GRDC benchmarking report shows Australian grain growers face cost pressures that are impacting their margins. Photo: Evan Collis

Australian grain growers are in the grips of unprecedented cost pressure, according to a benchmarking report prepared for GRDC.

As well as analysing the 2023 season, the first-of-its-kind report highlights the importance of margins and strategic capital allocation for ensuring the resilience of Australian grain-producing businesses.

Undertaken as part of the Grains Analysis and Insights Nationally (GAIN) project, the study draws on more than a decade of aggregated and anonymised financial data.

This data, from farms across the country, enables the research team to deliver a comprehensive performance snapshot of the grains industry to inform GRDC investment.

“(Recent) favourable conditions masked underlying cost pressures, which have now become more pronounced in a high-cost operating environment,” the report says.

“The industry’s resilience has been built on a combination of strong farm balance sheets, innovation in agronomic practices, and a capacity to manage seasonal variability.

“However, the rising cost of production, tightening margins and increasing capital requirements mean that maintaining profitability and resilience will require greater strategic focus.”

Understanding the numbers

Each year, a consortium of 4 advisory firms – Farmanco, Pinion Advisory, Agripath and Planfarm – review the previous season’s farm business data. They provide aggregated analysis to a national database covering 1,100 producers across 5 states.

Initial reports established a 10-year baseline for trends in land prices, input costs and business profits, with the most recent analysis zeroing in on the concept of business resilience in the face of tightening profit margins, escalating costs and seasonal variability.

Pinion Advisory Agribusiness Consultant Patrick Redden says the squeeze on retained margins comes as no surprise, but analysis highlights the role of grain prices, which are largely determined by external forces.

“There’s not a lot we can do about that at farm level, as we are involved in global markets and subject to supply and demand,” he says.

“It’s not a simple thing to suddenly sell your wheat for $500/t. The only thing we can really try to control is the cost of production by being as efficient as we can.”

The report recommends growers adopt cost-efficient practices, such as variable-rate fertiliser and precision agriculture, and carefully manage investments in technology, land and equipment.

Cost challenges

The latest data paints a worrying picture for farm profitability. While margins have generally remained healthy during the past 4 to 5 years, analysts warn the gap is quickly narrowing.

Almost half of growers posted losses in 2023 after recording below-average yields as a result of the lowest winter crop rainfall decile since 2018 and 2019.

Mr Redden says “sticky costs” that came in during the COVID-19 pandemic, such as higher machinery and input costs, have not returned to pre-COVID levels.

“We’ve been lucky enough to have a reasonable run of seasons in that period to cushion that, although that’s not been the case (especially in southern Australia) in the last 12 months,” he says.

The major inputs of fertiliser ($253/ha) and chemicals ($175/ha) remain well above average levels, with both categories blowing out to 21.4% and 17.1% of crop income in 2023 – well above GRDC long-term targets of 16.4% and 16.6%.

Figure 1: National farm retention analysis

Source: Resilience in Australian Grain Businesses Report

Productivity gains

Despite rising costs, on-farm productivity improvements and efficiencies have partly shielded grain growers from an even more severe profit crunch.

The benchmarking team found evidence that adoption of practices such as variable-rate technology and advances in crop genetics and agronomy – especially for pulses – has driven income resilience.

Farmanco project manager Kelly Ryan says lentils have been a success story for South Australian growers, while those in Western Australia have made measurable progress from soil amelioration programs – both thanks in part to GRDC-directed research.

However, Mr Redden says persistent challenges remain, such as water use efficiency in wetter conditions, regional differences in crop profitability, and the dangers of over-concentrating farm rotations on a small set of crop types at the expense of diversity, especially in break crops.

For the purposes of the study, resilience was defined as “being able to return quickly to a previous good position after problems”, with the ability to continue operating despite shocks in weather, commodity prices or input costs.

“More resilient businesses were financially stronger, able to manage risk and variability better, and in particular, use good years really well to help them ride out the bad years,” Mr Redden says.

“I don’t think there’s magic to it. It’s just all those little things that combine to make good decisions and repeat them at the right time ... making sure they’ve got a farm that can respond to a good year with background levels of fertility and good programs around nutrition and weeds.”

Farmanco agribusiness consultant Rob Sands agrees.

“Every grower is facing similar cost challenges, but benchmarking shows there are clear differences in how businesses manage through them,” he says.

The data highlights that resilience isn’t about avoiding the tough years, it’s about using the good ones wisely, tightening efficiency and making decisions that stack up over time.

The road ahead

Despite the challenges posed by the margin squeeze, the report identifies 4 opportunities for strengthening resilience:

• development of a resilience index that gives growers a clearer picture of their farm’s position and how it compares across regions
• innovation in farm business models, such as collaborative farming and leasing arrangements
• using robotics and other technology to reduce machinery and labour costs
• succession planning that is more structured and strategic to ensure continuity.

Ms Ryan says the report provides evidence of the value of financial benchmarking for long-term strategic planning and maintaining farm business resilience.

She expressed gratitude to the 1,100 growers who shared their insights and operational information, which was anonymised and combined before being examined as part of the project.

“Without their support, it wouldn’t have occurred,” Ms Ryan says.

GRDC commissioned the GAIN research to guide its decisions about investments and measure progress on key research, development and extension objectives such as yield stability, input cost optimisation and risk management. The report is not publicly available.

This article appeared in GroundCover.