Australian grains: financial performance of grain...

Australian grainsFinancial performance of grain producing farms, 2011‒12 to 2013‒14Peter Martin, Emily Gray and Therese Thompson

Research by the Australian Bureau of Agriculturaland Resource Economics and Sciences

Research report 14.12September 2014

© Commonwealth of Australia 2014

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Cataloguing data

Martin, P, Gray, E & Thompson, T 2014, Australian grains: financial performance of grain producing farms, 2011‒12 to 2013‒14, ABARES report prepared for Grains Research and Development Corporation, Canberra, September. CC BY 3.0.

ISSN 1447‒8358ISBN 978-1-74323‒201-9ABARES project 43009

Internet

Australian grains: financial performance of grain producing farms, 2011‒12 to 2013‒14 is available at agriculture.gov.au/abares.

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

Postal address GPO Box 1563 Canberra ACT 2601Switchboard +61 2 6272 3933Facsimile +61 2 6272 2001Email [email protected] agriculture.gov.au/abares

Inquiries about the licence and any use of this document should be sent to [email protected].

The Australian Government acting through the Department of Agriculture, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture, ABARES, its employees and advisers disclaim all liability, including for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon information or data in this publication to the maximum extent permitted by law.

Acknowledgements

ABARES relies on the voluntary cooperation of farmers participating in the annual Australian Agricultural and Grazing Industries Survey to provide data used in the preparation of this report. Without their help, the survey would not be possible. ABARES farm survey staff collected most of the information presented in this report through on-farm interviews with farmers.

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Australian grains: financial performance of grain producing farms, 2011–12 to 2013–14 ABARES

ContentsSummary vii

1 Introduction 1

2 GRDC grain growing regions 2

Northern region 2

Southern region 5

Western region 6

3 Grain producing farms 8

Specialist grain producers 10

4 Grain production 11

Grain production 2012‒13 11

Grain production 2013‒14 12

On-farm grain stocks 14

5 Financial performance 16

Financial performance of Australian grain producing farms 16

Financial performance—Northern region 19

Financial performance—Southern region 27

Financial performance—Western region 33

Financial performance by cropping intensity 38

6 Farm investment 41

7 Farm debt 44

8 Productivity 54

Survey methods and definitions 58

Glossary 63

References 67

Further information on grain producers 69

TablesTable 1 Distribution of grain producing farms, by area planted to grains, oilseeds

and pulses 8

Table 2 Financial performance of grain producing farms, Australia 17

Table 3 Financial performance, Northern region grain producing farms 23

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Table 4 Selected estimates, Northern region grain producing farms, by scale of operations 24

Table 5 Financial performance, Southern region grain producing farms 28

Table 6 Selected estimates, Southern region grain producing farms, by scale of operations 31

Table 7 Financial performance, Western region grain producing farms 34

Table 8 Selected estimates, Western region grain producing farms, by scale of operations 36

Table 9 Selected estimates, grain growing farms, by cropping intensity 39

Table 10 Financial performance estimates, grain producing farms, by cropping intensity 40

Table 11 Distribution of Northern region grain producing farms, by farm business debt and equity ratio, at 30 June 2013ap 48

Table 12 Distribution of Southern region grain producing farms, by farm business debt and equity ratio, at 30 June 2013ap 49

Table 13 Distribution of Western region grain producing farms, by farm business debt and equity ratio, at 30 June 2013ap 50

Table 14 Average annual broadacre productivity growth, by industry, 1977‒78 to 2011‒12 56

Table 15 Average annual cropping total factor productivity growth, by region, 1977‒78 to 2011‒12 57

FiguresFigure 1 Average area sown and yield, grain producing farms, Northern

region, 1994‒95 to 2012‒13p 3

Figure 2 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Northern region, 1994‒95 to 2012‒13p 3

Figure 3 Average area sown and yield, grain producing farms, Southern region, 1994‒95 to 2012‒13p 5

Figure 4 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Southern region, 1994‒95 to 2012‒13p 6

Figure 5 Average area sown and yield, grain producing farms, Western region, 1994‒95 to 2012‒13p 7

Figure 6 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Western region, 1994‒95 to 2012‒13p 7

Figure 7 Number of grain producing farms, Australia, 1994‒95 to 2013‒14y 9

Figure 8 Relative change in the number of grain producing farms, by area planted, 1994‒95 to 2012‒13p 9

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Figure 9 On-farm grain stocks at 30 June, grain producing farms, 1995 to 2013p14

Figure 10 Farm cash income, grain producing farms, 1994‒95 to 2013‒14y 16

Figure 11 Cash receipts, Northern region grain producing farms, 1994‒95 to 2013‒14y 20

Figure 12 Composition of farm costs, grain producing farms, 2010‒11 to 2013‒14y21

Figure 13 Farm cash income, Northern grain producing farms, 1994‒95 to 2013‒14y 21

Figure 14 Cash receipts, Southern region grain producing farms, 1994‒95 to 2013‒14y 27

Figure 15 Farm cash income, Southern grain producing farms, 1994‒95 to 2013‒14y 29

Figure 16 Cash receipts, Western region grain producing farms, 1994‒95 to 2013‒14y 33

Figure 17 Farm cash income, Western region grain producing farms, 1994‒95 to 2013‒14y 35

Figure 18 Land investment, grain producing farms, 1994‒95 to 2012‒13p 41

Figure 19 Land prices, grain producing farms, 1994‒95 to 2012‒13p 42

Figure 20 Net investment in machinery, vehicles and farm improvements, grain producing farms, 1994‒95 to 2012‒13p 43

Figure 21 Composition of farm business debt, grain producing farms, Australia, 1994‒95 to 2012‒13p 44

Figure 22 Change in farm business debt, grain producing farms, by region, 1994‒95 to 2013‒14y 45

Figure 23 Debt-to-receipts ratio, grain producing farms with debt, 1994‒95 to 2013‒14y 46

Figure 24 Ratio of interest payments to total cash receipts, grain producing farms, 1994‒95 to 2013‒14y 51

Figure 25 Debt servicing and borrowing capacity, Northern region, 1988‒89 to 2013‒14y 52

Figure 26 Debt servicing and borrowing capacity, Southern region, 1988‒89 to 2013‒14y 53

Figure 27 Debt servicing and borrowing capacity, Western region, 1988‒89 to 2013‒14y 53

Figure 28 Trends in cropping specialists’ total factor productivity, total inputs and total outputs, 1977‒78 to 2011‒12 55

Figure 29 Broadacre total factor productivity growth, 1977‒78 to 2011‒12 56

Mapsv


Map 1 Grains Research and Development Corporation regions 2

Map 2 Average wheat yields, 2003‒04 to 2012‒13p 4

Map 3 Variability of wheat yields, 2003‒04 to 2012‒13p 4

Map 4 Rainfall percentiles for 2012‒13 winter crop areas 11

Map 5 Rainfall percentiles for 2012‒13 summer crop areas 12

Map 6 Rainfall percentiles for 2013‒14 winter crop areas 13

Map 7 Rainfall percentiles for 2013‒14 summer crop areas 13

Map 8 ABARES Australian broadacre zones and regions 62

BoxesBox 1 Major financial performance indicators 17

Box 2 ABARES productivity estimates 54

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SummaryAround 26 240 Australian broadacre farms each plant more than 40 hectares to grains, oilseeds and pulses each year. This report classifies these farms as grain producing farms. More than half these farms derive most of their farm receipts from sales of grains, oilseeds and pulses; these farms are termed specialist grain producers in this report. The other half are mixed enterprises, deriving a large proportion of their receipts from beef cattle, sheep, lambs, wool and other crops and from the sale of grains, oilseeds and pulses.

Australian production of grain, oilseeds and pulses increased by almost 70 per cent in the 20 years ending 2013‒14. This was the result of growth in farm productivity and substantial structural adjustment within the broadacre sector of Australian agriculture. Total factor productivity is the key indicator ABARES uses to measure the efficiency with which farmers combine market inputs (land, labour, capital, materials and services) to produce outputs (grains, livestock and wool). Total factor productivity for grain producing farms increased at an average rate of 1.6 per cent a year from 1977‒78 to 2011‒12. Productivity growth is a key mechanism by which agricultural industries remain competitive and farmers maintain profitability to ensure long-term viability.

Industry productivity growth reflects aggregate effects of improvements in on-farm efficiency through the continuous adoption and refinement of innovations in crop science, cropping equipment and farm management. Productivity growth also results from the ongoing adjustment in industry structure that results in more efficient resource use across farms over time. Industry adjustment resulted in the average area planted to grain, oilseeds and pulses per farm increasing by 70 per cent in the 20 years to 2013‒14 and the number of grain producing farms declining by 20 per cent.

Between 1994‒95 and 2012‒13 the number of farms planting more than 2400 hectares to grains, oilseeds and pulses increased four-fold, while the number of farms planting less than 600 hectares declined by one third. Around 2200 farms, or just 8 per cent of grain producing farms, planted greater than 2400 hectares and these farms account for almost 40 percent of production, while the 64 per cent of farms planting less than 600 hectares account for only 18 per cent of total production.

Average rates of return to total capital used increase with the size of grain enterprises in all three Grains Research and Development Corporation (GRDC) regions for the five years ending 2012‒13. Rate of return to total capital used is a measure of business efficiency in generating profits from all resources used. Rate of return to total capital used averaged 4.5 per cent for Northern region farms planting greater than 2400 hectares, 5.5 per cent for Southern region farms and 3.6 per cent for Western region farms. This compares with grain producing farms planting less than 600 hectares, where the rate of return to total capital used averaged just 0.8 per cent for Northern region farms, –0.1 per cent for Southern region farms and 0.2 per cent for Western region farms.

Higher rates of return for larger grain producers provide an incentive for land purchase and farm amalgamation. Each year for the past 20 years, the proportion of grain producing farms purchasing land has been higher than for other broadacre industries. In addition, net investment in plant, vehicles, machinery and farm infrastructure has increased for grain producing farms and has been historically high in all three GRDC regions since 2006‒07.

vii


The increase in the average size of grain enterprises and improved seasonal conditions in eastern Australia between 2008‒09 and 2011‒12 following drought during the early and mid 2000s, resulted in an increase in average yields and a rise in total Australian grain, oilseed and pulse production to a record 51.2 million tonnes in 2011‒12. Nationally, the financial performance of grain producing farms has trended upward since 2007‒08. However, the financial performance of grain producing farms across the three GRDC regions has varied, particularly in 2013‒14.

Farm cash income was historically high for Northern region grain producing farms in 2012‒13, averaging $141 900 a farm. However, in 2013‒14 drought-reduced winter and summer crop production is estimated to have resulted in the lowest grain receipts in real terms since 2004‒05. Farm cash income is estimated to have declined to an average of $20 000 a farm in 2013‒14—the lowest farm cash income for Northern region grain growing farms recorded for more than 20 years.

In contrast, average farm cash incomes for Southern and Western region grain producing farms in 2013‒14 are estimated to have been the highest for more than 20 years. In the Southern region, a large increase in winter crop production and livestock receipts is estimated to have taken average farm cash income to $225 000 a farm. In the Western region, record winter crop production is estimated to have increased average farm receipts by around 30 per cent and taken average farm cash income for grain producing farms to $442 000 a farm.

Nationally, for grain producing farms, rate of return to total capital used is estimated to have averaged 2.7 per cent in 2012‒13 and to have increased to average 3.6 per cent in 2013‒14. Rate of return to total capital used is estimated to have declined to average –1.7 per cent for Northern region grain producing farms in 2013‒14, but it was estimated to have been relatively high at 4.4 per cent for the Southern region and 7.0 per cent for the Western region in 2013‒14.

Average rate of return to total capital used for Australian specialist grain producers is estimated to have been 5.3 per cent in 2013‒14, well above the 10-year average to 2012‒13 of 2.7 per cent. Rates of return and farm cash income for specialist grain growers has typically exceeded the average for all grain producing farms in all three GRDC regions.

Debt is an important source of the funding needed for farm investment and ongoing working capital. Average debt per grain producing farm has more than doubled in the decade to 2008‒09, largely as a result of the expansion in the size of grain enterprises.

The largest contribution to increases in farm debt has been borrowing to fund new investment, particularly purchase of land, tractors, cultivators, sowing and harvesting machinery and vehicles. Increase in size of grain enterprises and greater use of purchased inputs, such as fertiliser and chemicals, and change in grain marketing methods have also resulted in higher borrowing for ongoing working capital. Additionally, borrowing to meet working capital requirements increased to finance crop planting and cash shortfalls as droughts reduced farm cash incomes in all three regions during the 2000s.

Average debt increased most in the Western region over the past decade. Debt declined in the Northern and Southern region in 2011‒12 and 2012‒13. However, low farm cash income is expected to have resulted in an increase in debt in the Northern region in 2013‒14.

Debt is typically higher and farm equity ratio (proportion of farm assets owned) lower for farms with larger grain enterprises. Larger grain enterprises are able to service larger debts and typically carry higher working capital debt seasonally. Historically, average equity ratios are

viii


lower for Western region grain producing farms, partly because of the larger average size of grain enterprises in this region. At 30 June 2013, the average equity ratio for Western region grain producing farms was estimated to have been 73 per cent and the average for both the Northern region and Southern region was 84 per cent.

The proportion of farm receipts needed to fund interest payments on debt declined in all three GRDC regions as a result of higher farm receipts from 2010‒11, lower interest rates and reduction in debt on some farms. The proportion is estimated to have reduced further in 2013‒14 to around 6 per cent in the Southern region and 8 per cent in the Western region, but is estimated to have increased to 12 per cent in the Northern GRDC region.

In 2013‒14 the proportion of grain producing farms with high debt servicing commitments and relatively little capacity for further borrowing is estimated to have been historically low at around 6 per cent in the Southern region and around 10 per cent in the Western region. In the Northern region around 11 per cent of grain producing farms were estimated to have had relatively little capacity for further borrowing and high debt servicing commitments. This is a similar proportion to that recorded during drought in the Northern region in 1994‒95, 2002‒03 and 2004‒05.

ix


1 IntroductionThe Australian grains industry plays an important role in the Australian economy, through its contribution to domestic food supply, income generated from exports and through environmental stewardship. Australia’s largest category of food exports—grains, oilseeds and pulses—represents 24 per cent of total agricultural exports (DAFF 2013).

Total Australian production of grain, oilseeds and pulses is estimated to have averaged 44.9 million tonnes in the three years from 2011‒12 to 2013‒14, an increase of 69 per cent from the average production recorded in1992‒93 and 1994‒95 of 26.5 million tonnes.

The increase in the production of grains, oilseeds and pulses over the past 20 years has been the result of substantial structural adjustment within the broadacre sector of Australian agriculture and growth in farm productivity that has resulted from the continuous adoption and refinement of innovations in crop science, cropping equipment and farm management.

This report presents the detailed financial performance of grain producing farms from 2011‒12 to 2013‒14 and discusses recent farm financial performance and productivity in a historical context.

The report draws on data from the ABARES annual Australian Agricultural and Grazing Industries Survey (AAGIS) to provide an overview of production, financial performance and productivity growth of the Australian grain, oilseed and pulse industry. The Grains Research and Development Corporation (GRDC) funded the preparation of this report and partly funded AAGIS.

