The farm as a business

Outline the importance of farms in the wider agribusiness sector of the Australian economy

The place of the farm in the wider agribusiness sector:

- Farming = a business
- It consumes resources/inputs (seeds, fertiliser, fuel, animals, vet products…) & services
(machinery mechanics, agronomy consultants, financial advisors)
- Farming produces raw materials for other industries

Producers -> wholesalers -> retailer -> consumer

Dairy farmer -> processing factory (dairy farmer Aus) -> Woolworths -> me

Business involved in Ag prod:

 PRODUCER – feed suppliers, fertiliser companies, machinery suppliers, finance

 WHOLESALE – processing, packaging, transport, distribution
 RETAIL – shops, local markets, export market, advertising
 CONSUMER – competition from other products, availability of raw product

Describe a wide variety of farm business structures from the family farm to the corporate
enterprise

Traditionally most farms were family owned & operated.

Business structures now used include:

SALE TRADER = a single person controls / manages farm

PARTNERSHIP = 2+ people control farm & jointly receive income

FAMILY TRUST = trust is a structure where a trustee carries on operations of the trust on behalf of
the beneficiaries.
Trusts are a common choice for family businesses – enables family members to become beneficiaries
of the trust that is operating the business

CORPORATE ENTERPRISE / COMPANY = legal entity separate from its shareholders / owners
Directors are elected & make decisions

Decision-making processes and management strategies

Assess farm production systems based on measurements of quality and quantity

 Farm manager will assess how his dairy operation is performing & make decisions to
improve production
 Goals of farm include:
 - Optimising quality/quantity of milk produced resulting in improved financial
returns
- Sustainability of the physical farm environment and dairy business
 Manage can assess performance of business via:
- Monthly statement sheet from Dairy Farmers which specifies the quantity of
milk provided in one month as well as the quality (protein, butterfat) of milk
- Computer records that can pinpoint inefficiencies in the milking herd (non-
productive cows can be culled)
- Farm financial records

- Country Valley do their own quality and health tests

 Decision making is based on measurements of quality and quantity

 Quantity of milk – decisions made by farmer include those related to improved feeding
and breeding of milking herd. For example:
- Feeding:
i) Improving pastures by selecting most productive species – making
appropriate decisions about when to fertilise, use herbicides and re-
sow pastures
ii) Planning for winter feed gap – producing/story supplementary food
(hay, silage)
- Breeding
i) Genetic improvement to breeding herd through purchased semen
(using Australian Breeding Values – ABV = dairy EBV)
ii) Culling non-productive cows
 Quality of milk – decisions made by farmer include those related to feeding and
breeding of his milking herd. For example:
- Feeding – adjustments to feeding programme i.e. more protein intake/day
results in greater protein percentage in milk
- Breeding – increasing % of butterfat in milk by changing breeds (i.e. to
Jersey/Guernsey)

Outline the financial pressures that may impact on farmers including the irregular nature of
income, high expenditure on inputs, the dynamic nature of markets and interest rates and risk
management

Financial pressures have an impact on farmers…

IRREGULAR FARM INCOME:

 Environmental factors are involved (weather, pest/disease)

 Long prod cycle – many farmers only harvest once a yr – only receive payment once
… Makes it hard to budget throughout yr

EXPENSIVE INPUTS:

Input prices continue to rise quicker than farm products

High price of inputs put pressure on farmers to increase productivity

DYNAMIC MARKETS:

 Markets are unpredictable – increases pressure on farmers to buy/sell at bets time

 Farmer needs to be more acknowledgeable to market trends

INTEREST RATES:

 Unpredictable – increases pressure to farmers

 They may avoid loans at the risk of rises is too great
 Changes in Aus $ affect exports of ag products

RISK MANAGEMENT:

Farmers need to have risk management in place such as have other sources of income - 2 nd job,
partner works, investments off farm (eg, an apartment, shares, diversification (diff animals/crops),
specialisation, savings, storage of reserves (water, hay)

Use techniques to analyse the financial situation of a farm enterprise including calculating gross
margin and return to capital

FARM RECORDS

It’s important that records are kept. They should be both:

- Physical records (eg, rainfall, paddock records, inventories, performance records, daily
events in dairies)
- Financial records – monitor flow of money on property (eg, gross margins)

ASSING FARM PROFIT

Net farm income, return to capitol and return of equity = standards used to determine performance
of property

GROSS MARGINS – measure profitability of a particular enterprise

It can be calculated on a return /ha /dry sheep equivalent (DSE) /Labour unit /$ invested

Gross margin = income – variable costs

% return to capitol = operating profit / total assets X 100

If return to capitol is:

- 0% - poor result
- 0-5% - low result
- 5-10% - satisfactory result
- > 10% - good result

… Measures earning rate of farmer’s resources & exclude personal factors (taxation, living expenses,
and level of equity of the operator)

Ag technology

Outline the importance of ongoing research related to Ag industries

as human
population
increases farmers
must reach
deman, increase
population increasing profit by:
* + efficinecy
improve * - resources needed
animal
* - time needed
health
* + quantity & quality
Why Ag
Research?

improve
animal community
welfare benefits
(eg, more
make jobs)
genetically
engeneered
organisms

Describe recent technologies & their impact on Ag prod / marketing

ROBOTIC DAIRIES (milking machines)

- Cows fitted with a micro-chipped collar

- Cows ‘volunteer’ to be milked
- Smart gates read ‘collar’ & direct cows to specific place
- Robots wash udders with iodine, attach & remove teat cups
- Sensors record milk quantity & quality (measures conductivity – indicates mastitis) from
each quarter
- Cows move on rotating carousel
- Cows are fed depending on their milk prod

