Both ANZ and KPMG issue reports on the rural sector. ANZ tries to capture the alchemy of performance and profitability. KPMG warns that farming needs to be reimagined to survive

ANZ Bank’s Red Meat Benchmarking report and KPMG’s 2019 Agribusiness Agenda were both released during Fieldays week and both addressed the challenges facing the agricultural sector and farmers, but that’s just about where the similarities end.

The ANZ report focuses specifically on the red meat sector with the objective of providing a stable and consistent basis for assessing and providing options for improving farm performance.

In contrast the KPMG Agenda is a much more ambitious document which, in its 10th iteration, seeks to educate the whole sector on the accelerating speed of change and how participants need to adapt to remain relevant.

Each report has value, especially to those prepared to take the time and effort to understand the implications and recommendations contained in them. But I suspect farmers and their advisers will find far more useful advice in the ANZ report which can be put into practice with the specific intention of improving their farm performance and as a result profitability. I understand ANZ has circulated its report to its client base who will find it a very valuable planning tool.

KPMG launched its Agenda at the Agribusiness Leaders Breakfast at National Fieldays. As this suggests, the audience was not the average farmer, but political and sector leaders who may be influenced by exposure to KPMG’s thought leadership on the global scene, having contributed their own thoughts and ideas on the burning topics facing the sector.

This year’s ANZ AgriInsight Red Meat Benchmarking report analyses the performance of the sheep and beef sector, taking a broader look than previous reports at the different factors driving profitability, moving from a simple focus on financial analysis to assessing the key physical farming attributes that contribute to better farm performance.

The report’s approach is to analyse financial, land and production data from a representative national sample of sheep and beef farms, thus identifying the performance characteristics that better performing properties typically exhibit. A key message is physical measurement enables better on farm decisions leading directly to better financial performance which sounds incredibly simple, but the large variation between top and bottom performers suggests this principle isn’t wholeheartedly embraced by all farmers.

The report’s main finding is the most important aspect of sheep and beef farming remains, as it has always been, the ability to turn energy into meat and fibre as efficiently as possible through informed farm management. The report concludes maximising production alone does not lead to increased profitability, unless cost and quality management are taken into account, nor is the quality of the farmland a determining characteristic. The most profitable farms aren’t necessarily on the most productive land, while good returns can be achieved on lower value land.

The methodology is simple – use the available data to analyse productivity factors (stock units, feed supply and feed conversion efficiency), financial performance and land characteristics, then review the linkages between these factors to assess how successfully Key Performance Indicators (KPI) are achieved. The KPI framework, adapted from RMPP’s core set, divides KPIs into two categories – driver focused (price, productivity and cost of production) and result focused (return on assets, land values and labour productivity) – optimal performance leading to better profitability.

The research shows substantial variation between top and bottom quartile farms, not because of higher product prices or lower labour rates, but as a result of better management of stocking rates, feed supply, feed conversion efficiency and labour productivity. The revenue per hectare over expenses margin of bottom quartile farms was calculated at 23% compared with 83% for the top quartile. These lowest farms typically have lower stocking rates and less efficient feed conversion, while the best performing farms carry the highest stocking rates with a similar feed conversion efficiency to the middle ranking farms.

The KPMG Agenda has much larger fish to fry than merely showing farmers how to improve profitability through better on farm performance, although, at 100 pages in length, it is four times as long and therefore proportionately less likely to be read in depth. The first section reviews the societal, demographic, economic and environmental changes that have taken place since the Agenda first appeared 10 years ago; next it canvases agricultural happenings during the past year as well as annual priorities established during a series of roundtable discussions with industry leaders. From these conversations five main themes and several subsidiary themes emerge.

The final section concludes survival in the future requires organisations to be prepared for continuous change and lists nine organisational capabilities it sees as essential pre-requisites for success, notably long term focus, don’t expect anybody else to solve your problems, hire the right people, seek good advice, ensure financial resilience, report on the right metrics (not just profit and loss), and be open to innovation from any source.

From the farming perspective the Agenda makes the valid point farmers from 2000 years ago would still be able to recognise many of the activities on today’s farm, but the pace of change will see new technology and operating methods introduced in the next decade that will see the similarities disappearing. One section heading states “As the world’s population grows in size and wealth, producers will be required to continuously re-imagine the products that they grow, catch or harvest. What we eat in 2019 is significantly different from the food that was eaten just a generation ago and will be different to what we eat in 20 years’ time.”

These two reports provide contrasting opinions on how businesses must adapt to ensure future success and for those with an open mind there are plenty of useful tips on how to achieve it.

Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website. This article was first published at Farmers Weekly and is here with permission.