Information presented in this report expands on farm survey results published in Australian farm survey results 2011‒12 to 2013‒14 (ABARES 2014c) and in Agricultural commodities: March quarter 2014 (ABARES 2014a). ABARES uses the latest data to produce estimates from this survey, ensuring that estimates are revised as new information becomes available.

Farm business with less than 40 hectares planted to grain, oilseeds or pulses represent less than 1.0 per cent of the total grain, oilseeds or pulse crop area and value of sales and are excluded from this analysis.

1


2 GRDC grain growing regionsAustralian grain production is characterised by production of predominantly winter cereals, produced across a wide geographic area with differing climate and soil characteristics and diverse management requirements. Pulses and oilseed crops are also important, both in their own right and as break crops in the dominant cereal rotation that assist weed, pest and disease control and provide other benefits such as nitrogen fixation.

In recognition of variations in growing conditions, the GRDC distinguishes three broad agroecological grain growing regions (Map 1).

Descriptions of the three GRDC regions in this chapter are adapted from the GRDC publication Our grains industry (GRDC 2014) and supplemented with information from AAGIS.

Map 1 Grains Research and Development Corporation regions

Source: Grains Research and Development Corporation

Northern regionThe Northern region, encompassing Queensland and northern New South Wales, has generally high inherent soil fertility. It has relatively high variability in seasonal rainfall, production (resulting from change in area planted to various crops) and yields (Figure 1, Figure 2, Map 2 and Map 3). Conservation of soil moisture from summer-dominant rainfall is an important factor in determining yield.

2


The Northern region has the highest diversity of crop production, including summer-growing grain sorghum, maize and tropical pulses and winter-growing wheat, barley, pulses and oilseeds (Figure 1). Both winter and summer crops are important for farm profitability.

Production systems include many mixed farming enterprises, particularly large beef cattle enterprises. On average, grain enterprises are smaller than in the Western region but larger than the Southern region.

The Northern region is the largest source of Australia’s premium hard high-protein wheat for export and domestic use. Demand for feed grains from the region’s important livestock industries is a key driver of grain production.

Figure 1 Average area sown and yield, grain producing farms, Northern region, 1994‒95 to 2012‒13p

t/ha

0.5

1

1.5

2

2.5

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ha

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700

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–13p

Other grain crops

Grain sorghum

Oilseeds

Pulses

Barley

Wheat

Average yield of grains, oilseeds and pulses

p Preliminary estimate.Source: Australian Agricultural and Grazing Industries Survey

Figure 2 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Northern region, 1994‒95 to 2012‒13p

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Map 2 Average wheat yields, 2003‒04 to 2012‒13p


Map 3 Variability of wheat yields, 2003‒04 to 2012‒13p

p Preliminary estimate.Note: Coefficient of variation in wheat yieldSource: Australian Agricultural and Grazing Industries Survey

4


Southern regionThe Southern region encompasses south-eastern Australia, including central and southern New South Wales, Victoria, Tasmania and South Australia.

Some areas have very productive soils, most are of lower fertility, with subsoil constraints such as salinity, sodicity and toxic levels of some elements (Map 2).

Yield potential depends on rainfall through the growing season, with less dependence on stored soil moisture than in the Northern region. Reliability of rainfall within the region varies from relatively high in areas such as the Yorke Peninsula to low in inland regions such at the Victorian Mallee and western New South Wales. Rainfall variability was reflected in high variability in grain yields in many areas in the 10 years ending 2013‒14 (Map 3).

Crop production systems though dominated by winter crops are varied and include many mixed farming systems that combine sheep or beef cattle and grain growing. The average area planted to grains, oilseeds and pulses per farm is much smaller than in the Western region. The average area planted to these crops is similar to the Northern region, but with much less year-to-year variability (Figure 1, Figure 3, Figure 4 and Figure 5).

Figure 3 Average area sown and yield, grain producing farms, Southern region, 1994‒95 to 2012‒13p

t/ha

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1

1.5

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2009

–10

2010

–11

2011

–12

2012

–13p

Other grain crops

Oilseeds

Pulses

Barley

Wheat



5


Figure 4 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Southern region, 1994‒95 to 2012‒13p

t

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400

600

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1200

1400

1600

1800

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$/t

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Production

Price received


Western regionThe Western region comprises the cropping areas of Western Australia, where soil fertility is generally low to very low and yields depend on rainfall through the winter crop growing season.

In many areas, yields are low by world standards (Map 2) with the impact of low yields on farm incomes compensated for by the large area planted to crop per farm (Figure 5 and Figure 6). Long-term variability in seasonal rainfall and production has generally been lower in southern and central parts of the Western region (Map 3).

Wheat, barley, canola and lupins are the dominant crops, with sheep enterprises in mixed farming systems usually of less importance. The Western region, which has a relatively small population and small feed grain using industries, consequently exports more than 85 per cent of its grain production.

6


Figure 5 Average area sown and yield, grain producing farms, Western region, 1994‒95 to 2012‒13p

t/ha

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1

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519

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920

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020

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120

11–1

220

12–1

3p

Oilseeds

Pulses

Barley

Wheat



Figure 6 Average production per farm and price received per tonne sold for grains, oilseeds and pulses, Western region, 1994‒95 to 2012‒13p

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$/t

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Production

Price received


7


3 Grain producing farmsAround 26 240 Australian broadacre farms each plant more than 40 hectares of grains, oilseeds or pulses each year. These farms are classified as grain producing farms in this report. Many of these farms are mixed enterprises, deriving a large proportion of their receipts from beef cattle, sheep, slaughter lambs and wool.

Table 1 Distribution of grain producing farms, by area planted to grains, oilseeds and pulsesaverage between 2010‒11 and 2012‒13Area planted to grains, oilseeds or pulses

Number of farms (no.)

Share of farms (%)

Share of grain, oilseed and pulse

production (%)

Northern Australia

<600 hectares 4 860 79 19

600 to 1200 hectares 710 12 20

1200 to 2400 hectares 290 5 14

>2400 hectares 290 5 46

Total 6 160 100 100

Southern Australia

<600 hectares 10 100 65 24

600 to 1200 hectares 2 580 17 22

1200 to 2400 hectares 2 160 14 32

>2400 hectares 700 4 23

Total 15 540 100 100

Western Australia

<600 hectares 1 810 40 6

600 to 1200 hectares 820 18 9

1200 to 2400 hectares 720 16 17

>2400 hectares 1 200 26 68

Total 4 540 100 100

Australia

<600 hectares 16 770 64 18

600 to 1200 hectares 4 110 16 18

1200 to 2400 hectares 3 170 12 25

>2400 hectares 2 190 8 39

Total 26 240 100 100

Note: Includes all broadacre farms with greater than 40 hectares planted to grains, oilseeds or pulses.Source: Australian Agricultural and Grazing Industries Survey

In three years to 2012‒13 (Table 1) more than 23 per cent of grain producing farms (6160 farms) were in the Northern region, 59 per cent (15 540) were in the Southern region and 17 per cent (4540 farms) in the Western region.

8


The average area planted per farm to grain, oilseeds and pulses doubled in the Southern and Western regions from 1994‒95 to 2012‒13, increasing steadily throughout this period. In the Northern region, the increase in area planted to these crops was more variable. The average area planted doubled between 2009‒10 and 1994‒95 (Figure 1) but then declined with the onset of drier seasonal conditions to be around 70 per cent higher in 2012‒13 compared with 1994‒95.

In all three regions, increases in average area planted to grain, oilseeds and pulses has been because of increases in both the proportion of farm area planted to grain and the average area operated per farm business as a result of farm amalgamation. Farm amalgamations have resulted in a decline in the number of grain producing farms as smaller farms have been incorporated into larger farm businesses (Figure 7).

Figure 7 Number of grain producing farms, Australia, 1994‒95 to 2013‒14y

no. of farm businesses

5000

10000

15000

20000

25000

30000

35000

40000

All grain producing farms

Specialist grain producing farms

p Preliminary estimate. y Provisional estimate.Source: Australian Agricultural and Grazing Industries Survey

Figure 8 Relative change in the number of grain producing farms, by area planted, 1994‒95 to 2012‒13p

Index 1994–95 =100

50

100

150

200

250

300

350

400

450Greater than 2400 hectares

1200 to 2400 hectares


Less than 600 hectares


9


Between 1994‒95 and 2012‒13 the number of farms planting more than 2400 hectares to grains, oilseeds and pulses increased by more than 400 per cent, while the number of farms planting 1200 to 2400 hectares increased by more than 130 per cent. From 1994‒95 to 2003‒04, the number of farms planting between 600 and 1200 hectares increased before declining to be similar in 2012‒13 to the number in 1994‒95. In contrast, the number of farms planting less than 600 hectares declined by 34 per cent over this period (Figure 8).

In the last 20 years, farms with the largest grain enterprises have markedly increased their share of production. In the three years to 1994‒95 farms planting more than 2400 hectares to grains, oilseeds and pulses accounted for only 13 per cent of total production and farms planting less than 600 hectares accounted for 40 per cent of total production. In contrast, in the three years to 2012‒13, the 8 per cent of farms (2190 farms) planting greater than 2400 hectares to grains, oilseeds and pulses produced 39 per cent of total production. In the Western region, these farms represented 26 per cent of the region’s grain farms but accounted for 68 per cent of production.

This compares with farms planting less than 600 hectares to grains, oilseeds and pulses, which accounted for 64 per cent of grain producing farms in the three years to 2012‒13 but now account for only 18 per cent of total production.

Specialist grain producersAround 14 440 grain producing farms each earn more than 50 per cent of their total farm receipts from sale of grains, oilseeds or pulses. These businesses are classified as specialist grain producers in this report.

These businesses generally have much larger grain producing enterprises. For 2010‒11 to 2012‒13 the average area planted to grains, oilseeds and pulses for specialist grain producers was 1264 hectares, 150 per cent larger than the average of 828 hectares for all grain producing farms. In aggregate, specialist grain producers account for around 90 per cent of the total value of grain, oilseed and pulse sales by Australian broadacre farms. Over time, change in the number of specialist grain producers has broadly followed changes in the number of all grain producing farms, declining through the early and mid 2000s but increasing slightly between 2006‒07 and 2012‒13 (Figure 7).

Around 70 per cent of grain producing farms in the Western region and around 60 per cent of grain producing farms in the Southern region are classified as specialist grain producers. The proportion of Northern grain producing farms classified as specialist producers is much lower, averaging 38 per cent in the three years to 2012‒13.

10


4 Grain productionImproved seasonal conditions in eastern Australia from 2008‒09, following several drought years during the early and mid 2000s, resulted in an increase in average yields and a steady rise in total Australian grain, oilseed and pulse production to a record 51.2 million tonnes in 2011‒12. From 2008‒09 the total area planted to grains, oilseeds and pulses consistently exceeded 23.2 million hectares, reaching 23.6 million hectares in 2011‒12 (ABARES 2014b).

Winter and summer grain, oilseed and pulse crops achieved Australian production records in 2011‒12. Total production of winter grain, oilseed and pulse crops (wheat, barley, canola, chickpeas, faba beans, field peas, lentils, linseed, lupins, oats, safflower and triticale) was 45.7 million tonnes. Total production of summer grain, oilseed and pulse crops (grain sorghum, maize, mung beans, rice, peanuts, soybeans, sunflower, navy beans and cottonseed) was 5.5 million tonnes.

Grain production 2012‒13The total area sown to winter grain, oilseed and pulse crops declined by 2 per cent in 2012‒13, compared with the area planted in 2011‒12. The area planted to winter crops increased in New South Wales, Queensland and South Australia, but drier seasonal conditions resulted in a reduction in area planted in Victoria and Western Australia.

Map 4 Rainfall percentiles for 2012‒13 winter crop areas1 April 2012 to 30 November 2012

Note: Percentiles for the pastoral zone are not included.Source: Bureau of Meteorology

11


Map 5 Rainfall percentiles for 2012‒13 summer crop areas1 November 2012 to 30 April 2013

Note: Percentiles for the pastoral zone and regions with no summer crops are not included.Source: Bureau of Meteorology

Below average rainfall through winter and spring (Map 4) reduced winter crop yields in all states in 2012‒13, with the largest reductions in winter crop production in Western Australia and Victoria. In some regions, frost and late season rainfall further lowered yields and crop quality. Total winter crop production declined to around 37.9 million tonnes in 2012‒13, a reduction of 17 per cent on the record winter crop production achieved in 2011‒12.

Overall in 2012‒13, total summer grain, oilseed and pulse plantings were reduced by around 11 per cent mainly as a result of a reduction in area planted to cotton. Total summer grain, oilseed and pulse production declined by 1 per cent mainly because of reduced cottonseed production and despite a small increase in rice production. Overall production of grain sorghum, the main summer crop on grain producing farms declined only slightly, compared with 2011‒12, but declined by 10 per cent in northern New South Wales as a result of a midsummer heatwave (Map 5).

Grain production 2013‒14The total area sown to winter grain, oilseed and pulse crops increased by less than 1 per cent in 2013‒14 compared with 2012‒13. Area planted in South Australia and Western Australia increased slightly, but a small reduction was reported in the area planted in Queensland and New South Wales.

Total winter crop production is estimated to have increased by 16 per cent in 2013‒14 to 44.1 million tonnes, the second largest winter crop on record after 2011‒12. However, there were marked regional variations in winter crop production.

12


In Western Australia, winter crop production is estimated to have increased by 53 per cent in 2013‒14 to a record 17.2 million tonnes. In South Australia, production is estimated to have increased by 33 per cent and in Victoria by 3 per cent. In contrast, dry seasonal conditions (Map 6) are estimated to have resulted in the winter crop declining by 15 per cent in New South Wales and by 24 per cent in Queensland.

Map 6 Rainfall percentiles for 2013‒14 winter crop areas1 April 2013 to 30 November 2013

Note: Percentiles for the pastoral zone are not includedSource: Bureau of Meteorology

Map 7 Rainfall percentiles for 2013‒14 summer crop areas1 November 2013 to 30 April 2014

Note: Percentiles for the pastoral zone and regions with no summer crops are not included.Source: Bureau of Meteorology

13


In 2013‒14 continuation of dry seasonal conditions through summer (Map 7) resulted in the area planted to summer grain, oilseed and pulse crops declining by around 20 per cent compared with 2012‒13. Total summer grain, oilseed and pulse production is estimated to have fallen by 33 per cent in 2013‒14 to 2.8 million tonnes. Production was reduced for all summer crops, but particularly grain sorghum. Grain sorghum production is estimated to have declined by 50 per cent in 2013‒14 to 1.1 million tonnes, the smallest harvest since 1997‒98. This reflects an estimated 24 per cent reduction in planted area and an estimated 35 per cent reduction in the average yield. In addition, grain quality was also adversely affected by unfavourable conditions throughout the growing season.

Rice production is estimated to have declined by 29 per cent in 2013‒14 because of a decline in planted area resulting from reduced supply of irrigation water available to rice producers.

