With lamb prices stepping back farmers might well ask “How can I maintain or even grow farm profitability”. For the majority of sheep and beef farms this is achievable provided the business can focus on improving production efficiency. Farmax has just released annual reports to our clients. For these farmers it is the culmination of the years monitoring and tactical decision making using our software. This article discusses how the information in this report can be used in answering questions that are pivotal in improving farm profitability.

What is the question?

There are a number of information systems available to farmers that may assist in gaining a better understanding of efficiency drivers and opportunities. The marketing of these can be quite enticing - “simple yet powerful, user friendly and quick, yet providing a complete picture of the physical and financial information that underlies your farming operation”. This sounds too good to be true – so how can you assess these systems? Firstly, let’s clarify that all software systems are easy and simple to use; at least I am yet to find a company that promotes “hard to use systems”.  

Secondly and perhaps more importantly it is difficult to measure success if you do not know what you want to find out. The term ‘powerful’ should perhaps refer to how well the system answers the questions you have.

Too often users surface from a year of endless monitoring, realise what they really want to know and find the system hasn’t a hope of answering it - the analysis simply shows they need to make more money and spend less.

The Farmax annual report is designed to show how efficient the farm has been compared with the previous year and with similar farms in the Farmax database. It has been designed to help answer three specific questions:

-          How much pasture am I producing?

-          How efficient am I at converting this pasture into production?

-          How efficient are each of my livestock enterprises?

Why focus on pasture production?

We often use the term productivity in a loose manner. It means something quite specific – the amount of production we can achieve for each unit of input. We therefore need to consider which input is most important in accomplishing production. Otherwise we cannot calculate how efficient we are in using it over time.

New Zealand farms are based on utilising cheap grass - it is therefore the resource that we need to measure productivity against. 

Let’s consider trying to benchmark two farms. Farm A is on a Manawatu river terrace; it has received good levels of re-investment for the past 50 years. Farm B is categorised the same; an intensive finishing property – it has a wonderful view out onto the coast – the properties have very similar capital values.

 

	Farm A	FarmB
Product per hectare (kg)	515	375
Gross Margin per hectare ($)	1100	780
EFS per hectare ($)	330	235
Return on capital (%)	2.0	1.8

Table 1. Standard benchmarking measures.

While the typical analysis above tells us that Farm A is performing significantly better than Farm B it isn’t really telling us much about productivity. Even formulating a basket of bewildering income to expenditure ratios does not help us learn any more about productivity - If a farm is not earning enough revenue of course ratios such as ‘Gross Farm Income to Farm Working Expenses’ will look poor.

To make progress we need to know how much pasture the two properties can produce. Calculating pasture production is however a hard target. Firstly, what do we mean by pasture production? Is it the pasture we actually grew last year, or is it the pasture we could potentially have grown? Farmax believes it is the amount we could have potentially grown. We’ll explain this as we go along.

The Farmax system calculates how much was actually grown and how much could have been grown if the farmer had kept pasture cover at optimum levels throughout the year. It isn’t quick and easy; it requires doing regular pasture cover assessments.  But if production efficiency is an important question for your business then this is currently the only system that can provide this information for you.

So, how does production efficiency on Farm A and Farm B really look? If we consider income (Gross Margin) per potential kg of pasture production then Farm B is ahead. Lets, put this simply, Farm A is a better farm; it could potentially grow a lot more grass than farm B if grazing management was improved. So, if we compare the farms based on what they could potentially grow Farm B is achieving better production efficiency - it produces quite a lot considering it has a lower potential for growing grass. Specifically Farm A only earned 6.8 cents per kg of dry matter of Potential Pasture Production while Farm B earned 7.1 cents.

 

	Farm A	FarmB
Potential Pasture Production (tDM[1]/ha)	16	11
Net pasture production	12.5	9.35
% of Potential	78	85
Gross Margin per kg Potential Pasture Production (cents)	6.8	7.1
Return per kg of DM grown (cents)	8.8	8.3
KG Product/kg DM eaten	27.5	26.2

Table 2. Farmax benchmarking measures.

This is of course good news for Farm A!!  While a more traditional analysis might lead him to believe he is at the top of the class the Farmax analysis confirms he has plenty of opportunity to maintain profitability at lower lamb prices. So, what can we do with this information?

Measuring continuous improvement

The most valuable benchmarking can simply be against you. But it is only valuable if you have measures that are reasonably robust. In Table 1 there really isn’t a robust measure for productivity comparisons. Changes in production per hectare may be more a result of climate, financial returns may be completely masked by market fluctuations, and return on equity may have dipped because of increasing farm values.

In Farmax we can track how much dry matter is needed to produce a kg of product. This is a powerful measure of efficiency because it tells us whether we are producing more at the same level of input or not.

Of course these measures are not “quick and easy” calculations. A mathematical model such as Farmax makes the calculations very simple. But we do need to consistently weigh stock at key times and we do need to record the weights achieved at slaughter.

