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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? 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 • Industry trends – number of farmers, farm size, productivity growth • The survivors – who will farm and what will the business look like?
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
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
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
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
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;
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
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
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
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
Acknowledgements • WA Farm Business Survey • ABARE • Productivity Commission • ABS • Economics Consulting Services • David Bedbrook