Profitable integration of cropping and livestock – key principles

Simon Vogt and Tara Graetz

The integration of cropping and livestock plays an important role across many farm businesses in Southern Australia. The added complexity of simultaneously managing multiple enterprises requires careful management to optimise performance. Integration requires the two enterprises becoming complementary rather than competitive.

The MLA funded project, The profitable integration of cropping and livestock in Southern Australia, aims to define the unique profit drivers in mixed farming systems that optimise the available synergies between cropping and livestock enterprises.

The project has analysed nearly 100 data sets from WA, SA, Tas, Vic and NSW. Each data set involves 3 years of data which includes financial and production information. The results have also been enhanced via qualitative survey questions and a skills audit.

The most profitable (Top 20%), mixed enterprises retained 33% of turnover as net profit before tax. By comparison, the ‘average’ of the data set retained 10%.

The project has identified both some challenges and some opportunities where there is a strong fit for multi-enterprise:

Challenges

• Internal dilution of scale
• Duplication of capital
• Potentially creates enterprise conflict that will quietly erode margins in one or more enterprises
• Diversion of focus and management attention
• Compromises simplicity

Strong fit for livestock

• Making use of non-arable land classes
• Making beneficial use of a by product (eg. bean stubbles)
• When livestock gross margins are stronger than alternative break crop choices
• Livestock enterprises representing highest and best land use
  • Frost prone landscapes
  • Soils prone to waterlogging
  • Paddocks with low arability (native vegetation, slope, soil depth)

The project has identified some key principles* that can be applied to improve profit in mixed businesses; these include:

1. Gross margin optimisation (operational)

• Target superior gross margin performance in both cropping and livestock enterprises
• • Top 20% achieved
    • Crop gross margin greater than $600 per ha
    • Livestock gross margins greater than $540 per ha
• Seek to optimise crop yield and sheep income in a cost effective manner
  • At least $2.20 grain income per mm of annual rainfall
  • Target between 1.5 to 2 DSE per hectare per 100mm of annual rainfall (depending on land class)
• A disciplined and balanced approach to variable cost inputs is required in both enterprises
  • Keep cropping variable costs to less than 40% of cropping income
  • Keep livestock variable costs to less than 25% of livestock income

2. Low cost business model (structural)

• Strive to develop simple and scalable farming systems
• Avoid unnecessary complexity
• Machinery utilisation and labour utilisation are significant profit drivers

3. People and management

• Effective implementation and consistent operational timeliness are critical success factors

4. Risk management

• Low risk, high margin agriculture is possible
• Identifying and mitigating key production and business risk is all part of good management
• Aim to develop a resilient business model that can withstand production and business shocks

*The principles above are for Mid North/YP farms (Clay, Clay loam soil types and 400mm to 525mm rainfall).

To learn more about these results and principles of operating a profitable cropping and livestock business, please email Tara Graetz or call 08 8841 4500.

The profitable integration of cropping and livestock in southern Australia (project number L.MXF.0001) is an MLA investment.

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