For the second part of the report, Planfarm conducted interviews with all 26 of the top farmers to
explore in more detail the factors that set these businesses apart. There were nine interview
sections (Table 2) that focus on different elements of farm and business management. The
interview questions were prepared by Planfarm Pty Ltd, farmers and consultants on the Bridging
the Yield Gap Advisory Board and staff from the Department of Agriculture and Food WA.
Table 2: Interview sections
1
General
6
Technologies
2
Production
7
Marketing
3
Financial
8
Succession/ Training
4
Management and Risk
9
The Big Picture
5
Information
RESULTS: Findings from profitability and production metrics
The financial and production data of the top and average farmer groups were compared over a
range of metrics. Only the key results and analysis are presented below, other results are
included in the full report.
Operating surplus
Operating surplus of the top farmers was 174% of the operating surplus of the average farmer
group over the given period (Table 3). If the average farm were able to achieve the same
operating surplus as the top farmers the difference would amount to an additional $226,008
operating surplus – in every year (based on 3139 effective ha – the average farm size in 2010).
Table 3: Difference in gross income, Operating Cost and Surplus/Deficit between top
farmer group and average farmer group
Average
Top
% Difference
Ave Gross Income $/Ha (05-10)
355
470
32%
Ave Op. Costs $/Ha (05-10)
259
302
16%
Ave Op. Surp/Def $/Ha (05-10)
96
168
74%
EQUITY AND ROC
There was little difference between the equity levels of the top farmer group and the average
farmer group. The Return on Capital, however, was significantly higher for the top farmers (Table
4).
Table 4: Difference in Equity and ROC between top farmer group and average farmer group
Average
Top
Ave Return on Capital excluding capital growth% (05-10)
1%
4%
Equity % 2010
75%
75%
When capital growth is included in the ROC calculation, the best farmers achieved a compounded
annual rate of return of almost 8%, while the average was just over 3%.
AREA IN CROP
There are several possible explanations to the profitability of the top farmers. One such
explanation is that the top farmers cropped a higher percentage of the arable area (Table 5). Due
to the relative profitability advantage that grain has had over livestock in the years preceding
2010, this is a key driver of profitability in the selected years, however the additional area in crop
does not fully account for the difference in profitability.
Table 5: Difference in cropping percentage between top farmer group and average farmer
group
Average
Top
% Difference
% Crop 2010
66%
79%
19%
% Crop 2009
66%
78%
18%
% Crop 2008
65%
76%
17%
% Crop 2007
58%
73%
26%
% Crop 2006
51%
65%
27%
% Crop 2005
57%
69%
21%
YIELDS
The most significant difference between the top farmers and the average farmers was the wheat
and barley yields. There was a 22% difference in wheat yields between the top farmer group and
the average farmer group (Table 6).
Table 6: Difference in observed yield between top farmer group and average farmer group
Average
Top
% Difference
Ave Wheat T/Ha (05-10)
1.85 t/ha
2.26 t/ha
22%
Ave Lupins T/Ha (05-10)
1.17 t/ha
1.39 t/ha
18%
Ave Barley T/Ha (05-10)
1.95 t/ha
2.32 t/ha
19%
Ave Canola T/Ha (05-10)
1.08 t/ha
1.10 t/ha
1%
Ave Oats T/Ha (05-10)
2.07 t/ha
2.14 t/ha
3%
The difference in yield was not due to the top farmers receiving better rainfall (quantity or
seasonal distribution). Comparison of rainfall data shows that there is minor difference in the
rainfall received by the top and average farmer groups, for growing season rainfall, or summer
rain (Table 7).
Table 7: Difference in observed rainfall between top farmer group and average farmer
group
Rainfall Period
Average
Top
Difference
Ave Rainfall Jan-Apr (05-10)
72 mm
74 mm
3%
Ave Rainfall May-Oct (05-10)
238 mm
240 mm
1%
Ave Rainfall Nov-Dec (05-10)
24 mm
24 mm
-2%
While it is not possible to use the Planfarm data to determine whether yield differences were due
to fewer soil constraints, the interviews conducted with the top farmers indicated that they
considered the soil on their property was not significantly better than on surrounding properties.
