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Are input costs the real issue?

Are input costs the real issue?. David Williams. Bedbrook Johnston Williams CONSULTANTS TO AGRICULTURE. Summary. Setting the Scene – what has happened to input costs? The key issues – farm viability, efficiencies, income

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Are input costs the real issue?

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  1. Are input costs the real issue? David Williams Bedbrook Johnston Williams CONSULTANTS TO AGRICULTURE

  2. Summary • Setting the Scene – what has happened to input costs? • The key issues – farm viability, efficiencies, income • Industry trends – number of farmers, farm size, productivity growth • The survivors – who will farm and what will the business look like?

  3. Typical input cost increases

  4. Impacts on business viability

  5. Impacts on business viability

  6. Industry Trends

  7. Trends in declining farm numbers • 1982/83 to 1990/91 decline of 1% per year • 1993/94 to 2002/03 declined at a faster rate of 1.2% per year • OECD countries decline of 1.5% per year over period 1970-1990 • 1982/83 to 2002/03 average national farm size increased from 2720 ha to 3340 ha

  8. Productivity Gains

  9. Sheep Numbers

  10. Trends in Productivity • ABARE Research 1977/78 to 1998/99 • Large cropping farms (>25,000ha) 3.5% productivity growth • Medium cropping farms (500-24,999ha) 2.7% productivity growth • Small cropping farms (<500ha) 2.4% productivity growth

  11. The Future • Non viable farms will continue to leave the industry • Smaller farms, Lifestyle reasons, Grass is greener, Retirement, Succession planning issues • Farms will continue to get larger • Predominantly family farms, some corporate or absentee owners

  12. The Future • Efficiency gains critical • Economies of scale, technology, rationalisation of enterprise mix, R & D must improve its output • Service Industry • Growing, provides substantial support, businesses becoming larger and more complex

  13. FARM GROUP STATISTICSMedium North Rainfall Area 2001-2007

  14. So What Is a Viable Farm? • For a farm to be viable in the long-term, it must have shown the following characteristics in the past or be likely to achieve them in the future. • It needs to generate sufficient profit to;

  15. Service borrowings • Provide the family with an adequate standard of living • Allow investment on-farm to maintain the farms productive assets and • Provide funds for investment which increases long-term productivity • Also it needs to demonstrate ecological sustainability

  16. So What Are The Main Factors Affecting Long-Term Farm Viability • The farm cashflow and factors affecting it • Equity • Management skills (which have a great influence on cashflow) • External factors, i.e. commodity prices , drought etc

  17. The Survivors • Expand their income base – land purchase, leasing, enterprise mix • Efficient application of capital assets such as machinery, infrastructure • Use less labour per area • Lease land to conserve capital • Increased enterprise specialisation

  18. Conclusions • Input cost increases, whilst concerning are not the main game • Income and risk management should be the main focus • Productivity is critical to the future • Growers should be making decisions as information becomes more available – extreme volatility in market place

  19. Acknowledgements • WA Farm Business Survey • ABARE • Productivity Commission • ABS • Economics Consulting Services • David Bedbrook

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