FBU South, Wimmera, Western District & SE South Australia series
Economic outlook – Agriculture and the global supply chains. John Crosbie
What is in store for global commodities in the post COVID-19 world? Who are the important trade partners for Australian grain now? John Crosbie of Deloitte Access Economics outlines global supply chain risks and opportunities and why Ag will be a strong performer in 2020.
- Global changes in food security will impact the demand for bulk commodities and staple food products such as grain. Australia is in a strong position to capitalise on demand with its reputation for food safety and as a reliable supplier.
- The value of the Australian Dollar will affect our competitiveness in the international market.
- The Australian Ag and food industry is highly resilient to the impact of COVID with regards to staple commodities.
- Supply chains for farm inputs have been disrupted but we are seeing stabilisation
- Reduced economic growth (global recession) will see reduced consumption and consumer demand for some agricultural commodities, particularly high value produce.
- Provenance is a key marketing opportunity in the current environment, establishing quality and brand integrity – to meet food safety values and attract premium prices.
Managing volatility and risk inside and outside the farm gate – Phil O’Callaghan, Cam Nicholson, & Rebekah Starick
A review of the key critical success factors of farming systems and commodity markets that are within management control. The session will outline the key components that drive the bottom line.
- Farm costs have increased three-fold over the last 20 years increasing businesses’ exposure to the volatility of the season (climate, markets).
- The risk frequency and impact inform how big the downside is (things going wrong) or the upside (potential opportunities).
- Risk lies in the extremes and not in the averages. If we received averages every year there would be no risk. However, because we don’t know what we’re going to get, there is volatility.
- Fortunately, we can use history to inform how much volatility to expect; and history shows that not all risk factors have the same volatility. For example, volatility will change depending on commodity type and the region where you farm.
- Manage risk by balancing commodities with differences in production and price behaviour – be selective in developing a manageable system, complementary to your skillset.
- Risk is a necessary part of making returns however you need an understanding of what risk you’re exposed to and you need to make sure you’re comfortable with it. Amount of risk that your business carries is a personal thing and individuals differ in what they’re happy with.
- Grain marketing involves risk and each commodity has its own risk profile and requires its own approach.
- Wheat has many markets and many tools to manage price volatility (e.g. forward contracts, futures, etc) whereas in contrast faba bean has reduced markets and pricing is largely affected by volume which we only know about once we go into harvest.
- Common risk factors include; geopolitical risk (world politics affect commodity markets) and counterparty risk (risk you won’t get paid by the grain buyer)
- Red flags to look out for with respect to counterparty risk: long payment terms, price way above the market and unwillingness to utilise contracts.
Utilising profits effectively to optimise returns and business outcomes – Paul Blackshaw, Meridian
Discussion of how the decisions about the allocation of profits, impacts business outcomes over the long term. Paul provides a practical approach to balancing competing business and personal priorities to achieve long term goals and objectives.
- Decisions made in a business profit year can set the business up for the future. Use a process and tools for comparing financial outcomes to help make decisions.
- For investing on-farm consider potential increases in productivity, profitability or resilience of business and decreases in costs, risks and labour in conjunction with cashflow and tax implications.
- Total plant, machinery and labour (TPML) cost is a useful metric to analyse when making plant and machinery investment decisions. Be aware of assumptions.
- Prioritising the money spend should reflect the business’s priorities (i.e. plan) and the personal and business goals of all individuals involved in the business.
- To help with decisions, investment decisions should be split into broad categories. For example; succession, retirement, education, operational capital investment and developmental capital investment
- Considerations for off-farm investment include; time-frame of investment decision, liquidity of the investment and level of control you have over the investment.
- There are tools available that can help analyse financial decisions. For example; net present value, internal rate of return, benefit:cost ratio and years to break-even. These tools are good when comparing one investment to another but be aware of the assumptions that these tools use.
- Total plant, machinery and labour (TPML) cost is a useful metric to analyse when making plant and machinery investment decisions. Benchmark your TPML value against others in the region to achieve rough guideline of areas to improve. Measurement may not have the answers but it does provide signposts of where to go looking. Important to use more than one year of data.
Farm health & safety – practicality over paperwork – Alex Thomas
Alex helps farmers improve health and safety… practically.
- Shift the focus: paperwork doesn’t save lives. Focus on preventing people getting injured or killed with practical, meaningful solutions and steps.
- Talk to each other, have an ongoing conversation with all people in your business about farm safety.
- Get laser focussed on what could go wrong, how it might go wrong and what you’re going to do about it.
- Prioritise the biggest risks to life and serious injury. Align conversations around these high-risk areas to engage your team in addressing farm safety. Your team can help identify the high-risk jobs and develop solutions relevant to your business.
- Manage a risk in order of effectiveness. Use a hierarchy of control to reduce risk as much as reasonably practical – action to apply practical solutions and communication comes first. If no change can be made, develop a process and procedure as the last method of control.
- Create an environment with clear expectations on what’s ok, and not ok.
- Take action and do your best in the context of your business. The best evidence of compliance is when people can demonstrate how to do a job safely.
- Creating a culture of care over compliance when investing in farm safety will improve the operating environment for employees and family. Gains in production can be achieved when people are trained to do a job safely.
Developing management and decision-making skills – Clara McCormack
Improving the effectiveness of management capabilities, can reduce the stress associated with making complicated decisions.
- Important to think about how we go about doing things & change if there is opportunity to make improvements.
- Strategic and forward thinking is a very important business focus because investing time up front saves time in the future and being organised reduces stress.
- Classify your ‘to do list’ as ‘must haves’ and ‘nice to haves’ OR ‘most important’ and ‘least important’; to help you prioritise on certain aspects of the business rather than just doing jobs based on ‘ease of doing’.
- A leader’s ability to engage with team members can drive a business’s outcomes.
- Important to understand why individuals get out of bed in the morning & what’s stopping them from being motivated. Providing opportunity for more responsibility may provide motivation for some team members but is not the answer for all. Revisiting annually an individual’s roles and responsibilities may assist with accountability.
- Feedback, both the giving and the receiving can help run a business effectively and foster teamwork. Feedback is part of open communication with individuals and helps with staff retention.
- Effective team meetings include some focus on dynamics (how you do jobs) rather than mechanics (what jobs you’re doing). Change of focus can be achieved by throwing some extra questions to the team members.
- Leaders should manage their own expectations; not all team members will have the same investment in the business.
- Ownership in decision-making may improve motivation.
If any of the key messages listed within this newsletter have identified areas for improvements within your business and you would like to learn more, please contact ORM Pty Ltd (convenors of the livestream series and Farm Business Consultants) at firstname.lastname@example.org or on 03 5441 6176