Systematically measuring the performance of your business helps you to maintain performance as well as identify opportunities for improvement.
Through the benchmarking process, you will also be able to compare your performance against various averages that are released by industry bodies.
There are many reasons for monitoring your business performance. Some of these include:
- constraint management – maximising the farm’s potential within its limiting factors
- increased productivity and quality ‑ identifying practices and varieties that perform best
- cost reduction – focus in areas where significant efficiency gains can be made from small changes
- improved efficiency – new technology and methodology is not cost effective on every scale and requires careful evaluation
- identification of opportunity – strategic expansion or reduction of an enterprise can bring impressive results on dollar return for effort and profitability.
The backbone of useful benchmarking is comprehensive record keeping.
Often, many required figures are available from farm diaries and financial records, but are not regularly collated and analysed. Consideration should be given to the following areas:
- return and production volume per crop variety for each block planted
- input and production costs per variety for each block planted
- pack-out percentage and class breakdown per variety for each block planted
- area associated with each variety and block planted
- monthly water use per block planted
- daily irrigation records for each valve operated.
This allows you to determine:
- average tonnes per hectare for each production block and each variety within that block; investigation is necessary where there is significant difference across the farm
- the effect of cultural practice or new products on the quality, quantity and pack-out
- cost and return per hectare for each production block and variety and subsequently the profitability of each block and variety
- ongoing water budget and associated cost of pumping leading to the value of water which is particularly necessary for drought planning
- identification of the largest costs to illustrate where focused attention is required.
This information becomes valuable when planning future expansion, replacement or reduction, as the most profitable aspects of the farming enterprise become apparent.
Such knowledge is especially useful when considered against limiting factors. Most enterprises are constrained by market volumes or timing, land availability, water supply or quality, capital, labour or some combination of these factors. It therefore becomes important to maximise potential within these limitations.
Benefits of benchmarking
The example below illustrates the use of benchmark figures:
It is calculated that you use an average 10ML/ha to grow carrots and 12ML/ha to irrigate tomatoes, giving a farm water use estimate of 95ML/y.
Industry averages for your area indicate that carrots require 8ML/ha and tomatoes need 10ML/ha. This indicates you may be overwatering your crops. A change in your irrigation scheduling practice could save up to 40ML annually, a surplus that would reduce the impact of dry years or represent potential increase in production.
On average your farm produces 45 tonnes per hectare of carrots and 70t/ha of tomatoes, with the average return to the farm gate being $400/t and $2/kg respectively.
A 40ML saving could represent another 5 hectares of carrots and possible increase of $90 000 in farm gate return (turnover).
Alternatively, using the same 40ML water saving could allow another 4 hectares of tomatoes to be grown, realising a greater potential of $560 000 in farm gate return.
In this case the value of your water is $2250/ML for carrots and $14 000/ML for tomatoes.
Constraints such as labour supply, capital requirement and land availability among others should be assessed as part of any expansion plans. Markets and variety choices will also impact on any decisions.
Pressure on water supplies is likely to cause a reduction in available quantity and quality, as well as an increase in reporting and accountability requirements. As water becomes a relevant constraining factor, it is important to begin recording and understanding its value.