2015, Volume 18, Paper 102
ISSN: 1442-6951
Adapting Growth for Climate Change on Bungulla Farm, 2007-14: Shifting Focus from Yield Productivity to Profit and Minimising the Probability of Loss by Minimising Inputs
Brad Plunkett – Senior Economist, Trade and Agribusiness Development, Department of Agriculture and Food Western Australia, South Perth; Muresk Institute, Charles Sturt University, Northam; and School of Accounting, Curtin University, Bentley.
Email: brad.plunkett@agric.wa.gov.au
Abstract
Bungulla farm’s business philosophy is now concentrated on sustainable margin expansion through efficiency of inputs and a focus on profits relative to risk, rather than yield maximisation that brings with it higher risk in changing conditions. Business decisions are made with respect to their impact on the farm system’s profitability over time adjusted for the amount of risk associated with those decisions. Minimal possible risk is preferred because of increasingly variable seasonal conditions with a probability distribution that is largely unknown. Soil moisture, not fertiliser application, is seen as the limiting factor to production.
The business employs the well understood strategies of scale economies and adoption of new technology to lower average unit costs and increase profit margins. However, it has augmented its harvest risk strategies (sufficient machinery and labour to strip crops in the shortest possible time) by installing considerable on farm storage; in turn, this has created additional margins from blending widely variable protein levels across the farm, opportunities to capture supply chain efficiencies and self-finance working capital requirements. In addition, it has moved to a liquid fertiliser program in part to enhance operational efficiency, reduce costs and reduce the time taken to seed. Liquids also complement the farm’s nutritional program.
Bungulla has higher labour costs per ha compared to other farms in its rainfall zone as it retains a more than an average number of specific skills (e.g. its own plane mechanic/pilot).Its labour depth permits operational flexibility to respond to seasonal changes and business opportunities. A cropping only enterprise also contributes to skill specialisation and the opportunity for greater management capacity that can be spread over more hectares.
The farm’s points of departure from common agronomic practice are its scope of soil amelioration practices, its use of liquid fertilisers and its low rates of fertiliser inputs. The purpose of these is to minimise the risk to input expenditure from the advent of a poor season and to increase the uptake of soil moisture and mineralised nutrients. In 2013 the farm achieved 12.56 kg of wheat/mm of rain, which was around the average for the region for that year.
Consequently, target break evens (BE) (including a required return on capital) are set for each paddock, rather than a goal of maximising yields. A combination of scale and operational efficiencies (including marketing) and low inputs has reduced target BE to below average yields for the Medium 3 Rainfall zone. Combined, these strategies have resulted in returns broadly comparable to the Top 25% of growers in the Planfarm/Bankwest (PF/BW) survey.
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