Capital value of farms were also similar, further indicating that land quality of the farms in the
different groups was likely to be the same.
Finally, the top farmers indicated they did not adopt new, high yielding varieties rapidly and were
using similar varieties to the average farmer group. Removing the influence of soil, rainfall and
better varieties, indicates that the likely cause of the higher yields achieved by the top farmers
was technical and management efficiency of the operator.
RESULTS: OBSERVATIONS FROM INTERVIEWS
The interviews were completed during the 2011/12 season. Each interview was conducted face to
face for approximately two hours. Interviews were only conducted with the top farmer group and
not with the average farmer group.
FOCUS ON WHAT DRIVES PROFIT
The top farmers tended to use sound and rational decision-making processes to analyse whether
a particular management practice was profitable, and stuck to budgets as much as possible.
These processes included cost benefit analyses, analysis of alternatives, and need assessments.
The top farmers understood the risks in making changes to their programs and businesses. When
changing farming practice or investing in technology the farmers did not make unconsidered
decisions and were likely to consult with multiple specialists. The farmers did not consider
themselves early adopters, and most took a wait and see approach. As an example, the farmers
said that they were not likely to rush into new varieties and would often take 2-3 years to make a
varietal change. On average, the farmers nominated 6.3% of their time was allocated to research,
although predominantly this was not trial-type research.
GOOD PLANNING
The top farmers intended to dry seed an average of 35% of their crops. Planfarm suggests that
this is about 30% higher than the average farmer (ie the average farmer is estimated to be around
20% dry seeding), although there is no data from the average farmer group in this study to
compare this against. The ability to dry seed a significant portion of the farm was due to prior
planning to ensure there was good weed control and planning of rotations. One comment from the
interviewer, was that the depth of thought and planning required for the successful integration of
the systems was substantial, and the group was able to convert the planning effort to results on
the ground. The farmers nominated that 16.2% of their time was allocated to planning and
management.
PREPAREDNESS
Farmers said that they made most of their big decisions, regarding farm management, outside of
the high stress periods. This allowed them to concentrate on the operations during seeding and
harvest. The farmers were, on average, willing to change about 20% of the farm program in
response to changing seasonal conditions. Most of the top farmers said that changing too much
of the program introduced additional issues and stress. In general, rotations were kept in place to
ensure weed control and income. Despite the apparent inflexibility of the program, farmers still
said they maintained a level of preparedness that allowed them to remain nimble in regards to
tactical management as the season progressed.
TIMELINESS
Combined with preparedness, the farmers indicate that timeliness was one of the top practices
that they needed to get right to ensure production. This included timeliness of spraying and weed
control, top-up fertiliser application and sowing time. Importantly, sowing time was nominated as
the key practice that the farmers had to get right to maximise profit.
COMMITMENT
The top farmers made a habit of getting the basic production factors right and not allowing
themselves to be distracted with other issues once a decision had been made. This approach
translated to them making very few mistakes in the areas that matter – both production and
financial. The comment from the interviewer was that in all cases, few decisions were made that
resulted in a substantial negative effect on the profit of the business in any of the recent years that
challenged the profitability of most other businesses.
POSITIVE ABOUT THE FUTURE
The top farmers all showed a positive outlook for the future of agriculture. This is evidenced
through the responses that showed a desire to learn more and succeed, and a real passion for
agriculture. The farmers are all looking to continue to run successful, profitable businesses.
Conclusion
Substantial improvements in the profitability of farm businesses in Western Australia are likely.
This study has shown that the top farmers are able to consistently produce a higher operating
surplus than average farmers and they are able to do this with very similar rainfall, soils, varieties
and farm size.
Key components of outstanding farm management seem to revolve around:
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passion
planning
preparation
knowing and focusing-on what drives profit
timeliness / getting the job done
attention to detail
being positive about the future
The Bridging the Yield Gap project, through the establishment of Local Innovation Partnerships,
will endeavour to help farmers improve the profitability of their businesses by creating an
environment and support structures that enables farmers to emulate the characteristics of top
farm business managers. The project will also use the top farmer’s financial metrics as
benchmarks to target
Key words
Profitability, Economics, Interviews, Benchmarks,
Paper reviewed by:
Gerard O’Brien