Why Benchmark Your Farm Business?

The short answer is that if you want to stay in business in agriculture in the long term, benchmarking will be your most valuable management tool.

Farm benchmarking is a process that analyses the base productivity of a whole farm business or an individual enterprise on it and then compares that result and the financial consequences of it to standard benchmarks. Those benchmarks can either be absolute, like water use efficiency in crops or pasture, or relative where the results for an individual farm are compared previous years results or to other similar farms. Farm benchmarking in one form or another has been available to producers in Australia for at least 30 years. In essence it is a tool that brings some objectivity to the analysis of performance and identifies the strengths and weaknesses of the business.

The Paradox

Of all the management tools available to rural producers in Australia to help improve farm business performance, benchmarking appears to be amongst the least popular and least frequently used. Why is this? There are many possible explanations and some of the more obvious ones are:

Many producers see the process and the results that come from it a potential threat to their perceived management ability.

Many producers fear that they will perform badly and their confidence may be put at risk.

Producers who are not profit-driven in their farm businesses do not see the need for it.

It is perceived to be difficult to do and the records needed are onerous to keep.

Some producers lack confidence in the validity of the comparisons made.

Some producers would rather just not know, because they already suspect that they are not performing and don’t need someone else to confirm it.

Despite all these negatives, the paradox is that the owners and managers of some of the best farm businesses around, declare that benchmarking is a management tool they just cannot do without.

So how do you resolve this dilemma?

Question 1

The starting point is to ask yourself what your objectives for the farm are. Is your farm a business that is set up to achieve high levels of profitability sustainably over time, or is the farm just a thing that you own, and it happens to provide you with a job? If it is the former, then implicit in that belief is the fact that profitability is important and you have to be very conscious of the profit potential of the farm business and how close to or far away you are from that potential currently.

This is the first question that farm benchmarking will answer for you. It will show you what levels of profit the very best producers are achieving from similar farms to yours and allow you to get a more accurate fix on how much room there is for you to improve.

Question 2

Have you ever wondered just how good the best wool growers, beef producers, croppers or seedstock producers are? How much profit do they actually make and how do they achieve it? What are the industry best practice standards set by these people as they go about their jobs?

This is the second question that benchmarking will answer for you. When the comparisons are made, the results clearly show how the best producers achieve outstanding success in either their chosen enterprise or in the whole farm business. The consistent finding in this area is that the best producers are not born with any great advantage or use skills beyond the reach of most mortals. They are just normal folk who use technology, high quality information and simple and efficient management systems to achieve outstanding success. In fact, what they do is well within the reach of almost anyone who decides to commit to a course of improvement.

Question 3

Have you ever wondered whether any of your individual enterprises or your whole farm business is consistently improving its performance over time? Sometimes it is difficult to work this out, given the volatility of prices and the fickle nature of the Australian climate.

This is the third question that benchmarking will answer for you. Productivity is measured against available rainfall and this corrects for the powerful influence that the weather can have on your result. In addition, the prices received and hence the profitability are always linked to the market conditions for that year, so that your performance never loses touch with the current market.

These are the three main questions that the owner of any business designed to be highly profitable over time needs answers to and that is why the best producers say that they cannot operate without benchmarking.

Take a moment to examine the performance of all the farm businesses that we benchmarked in 2005/06 and ask yourself three simple questions:

BOTTOM 20%

AVERAGE

TOP 20%

GROSS PROFIT

EXPENSES

PROFIT

RETURN ON ASSETS

BOTTOM 20%

AVERAGE

TOP 20%

GROSS PROFIT

EXPENSES

PROFIT

RETURN ON ASSETS

Holmes Sackett benchmarks the performance of more farm businesses in South East Australia than any other private firm, and we have been doing so for over 10 years. Several independent reviews have rated Holmes Sackett benchmarking amongst the best available and offers the following:

Okay, what do I do now?

If you wish to participate, fill in the registration or contact the Wagga office for further details.  For further details either fill in the form provided or email us on hsa@hs-a.com.au.

OR

To download the input form click on  HSA Benchmarking Input Form 06/07 (Excel 97 and above format)