On-farm grain stocksChanges in grain marketing options and the larger size of grain crops in recent years has resulted in Australian grain producing farms increasing the use of on-farm grain storage to store and market their crops. The aggregate tonnage of grains retained on Australian grain producing farms at 30 June has increased over time, particularly in the past five years (Figure 9).

Figure 9 On-farm grain stocks at 30 June, grain producing farms, 1995 to 2013p

Mt

1

2

3

4

5

6

7

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p

Other grains

Pulses

Oilseeds

Grain sorghum

Barley

Oats

Wheat


AAGIS records stocks of unsold grain held by farms at 30 June each year. These estimates do not represent farms’ total on-farm grain storage capacity. Grain stocks at 30 June are normally well below peak immediately after the winter crop has been harvested in October to January. By 30 June, most of the previous winter crop has been sold and most of the seed for the next winter crop planted. However, a large proportion of harvested summer crops remain on farm because they are typically harvested just before 30 June. This is particularly the case for grain sorghum in the Northern region. While most stocks are held on farm, some are held in storage rented from bulk grain handlers.

In recent years, AAGIS has recorded several large increases in grain stocks held by grain producing businesses at 30 June. The first occurred in 2011 and was mainly confined to the Southern region. The large 2010‒11 winter crop was widely affected by wet conditions around harvest, which resulted in downgrading in the quality of a large tonnage of grain and pulses. A

14


large quantity of this lower quality grain was held on farm and remained in storage at 30 June 2011 before being sold early in 2011‒12 and contributing significantly to farm receipts in that year. Again in 2011‒12, a record winter grain crop resulted in increased grain stocks held by grain producing businesses at 30 June 2012 in all regions, but with the largest increase in the Western region. These stocks were then mostly sold during the early part of 2012‒13.

15


5 Financial performanceFinancial performance of Australian grain producing farmsNationally, the financial performance of grain producing farms has generally trended upward since 2007‒08. Favourable yields for a relatively high proportion of grain producing farms increased total grain, oilseed and pulse production and resulted in higher farm receipts and high average farm cash incomes compared with incomes recorded historically (Figure 10).

Farm cash incomeNationally, in 2012‒13 average grain, oilseed and pulse receipts increased by 13 per cent as higher grain, oilseed and pulse prices more than offset small reductions in grain production. Increased crop receipts were partly offset by reduced livestock receipts as a result of lower prices for beef cattle and lambs. Sales prices for livestock declined as numbers sold increased in response to drier seasonal conditions. Overall, total cash receipts increased by 5 per cent in 2012‒13 compared with 2011‒12 and average total cash costs increased by only 1 per cent in 2012‒13. Increases in crop production costs were largely offset by reductions in interest payments and in expenditure on sheep and cattle purchases (from a near record in 2011‒12). With a larger increase in average total cash receipts than in average total cash costs, farm cash income for grain producing farms increased nationally from an average of $165 510 a farm in 2011‒12 to $191 900 a farm in 2012‒13 (Table 2). This was around 62 per cent above the average for the 10 years to 2011‒12.

Figure 10 Farm cash income, grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

50

100

150

200

250

300

350


Specialist grain producing farms


16

Australian

grains:

financial

performance of grain producing

farms, 2011–12 to

2013–14

ABARES

17

Table 2 Financial performance of grain producing farms, Australiaaverage per farmFinancial performance measure unit All grain producing farms Specialist grain producers

2011‒12 2012‒13p 2013‒14y 2011‒12 2012‒13p 2013‒14y

Total cash receipts $ 642 090 671 800 (3) 709 000 807 030 902 300 (4) 944 000

Total cash costs $ 476 580 479 900 (3) 495 000 584 650 627 500 (4) 643 000

Farm cash income $ 165 510 191 900 (6) 214 000 222 380 274 800 (7) 301 000

Farms with negative farm cash income % 23 15 (13) 20 19 11 (19) 16

Farm business profit $ 44 780 59 500 (18) 74 000 78 780 126 722 (15) 140 000

Profit at full equity $ 112 880 126 900 (9) 139 000 163 930 222 370 (9) 227 000

Rate of return to total capital used % 2.4 2.7 (8) 3.6 3.3 4.0 (8) 5.3

Rate of return on owners equity % 1.3 1.7 (17) na 2.2 3.2 (13) na

p Preliminary estimate. y Provisional estimates.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.Source: Australian Agricultural and Grazing Industries Survey

Box 1 Major financial performance indicators

Total cash receipts: total revenues received by the business during the financial yearTotal cash costs: payments made by the business for materials and services and for permanent and casual hired labour (excluding owner–manager, partner and family labour)Farm cash income: total cash receipts – total cash costsFarm business profit:farm cash income + change in trading stocks – depreciation – imputed labour costsProfit at full equity: return produced by all the resources used in the businessfarm business profit + rent + interest + finance lease payments – depreciation on leased itemsRate of return to total capital used: efficiency of businesses in generating returns from all resources used(profit at full equity/total opening capital) x 100Rate of return to owners equity: efficiency of businesses in generating profit from capital invested by owners(farm business profit/farm business equity) x 100


In 2013‒14 average grain, oilseed and pulse receipts are estimated to have increased further by around 5 per cent nationally as a result of increased winter grain production and despite low overall receipts from summer crops. Overall, with sheep and lamb receipts also increasing, average total cash receipts for grain producing farms are estimated to have increased by around 6 per cent in 2013‒14 compared with 2012‒13. Average total cash costs are estimated to have increased by around 3 per cent compared with 2012‒13. Purchases of beef cattle and sheep are expected to slow further in all eastern states in 2013‒14 in response to drier seasonal conditions and lower interest rates are projected to result in a small reduction in interest payments. Reductions in these cost items are expected to be more than offset by a large increase in expenditure on fodder in Queensland and New South Wales, increased crop handling and marketing expenses resulting from the much larger winter crop in South Australia and Western Australia and increased expenditure on repairs and maintenance in Western Australia and South Australia as farmers respond to increased farm receipts.

In 2013‒14 farm cash income for Australian grain producing farms is estimated to have risen to average $214 000 a farm, around 70 per cent above the 10-year average to 2012‒13 of $126 000 in real terms (Figure 10).

Farm business profit and rate of returnFarm cash income is a measure of cash funds generated by the farm business for farm investment and consumption after paying all costs incurred in production; this includes interest payments but excludes capital payments and payments to family workers. It is a measure of short-term farm performance because it does not take into account depreciation or changes in farm inventories. A measure of longer-term profitability is farm business profit because it takes into account capital depreciation and changes in inventories of livestock, fodder, grain and wool.

Reductions in beef cattle and sheep numbers and reduced stocks of grain on farms in the Northern and Southern regions (see On-farm grain stocks) resulted in a reduction in overall farm inventory values in 2012‒13 and 2013‒14. As a result, the increase in average farm business profit for grain producing farms in 2012‒13 and 2013‒14 is smaller than the increase in farm cash income. Farm business profit for Australian grain producing farms increased from an average of $44 780 a farm in 2011‒12 to $59 500 in 2012‒13 and then to an estimated average of $74 000 in 2013‒14.

Profit at full equity, also referred to as earnings before interest and taxes (EBIT), adjusts farm business profit by adding back interest and leasing expenditure so that the performance of all farms can be compared regardless of the financing arrangements in place. For Australian grain producing farms, average profit at full equity increased from $112 880 a farm in 2011‒12 to $126 900 in 2012‒13 and then to an estimated $139 000 in 2013‒14.

Average rate of return to total capital used (excluding capital appreciation) is a measure of the percentage return generated from all resources used by the farm business. Overall, the average rate of return to total capital used for Australian grain producing farms is estimated to have been 2.7 per cent in 2012‒13; it is expected to have increased to average 3.6 per cent in 2013‒14.

Average rate of return to owner’s equity is a measure of the percentage net return earned on the capital invested by the farm business’s owner. Overall, the average rate of return to owner’s equity for Australian grain producing farms is estimated to have been 1.3 per cent in 2011‒12 and to increase to average 1.7 per cent in 2012‒13.

18


Australian specialist grain producersAverage farm cash income for Australian specialist grain growers has consistently exceeded the average for all Australian grain producing farms over the past 20 years (Figure 10). Indeed, the gap between the average farm cash income of specialist grain growers and the average for all grain producing farms has generally widened since 2006‒07 as farm cash incomes for grain producing farms have generally increased.

Farm cash income for Australian specialist grain producers increased from an average of $222 380 a farm in 2011‒12 to $274 800 in 2012‒13 and then to an estimated average of $301 000 in 2013‒14; 67 per cent above the 10-year average to 2012‒13 of $181 000.

Farm business profit for Australian specialist grain producers increased from an average of $78 780 a farm in 2011‒12 to $126 722 in 2012‒13 and then to an estimated average of $140 000 in 2013‒14.

Average rate of return to total capital used (excluding capital appreciation) for Australian specialist grain producers is estimated to have been 4.0 per cent in 2012‒13; it is expected to increase to average 5.3 per cent in 2013‒14, well above the 10-year average to 2012‒13 of 2.7 per cent.

Among the agricultural industries surveyed by ABARES, the projected average return to total capital used in 2013‒14 for Australian specialist grain producers is highest, at 5.3 per cent, compared with –0.5 per cent for the beef industry, 0.2 per cent for the sheep industry and 3.1 per cent for the dairy industry (ABARES 2014a).

Financial performance—Northern region

Farm cash incomeIn 2012‒13 average farm cash receipts for Northern region grain producing farms increased slightly (Figure 11), with receipts from winter and summer grains, oilseeds and pulses rising as a result of higher prices received. Increased crop receipts were partly offset by reduced livestock receipts as a result of lower prices for beef cattle. Total cash receipts increased by 7 per cent in 2012‒13 compared with 2011‒12 and average total cash costs declined by 5 per cent with reductions in interest payments and reduced expenditure on purchase of beef cattle from a near record in 2011‒12. With higher average total cash receipts and a reduction in total cash costs, farm cash income increased in the Northern region from an average of $78 880 a farm in 2011‒12 to $141 900 a farm in 2012‒13 (Table 3).

19


Figure 11 Cash receipts, Northern region grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

100

200

300

400

500

600

700

1994

–95

1995

–96

1996

–97

1997

–98

1998

–99

1999

–00

2000

–01

2001

–02

2002

–03

2003

–04

2004

–05

2005

–06

2006

–07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

2012

–13p

2013

–14y

Other cash receipts

Total livestock receipts

Other crop receipts

Oilseeds

Grain sorghum

Pulses

Barley receipts

Wheat receipts

p Preliminary estimate. y Provisional estimates.Source: Australian Agricultural and Grazing Industries Survey

As a consequence of increases in farm debt in the 10 years to 2010‒11, interest payments are the largest cash cost for Northern region grain producing farms. Cattle purchase accounts for a much larger on average proportion of farm costs in the Northern region than in the Southern and Western regions (Figure 12).

In 2013‒14 average grain, oilseed and pulse receipts for Northern region grain producing farms are estimated to have declined by around 45 per cent as a result of reductions in both winter and summer crop production. Crop receipts are estimated to be the lowest in real terms since 2004‒05 (Figure 11). Overall, livestock receipts are estimated to have increased slightly, as a result of high sales numbers for beef cattle at relatively low prices. Partially offsetting these reductions, average total cash costs are estimated to have declined by around 9 per cent compared with 2012‒13. This is a result of farmers planting and harvesting much smaller crop areas in 2013‒14, further reducing purchases of beef cattle and substantially reducing expenditure in response to much reduced farm cash receipts.

In 2013‒14 farm cash income for Northern region grain producing farms is estimated to have fallen to average $20 000 a farm, around 80 per cent below the 10-year average to 2012‒13 of $102 000 a farm in real terms. If achieved, this would be the lowest farm cash income for Northern region grain growing farms recorded for more than 20 years (Figure 13).

20


Figure 12 Composition of farm costs, grain producing farms, 2010‒11 to 2013‒14y

% 2 4 6 8 10 12 14 16 18

Fertiliser

Interest paid

Crop and pasture chemicals

Repairs and maintenance

Fuel oil and lubricants

Other services

Contracts

Hired labour costs

Livestock purchases

Other materials

Total freight

Handling and marketing charges

Administrative costs

Rates

Land rent

Fodder

Payments to sharefarmers

Other cash costs

Depreciation

Value of owner-manager and family labour

Northern Southern Western

y Provisional estimates.Source: Australian Agricultural and Grazing Industries Survey

Figure 13 Farm cash income, Northern grain producing farms, 1994‒95 to 2013‒14y

- 50

2013–14 $’000

50

100

150

200

250

300


Specialist grain producers


21


Farm business profit and rate of returnReduction in beef cattle numbers and on-farm stocks of grain will lower farm inventory values in 2013‒14 for the Northern region. As a result, the reduction in average farm business profit for 2013‒14 is estimated to have been even larger than the reduction in farm cash income. Farm business profit for Northern region grain producing farms is estimated to have declined from a profit of $24 000 a farm in 2012‒13 to an estimated average loss of $118 000 a farm in 2013‒14.

For Northern region grain producing farms, average profit at full equity is estimated to have declined from a profit of $82 100 a farm in 2012‒13 to an estimated loss of $65 000 a farm in 2013‒14.

Average rate of return to total capital used (excluding capital appreciation) for Northern region grain producing farms is estimated to have been 1.7 per cent in 2012‒13 compared with 3.0 per cent in the Southern region and 3.1 per cent in the Western region; it is expected to decline to average –1.7 per cent in 2013‒14.

Financial performance by size of grain enterpriseFarm financial performance varies between producers with different sized cropping enterprises. Generally, farm cash incomes, farm business profits and rates of return are higher for larger sized grain enterprises (Table 4).

For the five years to 2012‒13 rate of return to total capital used (excluding capital appreciation) averaged 4.5 per cent for grain producing farms planting greater than 2400 hectares, compared with an average of –$0.1 per cent for the smallest grain producing farms planting less than 600 hectares.

