Phil Holmes

Author, veteran economist and agribusiness advisor Phil Holmes, has built a reputation as an entertaining, candid, frank and sometimes even blunt observer of the beef industry, and the way it functions…

In his second opinion article in this series published today, he looks at the importance of productivity, how it is measured, and its impacts on a beef business. His previous item in this series, called Barriers to entry at core of beef industry’s problems, aroused considerable reader comment. 

I AM getting a little ahead of myself in this series here, diving so early into specific topics without properly painting the big picture. The problem is that so many of the components of commercial beef production are interactive and it is hard to tread a narrow and isolated path.

I have chosen to discuss productivity early on in this series because of its overwhelming importance and its long tentacles reaching into almost every corner of commercial beef production.

In the end, if your beef business productivity is not continually improving, your business is existing on borrowed time and the strength of your balance sheet. It may take a while, but the end result is inevitable and it has to, at least in my view, stay ahead of the inflation rate.

It is therefore a critical element of sustainability. If you cannot demonstrate long-term productivity improvement, your business is unsustainable.

You absolutely have to stay focussed on all this critical stuff or you will get distracted along the way with the latest fad and lose the plot. This is a huge issue as too many producers are on a lifetime quest to find the silver bullet and fads pass the front gate every day, distracting many.

In my view, you cannot afford to be distracted away from serious productivity issues as they are not fads.

Back on track.

Firstly, what is productivity? It is a measure of production relative to the inputs used to create that production. To improve productivity in any business, you need to be increasing outputs faster than inputs.

The total factor productivity of commercial beef herds in Australia has been flat-lining for about 15 years. There has been considerable volatility in that time, but today, beef industry productivity is very close to what it was 15 years ago. This is not good news, folks!

What is total factor productivity? It takes every factor contributing to productivity into account, not just what is going on within the herd. Yes, even a new tyre for your side-by-side!

With my limited intellectual capacity, I have to keep everything as simple as possible for clarity and understanding. Accordingly, some years ago, I developed a total factor productivity approach for a beef business comprised of land, labour and livestock; I had to do it for myself as standard economist approaches were too difficult for me to understand. Note the order. If your land is not productive or improving, labour and livestock productivity suffer. This is about productivity, not the price of the land, which is a real estate issue.

I have got to the point now where I would not take any benchmarking report seriously unless a long term safe carrying capacity assessment (LTSCC) was part of it. In fact, I would refuse to produce a benchmarking report unless the owner agreed to conduct a LTSCC first.

Partitioning

Different breeds react differently to under or over nutrition through a process called partitioning. The simplest example of this is the dairy cow which has been selected to partition more and more energy intake into milk production, but the cost has been reproductive rate.

We are at the stage today where the average dairy farmer in Victoria has to go into the market either frequently or infrequently to purchase replacement heifers, just to maintain herd numbers. Why? Because the stocking rates required for profitable milk production often exceed the capacity of the pastures to supply enough energy for milk and reproduction.

Supplementary feed can help, but it is not a saviour. Note that there are other genetic processes in place that improve productivity, other than partitioning on its own.

Different beef breeds partition differently. Put energy intake under pressure and Bos indicus will respond quite differently to Bos taurus. Bos indicus partition for survival and begin to shut down or reduce metabolism on production traits not critical to survival.

Given all that, please explain to me how to interpret inter-regional and inter-farm comparisons without LTSCC data. Good general interesting reading, but otherwise of limited value.

It is really important to understand that statistically, there is more business performance variation within a region than between regions.

Labour

Labour productivity comes next. What follows has been out there for at least 30 years, but the message still does seem to be getting through.

Labour and labour-related expenses comprise about 80pc of all overhead expenses and 50pc of total business expenses. Once again, land productivity pops it head up. Labour productivity results will always be remarkably different in say the western districts of Victoria and the Kimberley, again making comparisons meaningless.

In the south, some herds are achieving 20,000 DSE’s per labour unit easily; very difficult to achieve in other regions. The issue here is your own business labour productivity. Does it line up with your geographic location and enterprise type?

But what about you? Can you demonstrate that your productivity has been increasing? We can’t get overall business productivity to improve, if it doesn’t start at the top.

“Sorry, I don’t have time”, you say. “I have to get out in the paddock to check the cows to make sure they are okay.” Again, good luck.

Livestock

Livestock productivity comes a distant third. It is relatively easy and less costly to remedy than the first two, and because of that, seems to attract the attention of those who drool over spreadsheet results.

Please try to keep this in perspective. Number 3, just entering the straight as the winner goes over the line!

In recent times, a productivity KPI has appeared in some benchmarking reports, limited to the herd (livestock) only. This is at least a start, but unfortunately, is of little use to me in its current form. I usually ignore it and work off a simple calculated figure with my mob.

This particular herd productivity KPI is made up of reproductive rate, mortality rate and turn-off weight, all fair enough.

Then the problems begin….

If you are overstocked, the answer to herd productivity issues is complex. For example, if you run predominately Brahmans, herd fertility may be at the bottom of the heap because it is probably low at the start and any modest increase does not make much of a difference, depending on your location and market.

It can take a long time to remedy as trial results have shown. Not so long if you know the shortcuts.

Phosphorus (P) supplementation? This topic would take a small book to explain the current situation and what would happen if it was fixed; this sentence could have been written 30 years ago.

How does P supplementation increase herd productivity? If you cannot answer this succinctly, you have some homework to do. It is not what you think.

Mortality rate is another issue. If caused by disease, you have only yourself to blame as most of the diseases creating high mortality rates can be remedied by vaccines or supplements.

I am probably a complete drop kick, but I fail to understand why the best available evidence says that only around 30pc of far northern herds vaccinate against botulism. Maybe they find that the horse and sulky does not get them home to Arthur McCormick’s Coolgardie safe fast enough in order to protect vaccine potency.

Aside from disease, there is a host of other causes of unacceptably high mortality rates, all under the control of management.

Turn-off weight is complex, but suffice it to say that it should be as close as possible to the entry weight of the target market. Sending them in light? Good luck! This is a big topic because of the costs if you get it wrong and the corresponding benefits if you get it right.

An example follows (concentrate on the principles, not the numbers):

• Your business is located in the Gidgee Gully region where you run 4000 flatback breeders, giving you about 1600 steer weaners to prepare (Only an 80pc weaning rate? More work to do there as well!).
• You target the local feedlot for those steers with a best entry weight of 380kg. You think that 350kg is as good as you can get, so in they go. Revenue? 1600 x 350 = 560,000 kg, Let’s say the price is $4.00/kg, producing a revenue of $2.240 million.
• Now what if you got them in there at 380kg? 1600 x 380 = 608,000 kg. The price will probably be a tad lower, because heavier cattle generally attract a lower price, say $3.90. 1600 x 380 x 3.90 = $2.371M. Remember, feedlots mostly don’t mind lower entry weights as it is often cheaper for them to put the weight on than to buy it from you, but that is not an excuse for you.

$131K down the drain every year, gross $1.31M over a decade before that dreadful word, tax!

A decade or two of that of that and goodbye retirement funding worries. As well, succession issues would have a big hole punched through them, all due to a measly 30kg of additional beef production from less than half the herd.

It now comes down to how much it will cost to make up that 30kg deficit.

A kitchen table discussion with an adviser who understands the biology and financials of that conversation should be a starting point, not with just another spreadsheet junkie analyst. In this example, the cost should be quite low, involving better grazing management and possibly some extra fertiliser, where applicable.

I will attempt to get back on track with the next article in this series.

Click here to view Phil Holmes first article in this occasional series, “Barriers to entry at core of beef industry’s problems,” published in December.