Northern Beef Producers Not Sustainable

It is beef week in Rockhampton this week, the biggest gathering of beef producers around Australia. A simple take home message from elder statesman of the northern beef industry assessment says that over 80% of producers are not sustainable - they are slowly going broke!

Methods to fix this and raise productivity have been developing over the past 40 years in many areas, with the less variable areas of the north better positioned generally.  Gains in productivity in some herds including a few modest sized ones were outstanding - with calving especially now being around 80% and still rising, often due to quite ruthless culling of non productive cows.

Whether it is better calving %, breed selection for higher productivity, bull performance, nutrition, new labour saving technology, remote operational systems and so on, many of the solutions to bring increases in productivity are well known...........and hardly rocket science.  Yes, they need integrating but a start can be made.

Some 20% are doing a-okay, but this shocking 80% are not.

I have not seen the regional breakdown.........but there has been a few years of drought across NW Queensland, which might be part of the story.  And the drier inland areas are inherently highly variable - but to some extent that can be planned for too, it happens inevitably!

Read the article.....sobering reading, but even better read the report on the industry. 

Do something - if you are a beef producer in the north.

Northern beef producers not sustainable

VERNON GRAHAM  08 May, 2015 04:00 AM

Qld Country Life  online

Farm business consultant, Phil Holmes.

Prices received by Top End cattlemen were having no impact on their profitability

ONLY 20 per cent of beef producers in northern Australia are economically sustainable in the long term, says veteran farm business consultant Phil Holmes.

The other 80pc have almost no skills in finance and debt management, and little understanding of the key profit drivers in their herds.

They also have a poor attitude to adopting new technologies to increase the efficiency of their businesses, and have a poor capacity to manage climate risks.

Mr Holmes outlined this bleak view of the performance of beef farms in the Top End to a Meat and Livestock Australia producer forum at Beef 2015 in Rockhampton.

He draw on the findings of the latest Northern Beef Situation Analysis, which was first produced in 2013 and has now been updated. Mr Holmes was involved in the preparation of both reports, which covered 14 regions across northern Australia.

The latest report was based on 12 years of data and focused on eight performance criteria around the ability of a business to generate enough profit to cover operating expenses and capital investment, and repay debt on time while providing returns to the owners comparable to the standard average annual wage.

Businesses also needed to be able to maintain equity at 85pc, survive succession planning with the farm and family intact and the retiring generation with enough money to enjoy independent lives.

Only 20pc of beef businesses in northern Australia measured up, Mr Holmes said.

The “big picture” for the other 80pc was to lift the productivity of their herds, land and people, but he couldn’t see that happening despite the ready availability of the knowledge and research findings to achieve increased profitability.

He said the market would most likely solve the problem and suggested astute buyers may get some bargains in three or four years' time.

Many northern Australian beef producers had been swept up in the property price bubble in 2002 which had resulted in ridiculous land prices.

'High' beef prices

Equally ridiculous was current talk about high beef prices which, in real terms, were on a par with those of 1985, Mr Holmes said.

He said prices received by Top End cattlemen were having no impact on their profitability.

The big driver of profitability was productivity gains – or the lack of them for most producers – in herd performance, along with the need to reduce business costs.

Reproduction rates and genetics had to be improved and mortality rates reduced to lift productivity gains beyond their average of just one per cent a year in northern Australia’s beef sector.

Meanwhile, the industry’s terms of trade were shrinking by two per cent a year. The scene was set for many producers to go out backwards, Mr Holmes said.  A more productive herd would also reduce grazing pressure and improve environmental sustainability.  Operating costs such as labour and investment spending needed to be tailored to have the most impact in terms of productivity and profits.

The rule should be one full-time employee per 2000 AEs (adult equivalents), Mr Holmes said.

Australia's Northern Beef Industry - Maybe Unsustainable??

A recent analysis seems to be proposing that the northern Australian beef industry is unsustainable financially.

What it does not seem to say though, is that the analysis was focussed on the almost worst period in many years for the region - somewhat akin to the shock of the US stopping the purchase of northern beef in the mid 1970s, when a lot of properties went to the wall.  This period is the same as the dramatic drop in live cattle exports to Asia, especially Indonesia, a trade dramatically stopped by the government of Australia on animal cruelty grounds [arguable, at best].

NT brahman cattle for export

Since the conclusion of the report, prices and volumes have increased rapidly and are now at around A$2.30 per kg live and numbers are on track for maybe 800 000 head this year to Indonesia alone, and with new markets opening in Vietnam and China, although prices may be a bit lower.

It is all doom and gloom........BUT - a few critical points emerge from the study, one being that a herd size of 3000 head is seen as the minimum.

Read the summary below, and available on the MLA web site, as is the full report.

