Wednesday, July 6, 2022

Measuring up

Benchmarking can be a useful tool in enabling farmers, bankers, accountants and consultants to make informed decisions about the productivity of a business (farm or non-farm) relative to others with similar management systems.

Many benchmarking tools are provided, but the most common form of benchmarking reviewed is probably annual financial accounts where one business will compare several years of financial and physical results to assess improvements (or degradation) in farm productivity and profitability.

Annual accounts can be misleading depending on how accurately the production information has been collated and how accurately invoice coding has been undertaken.

Other benchmarking tools include, but are not limited to: 

  • Dairy Base: Dairy farm benchmarking tool provided freely by Dairy NZ with many different stocking classes, and categories, typically analysed annually.
  • DSM: Dairy farm benchmarking tool provided by selected consultancy firms, analysing financial and productivity monthly, with regular meetings, paid for by the farmers who belong.
  • Farmax: Sheep and beef or dairy analysis system provided in conjunction with farm system modelling software as an addition if subscribed to. Provides for different areas, stock and farm classes.
  • Beef + Lamb NZ: Sheep and beef annual benchmarking reports for differing balances of breeding and finishing farm systems, produced annually and freely available.
  • Ministry for Primary Industries: Arable, sheep and beef, dairy, deer, viticulture, horticulture annual monitoring reports of production and productivity for a range for farm systems, no longer produced and were freely available.
  • Producer Groups: Programmes funded by farmers, Dairy NZ, Deer NZ, Beef + Lamb NZ, FAR, with a focus typically on a specific part of a farm system and record and report quarterly or more often with regular meetings. 

Benchmarking is only as useful as the accuracy of the information going into the database. Consistency and accuracy of data is of highest importance. Nothing will be gained or learned by “generating” data or modifying it to make you feel better about your farm’s performance. If the base performance is inflated it is hard to analyse both the base-line weaknesses and where improvements could be made.

Being involved in a benchmarking programme is the easy step, but simply providing the information for analysis is only part of the job. Critical analysis and group discussions are as important as data collection and collation.

Critically analysing your data against the group average requires sitting down and identifying which parts of your business are performing and which parts are not, sharing your successes with others in the group, and extracting information in order to improve your business.

The aim of discussions and analysis is to bring under-performing benchmarks up to average or above, with the ultimate aim of generating more taxable profit a hectare.

It can be difficult to find a benchmarking group which a particular farm’s data is entirely comparable with, which can put people off joining. In any benchmarking group, there will be a component of the data that an individual farmer will be able to relate to their system, so instead of dismissing the entire concept, farmers should focus on the data relevant to them.

The importance of benchmarking is underrated among many farmers in New Zealand. With a range of tools and programmes available it is my opinion that many farmers could benefit from active involvement in benchmarking programmes.

Many gains are made by farmers simply gaining a better understanding of their financial and production systems and a heightened awareness of where the pressure points are so they manage these in a profitable manner.

You cannot manage what you do not measure.

  • Mark Everest is a farm management consultant with Macfarlane Rural Business based in Ashburton, mid-Canterbury.
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