2000, Volume 3, Paper 39
ISSN: 2209-6612
Best Practice Benchmarking in Australian Agriculture: Issues and Challenges
Glenn Ronan – Principal Economics Consultant, Livestock Industries, Primary Industries & Resources SA
Gordon Cleary – Managing Director, FarmStats Australia Pty Ltd, Shepparton, Victoria
Summary
In an effort to enhance the viability and competitiveness of its farmers, Australian agriculture is allocating substantial resources to development and extension of comparative business analysis programs in the major agricultural and horticultural industries. Despite exhibiting significant differences in approach, activities, outputs and outcomes, many of these programs purport to be based on ‘benchmarking’, an activity-based analytical method having its roots in the US manufacturing industry. While ‘benchmarking’ is receiving strong support from rural funding bodies, the methodology used in some programs has been likened to comparative analysis, popular with private consulting, government extension services and farmer groups in the 1960s. Some agricultural economists have criticised comparative analysis as ‘random numbers’ and are now criticising ‘benchmarking’ as ‘rampant empiricism’.
This paper examines this long-running debate. The authors agree with advocates of benchmarking that it can be a valuable source of information about farm operations and their associated supply chains. They also agree with critics that much of what is currently called ‘benchmarking’ is difficult to distinguish from comparative analysis, lacks systemic linkage to underlying enterprise processes and drivers of competitiveness and is of limited diagnostic power at farm, supply chain and industry levels.
We suggest that one way to reconcile the polarised positions of critics and advocates lies in:
- a better appreciation of the differences between comparative farm business analysis and benchmarking;
- a better understanding of the strengths and weaknesses of each approach; and
- more realistic views on the way that farmers can use the information arising from these approaches.
Comparative farm business analysis is based on aggregate measures of whole farm physical and financial performance, such as yield, efficiency, gross margins and farm profit. Benchmarking is an enterprise or activity-based approach that focuses on the physical/technical processes used by a farmer to enact his enterprise plan and the consequences of those processes in terms of unit revenue and costs, enterprise efficiency and enterprise profitability. There are clearly discernible differences in the way in which farmers can use the information from the two approaches to make decisions about strategic, tactical and operational matters.
‘Best practice’ benchmarking is distinguishable from comparative analysis, and some present so-called ‘benchmarking’, by:
- being activity-based and systemically linking enterprise processes to efficiency, profit and cost;
- being part of the enterprise and farm information system and a contributor to production economic and whole farm analysis (not an end in itself for decision-making);
- providing unambiguous information, displayed clearly and systematically.
The field is undergoing both rapid development and change, including pressures for conformity to accepted farm accounting and farm management standards and for greater consistency between industry systems. A central issue for industry and government funding agencies and service providers is to ensure that farm performance analysis systems, including comparative analysis and benchmarking, meet a ‘fitness for purpose’ criterion based on the decision-making needs of farmers and their respective commodity industries.
Challenges for benchmarking in Australian agriculture include:
- professional and industry accreditation of sound benchmarking systems;
- ensuring appropriate context for farmers’ use of benchmarking vis-a-vis complementarity to production economic and other financial analyses;
- achieving greater consistency between industry systems;
- lifting participation by farmers in sound industry programs, and
- evaluating the impact of benchmarking programs on improving farm business performance.
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