It’s not what you do; it’s how well you do it - was a common theme in last Thursday’s Farm Financial Forum.  The Forum held by Watershed Landcare shone a positive light on agriculture at a time when many farmers and graziers are feeling the effects of drought and a high Australian dollar.

Peter Druitt of Peter Druitt & Co. convinced the audience that rural investment really did stack up against residential and commercial property investment.  Looking at capital gain alone rural properties in the Mid Western Regional Council area have averaged 7.7% per annum over the last 18 years.  Further analysis of these figures show that an average capital gain of 16.9% has been enjoyed by income producing farming and grazing properties in this time.
While capital gains have ensured wealth creation, what about annual farm incomes?  John Francis presented some thought provoking information and trends from the Holmes Sackett database of farm performance from the last 11 years.  The information highlighted some of the common features of the top 20% of producers including their ability to set clear objectives and get strategic direction right.  In essence farm profitability is not about scale or enterprise, but rather labour efficiency and production, with low cost of production being a common feature. 

Most profitable farming businesses outperform their counterparts during drought by selling down stock early and putting themselves in a position to restock earlier.  This enables them to target optimum productivity year in – year out.  The top 20% of producers focus on profit maximisation rather than loss minimisation.  Although in some years this strategy may incur more debt, it has a significantly positive impact on the overall profitability of their business.  John Francis clearly demonstrated the impact of not capturing the good years.  It is true to say we tend to focus more on the years of less than average rainfall than keeping our eye on the average or above average years and using them to our greatest advantage.

A comparison of profit margins of different enterprises was made to profit margins within enterprises with striking results.  The information clearly demonstrated that the greatest impact a producer can have on their business is to improve the performance in an existing enterprise before considering changing to another enterprise.  I guess the old adage, ‘do what you do well’ rings true here.

John’s presentation sent some positive messages to the audience and gave some real pointers to help everyone strive for that top 20% of producers:

• Improve your performance in existing enterprises before changing to new ones;
• Target optimum productivity year in – year out; and
• Scale doesn’t matter, labour efficiency does.

So while we are sitting on properties with great capital growth, putting in place strategies to be in the top 20% of rural producers, what is happening to the Australian and world economy?  Michael Pascoe, one of Australia’s most respected and experienced finance and economics commentators rounded off the afternoon with an entertaining talk that clearly emphasised the positive position Australia was in.  Our performance through the global financial crisis in comparison with nations such as the USA, Canada, the UK and Japan is a standout.  Michael’s predictions for the world in 2050 sees a one third increase in world population, demands for agricultural products increasing by 70% and the demand for meat increasing by 100%.  All of this bodes well for the agricultural sector providing we seize the opportunities these things present and have a continuing willingness to change.