The costs of growing grain in the southern cropping region don’t look like falling any time soon, meaning farmers and business managers need to be mindful of keeping farm expenses in check.December 11, 2013 4:01am
The costs of growing grain in the southern cropping region don’t look like falling any time soon, meaning farmers and business managers need to be mindful of keeping farm expenses in check.
ORM Agricultural Management managing director Phil O’Callaghan spoke at a recent Grains Research and Development Corporation farm business update.
He said the costs of production were increasing more rapidly than the value of their production, putting more financial pressure on margins and profits.
‘‘It’s a credit to the cropping industry in that profits have actually been maintained through that time when some costs have risen by up to 100 per cent over the last 10 years,’’ Mr O’Callaghan said.
‘‘We had a look back at trends over the past 30 to 40 years and there is a trend of increasing costs.
‘‘This is partly due to increases in unit cost of crop inputs and machinery but also to the increase in farm scale and crop intensity.
‘‘Going forward, there doesn’t seem to be any reason why the trend of increasing cost of inputs would change, hence if crop intensity and farm scale continue then we need to accept that the cost structures of our businesses are increasing.
‘‘Costs are increasing at a faster rate than the actual value of our commodities we’re producing, so when fine tuning the operation and profitability of the business, the challenge for individuals is to decide whether they should continue to produce more tonnes at tighter margins or should they review individual farming systems with a view towards reducing whole of business costs.’’
ORM surveyed 32 farms across the Wimmera and Mallee and found in general that the growth in cost pressure had far outgrown commodity value.
In the Mallee, production costs had doubled over the past decade, while profitability had remained at around the same level.
Mr O’Callaghan said businesses that managed costs in conjunction with income volatility had the opportunity for strong business profits.
‘‘The challenge we’ve got is that rising costs then results in higher financial risk to the business.
‘‘Currently, profit potential is managed by applying new technologies to increase farm scale and improve efficiencies overall, however, when whole-of-business costs are high and income is variable due to Australian seasonal volatility, then large financial losses occur in some years.’’
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