22


Table 3 Financial performance, Northern region grain producing farmsaverage per farmFinancial performance measure unit 2011‒12 2012‒13p 2013‒14y

Farm cash receipts

Wheat $ 135 110 153 600 (12) 97 000

Barley $ 17 490 27 500 (34) 14 000

Grain sorghum $ 37 250 59 800 (18) 31 000

Pulses $ 42 890 59 000 (17) 16 000

Oilseeds $ 10 700 22 200 (25) 16 000

Other crops $ 53 700 28 200 (40) 26 000

Total crops $ 296 670 353 100 (12) 200 000

Livestock and livestock products $ 186 180 176 400 (9) 180 000

Other cash receipts $ 56 440 48 700 (18) 37 000

Total cash receipts $ 539 630 578 300 (8) 417 000

Farm cash costs

Fertiliser $ 31 920 36 600 (13) 33 000

Interest paid $ 57 910 50 400 (12) 45 000

Crop and pasture chemicals $ 43 410 45 300 (10) 38 000

Repairs and maintenance $ 44 160 42 800 (9) 37 000

Fuel oil and lubricants $ 39 410 37 600 (8) 36 000

Other services $ 29 550 31 800 (10) 31 000

Contracts $ 40 170 38 700 (15) 36 000

Hired labour costs $ 25 800 22 100 (15) 20 000

Livestock purchases $ 41 830 29 300 (18) 21 000

Freight, handling and marketing charges $ 30 670 34 900 (14) 23 000

Total cash costs $ 460 750 436 400 (8) 397 000

Farm capital and debt

Total farm capital at 30 June $ 4 980 470 4 969 900 (6) na

Farm business debt at 30 June $ 837 650 737 000 (13) 695 000

Equity ratio % 82 84 (2) na

Farm financial performance

Farm cash income $ 78 880 141 900 (12) 20 000

Farm business profit $ –16 730 24 000 (71) –118 000

Profit at full equity $ 49 610 82 100 (25) –65 000

Rate of return

Rate of return to total capital % 1.0 1.7 (22) –1.7

Return on owners equity % –0.6 0.6 (74) na

p Preliminary estimate. y Provisional estimate. na not available.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.Source: Australian Agricultural and Grazing Industries Survey

23

Australian

grains:

financial


farms, 2011–12 to

2013–14

ABARES

24

Table 4 Selected estimates, Northern region grain producing farms, by scale of operationsaverage per farm 2008‒09 to 2012‒13pPhysical unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain

producing farms

Top 25% specialist grain

producing farms<600 hectares

600 to 1200

hectares

1200 to 2400

hectares

>2400 hectares

Total farm area at 30 June ha 1 500 4 200 5 800 12 500 2 600 2 300 4 500

Wheat – area sown ha 69 468 983 2678 298 544 1 145

Wheat yield per hectare t 1.8 1.9 1.9 2.3 2.0 2.3 2.5

Total grains, oilseeds and pulses – area sown ha 169 862 1705 4673 563 1 033 2 146

Yield per hectare for all grains, oilseeds and pulses

t 1.5 2.0 2.1 2.1 1.9 2.2 2.4

Total grain crops – production t 255 1731 3 528 9 705 1 086 2 312 5 147

Average price received for grain, oilseeds and pulses

$/t 272 245 262 269 264 268 274

Total labour weeks worked weeks 88 127 165 296 108 116 167

Financial performance

Total grain, oilseed and pulse receipts $ 64 900 400 700 881 700 2 471 100 271 300 608 500 1 321 400

Total cash receipts $ 247 700 802 200 1 270 700 3 613 000 539 200 843 400 1 821 900

Total cash costs $ 202 600 641 600 981 300 2 948 800 435 800 660 500 1 287 200

Farm cash income $ 45 100 160 600 289 400 664 200 103 400 182 900 534 700

Farm business profit $ –31 300 38 700 86 500 63 900 8 500 68 100 438 400

Profit at full equity $ –3 200 141 800 240 200 982 100 77 100 173 100 655 400

Rate of return

Return on capital – excluding capital appreciation

% –0.1 1.9 2.5 4.5 1.5 2.8 6.6

Return on capital – including capital appreciation

% –0.8 1.5 2.3 3.4 0.8 2.2 7.1

Australian

grains:

financial


farms, 2011–12 to

2013–14

ABARES

25

continued ...

Australian

grains:

financial


farms, 2011–12 to

2013–14

ABARES

26

Table 4 Selected estimates, Northern region grain producing farms, by scale of operationsaverage per farm 2008‒09 to 2012‒13p continuedFarm capital and debt unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain

producing farms



600 to 1200

hectares

1200 to 2400

hectares

>2400 hectares

Total farm capital used at 30 June $ 3 257 200 7 434 500 9 989 800 22 717 600 5 096 300 6 274 900 10 359 800

Farm business debt at 30 June $ 342 900 1 210 000 1 844 200 6 704 300 833 500 1 297 900 621 500

Equity ratio % 89 82 80 68 82 78 73

Debt servicing

Interest-to-receipts ratio % 10 12 10 13 11 11 10

Interest and principal to receipts ratio % 27 24 24 25 25 24 22

Number of farms no. 4 700 700 300 300 6 100 2 300 600



Specialist grain producersAverage farm cash income for Northern region specialist grain growers exceeded the average for all Northern grain producing farms in most of the past 20 years ending 2012‒13 except during the widespread drought in 1994‒95 and 2006‒07. Once again, with drought in 2013‒14, average farm cash income for Northern specialist grain producers is expected to have been below the average for Northern grain producing farms.

Farm cash income for Northern region specialist grain producers increased to an average of $281 000 a farm in 2012‒13. However, it is estimated to have declined to an average of –$17 000 a farm in 2013‒14, the lowest farm cash income for Northern region specialist grain producers in more than 20 years (Figure 13).

High performing farmsFarm businesses can be classified into performance categories, based on the rate of return (excluding capital appreciation) to all capital used in the business. Rate of return to total farm capital is a complete measure of farm financial performance that values all farm inputs and is not as strongly correlated with farm size as many other financial performance measures. To reduce the effect of changes in commodity prices, seasonal conditions and other year-specific effects on farm performance, three-year moving average rates of return have been calculated for each specialist grain growing farm in the AAGIS database. Results for Northern region grain growing farms classified to the top performing 25 per cent of farms by rate of return for 2008‒09 to 2012‒13 are included in Table 4.

Over the five years ending 2012‒13 the top performing 25 per cent of farms recorded average rates of return to capital of 6.6 per cent a year, well above the average annual rate of return of 2.8 per cent a year for all specialist grain growers in the Northern region.

High performing farms operate mainly larger cropping enterprises, but are found in all enterprise size categories. Over the five years ending 2012‒13 the top performing 25 per cent of farms also recorded slightly higher average grain, oilseed and pulse yields and received a slightly higher average price for grains, oilseeds and pulses sold.

27


Financial performance—Southern region

Farm cash incomeIn 2010‒11 average farm cash receipts increased markedly for Southern region grain producing farms (Figure 14) as the area planted to grains, oilseeds and pulses increased and yields rebounded after well below average yields from 2006‒07 to 2008‒09 as a result of drought conditions (Figure 3). Average receipts per farm remained historically high for Southern region grain producing farms in 2011‒12 as a result of above average grain yields, sale of grain stocks carried over from 2010‒11 and high receipts from sales of lambs on mixed enterprise farms (Figure 14).

Figure 14 Cash receipts, Southern region grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

100

200

300

400

500

600

700

1994

–95

1995

–96

1996

–97

1997

–98

1998

–99

1999

–00

2000

–01

2001

–02

2002

–03

2003

–04

2004

–05

2005

–06

2006

–07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

2012

–13p

2013

–14y

Other cash receipts


Other crop receipts

Oilseeds

Grain sorghum

Pulses

Barley receipts

Wheat receipts


In 2012‒13, despite slightly lower grain yields receipts from winter grains, oilseeds and pulses increased as a result of higher grain prices. Increased crop receipts were partly offset by reduced livestock receipts on mixed enterprise farms. This was as a result of lower average prices for wool, lambs, sheep and beef cattle as sale numbers increased in response to drier seasonal conditions. Total cash receipts increased by 5 per cent in 2012‒13 compared with 2011‒12. In contrast, total cash costs increased by around 1 per cent, alongside reductions in interest payments and much reduced expenditure on purchase of livestock from a near record in 2011‒12. With higher average total cash receipts and only a small increase in total cash costs, farm cash income increased in the Southern region from an average of $171 040 a farm in 2011‒12 to $193 700 a farm in 2012‒13 (Table 5).

28


Table 5 Financial performance, Southern region grain producing farmsaverage per farmFinancial performance measure unit 2011‒12 2012‒13p 2013‒14y

Farm cash receipts

Wheat $ 179 890 198 600 (6) 236 000

Barley $ 51 610 58 100 (8) 69 000

Grain sorghum $ 250 – – –

Pulses $ 21 420 15 400 (13) 18 000

Oilseeds $ 62 770 85 100 (8) 87 000

Other crops $ 19 990 14 700 (17) 35 000

Total crops $ 352 750 412 400 (4) 445 000



Total cash receipts $ 573 010 600 100 (4) 643 000

Farm cash costs

Fertiliser $ 58 160 60 400 (5) 62 000

Interest paid $ 42 490 37 700 (6) 36 000




Other services $ 24 050 24 300 (5) 27 000

Contracts $ 18 690 24 000 (12) 23 000




Total cash costs $ 401 970 406 400 (4) 418 000



Farm business debt at 30 June $ 610 360 579 600 (6) 558 000



Farm cash income $ 171 040 193 700 (7) 225 000

Farm business profit $ 34 490 69 100 (17) 95 000

Profit at full equity $ 89 110 123 300 (10) 147 000

Rate of return

Rate of return to total capital % 2.2 3.0 (9) 4.4

Return on owners equity % 1.2 2.3 (16) na

p Preliminary estimate. y Provisional estimate. na not available.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.Source: Australian Agricultural and Grazing Industries Survey

In 2013‒14 grain, oilseed and pulse receipts are estimated to have increased further by around 8 per cent as a result of increased winter crop production and despite reduced rice production.

29


Overall, livestock receipts are estimated to have increased slightly, as a result of high sales numbers for beef cattle at relatively low prices and an increase in average prices received for lambs. Average total cash costs are estimated to have increased by around 3 per cent compared with 2012‒13. This was a result of farmers planting and harvesting larger crop areas in 2013‒14 and increasing their expenditure on repairs and maintenance to take advantage of higher farm cash receipts.

In 2013‒14 farm cash income for Southern region grain producing farms is estimated to have increased to average $225 000 a farm, almost double the 10-year average to 2012‒13 of $114 000 a farm in real terms. This was the highest farm cash income recorded for Southern region grain growing farms in more than 20 years (Figure 15).

Figure 15 Farm cash income, Southern grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

50

100

150

200

250

300

350All grain producing farms



Farm business profit and rate of returnFarm business profit for Southern region grain producing farms is estimated to have increased from $69 100 a farm in 2012‒13 to an estimated average of $95 000 a farm in 2013‒14. Profit at full equity is estimated to have increased from an average of $123 300 a farm in 2012‒13 to an estimated $147 000 a farm in 2013‒14.

Rate of return to total capital used for Southern region grain producing farms is estimated to average 3.9 per cent in 2012‒13 and is expected to have increase to average 4.4 per cent in 2013‒14.

Financial performance by size of grain enterpriseFor the five years ending 2012‒13 rate of return to total capital used averaged 5.5 per cent for Southern region grain producing farms planting greater than 2400 hectares and 4.3 per cent for farms planting between 1200 and 2400 hectares, compared with an average of just 0.8 per cent for the smallest grain producing farms (farms planting less than 600 hectares).

Specialist grain producersAverage farm cash income for specialist grain growers has exceeded the average for all grain producing farms in the Southern region in each of the past 20 years (Figure 15).

30


In 2012‒13 farm cash income for Southern region specialist grain producers increased to average $260 000 a farm and is estimated to have increased further to $296 000 a farm in 2013‒14. This was the highest farm cash income for Southern region specialist grain producers in more than 20 years (Figure 15).

High performing farmsOver the five years ending 2012‒13 the top performing 25 per cent of grain producing farms in the Southern region recorded average rates of return to capital of 8.1 per cent a year. Farm cash income and farm business profit were more than double the average for all specialist grain growers in the Southern region (Table 6).

High performing farms operate much larger cropping enterprises on average, recorded slightly higher average grain, oilseed and pulse yields and received a slightly higher average price for grains, oilseeds and pulses sold.

In aggregate, these high performing farms account for 36 per cent of the value of sales of grain, oilseeds and pulses from Southern grain producing farms. This is a relatively larger share than that recorded for the Northern region (31 per cent) and less than in the Western region (41 per cent).

31


32

Table 6 Selected estimates, Southern region grain producing farms, by scale of operationsaverage per farm, 2008‒09 to 2012‒13pPhysical unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain

producing farms



600 to 1200

hectares

1200 to 2400

hectares

> 2400 hectares


Wheat - area sown ha 101 429 1 015 2 322 368 548 911


Total grain crops - area sown ha 218 838 1 676 3 634 654 962 1 539


t 2.0 1.9 1.8 1.8 1.9 2.0 2.1

Total grain crops - production t 444 1 624 3 039 6 454 1 229 1 939 3 259

Average price received for grain, oilseeds and pulses

$/t 269 265 265 262 265 266 274

Total labour weeks worked weeks

85 115 146 207 103 106 125


Total grain, oilseed and pulses receipts $ 100 700 398 600 743 900 1 512 400 292 900 480 100 846 500

Total cash receipts $ 284 200 637 200 1 043 300 2 101 500 517 600 648 900 1 080 900

Total cash costs $ 210 700 460 600 709 700 1 515 300 371 600 442 500 629 700

Farm cash income $ 73 500 176 600 333 600 586 300 146 000 206 400 451 200

Farm business profit $ -800 61 400 169 900 365 400 47 200 93 800 337 400

Profit at full equity $ 25 800 135 600 281 700 597 500 101 300 157 700 435 500

Rate of return

Return on capital – excluding capital appreciation % 0.8 3.0 4.3 5.5 2.5 3.7 8.1

Return on capital – including capital appreciation % 0.8 2.9 4.6 6.2 2.6 4.0 9.3

continued ...


33


34

Table 6 Selected estimates, Southern region grain producing farms, by scale of operationsaverage per farm, 2008‒09 to 2012‒13p continuedFarm capital and debt unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain

producing farms



600 to 1200

hectares

1200 to 2400

hectares

>2400 hectares

Total farm capital used at 30 June $ 3 170 900 4 619 400 6 784 900 11 319 600 4 223 600 4 392 100 5 705 800

Farm business debt at 30 June $ 309 700 787 700 1 123 500 2 706 500 595 300 682 600 941 300

Equity ratio % 89 80 80 73 84 82 81

Debt servicing



Number of farms no 10 400 2 500 2 100 700 15 600 8 100 2 000



Financial performance—Western region

Farm cash incomeIn 2011‒12 average farm cash receipts increased for Western region grain producing farms (Figure 16) as the area planted to grains, oilseeds and pulses increased. Yields also increased from the below average recorded in 2010‒11 that resulted from dry seasonal conditions (Figure 5).

On average, receipts per farm were maintained for grain producing farms in 2012‒13 despite lower grain yields (as a result of higher grain prices) and receipt of pool payments on grain delivered in 2011‒12 (Figure 16). Livestock receipts declined on mixed enterprise farms as a result of lower prices for lambs, sheep and wool. Overall, total cash receipts increased by 2 per cent compared with 2011‒12; but average total cash costs increased by around 4 per cent as a result of higher crop production expenditure and increased interest payments. Cost increases exceeded the small increase in receipts for Western region grain producing farms and average farm cash income declined to an average of $254 400 a farm in 2012‒13 (Table 7).

In 2013‒14 grain, oilseed and pulse receipts are estimated to have increased by around 30 per cent for grain producing farms as a result of record winter crop production. Overall, livestock receipts are estimated to have increased slightly as a result of higher average prices received for sheep and lambs. Overall, average total cash receipts are estimated to have increased by around 28 per cent compared with 2012‒13 (Figure 16). Average total cash costs are estimated to have increased by around 13 per cent; this was a result of farmers planting and harvesting a much larger crop area in 2013‒14 and increasing their expenditure on repairs and maintenance to take advantage of much higher farm cash receipts.