The Northern beef report - 2013 Northern beef situation analysis

Project code: 

B.COM.0348

Date commenced: 

June 26, 2013

End date: 

April 11, 2014

Project status: 

Completed

Description/Abstract:

The 2013 Northern Beef Report comprehensively details the performance of the northern beef industry, by region, market and herd size over the 12 years since the start of the century. On average, the profits achieved over that time frame have been low, but not trending down. However the profitability of the top performers across the industry has been trending down over the period analysed. Profit after interest is decreasing, and is mostly negative, as a result of increasing debt with no increase in profits. The majority of Northern Beef producers are not economically sustainable as they are not able to fund present and future liabilities. There is wide variation in performance across the industry; this report clearly identifies what separates the top performers and what factors determine the profitability of a beef business. This report provides analysis of a wide range of measures, providing the means for individual producers to understand their herd and business performance and to improve by setting realistic targets.

Final report summary:

• This report analyses in detail the performance of the northern beef industry for the 12 years from 2001 to 2012. Incorporating quality private and public data, this report provides a comprehensive picture of the performance of the northern beef industry by region, herd size and market.
• This report incorporates the concept of economic sustainability; clear definitions are provided and used to assess industry performance.
• On the basis of these definitions, the data indicates that the majority of northern beef businesses are not economically sustainable at present. This is not a recent phenomenon, with recent average business performance, before financing, similar to longer term averages.
• Economic sustainability takes a longer term view; in the short term many beef businesses are struggling to survive with cash deficits accumulating.
• Whilst profits before financing are largely unchanged (on average over the 12 year period analysed), after financing, performance is deteriorating due to increased debt with no increase in profit.
• Income has decreased over the period analysed, mostly a function of declining beef prices rather than a decline in productivity (kg beef/AE). Costs have reduced as income has reduced, through belt tightening, and improved labour efficiency, resulting in little change in profits.
• Profitability of the top performers has declined over the longer term, suggesting that industry profitability is decreasing.
• Excluding land value changes, return on assets has averaged less than 1% across the industry over the last 3 and 12 years.
• Comparison of profitability is made between businesses that supply different markets, namely live export, slaughter and store. When the effect of scale is excluded, producers primarily supplying the slaughter market recorded the highest profit per adult equivalent, due primarily to better productivity.
• Both total numbers of cattle in the north and stocking rates have risen, what these stocking rates are relative to carrying capacity is unknown. The extent to which environmental capital is substituting for financial capital is also unknown.
• There is considerable variation in performance between beef businesses within the industry. The Top 25% performers (across all regions, herd sizes and markets) consistently outperform the average and have businesses more likely to be economically sustainable over the long term. This indicates that there are successful business models for producing beef in northern Australia.
• The superior performance of Top 25% producers can be attributed to:
o Higher income through better herd productivity.
o Lower operating expenses, largely through better labour efficiency.
• There is no evidence that superior long term performance can be attributed to a higher average beef price received, more rainfall or better quality land.
• Operating scale (number of adult equivalents under management) has a significant influence on business performance. Operating scale, along with labour efficiency, can explain most of the differences in overhead expenses per AE between businesses.
• Lack of operating scale is a major impediment for smaller beef businesses (less than 3,000 adult equivalents), but the benefits of additional scale for larger businesses are limited with herd profits decreasing as herd sizes become very large. There appears to be an optimal operating scale range, either side of which different factors can erode performance.
• It is paramount that smaller producers understand the implications of operating scale on their viability and how best to address to it. There is mounting financial pressure for smaller producers to make structural changes to their business.
• Efficient use of labour is a key finding amongst producers in the Top 25%. Labour costs and achieving a highly efficient use of on-farm labour is a challenge that the industry must understand and work towards.
• There is no evidence of expense increases over the period analysed, this is not to say that some input costs have not increased in real terms, but any increases have been absorbed and the overall cost structure of businesses has not increased.
• Differences in income explain more of the differences in profit between average and Top 25% performers than expenses. Nearly all differences in income per AE between herds are attributable to productivity differences.
• Nearly all productivity differences between herds can be attributed to the better performers achieving:
o Higher reproductive rates
o Lower mortality rates
o Heavier sale weights
• The findings of this report now make it possible to construct a very clear roadmap for economic sustainability for a northern beef business, embracing both location and target market. This roadmap provides clear guidelines on factors critical to income (productivity) and expenses (scale & labour efficiency).
• This analysis is consistent with other recent and more targeted studies of herd productivity (reproduction and mortality). This analysis also finds wide variation between businesses in these measures of herd productivity and report that improvements in herd productivity have a big influence on overall business performance.
• There is wide variation across the industry in what it costs to produce a kilogram of beef (cost of production) and this analysis shows that there is significant scope for improvement for a lot of producers. There is far less variation in beef price received and much less scope for individual producers to improve beef price received. Therefore it could be said that it is the high cost of production that is the main cause of low profits for the majority of northern beef producers.

Researcher name:

Bush AgriBusiness Pty Ltd, Holmes & Co.