There is a myth that if you move towards management practices that regenerate the land, you will affect your business profitability. The work being conducted by the Rangelands Living Skin project (a Meat & Livestock Australia funded project focusing within the Western Division of NSW) is helping demonstrate that this can be achieved without affecting business profitability.
The Rangelands Living Skin project is a four-year project linking farming families, scientists and other collaborators to evaluate cost-effective practices that focus on regenerating the NSW rangelands to support production now and into the future. This project runs from 2020 to 2024.
Resource Consulting Services (RCS) has clients that benchmark their businesses across the country and in a variety of enterprises. There is a common theme among those that are profitable; they identify profit over production.
Profitable businesses keep a tight control on costs; both Direct and Overhead costs. These businesses generally don’t buy inputs cheaper than you or I and they often don’t receive more $ per kilogram or tonne of produce. Their skill is in management. Timeliness of operations. They require less inputs because they plan their production cycles to work with the seasons. In the livestock industries, they don’t rely on supplementary feeding to facilitate out-of-season lambing or calving. In cropping, they plant in the appropriate window which reduces the need to prop up the system with chemicals and fertiliser. This principle applies across all landscapes.
As an integral part of the Rangelands Living Skin project, the four Core Producers in this project completed a budget for the 2022-23 financial year (Table 1). The common theme across these results was an outstanding set of numbers that would place these businesses in the top 20% of producers in the RCS benchmarking program ProfitProbe®, Southern Australia cohort.
The following is an explanation of the calculations of these comparison ratios:
Return on Assets = EBIT based on gross product / (Total closing assets – non-farm assets)
Asset Turnover Ratio = Total Gross Product / (Total Closing Assets – non-Farm Assets)
Overhead Ratio = (Total Overheads + Land Lease payments) / Total Gross Product
Gross Margin Ratio = Total Gross Product – (Direct Costs + Opportunity Cost) / Total Gross Product
Plant Ratio = Average of Opening and Closing value of Plant / Gross Product
In essence, these four core businesses in the Rangelands Living Skin Project turn off higher numbers of kilograms per head or tonnes of product created through higher weaning rates or weight gains. This results in increased Gross Product which has a positive impact on both Return on Assets and Asset Turnover Ratio.
Overhead and Gross Margin Ratios are impacted by costs. The aim is to reduce Overheads and increase Gross Margins. Gross Margin Ratio can be increased by reducing Direct Costs such as drench or chemical or optimising those costs in relation to production.. Apart from reducing Overhead costs, Overhead Ratio can also be reduced by increasing Turnover which dilutes Overheads over a greater number of kilograms or tonnes of product.
Plant Ratio isn’t something that is focused on normally in a ProfitProbe® interpretation, however in the Local Land Services Western Region Group the Plant Ratio is considerably higher than for any other benchmarking group. A high Plant Ratio generally indicates capital tied up in underutilised machinery.
The Returns on Assets forecast by the four properties in Table 1 demonstrate that grazing businesses in the Western Division of NSW are capable of achieving returns comparable to any region across the country. This is possible so long as they have clarity of purpose, are prepared be flexible in their thinking, match stocking rate to the carrying capacity of the country and manage their business as a business.
These profitable businesses can then turn their focus to building long term, resilient, hydrated landscapes that will have the capacity to hold water, resulting in less frequent droughts, floods and fires. The four Core Rangelands Living Skin producers are already some distance down this path.
To find out more details about the Rangelands Living Skin project, visit;
mla.com.au/research-and-development/Grazing-pasture-management/rangelands-living-skin/
The Rangelands Living Skin project is funded through MLA and RCS are proudly partnered with Department of Primary Industries NSW, Local Land Services NSW, Soils For Life, Meat and Livestock Australia, Carbon Link, Select Carbon and Australian National University to deliver this project in the Rangelands of NSW.
Author:
RCS Teacher, Advisor and Coach
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