Figure 16 Cash receipts, Western region grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

200

400

600

800

1000

1200

1400

1994

–95

1995

–96

1996

–97

1997

–98

1998

–99

1999

–00

2000

–01

2001

–02

2002

–03

2003

–04

2004

–05

2005

–06

2006

–07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

2012

–13p

2013

–14y

Other cash receipts


Other crop receipts

Oilseeds

Grain sorghum

Pulses

Barley receipts

Wheat receipts


In 2013‒14 farm cash income for Western region grain producing farms is estimated to have increased to average $442 000 a farm—220 per cent above the 10-year average to 2012‒13 of

35


$201 000 in real terms. This is estimated to have been the largest farm cash income recorded for Western region grain growing farms in more than 20 years (Figure 17).

Table 7 Financial performance, Western region grain producing farmsaverage per farmFinancial performance measure unit 2011‒12 2012‒13p 2013‒14y

Farm cash receipts

Wheat $ 472 780 440 500 (10) 638 000

Barley $ 117 660 146 800 (15) 219 000

Grain sorghum $ – – – –

Pulses $ 30 810 43 800 (46) 45 000

Oilseeds $ 137 190 127 800 (16) 156 000

Other crops $ 19 970 9 800 (41) 26 000

Total crops $ 779 790 806 700 (10) 1 084 000



Total cash receipts $ 1 020 940 1 041 700 (8) 1 331 000

Farm cash costs

Fertiliser $ 154 950 152 000 (9) 162 000

Interest paid $ 89 650 98 600 (10) 96 000




Other services $ 39 240 40 500 (8) 94 000

Contracts $ 18 380 19 900 (14) 22 000




Total cash costs $ 759 290 787 300 (7) 889 000



Farm business debt at 30 June $ 1 380 990 1 552 800 (9) 1 447 000



Farm cash income $ 261 650 254 400 (16) 442 000

Farm business profit $ 162 840 75 500 (54) 266 000

Profit at full equity $ 280 600 200 000 (22) 390 000

Rate of return

Rate of return to total capital % 4.2 3.1 (21) 7.0

Return on owners equity % 3.6 1.8 (53) na

p Preliminary estimate. y Provisional estimate. na not available.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.

36


Source: Australian Agricultural and Grazing Industries Survey

Figure 17 Farm cash income, Western region grain producing farms, 1994‒95 to 2013‒14y

2013–14 $’000

100

200

300

400

500

600




Farm business profit and rates of returnFarm business profit for Western region grain producing farms is estimated to have increased from an average of $75 500 in 2012‒13 to an estimated $266 000 a farm in 2013‒14.

Rate of return to total capital used for Western region grain producing farms is estimated to have increased from an average of 3.1 per cent in 2012‒13 to 7.0 per cent in 2013‒14.

Financial performance by size of grain enterpriseFor the five years ending 2012‒13, rate of return to total capital used averaged 3.6 per cent for Western region grain producing farms planting greater than 2400 hectares and 3.5 per cent for farms planting between 1200 and 2400 hectares, compared with an average of just 0.2 per cent for the smallest producers (farms planting less than 600 hectares). In the Western region, farms planting in excess of 1200 hectares (42 per cent of farms in the region) account for 86 per cent of total grain, oilseed and pulse production.

Specialist grain producersAverage farm cash income for specialist grain growers has exceeded the average for all grain producing farms in the Western region in 17 of the past 20 years (Figure 17).

In 2012‒13 farm cash income for Western region specialist grain producers is estimated to have increased to $540 000 a farm in 2013‒14; the highest farm cash income for Southern region specialist grain producers in more than 20 years (Figure 17). This high farm cash income is partly a result of the increase in average scale of grain growing enterprises over this period.

High performing farmsOver the five years ending 2012‒13, the top performing 25 per cent of specialist grain producing farms in the Western region recorded average rates of return to capital of 8.5 per cent a year. Farm cash income and farm business profit were more than double the average for all specialist grain growers in the Western region (Table 8).

37

Australian grains: financial performance of grain producing farms, 2011–12 to 2013–14

ABARES

38

Table 8 Selected estimates, Western region grain producing farms, by scale of operationsaverage per farm, 2008‒09 to 2012‒13pPhysical unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain producing

farms



600 to 1200

hectares

1200 to 2400

hectares

>2400 hectares


Wheat – area sown ha 112 470 1 014 2 830 987 1 355 1 936


Total grain crops – area sown ha 240 844 1 756 4 618 1 666 2 210 2 973


t 1.5 1.5 1.6 1.4 1.5 1.5 1.7

Total grain crops – production t 362 1 303 2 864 6 600 2 464 3 282 5 170

Price received for grain, oilseeds and pulses $/t 324 303 317 300 305 303 310

Total labour weeks worked weeks 83 101 140 206 126 135 165


Total grain, oilseed and pulses receipts $ 81 300 376 800 869 800 1 871 100 700 800 949 800 1 539 100

Total cash receipts $ 280 000 657 400 1 148 300 2 242 300 969 100 1 175 200 1 828 700

Total cash costs $ 227 300 502 300 863 300 1 705 300 741 700 894 700 1 173 000

Farm cash income $ 52 800 155 100 285 000 537 000 227 400 280 400 655 800

Farm business profit $ –22 500 25 700 111 800 205 600 63 900 99 200 493 500

Profit at full equity $ 5 400 101 600 246 600 454 200 171 900 231 500 661 200

Rate of return

Return on capital– excluding capital appreciation

% 0.2 2.1 3.5 3.6 2.6 3.3 8.5

Return on capital– including capital appreciation

% 0.1 2.0 0.9 3.4 2.0 2.2 8.9

continued ...


ABARES

39

Table 8 Selected estimates, Western region grain producing farms, by scale of operationsaverage per farm, 2008‒09 to 2012‒13p continuedFarm capital and debt unit Area planted to grains, oilseeds and pulses All grain

producing farms

Specialist grain producing

farms



600 to 1200

hectares

1200 to 2400

hectares

>2400 hectares

Total farm capital used at 30 June $ 3 535 800

4 866 800 7 092 700 13 009 900 6 671 100 7 177 700 8 058 700

Farm business debt at 30 June $ 306 900 823 100 1 542 500 3 062 800 1 261 400 1 573 900 1 881 200

Equity ratio % 90 81 76 72 78 75 73

Debt servicing



Number of farms no. 2 000 800 800 1 200 4 700 3 300 900



Financial performance by cropping intensityPrevious editions of Australian grains reported annual financial performance of grain producing farms. These were classified on the basis of their cropping intensity, defined as the proportion of the total farm area operated planted to grains, oilseeds or pulse crops.

In this report, the performance of grain producing farms from 2008‒09 to 2012‒13 is reported for four cropping intensity groups defined as:

low intensity grain producing farms—less than 20 per cent of the farm area operated is sown to grain crops

medium intensity grain producing farms—20 per cent to 40 per cent of the farm area operated is sown to grain crops

high intensity grain producing farms—40 per cent to 70 per cent of the farm area operated is sown to grain crops

very high intensity grain producing farms—more than 70 per cent of the farm area operated is sown to grain crops.

Over the five years ending 2012‒13 around 54 per cent of grain producing farms were classified as low or medium intensity and 46 per cent as high or very high intensity grain producing farms (Table 9). Low and medium intensity farms include most small grain enterprises that account for only a small percentage of the overall area sown to crops and aggregate value of grain, oilseed and pulse sales. Low and medium intensity farms accounted for an average of 26 per cent of the area sown to grain, oilseed and pulse crops and 21 per cent of the total value of sales. High or very high intensity croppers accounted for 74 per cent of the crop area and 79 per cent of the total value of sales.

Farms classified as very high intensity cropping farms had the largest average area sown to grain crops in 2011‒12 despite having the smallest total farm area. Very high intensity grain farms sow a high proportion of their farm area to crops partly because they are the operators of higher quality cropping land, with topography, soil types, quantity and reliability of rainfall that is more favourable for grain production. The better quality of land operated by very high intensity grain farms is reflected in significantly higher grain yields (Table 9) and much higher average land values (Table 10). Lower intensity cropping farms typically graze livestock on land less suited to cropping activities. This is reflected by higher average numbers of sheep and beef cattle on low and medium intensity cropping farms compared with higher intensity farms (Table 9). Very high intensity cropping farms plant a much higher proportion of their total crop area to oilseeds and pulses compared with the other farm categories. In part, this may also reflect a need to use oilseeds and pulses as break crops in cereal rotations to assist weed, pest and disease control and nitrogen fixation in more intensive production systems.

Financial performanceOver the five years ending 2012‒13 high and very high intensity grain producers recorded significantly better farm financial performance than low and medium intensity producers across a range of financial performance measures, culminating in much higher average rates of return to total capital used.

As the intensity of grain operations increases, the total output generated for every dollar invested in the farm business increases, resulting in higher average farm cash income, business

40


profits and rates of return. Rate of return to total capital used averaged 2.7 per cent for high intensity farms and 4.4 per cent for very high intensity farms compared with 1.0 per cent for low intensity farms and 1.3 per cent for medium intensity farms.

Table 9 Selected estimates, grain growing farms, by cropping intensityaverage per farm, 2008‒09 to 2012‒13pSelected estimates unit Low

intensityMedium

intensityHigh

intensityVery high intensity

Population of farms no. 7 200 – 7 100 – 7 500 – 4 700

–

Share of grain producing farms % 27 – 27 – 28 – 18 –

Farms classified as specialist grain producers

% 8 (16)

43 (6) 78 (2) 91 (2)

Total farm area at 30 June ha 3 800 (16)

1 800 (3) 2 200 (2) 1 700

(2)

Total area sown to grains, oilseeds and pulses

ha 257 (4) 527 (3) 1 198 (2) 1 483

(2)

Percentage of crop area sown to:

Wheat % 58 (7) 59 (4) 58 (3) 54 (3)

Barley % 11 (8) 17 (5) 18 (4) 18 (4)

Pulses % 4 (11)

5 (10)

7 (6) 11 (7)

Oilseeds % 3 (11)

8 (7) 10 (6) 12 (5)

Grain sorghum % 2 (17)

2 (17)

1 (10)

3 (9)

Beef herd at 30 June no. 371 (4) 102 (6) 56 (7) 18 (13)

Sheep flock at 30 June no. 2 100 (3) 1 800 (4) 1 600 (3) 300 (7)

Wheat yield per hectare t 1.5 (4) 1.7 (4) 1.8 (2) 2.0 (2)

All grain crops yield per hectare t 1.4 (4) 1.7 (3) 1.7 (2) 1.9 (2)

Wheat price $/t 247 (5) 246 (1) 262 (1) 259 (1)

Average price received for grains, oilseeds and pulses sold

$/t 268 (3) 268 (1) 278 (1) 282 (1)

Total labour weeks worked weeks

105 (1) 98 (2) 119 (1) 113 (2)


41

Australian

grains:

financial


farms, 2011–12 to

2013–14

ABARES

42

Table 10 Financial performance estimates, grain producing farms, by cropping intensityaverage per farm, 2008‒09 to 2012‒13pFinancial performance measure unit Low intensity Medium intensity High intensity Very high intensity

Total grain, oilseed and pulses receipts

$ 73 900 (8) 211 700 (4) 531 600 (3) 750 700 (3)

Total cash receipts $ 388 700 (3) 449 600 (3) 768 100 (2) 898 900 (3)

Total cash costs $ 301 200 (3) 351 900 (3) 574 900 (2) 639 500 (3)

Farm cash income $ 87 500 (6) 97 700 (7) 193 300 (4) 259 500 (6)

Farm business profit $ 5 700 (108) 1 100 (646) 59 500 (15) 127 000 (11)

Profit at full equity $ 50 400 (12) 48 900 (16) 143 200 (6) 230 500 (6)

Receipts to farm capital ratio % 8 (3) 12 (3) 15 (2) 17 (3)

Cash operating margin % 23 (5) 22 (6) 25 (3) 29 (4)

Return on capital– excluding capital appreciation

% 1.0 (12) 1.3 (15) 2.7 (6) 4.4 (6)

Farms ranked in top 25 per cent % 18 (8) 16 (9) 29 (5) 44 (5)


Total capital at 30 June $ 4 853 500 (3) 3 986 000 (3) 5 394 900 (2) 5 338 900 (3)

Land value per hectare $/ha 1 100 (16) 1 900 (3) 2 000 (3) 2 400 (3)

Farm business debt at 30 June $ 532 700 (4) 542 200 (6) 971 800 (3) 1 137 700 (4)

Debt servicing

Equity ratio % 88 (1) 85 (1) 79 (1) 75 (1)

Interest-to-receipts ratio % 10 (4) 9 (5) 9 (3) 9 (4)

Interest and principal to receipts ratio % 23 (5) 23 (7) 23 (4) 24 (4)

p Preliminary estimate.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.Source: Australian Agricultural and Grazing Industries Survey


6 Farm investmentProducers’ capacity to generate farm income is influenced by their past investments, both in additional land to expand the scale of their farming activities and in new infrastructure, plant and machinery to boost productivity in the longer term.

Over the 10 years ending 2012‒13 grain producing farms have undertaken considerable new investments in land, plant and machinery.

Figure 18 Land investment, grain producing farms, 1994‒95 to 2012‒13paverage per farm

% of farm businesses

2

4

6

8

10

12

14

16

2013–14 $’000

20

40

60

80

100

120

140Expenditure on land purchase

Proportion of farms purchasing land


The proportion of grain producing farms purchasing land was high in all regions during the late 1990s (Figure 18). This declined during the 2000s, but the average area purchased and average value of additions has been higher, with most purchases being undertaken by farms with larger grain enterprises. This has contributed to the increase in numbers of largest enterprise size (greater than 2400 hectares) grain farms.

Despite the decline during the 2000s, the share of grain producing farms purchasing land remained relatively high throughout the 20 years ending 2012‒13 compared with other broadacre industries. During this period the proportion of broadacre farms purchasing land has rarely exceeded 6 per cent (ABARES 2014a). For grain producing farms, the proportion has exceeded 6 per cent in 13 of the past 20 years (Figure 18). Higher rates of return for larger, specialist grain producers indicate that high rates of land purchase among this group of farms are likely to continue.

Land values reported for grain producing farms declined after 2008‒09, with land values reported in 2012‒13 as much as 25 per cent below those reported in 2008‒09 in some regions (Figure 19).

Average land prices for grain producing farms increased sharply between 2001‒02 and 2008‒09, particularly compared with cash receipts generated per hectare, which increased only modestly over this period.

Nationally, the ratio of average land price per hectare to total cash receipts per hectare on grain producing farms doubled from around 4:1 before 2001‒02 to around 8:1 in 2008‒09. The ratio

43


increased from 4:1 to 8:1 in the Northern region, from 3:1 to 9:1 in the Southern region and from 3:1 to 6:1 in the Western region. With higher farm receipts since 2008‒09 and reductions in land values, in 2012‒13 these ratios declined to 7:1 in the Northern region, 6:1 in the Southern region and 5:1 in the Western region.

