October 26, 2020

Easy does it: changes that can improve agribusiness profitability

Pathway to profit: how Australia’s agri operators can boost their bottom line through smart thinking and easily achievable changes.

As any experienced agribusiness operator knows, there are many factors beyond their control, from the weather to the trade conditions that determine the prices they can command. One thing they can influence, however, is the efficiency and productivity of their operations, from front paddock to back office.

Incremental improvements can boost profits, irrespective of climate and market. But which simple changes can bring the biggest gains?

We asked Robert Poole, National Lead Partner of Food and Agribusiness at KPMG, and Julie Rynski, Customer Executive of Regional and Agribusiness at NAB, for their views on improving profitability, in good times and bad.

Drawing on a wealth of expertise

Feed, fuel, fertiliser, wages… there are myriad costs associated with running even a small-scale agribusiness. While shocks – particularly climatic in this land of drought and flood – can cause those costs to fluctuate, understanding and controlling them, insofar as it’s possible, is vital.

“All successful businesses are on top of their outgoings,” Poole says. “Having an up-to-the-minute picture of your financial position enables you to plan effectively, and make faster and better decisions which enhance your operations.”

And it’s this consistent delivery of evidence-based decisions, he says, that can deliver in the long term. “Sustained profitability doesn’t come about as a result of one or two good calls – it’s almost always the cumulative effect, over time, of sound, evidence-based decision making.”

That may necessitate strengthening your advisory structure: the relationships you have with your accountant, banker and other professional services providers.

“Most farm businesses have that team around them but, in some cases, the arrangements should be more formal,” Poole says.

Adopting technology for competitive advantage

In 2020, primary production is no low-tech affair. The digital revolution has made its way to the farm gate and processing plant, bringing with it a slew of agtech innovations. Think satellite and imaging technology for monitoring paddocks and pastures, electronic systems that track livestock through the production cycle, and drones for planting and spraying, to name a few.

Meanwhile, industry best practices continue to evolve rapidly, as researchers and producers experiment with new varieties and breeds, rotational systems and water management practices.

“The most successful farmers are usually smart, fast adopters and, because of that, they end up getting better results,” Poole observes.

Keeping abreast of developments in your sector and embracing systems and solutions with a compelling value proposition can help you make ongoing, steady improvements to productivity that result in a healthier bottom line and a greater ability to compete, domestically and abroad.

For intensive poultry and pig farmers, for example, that could mean installing an advanced climate control system that results in improved animal health and greater energy efficiency. Horticulturalists, meanwhile, by investing in vacuum cooling technology, may be able to cut their energy costs and extend the shelf life of their produce by several days.

When it’s the right solution for the business, Poole says, over time an investment in agtech can deliver significant returns from the initial outlay.

Embracing data-driven decision making

COVID-19 has made risk management a top line issue for Australian businesses of all stripes. Although primary production has experienced less disruption than other sectors, the crisis has provided a timely reminder for agribusinesses that having a Plan B can help them regroup and recover when things change suddenly.

Historically, a strong balance sheet and a manageable debt load were the extent of that plan for many. Those are still important, Poole says, but so too is staying across trends, conditions and events, both locally and internationally, and considering how these might affect your operations.

Agribusiness owners can access enormous amounts of data from state and federal departments of primary industries and agriculture and industry bodies, as well as specialist publications and the mainstream media.

“The great thing about this era is that we know so much about what’s happening,” Poole says. “Agribusinesses can use that information to build up a knowledge base to help them make decisions about what to grow and how to grow it, how to sell it, and when to pivot to alternative crops and markets.

“While it’s not always possible to change course quickly, keeping your finger on the pulse helps you to take well-considered positions that will stand your agribusiness in good stead.”

Financial Partnerships for the long term

While agribusinesses must contend with many external factors, optimising operations can improve their ability to capitalise on opportunities, agrees Julie Rynski, NAB Customer Executive of Regional and Agribusiness.

Improving the profitability of an agribusiness, she says, makes sense in both the short and long term.

“Over time, small positive steps to improve profitability can lead to larger gains that will see you well placed to expand operations and capitalise on opportunities as they emerge.”

NAB has a long history of working with farmers and agribusinesses, she adds, as they expand, evolve and pursue new markets at home and abroad. Its regionally based team of specialist bankers has a deep knowledge of local conditions, industry issues and farming practices in the communities where they live and work.

“NAB has supported thousands of agribusinesses to acquire solutions and equipment to help them improve productivity and profits, both incrementally and substantially, using a range of funding vehicles, from asset finance to traditional loan facilities,” Rynski says.

“Over time, our bankers develop a deep understanding of customers’ strategies and goals and are there to help them achieve them.”

Ana Marinkovic – Making the most of holiday trading

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