'High performers are driven by much more than profitability, and are underpinned by a strong team. They have a deep connection to the land and 'way-of-life' sheep and beef farming can provide.
There is also strong focus on doing the basic farm management practices well by paying attention to detail, running efficient systems and taking calculated risks to continually improve their performance' Mark Hiddleston
Farms in the top quartile generated around 60 per cent - 70 per cent more annual total farm income per hectare than the bottom quartile farms.
For the first time in recent history, lending across banking institutions in New Zealand to sheep and beef farming businesses is exceeding lending to the dairy sector.
This is a significant show of confidence in a sector that has been working hard to regain its place as one of the stars of New Zealand's export economy.
With our research showing the top 20 per cent of sheep and beef farmers having returns close to four times the average, there is clearly a lot more room for on-farm gains to be made.
In addition to better aligning and integrating the industry value chain, much work - notably through the Red Meat Profit Partnership - has gone into delivering better returns at the farm gate through improved business practices.
Sheep and beef farmers are raising the standard of business performance by linking the key "softer" attributes together to successfully execute key farm management practices and mitigate risks. These skillsets include:
• Vision and drive; well-defined personal and business goals.
• Having the right skill set and a talented team, as well as using specialist advice when required.
• Passion and confidence in the sector, which drives investment and effort.
As with many dairy producers, sheep and beef farmers are raising the standard of farm governance through disciplined investment and management regimes, supported by sophisticated farm system, financial and environmental modelling.
A big part of the business management cycle is completing a business plan, proactively budgeting with a multi-year time horizon and benchmarking to identify areas for improvement. Even smaller farms are moving towards the sort of formalised business plan and decision-making processes used by larger corporate operations.
Benchmarking is key to identifying areas for improvement and monitor progress. This is difficult, however, due to the variable nature of sheep and beef businesses. This includes include factors such as soil type, topography, rainfall, climate, aspect and mix of livestock.
To help address this - and to complement our contribution to the Red Meat Profit Partnership - ANZ undertook research to identify drivers of top performing farmers, including looking at the annual financial performance of around 200 red meat businesses over four years (2013-2016).
The goal was to understand the range of economic farm surplus generated per hectare (EFS/HA) for similar sheep and beef farms, the relationship between production and EFS/HA and whether there is a clear link between primary inputs such as feed measured in kilograms of dry matter (kg/DM) and profitability.
To provide a clear picture of farm performance, and one that could be utilised by the sector, sample sizes were limited to comparable farms. We will be launching four benchmarking reports - Large Scale Agri (farms that consistently operate at more than 15,000 stock units), North Island Hill Country, South Island Intensive Finishing and South Island Hill Country.
Among the general trends identified were that high performers are driven by much more than profitability, and are underpinned by a strong team. They have a deep connection to the land and 'way-of-life' sheep and beef farming can provide.
There was also a strong focus on doing the basic farm management practices well by paying attention to detail, running efficient systems and taking calculated risks to continually improve their performance.
There was a wide variation between top and bottom performing farms. For example, farm data gathered over the past four years for Hawke's Bay hill country farms showed a wide variation in annual EFS/HA - from -$83 to +$875.
Farms in the top quartile generated around 60 per cent - 70 per cent more annual TFI/HA than the bottom quartile farms. Top quartile farms also look to have been more cost-efficient with the farm working expenses to total farm income (FWE/TFI) ratio trending lower as profitability increased.
This suggests that farm expenditure for top quartile performers is either better targeted towards extracting productivity gains, the FWE/TFI cost ratio is better managed, or a higher TFI simply enables additional marginal spend.
Other trends identified by the research include high-performing farms spending more on operational expenses such as fertiliser and cultivation which drive a higher output in kg of meat and fibre which is correlated to better profitability.
Three key areas of focus for investment are cropping/pasture renewal, genetics and infrastructure. The combination of better genetics, more dry matter production, and best-practice farm management practices is really starting to push the boundaries.
These could be complemented by advances in genetics and new technologies. There are now many apps available online that producers can use to record a range of core farm management data, manage tasks and staff, and meet regulatory requirements.
In part this reflects a move from paper- and nous-based to digital record keeping, but also the changing landscape of farm ownership, increasing complexities within many businesses, and rising compliance requirements (the latest ANZ Agri Focus looks at what's available).
When it comes to increasing farm efficiency, the focus must be on improving medium-term performance, rather than just reducing costs and investment which will slow innovation and exacerbate relative inefficiency.
New Zealand is already the world's number one exporter of lamb and venison, and eighth largest exporter of beef. With global meat consumption forecast to rise in tandem with rising incomes and rising global population, there is a significant opportunity for New Zealand red meat exporters in the decades ahead.
Our benchmarking, insights and work through the Red Meat Profit partnership are helping the sector to regenerate itself. We see room for plenty of improvement to capture the many opportunities available.
WHAT IS IT?
- Economic Farm Surplus generated per hectare
Kg/DM - Kilograms of dry matterTFI/HATotal farm income generated per hectare
FWE/TFI - Farm working expenses to total farm income
- Mark Hiddleston is Managing Director, Commercial & Agri at ANZ.