Figure 19 Land prices, grain producing farms, 1994‒95 to 2012‒13p

2013–14 $/ha

500

1000

1500

2000

2500

Northern region

Southern region

Western region


Only a relatively small proportion of grain producing farms buy land in any one year, but most producers make some investment in plant, machinery, vehicles and/or infrastructure each year. However, because of the much larger average value of land transactions, the value of land purchases usually dominates total investment.

Net investment is the difference between the total value of plant, vehicles, machinery and farm infrastructure purchased and the total value of those items sold or disposed of. Net investment in plant, vehicles, machinery and farm infrastructure for grain producing farms increased from 1994‒95 to 2006‒07 and has remained relatively high in all three GRDC regions since 2006‒07 (Figure 20). In part, this increase in investment has been because of the increase in scale of grain enterprises.

In addition to acquiring new capital items and replacing old items, farms need ongoing maintenance and repair of existing plant, machinery, vehicles and farm infrastructure. This expenditure is recorded in ABARES surveys as the cash cost of repairs and maintenance. A large proportion of reported annual expenditure on repairs and maintenance is the capital cost of replacing and upgrading items of farm capital, such as fencing, watering facilities and some plant and equipment. Annual expenditure on repairs and maintenance is strongly correlated with farm income. Expenditure on repairs and maintenance rises in years of high farm cash incomes and decreases in years of lower farm cash incomes.

Before 2006‒07 average expenditure on repair and maintenance generally exceeded net capital additions (Figure 20). Since 2006‒07 expenditure on repairs and maintenance has generally been less than net capital additions and has remained relatively flat despite higher farm receipts. Expenditure on net capital additions has been relatively high in all three GRDC regions.

In the five years ending 2012‒13 tractors, sowing, cultivation and harvesting machinery accounted for 63 per cent of net capital additions in the Northern GRDC region, 69 per cent in

44


the Southern region and 73 per cent in the Western region. Motor vehicles accounted for a further 20 per cent in both the Northern and Southern regions and 16 per cent in the Western region. Additions to farm improvements (buildings, structures and irrigation facilities) accounted for an additional 16 per cent in the Northern region, but only around 9 per cent in the Southern and Western regions, largely reflecting the greater role of beef cattle enterprises in the Northern GRDC region.

Figure 20 Net investment in machinery, vehicles and farm improvements, grain producing farms, 1994‒95 to 2012‒13p


45


7 Farm debtDebt is an important source of funds for farm investment and ongoing working capital, particularly because around 95 per cent of grain producing farms are family-owned and operated. For family farms, funding for farm expansion and improvement is limited to the funds available to the family, the profits the farm business can generate and the funds it can borrow.

Average debt per farm business doubled in real terms for Australian grain producing farms between 2000‒01 and 2009‒10. Nationally, average debt per farm increased from $403 000 a farm in 2000‒01 to $835 000 a farm in 2009‒10 (Figure 21).

Figure 21 Composition of farm business debt, grain producing farms, Australia, 1994‒95 to 2012‒13paverage per farm

2013–14 $’000

100

200

300

400

500

600

700

800

900

Reconstructed debt

Buildings and structures

Land development

Machinery, plant and vehicles

Land purchase

Working capital


Several factors contributed to the growth in debt over this period, including:

lower interest rates

large increases in land values raising borrowing capacity

increases in farm size

changes in the mix of commodities produced

expansion of grain enterprises

reduced farm cash incomes during some years in the 2000s because of widespread and extended drought conditions.

46


Throughout much of the 2000s, interest rates were historically low, reducing the cost of servicing debt and encouraging borrowing for farm investment. Interest rate subsidies provided to many farms as part of drought assistance programs also supported borrowing.

The largest contribution to increases in farm debt in the past two decades has been borrowing to fund new investment, particularly purchase of land, tractors, cultivation, sowing and harvesting machinery and vehicles. Debt to fund land purchase and the purchase of plant, machinery and vehicles represents the largest share of debt on grain producing farms, accounting for an estimated 51 per cent of average debt on grain producing farms.

Increased size of grain enterprises and greater use of purchased inputs such as fertiliser and chemicals has also resulted in higher borrowing for ongoing working capital. Additionally, borrowing to meet working capital requirements increased for grain producers during the 2000s because borrowing to finance crop planting and cash shortfalls increased when drought depressed farm cash incomes in many regions. Nationally, working capital debt accounted for 42 per cent of average debt at 30 June 2013.

In the Western region, debt to fund working capital accounts for an even higher proportion of average farm business debt—around 55 per cent of average debt at 30 June 2013. In part, this is a result of debt being recorded at the time of crop planting when borrowing increases to fund the relatively high fertiliser inputs required for the winter crop in the Western region.

Figure 22 Change in farm business debt, grain producing farms, by region, 1994‒95 to 2013‒14y

2013–14 $’000

200

400

600

800

1000

1200

1400

1600

1800

Northern

Southern

Western

p Preliminary estimate. y Provisional estimateSource: Australian Agricultural and Grazing Industries Survey

The largest increase in average farm business debt over the period since 2000‒01 occurred in the Western region. In contrast to the Northern and Southern regions where average debt per farm has declined in recent years, debt continued to increase in the Western region until 2012‒13. In the Western region, average debt increased by 340 per cent in real terms between 2000‒01 and 2011‒12 (Figure 22) but is expected to decline slightly in 2013‒14 as a result of record farm cash income.

47


Figure 23 Debt-to-receipts ratio, grain producing farms with debt, 1994‒95 to 2013‒14y

%

0.5

1

1.5

2

2.5

Northern

Southern

Western

p Preliminary estimate. y Provisional estimateSource: Australian Agricultural and Grazing Industries Survey

After adjusting for increase in the size of farms, the increase in debt in the Western region is much more modest. Farm receipts are used as the measure of farm size for this comparison with average debt expressed as a ratio to average farm cash receipts. Farm cash receipts are volatile because of variation in seasonal conditions and prices, but capture all of the ways in which farmers increase the size of their businesses including increasing the farm area, increasing intensification and switching to production higher-valued outputs. Notwithstanding variability in the receipts measure, the ratio of debt to receipts since 2001‒02 has increased to a similar extent to the Southern and Western regions, with a larger increase in the Northern region (Figure 23).

Increase in average debt per business has slowed for grain producing farms in recent years, particularly in the Southern and Northern regions because of a diminished appetite for further increases in debt by farm businesses, a reduction in land values and more restricted access to credit from lending institutions (Figure 22 and Figure 23). Sharply reduced farm cash income is expected to result in an increase in debt in the Northern region in 2013‒14.

Distribution of farms by debt and equityThe proportion of grain producing farms with relatively high debt varies across the regions and grain enterprise sizes (Table 11, Table 12, and Table 13). Around 20 per cent of farms in the Northern GRDC region, 19 per cent of farms in the Southern region and 45 per cent of farms in the Western region carried in excess of $1 million in debt at 30 June 2013. The high proportion of such farms in the Western region largely reflects the high proportion of farms with large grain enterprises in this region.

In contrast, around 40 per cent of grain producing farms in the Northern region and 36 per cent in the Southern region recorded less than $100 000 in debts at 30 June 2013. A high proportion of these businesses plant less than 600 hectares to grain, oilseeds or pulses.

The general increase in land values to 2009 boosted the equity most farmers have in their businesses. For some farms, reductions in farm debt and increases in capital investment have resulted in further improvement in farm equity. However, in several regions, farm equity is estimated to have fallen significantly over the three years to June 2013 as a consequence of reductions in reported land values.

48


The average equity ratio for grain producing farms at 30 June 2013 was estimated to have been 84 per cent for both the Northern and Southern region but was much lower, at 73 per cent, for Western region farms.

Equity ratios are typically lower for farms with larger grain enterprises because they are able to service larger debts and they tend to carry higher working capital debt at 30 June as a result of seasonal crop financing arrangements. Thirteen per cent of grain producing farms in the Northern region were estimated to have equity ratios below 70 per cent in 2012‒13, 17 per cent in the Southern region and a high 37 per cent in the Western region.

Equity ratios have historically been lower in the Western region. In addition to the larger scale of grain enterprises, relatively reliable grain yields in central and southern parts of this region over the longer term (Map 3) are likely to have encouraged greater borrowing (higher gearing).

49


ABARES

50

Table 11 Distribution of Northern region grain producing farms, by farm business debt and equity ratio, at 30 June 2013appercentage of farmsFarm business debt unit Area planted to grains, oilseeds and pulses Specialist grain

producersAll grain

producing farms

< 600 hectares 600 to 1200 hectares


> 2400 hectares

<$100 000 % 49 (15) 8 (73) 1 (99) 9 (65) 35 (13) 40 (14)

$100 000 and <$250 000 % 22 (31) 3 (72) 1 (99) 2 (99) 13 (33) 18 (31)

$250 000 and <$500 000 % 16 (33) 12 (55) 6 (94) 2 (99) 9 (39) 15 (29)

$500 000 and <$1m % 4 (52) 25 (38) 13 (73) 16 (58) 10 (36) 8 (28)

$1m and <$2m % 7 (39) 43 (20) 41 (37) 9 (93) 20 (22) 13 (19)

≥$2m % 2 (51) 9 (43) 38 (49) 61 (17) 13 (25) 7 (18)

Total % 100 – 100 – 100 – 100 – 100 – 100 –

Average farm debt at 30 June $’000 307 (14) 1 115 (13) 2 798 (29) 4 841 (20) 1 223 (20) 737 (10)

Farm business equity ratio b

≥90 per cent % 72 (6) 27 (39) 15 (61) 30 (39) 56 (9) 62 (6)

80 and <90 per cent % 18 (24) 31 (43) 37 (41) 19 (53) 14 (27) 20 (19)

70 and <80 per cent % 4 (53) 11 (70) 12 (49) 10 (78) 6 (45) 6 (36)

60 and <70 per cent % 2 (47) 18 (49) 20 (59) 12 (65) 10 (25) 6 (28)

<60 per cent % 4 (49) 12 (43) 15 (99) 30 (32) 14 (28) 7 (27)

Total % 100 – 100 – 100 – 100 – 100 – 100 –

Average farm business equity ratio at 30 June

% 90 (1) 80 (3) 76 (5) 73 (5) 78 (4) 84 (2)

Population of farms no. 4600 – 900 – 300 – 300 – 2200 – 6000 –

a Excludes debt for large corporate farms. b Equity ratio defined as total owned capital at 30 June less debt as a percentage of total owned business capital. p Preliminary estimate.Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.Source: Australian Agricultural and Grazing Industries Survey


ABARES

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Table 12 Distribution of Southern region grain producing farms, by farm business debt and equity ratio, at 30 June 2013appercentage of farmsFarm business debt unit Area planted to grains, oilseeds and pulses Specialist grain

producersAll grain

producing farms< 600 hectares 600 to 1200

hectares1200 to 2400

hectares> 2400 hectares

<$100 000 % 50 (12) 13 (37) 14 (36) 3 (55) 35 (10) 36 (11)

$100 000 and <$250 000 % 17 (29) 17 (37) 5 (74) 5 (70) 11 (25) 14 (23)

$250 000 and <$500 000 % 12 (23) 14 (38) 13 (50) 4 (56) 10 (25) 12 (18)

$500 000 and <$1m % 12 (23) 35 (20) 27 (21) 25 (39) 21 (14) 19 (13)

$1m and <$2m % 6 (33) 12 (26) 31 (20) 19 (47) 14 (15) 12 (15)

≥$2m % 3 (41) 8 (38) 10 (38) 43 (17) 9 (22) 7 (16)

Total % 100 – 100 – 100 – 100 – 100 – 100 –

Average farm debt at 30 June $’000 306 (13) 699 (11) 975 (13) 2 309 (15) 681 (8) 580 (7)


≥90 per cent % 66 (7) 38 (19) 30 (23) 15 (37) 51 (7) 53 (7)

80 and <90 per cent % 13 (26) 22 (28) 32 (21) 31 (23) 18 (15) 19 (14)

70 and <80 per cent % 12 (26) 14 (33) 7 (46) 20 (21) 12 (22) 12 (18)

60 and <70 per cent % 2 (37) 14 (31) 12 (42) 8 (56) 8 (27) 6 (20)

<60 per cent % 7 (34) 12 (49) 19 (34) 26 (25) 11 (21) 11 (19)

Total % 100 – 100 – 100 – 100 – 100 – 100 –


% 89 (1) 82 (2) 81 (3) 75 (4) 83 (1) 84 (1)

Population of farms no. 9 400 – 2 300 – 2 500 – 700 – 9 000 – 14 900 –



ABARES

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Table 13 Distribution of Western region grain producing farms, by farm business debt and equity ratio, at 30 June 2013appercentage of farmsFarm business debt unit Area planted to grains, oilseeds and pulses Specialist grain

producersAll grain

producing farms<600 hectares 600 to 1200

hectares1200 to 2400

hectares>2400 hectares

<$100 000 % 64 (14) 4 (74) 3 (99) 5 (72) 23 (47) 27 (14)

$100 000 and <$250 000 % 3 (58) 8 (73) 14 (75) 1 (99) 5 (99) 5 (43)

$250 000 and <$500 000 % 11 (74) 2 (99) 10 (92) 3 (80) 4 (76) 7 (50)

$500 000 and <$1m % 14 (43) 46 (29) 11 (88) 6 (65) 15 (43) 17 (22)

$1m and <$2m % 6 (59) 28 (42) 41 (30) 13 (48) 20 (28) 18 (21)

≥$2m % 2 (99) 12 (51) 20 (32) 71 (11) 33 (11) 27 (11)

Total % 100 – 100 – 100 – 100 – 100 – 100 –

Average farm debt at 30 June $'000 263 (25) 1 251 (14) 1 532 (8) 3 376 (11) 1 843 (10) 1 553 (8)


≥90 per cent % 72 (9) 13 (49) 30 (23) 10 (50) 32 (25) 37 (9)

80 and <90 per cent % 11 (53) 19 (58) 7 (64) 8 (56) 8 (53) 11 (30)

70 and <80 per cent % 9 (51) 27 (43) 18 (61) 15 (32) 16 (27) 16 (23)

60 and <70 per cent % 0 (94) 4 (69) 15 (62) 8 (50) 7 (40) 6 (35)

<60 per cent % 7 (70) 36 (34) 30 (26) 58 (14) 37 (18) 31 (13)

Total % 100 – 100 – 100 – 100 – 100 – 100 –


% 92 (3) 74 (5) 72 (5) 65 (6) 68 (4) 73 (4)

Population of farms no. 1 600 – 900 – 700 – 1 300 – 3 200 – 4 400 –


Australian grain: financial performance of grain producing farms, 2011–12 to 2013–14 ABARES

Debt servicingThe proportion of farm receipts needed to fund interest payments rose in the 10 years ending 2009‒10. This was because of a combination of large increases in farm debt and reduced farm receipts as a result of extended drought conditions. Interest rate subsidies paid to farm businesses as drought assistance partially offset the increase in interest paid between 2001‒02 and 2007‒08.