If these measures of efficiency are improving then any increased pasture supply will also be used efficiently – simply, development options are more likely to be viable on efficient farms (such as capital fertiliser, irrigating or buying the neighbours place).

Getting under the hood

Farm productivity is low – so where to from here? It is time to look under the hood. There are two significant contributors to overall farm efficiency:

• The match between feed demand and feed supply;
• The efficiency with which the various enterprises on the farm convert dry matter into revenue.

Why is matching feed supply and demand so important? Farms are destined to be inefficient if feed is not utilised as it grows. This is because pasture production will be lower than potential and time and money will be spent simply shifting feed from surplus to deficit - alternatively farmers must accept loosing large amounts of pasture to decay.

There are two aspects to this fit; how well does feed supply and feed demand fit on average (strategic planning)? And, how well do they fit if pasture growth varies (tactical planning)? In our last newsletter we profiled a farmer who had worked through an intelligent livestock policy that fitted well with his farms (unique) pasture growth profile and the probable climatic variations he could experience. In this Newsletter we profile Ally and Helen Dowle who show how they have used Farmax in a tactical way to adjust within seasons.

In Table 2 below we can see another farm that has been using Farmax for 2 years. Last year they produced less “Product” per hectare (greyed row) than the previous year. One would conclude “They’re going backwards!”

If we get “Under the hood” and have a really good look they are actually doing better this year than last year. The farm utilised more pasture (pasture losses declining from 30% to 25%) and converted more of it into product. Improving efficiency does not happen by accident, they have been implementing new strategies that are helping achieve a better fit between feed supply and feed demand

 

	Last Year	This Year	Group Average	Top 20%
Potential Pasture Production (tDM/ha)	9.8	8.4	7.54	7.61
Nitrogen Boost[2] (tDM/ha)	0.07	0.05	0.35	0.39
Pasture Losses[3] (tDM/ha)	2.94	2.1	1.57	1.45
Pasture loss percent of total production[4]	30.1	25.0	20.9	19.1
Net Pasture Production[5] (tDM/ha)	6.93	6.35	6.32	6.56
Net product produced (kg/ha)	221	215	223	277
Feed conversion efficiency[6]	33.2	29.5	28.8	23.9

Table 2. Farmax Farm Summary Report

But they are still nowhere near the top 20% so how do we dig deeper? This is an area where everyone will have an opinion i.e. they needs to run Perendales or they need to run composites. However, with the appropriate monitoring we can calculate the real performance of the farms livestock enterprises and what aspects are letting performance down.

In Table 4 below we see many of the traditional indicators of reproduction (highlighted in grey) and how they can be misleading. The farmer has gone down in ewe weight at tupping. Recently, the industry has started using ‘Scanning Index’ as a better measure of fertility. This measures how many lambs are conceived for each kg of ewe liveweight at tupping. On this property the scanning index has only improved slightly as has his weaning %.

Are they improving our not – it looks like only a slight improvement? What we want is better ewe efficiency; that is more weight of lamb weaned given the weight of ewe we run.

 

Sheep		Last Year	This Year	Group Average	Top 20%
Tupping Body Weight (kg)[7]		61.2	58.2	61	64
Scanning %		166.5	165.4	170	188
Scanning Index		2.7	2.8	2.8	2.9
Tailing %		116	117	137	151
Weaning %	Ewes[8]	115	118	132	150
	Hoggets[9]	46	46	61	67
Survival - scanning to weaning (%)		69	71	76	80
90 Day Weaning Weight		29.9	32.4	28.4	30.9
Average Growth Rate to weaning (g/d)		279	308	260	290
Ewe Efficiency[10]		56.0	65.5	62	75

 Table 4. Sheep Reproductive performance

Using this measure we see that there has been a big improvement. The farm has gone from below average to near the top 20% (56% to 65.5%) - but how? Well, this farm is going against the general flow of the industry, ewe tupping weight has declined yet they have produced the same number of lambs which were weaned at a higher weight.

The Farmax database in fact indicates that last year farms that earned the most revenue (the top 20%) had similar fertility ewes (scanning Index) to the average. However, they had higher survival rates and higher weaning weights. That is, they had reasonable ewe fertility but made better use of the potential lambs.

How could this farm make further improvements? The big driver here looks like lamb survival which is below the average.  Androvax or ‘adding a quarter Finn’ may be barking up the wrong tree, the key question is how can lamb survival rates be increased?

Does the Farmax approach suit all farm businesses?

Getting a true picture of production efficiency is not always easy. Making real efficiency gains does not happen by accident; it is essential to work on the right parts of your business.  We have provided a number of examples where Farmax unravels quite a different story than traditional methodologies. If you were relying on these traditional methodologies you may be focussing on less relevant issues. We have also emphasised that there needs to be a reasonable commitment to monitoring pasture covers and stock performance before a software system can make the calculations necessary to provide this more complete picture.

If however, you wish to maintain or grow profitability in the face of declining lamb prices you are most certainly going to need to improve production efficiency –Farmax may be the tool that will help you to achieve this.

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