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Beyond the Bale : April May 2009
24 COST OF PRODuCTION April – May 2009 Beyond the Bale released late last year following the firm’s analysis of 72 flocks from a sample of farms in its benchmarking database.* The farms were drawn from a c Sending By Rebecca Thyer J ust under $10 – that is the average cost of producing a kilogram of clean Merino fibre for family and corporate farms in NSW, Victoria, Tasmania and South Australia that participated in an AWIfunded report last year. The report, Cost of production benchmarking data analysis and case studies, by agricultural consultants Holmes Sackett, found that, on average, the cost of production (COP) per kilogram of clean wool is $9.79. It is a figure that AWI aims to reduce over the next three years by increasing productivity and reducing costs. oStS South Knowing how much it costs to produce a kilogram of Merino fibre is the first step in reducing costs and improving profitability And it is a cost that many woolgrowers – including those in the report – have already seen lowered. For example, over time, NSW father-and-son team Richard and Charlie Bell have reduced their COP by changing management strategies, including quickly rebuilding their flock after drought and through pastures management. These are two strategies that have also worked well for another of the Holmes Sackett case studies – Flinders Island’s wool producers Alan and Tracey Stackhouse – who embarked on a pastures improvement program as a weed management strategy (see below and on page 26). The Holmes Sackett report was The pursuit of productivity Accurately calculating cost of production has created a new level of business insight for this Flinders Island-based wool producer Knowing their enterprise’s production costs and benchmarking them against others has proved to be “one of the best things we’ve done”, says Alan Stackhouse who, with his wife Tracey, runs an 11,000 DSE (dry sheep equivalent) mixed wool and beef business on Flinders Island. Alan, who has been benchmarking ‘Babel Farm’s’ cost of production (COP) for six years via their local productivity group, says it has “tidied up” the books. “It has made us realise that there are some things we haven’t done quite right and helped us to focus on potential gains, reducing costs and increasing profits. It’s like looking from the outside in at your own business.” COP for the 688-hectare farm – of which 600ha is grazed – dropped from a high of $7.48 a kilogram clean in 2004 to $5.38/kg clean in 2007, but increased last year because of a decrease in per-head wool production, a result of the 2007 drought and a decision to reduce stock. Before the drought, an increase in mid-winter and average annual stocking rates from 10.8 and 13.1 DSE a hectare respectively in 2003 to a peak of 15.5 and 18 DSE/ha in 2005 significantly increased per hectare productivity, reducing COP. During the past five years, the Stackhouses have changed their business structure, deciding not to renew leases (which had accounted for about 25 per cent of the 882ha managed in 2003) geographic area extending from NSW’s New England region through to the state’s Tablelands, Slopes and wheat–sheep zone down into Victoria, Tasmania and SA. Although predominantly family farms, the performance of corporate agricultural businesses was also included. Holmes Sackett consultant David Lee who, with director John Francis, wrote the report, says the COP for these farms varied. The top 10 per cent of flocks scored a COP of $7.39/kg clean, the bottom 10 per cent $13.01/kg clean. COP is an indication of the outlay required to produce wool and measures the efficiency with which it is produced. Calculating it is an important first step in assessing flock profitability, and a first step towards making change. COP is calculated by multiplying total expenses and wool income, and dividing that number by total wool production. “So there are two parts to COP: the expenses side and the production side,” David says. It can be calculated relatively easily using an Excel spreadsheet available from AWI (to download the spreadsheet go to www.woolcheque.com.au and click on the ‘Calculate your cost of production’ link on the left-hand side of the page). “The time it takes to do really depends on whether you have easy access to all your records,” David says. and, instead, to invest more in their own land. So, although the area managed was reduced, livestock numbers were not, increasing productivity. Improvements in grazing management, pastures and infrastructure, and a strategic fertiliser program also helped reduce COP. A significant proportion of pastures were dominated by fog grass, an unpalatable perennial grass weed with low digestibility. “It was undergrazed when we bought the farm, which allowed fog grass to build up,” Alan says. However, rather than starting a program to chemically control the fog grass and sow a perennial pasture, he decided to intensify grazing management and apply additional phosphorus fertiliser – and it has worked. Within five years, unproductive pastures are now valuable perennial ryegrass and subclover pastures. Alan has also moved from a set stocking system with low stocking rates to
February March 2009
June August 2009