Planfarm is forging the way in horticulture after being awarded a national five-year vegetable and onion benchmarking project. This project is the first of its kind in horticultural benchmarking and is based on the face-to-face farm business consulting service model that has been an integral part of the broadacre sector for nearly 50 years and which has led to the successful annual benchmarks that Planfarm are well known and respected for.
Benchmarking vegetable crops is no easy task with different growing systems, irrigation techniques as well as different growing mediums (field crops vs hydroponic) all playing a different role in production outputs and the intensity of the operation. Naturally, this contributes to vastly varying income and input costs per hectare.
Consider the intensive system of a hi-tech greenhouse, the capital outlay for establishment, the high level of inputs required and the high volume of production versus a field crop of pumpkins with a simple semi-permanent irrigation system that requires little specialist equipment for harvest and packing manageable with just one small tractor, some half ton bins and a simple grader.
Herein lies the first challenge in vegetable benchmarking as you are not necessarily comparing apples with apples, so how do we ensure that the benchmark data will be robust enough so that these comparisons remain valid, and our benchmarks will be meaningful across a range of different vegetable businesses?
Likewise investing in technology, be it hi-tech greenhouse equipment or computerised grading systems to improve business efficiencies, comes with a high capital outlay. To date, depreciation has not been considered with broadacre benchmarking as the Western Australian benchmarks have always ranked on earnings before income tax, depreciation, and amortisation (EBITDA). For the national vegetable benchmarking program, we will rank on EBIT, therefore accounting for depreciation of vegetable specific equipment. This will have some bearing on efficiency ratios for those businesses with large machinery and technology investments.
Benchmark purpose
Ultimately, the question is what are you trying to achieve by producing benchmarks?
I was recently introduced to the Planfarm archives which hold one of the original benchmark reports that John Abbie, Ken Boughton and Peter Falconer produced for their WA clients back in the sixties. What is it that drove them to look at benchmarking in the first place and what benefits did they foresee that this would reap for WA grain growers?
My summation would be that they were working towards developing stronger farming businesses that could weather the storm of price volatility and low rainfall seasons so that those farms would still be in business fifty years later. To build a resilient and sustainable cohort of farm businesses. What Abbie, Boughton and Falconer perhaps didn’t foresee was the degree of success that the benchmarks would yield
and the eagerness with which the ‘industry’ would await the annual release of the benchmark data as a useful reference tool on which to base research, development and extension efforts and future policy and investment.
One could argue that, along with consistency of production, it was the robust nature and validity of the data that has made the Planfarm benchmarks so highly valued by the grains industry. The numbers don’t lie.
Confidence in the numbers
Despite the contradiction of terms, comparing apples with apples in vegetable benchmarks can be done but it requires rigorous scrutiny of the assumptions and consistent and sound interpretation of the input data that is being used for the benchmark analysis. This testing and verification of the benchmark output data to ensure that it makes sense and is relevant to the horticultural industry.
Planfarm has partnered with eastern states consulting firm RMCG to conduct data collection and vegetable business analyses on the eastern seaboard. They will provide de-identified data to Planfarm for the benchmark analysis which will be combined with Planfarm’s data sets. Both firms are experienced in benchmark analysis, RMCG having been involved with dairy benchmarking for many years as well as horticulture.
Due to the complex nature of vegetable production systems, and variations across businesses and product lines, Planfarm and RMCG have spent days together developing the methodology and tools with which to analyse vegetable businesses in a way that will effectively compare apples with apples to produce benchmark data that is meaningful to both producers and the wider horticultural industry.
To date, there has been some compromise from both sides, which has involved a shift for Planfarm away from its traditional metric of EBITDA on which it benchmarks broadacre businesses and a move towards EBIT based on the logic that in horticulture, an investment in machinery and technology will affect operating efficiency to a much greater extent and depreciation of this should be factored into the benchmark analysis.
Likewise, due to the high number of lease arrangements in horticulture the vegetable benchmarks will make a move away from return on capital in favour of return on assets managed (ROAM).
Both firms have spent many hours refining their analysis tools and testing data sets to ensure that the analysis tools align and growers, no matter where they are in Australia, will have the same analysis outcomes as everybody else.
Level Up Hort
Work is now underway recruiting growers across the country for the national vegetable and onion benchmarking program. Not surprisingly, this has been re-branded Level Up Hort to make the program more appealing to vegetable businesses.
Level Up is a gaming term which refers to being on your game and being the best that you can be. It’s a bit like stepping up to the plate, not necessarily to be the greatest in the field, but to set your own targets and aim to continually improve internal processes and work towards achieving those targets.