Higher farm receipts from 2010‒11 and lower interest rates from 2011‒12 resulted in a decline in the proportion of farm receipts needed to fund interest payments (Figure 24). In 2013‒14 the ratio of interest payments to farm receipts is estimated to have reduced further to around 6 per cent in the Southern GRDC region and around 8 per cent in the Western region. This was a result of much higher farm cash receipts and a decrease in interest payments (Figure 24). However, the ratio is estimated to have increased to 12 per cent in the Northern GRDC region as cash receipts decline.

The proportion of Northern region grain producing farms recording negative farm cash incomes, and therefore potentially needing to borrow additional working capital, is estimated to have increased from 10 per cent in 2012‒13 to 34 per cent in 2013‒14.

Figure 24 Ratio of interest payments to total cash receipts, grain producing farms, 1994‒95 to 2013‒14y

%

2

4

6

8

10

12

14

16

18

Northern

Southern

Western

p Preliminary estimate. y Provisional estimate.Note: For farms with debt.Source: Australian Agricultural and Grazing Industries Survey

In 2013‒14 the proportion of farm receipts needed to meet interest payments in the Southern region is estimated to have been similar to the relatively low proportion recorded in the late 1990s. In the Western region the proportion is also relatively low in historical terms.

Farm cash incomes for grain producing farms have been highly variable over the past two decades. Mechanisms farm businesses use to manage income variability include holding liquid financial assets (such as farm management deposits) and maintaining high farm equity to provide a reserve of credit to manage income downturns. Credit reserves are unused borrowing capacity, such as an overdraft or line of credit. Maintaining a credit reserve avoids costs of liquidating farm assets to meet cash demands and having to reacquire those assets once the adversity has passed.

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The capacity farm businesses have to undertake further borrowing depends on both the equity (security) farmers have in their businesses and the business’s capacity to service increased debt from farm receipts.

The proportion of grain producing farm businesses in the Northern GRDC region with relatively low additional borrowing capacity (equity ratio of less than 70 per cent) and relatively high debt servicing commitments (interest-to-receipts ratios exceeding 15 per cent) is estimated to have increased to an estimated 10 per cent in 2013‒14. The estimate for 2013‒14 is close to the proportion recorded during widespread drought in the Northern region in 1994‒95, 2002‒03 and 2004‒05 (Figure 25).

Figure 25 Debt servicing and borrowing capacity, Northern region, 1988‒89 to 2013‒14y

%5

1015202530354045

1988

–89

1989

–90

1990

–91

1991

–92

1992

–93

1993

–94

1994

–95

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–97

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–98

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–00

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–10

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–11

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–13p

2013

–14y

Farms with greater than 15% interest-to-receipts ratio

Farms with less than 70% equity ratio

Farms with equity ratio less than 70% and interest-to-receipts ratio greater than 15%


Grain producing farms in the Southern GRDC region with relatively low borrowing capacity and relatively high debt servicing commitments declined from 11 per cent in 2011‒12 to 8 per cent in 2012‒13 and are expected to have declined further to 6 per cent in 2013‒14, which is similar to the percentage recorded in the late 1990s (Figure 26).

The proportion of Western GRDC region grain producing farms with relatively low borrowing capacity and relatively high debt servicing commitments increased from 13 per cent in 2011‒12 to 16 per cent in 2012‒13 and is expected to have declined to 10 per cent in 2013‒14 as a result of very high farm receipts. Nevertheless, this is still well above the percentages recorded through the mid 1990s (Figure 27). Once again, this is in part a result of an increase in the average scale of Western region grain enterprises over time.

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Figure 26 Debt servicing and borrowing capacity, Southern region, 1988‒89 to 2013‒14y

%5

1015202530354045

1988

–89

1989

–90

1990

–91

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–92

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–93

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–08

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–10

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–11

2011

–12

2012

–13p

2013

–14y





Figure 27 Debt servicing and borrowing capacity, Western region, 1988‒89 to 2013‒14y

%5

1015202530354045

1988

–89

1989

–90

1990

–91

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–92

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8 ProductivityTotal factor productivity (TFP) is the key indicator ABARES uses to measure productivity of the broadacre and dairy industries. TFP is defined as the ratio of total market outputs produced (such as crops, livestock and wool) to total market inputs used (land, labour, capital, materials and services). See Box 2 for an overview of ABARES productivity estimates and for Australian Bureau of Statistics definitions of the cropping industry used in this section of the report.

Compared with single input or partial factor productivity (PFP) measures (such as labour productivity or crop yield per hectare), TFP is better for evaluating overall productivity performance of agricultural industries. This is because PFP measures attribute the combined effects of changes in all aspects of farm production systems solely to one input. This may result in a misleading assessment of the drivers of productivity growth.

Box 2 ABARES productivity estimates

ABARES has published statistics and analysed the productivity of Australia’s broadacre (non-irrigated cropping and grazing) and dairy industries since the early 1990s using data collected through its national farm survey programme. ABARES has applied a consistent methodology to the annual surveys of broadacre farms since 1977‒78 and of dairy farms since 1978‒79.ABARES estimates TFP as the ratio of a quantity index of total market outputs relative to a quantity index of market inputs. Multiple outputs and inputs are aggregated across farms to the industry level, using the Fisher index, and then TFP is calculated by taking a ratio of total outputs to total inputs. Annual TFP growth rates (percentage change over time) are estimated by fitting an exponential trend line (for details of ABARES TFP index methodology, see Zhao, Sheng & Gray 2012).The broadacre and dairy industries are defined by the Australian and New Zealand Standard Industrial Classification (ANZSIC) (ABS 2006):Crops industry (ANZSIC06 Class 0146 and 0149)—farms engaged mainly in growing cereal grains, coarse grains, oilseeds, rice and/or pulses.Mixed crop–livestock industry (ANZSIC06 Class 0145)—farms engaged mainly in running sheep or beef cattle, or both, and growing cereal grains, coarse grains, oilseeds and/or pulses.Beef industry (ANZSIC06 Class 0142)—farms engaged mainly in running beef cattle.Sheep industry (ANZSIC06 Class 0141)—farms engaged mainly in running sheep.Sheep–beef industry (ANZSIC06 Class 0144)—farms engaged mainly in running both sheep and beef cattle. TFP estimates are not reported separately for these farms, although they are included within the aggregate broadacre estimates.Dairy industry (ANZSIC06 Class 0160)—farms engaged mainly in farming dairy cattle.Together, the broadacre and dairy industries account for 68 per cent of commercial-scale Australian farm businesses and for an estimated 55 per cent of the total gross value of Australian agricultural production in the five years ending 2012‒13. These farms are also responsible for managing more than 90 per cent of the total area of agricultural land in Australia and account for most of Australia’s family-owned and operated farms (ABARES 2013).In 2013 ABARES developed a growth-accounting based measure of Australian agricultural TFP. The ABARES all agriculture TFP index includes all agricultural industries, and uses growth accounting and national accounts data to estimate long-term total factor productivity of Australia’s agriculture industry. Industries included in the all agriculture index are the cropping industries (grains, oilseeds, vegetables and melons, fruits and nuts, cotton, tobacco and other horticulture, and other crops), livestock industries (red meat, poultry, eggs, wool, milk and dairy products, and other livestock products) and other outputs.

Cropping industry TFP increased at an average annual rate of 1.6 per cent from 1977‒78 to 2011‒12. Despite periods of extreme volatility, total output from specialist cropping farms grew on average at around 2.6 per cent a year over this period, as a result of increasing input use (1.0 per cent a year) and productivity growth (Figure 28).

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Figure 28 Trends in cropping specialists’ total factor productivity, total inputs and total outputs, 1977‒78 to 2011‒12

Index

50

100

150

200

250

300

350

40019

77–7

819

78–7

919

79–8

019

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119

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219

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319

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419

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519

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019

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520

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020

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120

11–1

2

Total factor productivity

Total outputs

Total inputs

1977–78 =100

Source: ABARES

Technical change, through growers’ adoption of new technologies and management practices, has been the main driver of long-term productivity growth of cropping specialists (Hughes et al. 2011). In workshops on grains industry productivity held by ABARES across Australia in 1999 and 2009 (see Jackson 2010; Knopke, O’Donnell & Shepherd 2000), growers and other industry stakeholders identified breakthrough cropping system technologies and knowledge that drove higher cropping productivity, including:

greater understanding of cropping systems, such as plant physiology and determinants of soil fertility

improved crop rotations that provided better pest and weed control

larger and more sophisticated machinery

improved crop varieties, such as those with better disease resistance.

While these advances in technology individually contributed to productivity growth, they also facilitated development and use of more efficient farming systems such as conservation farming. This allowed farmers to substitute capital and intermediate inputs (crop chemicals and fertiliser) for labour—reflected in the strong growth in cropping labour and capital PFP—and substantially increase material inputs use (Table 14). Conservation farming also yielded productivity benefits for some farmers through improved soil quality and structure, water-holding capacity and flexibility in the timing of sowing.

However, the rate of productivity growth of cropping specialists has slowed in recent decades (Figure 29). Although diminished public research and development intensity is likely to have played a role (Sheng, Mullen & Zhao 2011), drought conditions across Australia had a significant effect on the cropping industry, reducing the output of cropping specialists by around 13 per cent relative to conditions before 2000 (Hughes et al. 2011).

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Table 14 Average annual broadacre productivity growth, by industry, 1977‒78 to 2011‒12

Category All broadacre (%)

Cropping (%) Mixed crop–livestock (%)

Beef (%) Sheep (%)

Total factor productivity

Productivity 1.0 1.6 0.9 0.8 0.1

Outputs 0.0 2.6 –0.8 0.5 –2.6

Inputs –1.0 1.0 –1.7 –0.3 –2.6

Partial factor productivity

Land 1.0 1.4 0.4 0.9 –0.2

Labour 2.2 3.3 2.0 1.3 0.8

Capital 1.6 2.8 2.0 0.4 1.3

Materials –1.8 –1.5 –1.6 –1.8 –2.0

Services 0.9 1.9 0.9 0.4 0.2

Input use

Land –0.9 1.2 –1.3 –0.3 –2.4

Labour –2.1 –0.7 –2.8 –0.8 –3.3

Capital –1.5 –0.2 –2.8 0.2 –3.8

Materials 1.9 4.1 0.8 2.3 –0.6

Services –0.9 0.8 –1.7 0.2 –2.7

Source: ABARES

Figure 29 Broadacre total factor productivity growth, 1977‒78 to 2011‒12

- 2

- 1

%

1

2

3

4

Broadacre Cropping Mixed crop–livestock

Beef Sheep

1977–78 to 1988–89

1988–89 to 1999–2000

1999–2000 to 2011–12

Source: ABARES

Productivity growth rates are converging across the three GRDC regions (GRDC 2011) (Table 15). Between 1977‒78 and 2011‒12 cropping specialists in the southern region achieved on average annual TFP growth of 1.7 per cent, while those in the northern region achieved average TFP growth of 1.6 per cent a year. Cropping specialists in the western region achieved on average annual TFP growth of 1.5 per cent. However, the agroecological regions differ in average climate, soil fertility, water-holding properties and geography, all of which bear on farmers’ capacities to improve their cropping systems. For example, cropping specialist farms in the

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southern region tend to be more sensitive to variations in winter rainfall (Hughes et al. 2011), while the yields of cropping specialist farms in the western region depend heavily on good winter rain because spring rainfall is generally unreliable.

Table 15 Average annual cropping total factor productivity growth, by region, 1977‒78 to 2011‒12

Category unit Productivity growth

Output growth Input growth

All cropping specialists % 1.6 2.6 1.0

Southern region % 1.7 3.1 1.4

Northern region % 1.6 1.2 –0.5

Western region % 1.5 3.7 2.2

Note: All cropping specialists also includes cropping specialists from outside the Grains Research and Development Corporation agroecological regions.Source: ABARES

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Survey methods and definitionsABARES has conducted surveys of selected Australian agricultural industries since the 1940s. These surveys provide a broad range of information on the economic performance of farm business units in the rural sector. This comprehensive dataset is used for research and analysis that forms the basis of many publications, briefing material and industry reports.

The annual agricultural surveys are:

Australian Agricultural and Grazing Industries Survey (AAGIS)

Australian Dairy Industry Survey (ADIS).

Definitions of industriesIndustry definitions are based on the 2006 Australian and New Zealand Standard Industrial Classification (ANZSIC06). This classification is in line with an international standard applied comprehensively across Australian industry, permitting comparisons between industries, both within Australia and internationally. Farms assigned to a particular ANZSIC have a high proportion of their total output characterised by that class. Further information on ANZSIC and on farming activities included in each of these industries is provided in Australian and New Zealand Standard Industrial Classification (ABS 2006).

The five broadacre industries covered by AAGIS are:

Wheat and other crops industry (ANZSIC06 Class 0146 and 0149)

- farms engaged mainly in growing rice, other cereal grains, coarse grains, oilseeds and/or pulses

Mixed livestock–crops industry (ANZSIC06 Class 0145)

- farms engaged mainly in running sheep and/or beef cattle and growing cereal grains, coarse grains, oilseeds and/or pulses

Sheep industry (ANZSIC06 Class 0141)

- farms engaged mainly in running sheep

Beef industry (ANZSIC06 Class 0142)

- farms engaged mainly in running beef cattle

Sheep–beef industry (ANZSIC06 Class 0144)

- farms engaged mainly in running both sheep and beef cattle.

ADIS covers farms that are engaged in dairying.

Target populationsAAGIS is designed from a population list drawn from the Australian Business Register (ABR) and maintained by the Australian Bureau of Statistics (ABS). The ABR comprises businesses registered with the Australian Taxation Office. The ABR-based population list provided to

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ABARES consists of agricultural establishments with their corresponding geography code (currently Australian Statistical Geography Standard), ANZSIC, and a size of operation variable.

The population list for ADIS is derived from farms that have paid levies based on their milk deliveries. This list is provided to ABARES by Dairy Australia and consists of dairy businesses with their corresponding region and total milk production. The design measure for ADIS is total milk production for each dairy business on the frame.

ABARES surveys target farming establishments that make a significant contribution to the total value of agricultural output (commercial farms). Farms excluded from ABARES surveys will be the smallest units and in aggregate will contribute less than 2 per cent to the total value of agricultural production for the industries covered by the surveys.

The size of operation variable used in ABARES survey designs is usually ‘estimated value of agricultural operations’ (EVAO). However, in some surveys in recent years other measures of agricultural production have also been used. EVAO is a standardised dollar measure of the level of agricultural output. A definition of EVAO is given in Agricultural industries: financial statistics (ABS 2001). Since 2004‒05 the ABARES survey has included establishments classified as having an EVAO of $40 000 or more. Between 1991‒92 and 2003‒04 the survey included establishments with an EVAO of $22 500 or more. Between 1987‒88 and 1991‒92 the survey included establishments with an EVAO of $20 000 or more. Before 1986‒87 the survey included establishments with an EVAO of $10 000 or more.

Survey designThe target population is grouped into strata defined by ABARES region, ANZSIC and size of operation. The sample allocation is a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable and an allocation proportional to the population of the stratum.

