Collective data drives gains by comparisonIndustry Best Practice
As APAL kicks off a new business analysis project, Future Business looks at two examples of how data aggregation and the development of business indicators is delivering value in other industries and overseas.
Profitable businesses exist at all scales
Business: vegetablesWA and Planfarm
Project: Industry benchmarking.
Location: Western Australia
Goal: To enable growers to identify opportunities to reduce costs and improve profitability through comparison with industry best practice.
A three-year benchmarking project by vegetablesWA and farm business management consultancy Planfarm is giving growers a series of key industry indicators against which they can assess their business performance.
For at least one business the exercise has already paved the way for expansion, with the analysis produced demonstrating to external investors the potential returns.
Encouragingly, the benchmarking process revealed that profitable enterprises existed at all scales.
Key findings in the 2017–18 Report covering the second year found:
‘The most profitable growers were not those from a particular area, of greater scale or a particular vegetable type, but those that were able to achieve a higher income per hectare, while keeping costs as a percentage of income below 65 per cent.
‘The growers who were particularly focused on financial management, produced greater returns.
‘The top 25 per cent of growers (in terms of vegetable operating profit per vegetable cropped ha) had an income per hectare double the average grower.
‘The top 25 per cent of growers controlled wages the best. Wages were kept to 19.5 per cent of vegetable income by the top ranked 25 per cent, compared to the industry average of wages being 24 per cent of income.’
While many growers were managing cash flow, vegetablesWA Benchmarking Lead Bryn Edwards said business analysis and benchmarking gave them a baseline against which they could compare their performance.
“There was a gap in understanding the relationship between measuring and managing figures, informed decision making, business management and strategic planning,” he said.
vegetablesWA teamed up with agricultural management consultants Planfarm to fill this gap by analysing growers’ business performance and identifying where they sat against industry benchmarks and the opportunities this presented to their businesses.
“Once we started engaging growers, it was clear many knew how to grow great produce, but they had less familiarity with financial and business analysis,” Bryn said. “Understanding these relationships can put you in a much greater position of control across your business.”
The three-year project produced an overall industry report and a personalised grower report for each participating grower, over the three financial years of 2016–17, 2017–18, 2018–19 with a final project report finalised in early 2020.
Business measures assessed included:
- Return on capital
- Operating costs as a percentage of income
- Gross income
- Operating and net profit per hectare
Data was aggregated to protect confidentiality. Results were reported against a target for that measure and presented as three industry segment ‘benchmarks’: top 25 per cent, bottom 25 per cent and industry average.
Bryn said while the sessions were often confronting, all growers said how necessary they were because they highlighted where improvements could be made.
“Growers have since remarked on how educational it was,” he said.
Paul Omodei, Farm Management Consultant and Director at Planfarm, said the process produced a range of business outcomes. It enabled one business that was doing well operationally but did not have the equity to expand to focus on attracting external investors.
“Without the business analysis data from the benchmarking project, this business wouldn’t have been able to showcase their operating performance,” Paul said.
“The business’s focus was on expansion – they needed investors to grow the business and these have since come in and invested in land and infrastructure while allowing the business to focus on operational performance.”
Paul said benchmarking was an established practice in the broadacre sector, but it’s important to understand that it is actually a by-product of individual farm business analysis.
“In the broadacre sector farmers analyse their business financial information on an annual basis to assist business decision making and strategy planning. This confidential data is then aggregated and benchmarked against other growers as a whole state and also as regional specific rainfall zones.
“Broadacre growers also love understanding and sharing agronomic data.”
Data-driven variety decision making
Gathering production data on the branded varieties they manage is enabling Washington State-based Brandt’s Fruit Trees (BFT) and Proprietary Variety Management (PVM) to give growers a head start by identifying those that perform best in each growing region.
Business: Brandt’s Fruit Trees / Proprietary Variety Management
Project: Data collection.
Location: Yakima, United States of America
Goal: Inform decision-making around regional variety selection to maximise packouts and returns.
Over the last few years, BFT and PVM have been collecting information to help aggregate data within their growing regions by recording packouts, sizing and timing for maturity.
Heather Brandt, BFT Compliance Officer, said that understanding this data has helped industry make more informed decisions when working with BFT and marketers alike. “We’re collecting the data to show where the weak points are and which regions are the strongest for each varietal,” Heather said.
“These aspects can be beneficial for everyone as they give growers realistic projections and an ability to reach out to potential buyers.”
This is the first year they’ve been able to showcase the benefits of understanding this information and Kevin Brandt, BFT and PVM Vice President, said it’s been a long process involving continuous, open discussions. “This is something new for industry to come together and work on these projects,” Kevin said.
“We had an opportunity to take the momentum behind Cosmic Crisp® and start industry-wide meetings. We wouldn’t talk about price and sales but rather benefits of working together, explaining what type of information we could provide once we understood specific data.”
In general, data collection wasn’t of great importance to the BFT business in the beginning. “There were a lot of open varieties in the US but once Pink Lady® arrived [as the first branded product] things changed and gathering information became essential,” Kevin said.
Both Heather and Kevin acknowledge that their data needs to be continuous, not stagnant. “We’re always trying to evolve and don’t know where the gaps are until we find them,” Kevin said.
“We want to help industry in terms of cost which is the reason we’re gathering this information.
“Everybody wins if you can get a higher price point, it’s in our best interest to try and help the grower do the best they possibly can.”