25 Apr BEING A TOP 20% PERFORMER
THE TRADEMARKS OF A TOP 20% PERFORMER
It wouldn’t surprise me if 80% of cropping farmers believe they are in the top 20% of financial performers and the top 20% of financial performers believe they can do much better.
A lot of research has been applied to this topic, not so much to work out who is in the top 20%, but to work out the underlying principles that need to be applied to get there. The motivation is simple. The top 20% generate between 1.5 to 3.0 times greater return than the average. That is a nice little kicker year in year out. So, it is worth investigating what they do to achieve this financial outcome.
Below is a synopsis from the GRDC Ground Cover (Issue 132) that uncovers the profit drivers for farmers.
The good news is that there are only 4 primary profit drivers to focus on. But they do need to be packaged as one to generate the results sought.
- Gross Margin Optimisation: Generating maximum yields per ha in the most cost-efficient manner. Enterprise selection per region is critical, as is the management and agronomic application to the crop rotation sequence.
- Low Cost Business Model: Utilise investments in machinery and labour to their full capacity. Managing more ha with less capital without compromising timeliness. Lowering the cost of debt lowers the overhead cost per ha.
- Human Capital: It is the implementation gap, NOT the knowledge gap that makes the difference. 6 key management characteristics that are stand out features with the high performers. They have a system focus, they take a big picture view when under pressure, they take responsibility for key decisions, they focus on elements they can control, they have superior implementation capability and have strong observational skills.
- Risk Management: Indicators of strong risk management within a business include lower income and profitability variation, lower long-term cost of production per commodity and a greater ability to withstand adverse shocks within the business.
CONCLUDING REMARKS
Even in areas of high land prices which can be perceived as constraining returns, strong levels of profitability can be achieved.
The Top 20 percenters of croppers also retain 25% to 30% of gross turnover as net profit before tax compared to the average of 10% regardless of geographic location.
These operators shun the perception that agriculture is high risk low return, when in fact it can be low risk high return.
On the notion of scale, it has been found that the correlation between enterprise scale and performance is very weak. Very different levels of profitability can be achieved for any given permutation of resource base, rainfall, farm size. Scale can assist profitability but only if it is managed efficiently. Smaller farms have entered the 20% blue zone when larger farms have not.
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