A large proportion of sample farms is retained from the previous year’s survey. The sample chosen each year maintains a high proportion of the sample between years to accurately measure change while meeting the requirement to introduce new sample farms. New farms are introduced to account for changes in the target population, as well as to reduce the burden on survey respondents.

The sample size for AAGIS is usually around 1600 farms and for ADIS around 300.

The main method of collecting data is face-to-face interviews with the owner–manager of the farm business. Detailed physical and financial information is collected on the operations of the farm business during the preceding financial year. Respondents to AAGIS are also contacted by telephone in October each year to obtain estimates of projected production and expected receipts and costs for the current financial year. ABARES surveys also allow supplementary questionnaires to be attached to the main or to the telephone surveys. These additional questions help address specific industry issues—such as grain cost of production, livestock management practices and adoption of new technologies on dairy farms.

Sample weightingABARES survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. Sample weights are calculated so that population estimates from the sample for numbers of farms, areas of crops

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and numbers of livestock correspond as closely as possible to the most recently available ABS estimates from its Agricultural Census and surveys.

The weighting methodology for AAGIS uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described in Bardsley and Chambers (1984).

For AAGIS, the benchmark variables provided by the ABS include:

total number of farms in scope

area planted to wheat, rice, other cereals, grain legumes (pulses) and oilseeds

closing numbers of beef and sheep.

For ADIS, the benchmark variables provided by Dairy Australia are:

total number of in-scope dairy farms

total milk production.

Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects both the strategy of sampling a higher fraction of the large farms than smaller farms and the relatively lower numbers of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output.

Reliability of estimatesThe reliability of the estimates of population characteristics published by ABARES depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample farms.

Preliminary estimates and projectionsEstimates for 2011‒12 and all earlier years are final. All data from farmers, including accounting information, have been reconciled; final production and population information from the ABS has been included and no further change is expected in these estimates.

The 2012‒13 estimates are preliminary, based on full production and accounting information from farmers. However, editing and addition of sample farms may be undertaken and ABS production and population benchmarks may also change.

The 2013‒14 estimates are projections developed from the data collected through on-farm and telephone interviews from October to December, as well as from the preliminary estimates. Projection estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production, and receipts and expenditure for the remainder of the projection year. Modifications are made to expected receipts and expenditure where significant production and price change has occurred post interview. Projection estimates are necessarily subject to greater uncertainty than preliminary and final estimates.

Preliminary and projection estimates of farm financial performance are produced within a few weeks of the completion of survey collections. However, these may be updated several times at later dates. These subsequent versions will be more accurate, as they will be based on upgraded information and slightly more accurate input datasets.

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Sampling errorsOnly a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called ‘sampling errors’.

The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, national estimates are likely to have lower sampling errors than industry and state estimates.

To give a guide to the reliability of the survey estimates, standard errors are calculated for all estimates published by ABARES. These estimated errors are expressed as percentages of the survey estimates and termed ‘relative standard errors’.

Calculating confidence intervals using relative standard errorsRelative standard errors can be used to calculate ‘confidence intervals’ that give an indication of how close the actual population value is likely to be to the survey estimate.

To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6000. This is one standard error. Two standard errors equal $12 000.

There is roughly a two-in-three chance that the 'census value' (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $94 000 and $106 000 ($100 000 plus or minus $6000).

There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $88 000 and $112 000 ($100 000 plus or minus $12 000).

Comparing estimatesWhen comparing estimates between two groups, it is important to recognise that the differences are also subject to sampling error. As a rule of thumb, a conservative estimate of the standard error of the difference can be constructed by adding the squares of the estimated standard errors of the component estimates and taking the square root of the result.

For example, suppose the estimates of total cash receipts were $100 000 in the beef industry and $125 000 in the sheep industry—a difference of $25 000—and the relative standard error is given as 6 per cent for each estimate. The standard error of the difference can be estimated as:

A 95 per cent confidence interval for the difference is:

$25 000 ± 1.96*$9605 = ($6174, $43 826)

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Hence, if a large number (toward infinity) of different samples are taken, in approximately 95 per cent of them, the difference between these two estimates will lie between $6174 and $43 826. Also, since zero is not in this confidence interval, it is possible to say that the difference between the estimates is statistically significantly different from zero at the 95 per cent confidence level.

RegionsBroadacre and dairy statistics are also available by region (Map 8). These regions represent the finest level of geographical aggregation for which the survey is designed to produce reliable estimates.

Map 8 ABARES Australian broadacre zones and regions

Note: Each region is identified by a unique code of three digits. The first digit identifies the state or territory, the second digit identifies the zone and the third digit identifies the region.Source: ABARES

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GlossaryOwner–manager The primary decision-maker for the farm business. This person is

usually responsible for day-to-day operation of the farm and may own or have a share in the farm business.

Physical items

beef cattle Cattle kept primarily for the production of meat, irrespective of breed.

dairy cattle Cattle kept or intended mainly for the production of milk or cream.

hired labour Excludes the farm business manager, partners and family labour and work by contractors. Expenditure on contract services appears as a cash cost.

labour Measured in work weeks, as estimated by the owner–manager or manager. It includes all work on the farm by the owner–manager, partners, family, hired permanent and casual workers and sharefarmers but excludes work by contractors.

total area operated Includes all land operated by the farm business, whether owned or rented by the business, but excludes land sharefarmed on another farm.

Financial items

capital The value of farm capital is the value of all the assets used on a farm, including the value of leased items but excluding machinery and equipment either hired or used by contractors. The value of 'owned' capital is the value of farm capital excluding the value of leased machinery and equipment.

ABARES uses the owner–manager’s valuation of the farm property. The valuation includes the value of land and fixed improvements used by each farm business in the survey, excluding land sharefarmed off the sample farm. Residences on the farm are included in the valuations.

Livestock are valued at estimated market prices for the land use zones within each state. These values are based on recorded sales and purchases by sample farms.

Before 2001‒02 ABARES maintained an inventory of plant and machinery for each sample farm. Individual items were valued at replacement cost, depreciated for age. Each year the replacement cost was indexed to allow for changes in that cost.

Since 2001‒02 total value of plant and machinery has been based on market valuations provided by the owner–manager for broad categories of capital, such as tractors, vehicles and irrigation plant.

The total value of items purchased or sold during the survey year was added to or subtracted from farm capital at 31 December of the

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relevant financial year, irrespective of the actual date of purchase or sale.

change in debt Estimated as the difference between debt at 1 July and the following 30 June within the survey year, rather than between debt at 30 June in consecutive years. It is an estimate of the change in indebtedness of a given population of farms during the financial year and is thus unaffected by changes in sample or population between years.

farm business debt Estimated as all debts attributable to the farm business but excluding personal debt, lease financed debt and underwritten loans, including harvest loans. Information is collected at the interview, supplemented by information contained in the farm accounts.

farm liquid assets Assets owned by the farm business that can be readily converted to cash. They include savings bank deposits, interest bearing deposits, debentures and shares. Excluded are items such as real estate, life assurance policies and other farms or businesses.

receipts and costs Receipts for livestock and livestock products sold are determined at the point of sale. Selling charges and charges for transport to the point of sale are included in the costs of sample farms.

Receipts for crops sold during the survey year are gross of deductions made by marketing authorities for freight and selling charges. These deductions are included in farm costs. Receipts for other farm products are determined on a farmgate basis. All cash receipt items are the revenue received in the financial year.

Farm receipts and costs relate to the whole area operated, including areas operated by on-farm sharefarmers. Thus, cash receipts include receipts from the sale of products produced by sharefarmers. If possible, on-farm sharefarmers’ costs are amalgamated with those of the sample farm. Otherwise, the total sum paid to sharefarmers is treated as a cash cost.

Some sample farm businesses engage in off-farm contracting or sharefarming, employing labour and capital equipment also used in normal on-farm activities. Since it is not possible to accurately allocate costs between off-farm and on-farm operations, the income and expenditure attributable to such off-farm operations are included in the receipts and costs of the sample farm business.

total cash costs Payments made by the farm business for materials and services and for permanent and casual hired labour (excluding owner–manager, partner and other family labour). It includes the value of livestock transfers onto the property as well as any lease payments on capital, produce purchased for resale, rent, interest, livestock purchases and payments to sharefarmers. Capital and household expenditures are excluded from total cash costs.

Handling and marketing expenses include commission, yard dues and

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levies for farm produce sold.

Administration costs include accountancy fees, banking and legal expenses, postage, stationery, subscriptions and telephone.

Contracts paid refers to expenditure on contracts such as harvesting. Capital and land development contracts are not included.

Other cash costs include stores and rations, seed purchased, electricity, artificial insemination and herd testing fees, advisory services, motor vehicle expenses, travelling expenses and insurance. While other cash costs may comprise a relatively large proportion of total cash costs, individually the components are relatively small overall and, as such, have not been listed.

total cash receipts Total of revenues received by the farm business during the financial year, including revenues from the sale of livestock, livestock products and crops, plus the value of livestock transfers off a property. It includes revenue received from agistment, royalties, rebates, refunds, plant hire, contracts, sharefarming, insurance claims and compensation, and government assistance payments to the farm business.

Financial performance measures

build-up in trading stocks

The closing value of all changes in the inventories of trading stocks during the financial year. It includes the value of any change in herd or flock size or in stocks of wool, fruit and grains held on the farm. It is negative if inventories are run down.

depreciation of farm improvements, plant and equipment

Estimated by the diminishing value method, based on the replacement cost and age of each item. The rates applied are the standard rates allowed by the Commissioner of Taxation. For items purchased or sold during the financial year, depreciation is assessed as if the transaction had taken place at the midpoint of the year. Calculation of farm business profit does not account for depreciation on items subject to a finance lease because cash costs already include finance lease payments.

farm business equity

The value of owned capital, less farm business debt, at 30 June. The estimate is based on those sample farms for which complete data on farm debt are available.

farm business profit

Farm cash income plus build-up in trading stocks, less depreciation and the imputed value of the owner–manager, partner(s) and family labour.

farm cash income The difference between total cash receipts and total cash costs.

farm equity ratio Calculated as farm business equity as a percentage of owned capital at 30 June.

imputed labour cost

Payments for owner–manager and family labour may bear little relationship to the actual work input. An estimate of the labour input of

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the owner–manager, partners and their families is calculated in work weeks and a value is imputed at the relevant Federal Pastoral Industry Award rates.

off-farm income Collected for the owner–manager and spouse only, including income from wages, other businesses, investment, government assistance to the farm household and social welfare payments.

profit at full equity Farm business profit, plus rent, interest and finance lease payments, less depreciation on leased items. It is the return produced by all the resources used in the farm business.

rates of return Calculated by expressing profit at full equity as a percentage of total opening capital. Rate of return represents the ability of the business to generate a return to all capital used by the business, including that which is borrowed or leased. The following rates of return are estimated: rate of return excluding capital appreciation; and rate of return including capital appreciation.

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ReferencesABARES 2014a, Agricultural commodities: March quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, available at data.daff.gov.au/data/warehouse/agcomd9abcc004/agcomd9abcc004201403/AgCommodities2014.No1_Ver1.1.0.pdf (pdf 11mb).

ABARES 2014b, Australian crop report, Australian Bureau of Agricultural Resource Economics and Sciences, Canberra, June, available at daff.gov.au/ABARES/pages/publications/display.aspx?url=http://143.188.17.20/anrdl/DAFFService/display.php?fid=pb_aucrpd9aba_003201406_11a.xml.

ABARES 2014c, Australian farm survey results 2011‒12 to 2013‒14, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, available at data.daff.gov.au/data/warehouse/9aas/FarmSurveyResults/2014/FarmSurveyResults2014_V1.0.0.pdf (pdf 2mb).

ABARES 2013, Australian farm survey results 2010‒11 to 2012‒13, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, available at data.daff.gov.au/data/warehouse/9aas/FarmSurveyResults/2013/FarmSurveyResults2013_V1.0.0.pdf (pdf 1.4mb).

ABS 2006, Australian and New Zealand standard Industrial Classification (ANZSIC) 2006 (Revision 1.0), cat. no. 1292.0, Australian Bureau of Statistics, Canberra, available at abs.gov.au/ANZSIC.

ABS 2001, Agricultural industries, financial statistics, Australia, Preliminary, 1999‒2000, cat. no. 7506.0, Australian Bureau of Statistics, Canberra, available at abs.gov.au/ausstats/[email protected]/cat/7506.0.

Bardsley, P & Chambers, RL 1984, ‘Multipurpose estimation from unbalanced samples’, Journal of the Royal Statistical Society, Series C (Applied Statistics), vol. 33, pp.290–9.

DAFF 2013, Australian food statistics 2011‒12, Department of Agriculture, Fisheries and Forestry, Canberra, available at daff.gov.au.

GRDC 2014, GRDC our grains industry, Grains Research and Development Corporation, available at grdc.com.au/About-Us/Our-Grains-Industry.

GRDC 2011, GRDC annual report 2010‒2011, Grains Research and Development Corporation, Canberra, available at grdc.com.au/uploads/documents/GRDC_Annual_Report_2010_11.pdf (pdf 8.5mb).

Hughes, N, Lawson, K, Davidson, A, Jackson, T & Sheng, Y 2011, Productivity pathways: climate adjusted production frontiers for the Australian broadacre cropping industry, ABARES research report 11.5, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, available at data.daff.gov.au/data/warehouse/pe_abares99010543/RR11_5ProductivityPathways_LowResREPORT.pdf.

Jackson, T 2010, Harvesting productivity: ABARE–GRDC workshops on grains productivity growth, ABARE research report 10.6 for Grains Research and Development Corporation, Australian

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http://data.daff.gov.au/data/warehouse/pe_abares99010543/RR11_5ProductivityPathways_LowResREPORT.pdf

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Sheng, Y, Mullen, JD & Zhao, S 2011, A turning point in agricultural productivity: consideration of the causes, ABARES research report 11.4 for the Grains Research and Research and Development Corporation, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, available at data.daff.gov.au/data/warehouse/pe_abares99010542/RR11_4AgricProductivity_LowResREPORT.pdf (pdf 1mb).

Zhao, S, Sheng, Y & Gray, EM 2012, ‘Measuring productivity of the Australian broadacre and dairy industries: concepts, methodology and data’, in KO Fuglie, SL Wang & VE Ball (eds), Productivity growth in agriculture: an international perspective, CABI, Wallingford, pp. 73–107.

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Further information on grain producersABARES farm survey data for the grains and other broadacre industries

agriculture.gov.au/agsurf

Australian Bureau of Agricultural and Resource Economics and Sciences

Postal address: GPO Box 1563, Canberra ACT 2601

Location: 18 Marcus Clarke Street, Canberra ACT 2601

Switchboard: +61 2 6272 3933

agriculture.gov.au/abares

Grains Research and Development Corporation

1st Floor, 40 Blackall Street, Barton, ACT 2600

Postal address: PO Box 5367, Kingston, ACT 2604

Phone: 02 6166 4500

Fax: 02 6166 4599

Email: [email protected]

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http://www.daff.gov.au/abares

http://apps.daff.gov.au/agsurf/

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