04 Jul Business benchmarking the key to tackling climatic and market extremes
As farmers ride out extreme climatic and market conditions, benchmarking their businesses against others in their sector has become crucial for setting goals and understanding how they’re performing.
That was the message from Perrin Ag senior consultant John Stantiall at the recent New Zealand Veterinary Association conference.
John is encouraging farmers to benchmark their businesses against similar operations to identify where they can improve and how they can continue to perform in increasingly challenging situations.
“It’s important for businesses to maintain high levels of performance despite the climatic and market extremes we’re facing,” he says. “Benchmarking across a range of business metrics is useful for making comparisons and working out where you can realistically improve.”
With the huge variation in land, labour, and capital between farming businesses however, John believes it is important farmers are assessing the right data and metrics.
“Farming is a multifactorial business, and no farm will have the same resource mix, so it’s important to compare an average group of similar farms to smooth out the data and make sure you’re comparing apples with apples.”
Using data from reliable industry sources farmers can identify and compare the range of possible variations in both physical and financial measures and help set realistic goals that will work for their own operation.
John says farmers can make comparisons and measure between their own business and others for things like weaning rates, replacement rates, death rates or overall meat and fibre production rates per hectare.
“Farmers might want to consider the top operators in their sector and then assess their own business’ performance against those metrics and see where the middle ground is for them.”
When it comes to financials, John says it is also important to ensure you are comparing your business with others in the same financial year and in the same region.
“The financial results of a business are a combination of many factors: decision-making; physical performance; physical efficiency; market prices and the price extracted from the market; operating costs; and the impact of weather including extreme events.
“For this reason, data needs to be benchmarked against other businesses in the same financial year and same region as your own to see the comparison when faced with the same set of circumstances.
“Figures can be extremely wide-ranging. For example, EBITRm (earnings before interest, tax, rent and wages of management) can range from $200/ha to over $700/ha, depending on how well a business is managed.”
He cautioned farmers about comparing their own year-on-year physical and financial data.
“Comparing your own performance this year to last year is no longer enough. We need to use better indicators to understand where improvements can be made based on industry-wide data.
“For those who have not previously experienced it and are perhaps performing less than the average, benchmarking results can be quite confronting. Sometimes the reasons for this under-performance are well-known. If not, then it’s a matter of using the data to identify where the biggest opportunities are.”
John says benchmarking is a powerful tool and when farmers “let the data talk” rather than form opinions, there is an opportunity for them to make sound business decisions that can add real value to their farm business.
“By using benchmarking farmers can build high performing and resilient farming systems,” says John. “Once the opportunities have been identified, then plans can be put in place and changes made accordingly so that the desired results can be achieved.”