Report Synopsis

Setting the foundation for a strong dairy business

Brendan Hehir

The objectives of this research were to explore the activities of the top 5% of farmers and understand the systems and mindsets they employ to maintain flexibility in a volatile environment without compromising the underlying profit drivers.

Without a strong co-operative presence Australian dairy-farmers now have very little investment beyond the farm gate. While the objective of companies is to maximise shareholder returns, there is unlikely to be investment by processors in stainless steel processing capacity that is under-utilised for nine months of the year. This will mean a continuation of a milk payment system that attempts to incentivise milk production outside the spring period. However, to produce this milk will require more inputs and infrastructure on farm, resulting in a higher cost base system that will likely have a greater focus on production and yield.

In these conditions, it is fundamental for long term business success farm businesses have a clear knowledge of underlying profit drivers. This was exhibited by the top operators, who also excelled at communicating these with the rest of the farm team, evident by the operational decisions made by staff members. When the focus is moved away from production or yield, and instead focuses on profitability, flexibility becomes a lot easier to achieve in changing environmental conditions. This is because possible solutions are no longer constrained by those production or yield metrics. Once this clarity is achieved it will provide the opportunity to generate strong returns within the business.

This strong financial focus started with a budget process that was built up with careful attention to detail, often reviewed by someone external to the business. It was then reviewed on a regular basis, with the standard practice being a comprehensive review of the financial budget to actual performance undertaken monthly. By reviewing on a monthly basis, it provided early warning signs if the business was starting to deviate from budget, meaning that corrective actions could be quickly undertaken, rather than being unpleasantly surprised with the financial performance when conducting a half-yearly or end of year review. Involving staff in this process will help them feel more ownership and will nurture more responsibility and autonomy amongst employees in the business.

This financial focus extended to the discussion groups visited and formed a key factor in keeping the individual business mindsets sharp. With a comprehensive information pack sent out pre-meeting, there was ample time for all members to study the topic allowing them to come prepared and with relevant questions ready to ask. The requirement for all members to submit a monthly snapshot as part of the discussion group formed part of the structed business systems, helping keep the focus on the farm business. The key to this success is providing the data every month, with the process of providing the data more important than the actual data itself. Advances in technology and the rise of cloud computing will make this financial snapshot easier to collate and track into the future. Having a farm system that can withstand volatility is critically important. During volatile conditions, those least affected will use the volatility as an impetus to review their own business and sharpen their focus.

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