Advantages:

 Less human labour – farmers can do other jobs on farm

  Increased animal welfare – less stress
 Producing more milk (increased milk prod)
 Increased monitoring of prod (data)

MILKOSCAN – INFRARED MILK ANALYSER

Measures fat, protein, lactose, total solids, solids (non-fat), freezing point depression

Marketing

Marketing strategies

Direct marketing = no formalised system, farmer negotiates directly with buyer / sell to
agents at recognised market locations (eg, sale yards).
Occasionally farmer sells directly to consumer (eg, fruit growers)

Contract selling = farmers negotiate a contract with buyers to supply a set amount & quality
of a product at a certain time for a set price (eg, McDonalds).
Budget better

Ag co-operatives = allow farmers to bypass middle operators in marketing, to cut costs, gain
guaranteed return for their goods. Bargaining better.
May reduce costs by purchasing in bulk. May provide insurance & credit for members

Marketing boards = Some ag products sold through state gov marketing boards
They maintain returns to farmers, increased bargaining power, stabilise income over time, &
maintain order of produce disposal.

Vertical integration = coordination between stages in prod & marketing processes

Horizontal integration = linking together firms at same level of marketing

Marketing a specific farm product

The marketing chain for a product

A market exists where buying & selling occurs for a particular commodity

Marketing = buying & selling of goods … & … associated activities (eg, transport, storage, packaging,
promotion)

Marketing chain = shows movement of the product from farm gate to consumer

MILK:

Steps in the chain:

1. FARM – some products leave the farm gate unchanged

2. STORAGE – some require specialised storage.
 3. TRANSPORTATION – product is transported from farm to processor to wholesaler to retailer.
Products require diff types of transportation depending on scale of operation & commodity
4. PROCESSING – raw ag product is altered - adds value
5. PACKAGING – to reduce damage during transport. Occurs on farm / after processed
6. SALES – at growers market, bulk sales, roadside stalls, manufacturer to wholesaler to
retailer, direct contracts, auction sales

The importance of product specification in the marketing of milk

MARKET SPECIFICATIONS = quality standards required by buyers / consumers of the product

Good quality must satisfy the market specifications in terms of:

- Protein % - 3.15%
- Butter fat % - 3.95%
- Standard plate count (bacteria – decreases shelf life of milk)
- Somatic cell count (skin / infection) white blood cells
- Antibiotic level
- 0 colostrum’s
- Chemical residues (pesticides, iodine)
- Sediment
- Freezing point test (detect added water to make quantity bigger)
- Consistent storage temp - 4⁰C-

In terms of quality, price paid to farmers determined by butterfat & protein %

… Gives farmers financial incentives to produce milk of a suitable quality

… gives milk factory processors assurance of quality of the milk supplied

All tests = aimed at ensuring high quality milk reaches consumer

Processing raw Ag commodities

Most raw products need processing before it satisfies consumer

- All milk is pasteurised & most is homogenised

- It may then be flavoured / changes of fat level (skim milk…)
- Manufactured milk processed into yogurt, cheese, cream, butter, powdered milk …

BUTTER:

Evaluate ways in which the product can be value added

Value adding = changing a raw product into a new product through packaging, processing, cooling,
drying, extracting
Adding value is worthwhile because the higher the returns that come with the investment,
opportunity to open new markets, extend producers marketing season, ability to create new
recognition to farm

In milk…

- Milk processed into other products – cheese, yogurt…

- It extends shelf life & transportability
- Farmers can bottle their own products & sell to local markets

Supply & demand

Demand = what consumers want & how much they’re willing to pay
… can be influenced by price, advertising, fashion trends, health benefits

Supply = how much farmers produce & for what price

Factors affecting supply:

- No. of farmers producing the product

- Weather conditions
- Cost producing product
- Disease reducing yield
- New tech
- Price of product
- Price for alternative farmers could grow

Quantity & quality criteria for a product

Quantity = how much of the product

Quality = desirability of a product

Prod factors that affect quality:

o Nutrition – high protein feed increases protein in milk

o Climate
o Disease
o Genetics
o Management

Government influence on production and marketing

LEGISLATION = making / enacting laws (WHS Act 2011, Food Act 2003)

REGULATIONS = support general requirements of legislation & provide more detail

CODES OF PRACTICE = advise people of acceptable ways of achieving compliance with legislation
LOW COST LOANS = federal gov offers struggling farmers a package of measures to help solve debt

TAX INCENTIVES = primary producers have extra tax concessions for conducting land-care operations

 Prior to year 2000 government regulated price of milk but since then they don’t play a direct
role (deregulation)
 Federal Government:
- Creating new markets (overseas trading)
- Influences export regulations and trade restrictions
- Providing grants as well as performing the subsequent research and development
- Subsidies i.e. feed and water during drought (generally Australian farmers are not
given handouts)
- Tax concessions
- Financial assistance (in times of drought…)
- Advertising and promotion
- Specialist banking and insurance for rural activities.
- Australian Dairy Authorities Standards Committee - helps to maintain quality
- Decides the monetary policy and taxation laws (which could affect the price of
imported farm equipment such as tractors or other machinery)

 State Government:
- Regulating health requirements of milk – i.e. tests etc. done at the processing
factory (co-ordinated by the NSW Food Authority)
- Monitoring HACCP (quality control program in the food industry)
- Employing staff to work for NSW Department of Agriculture - advise farmers
- Regulates environmental protection laws e.g. disposal of effluent
- OH&S (work place safety)
 Local Government:
- Land zoning

Problems that may occur in meeting market specifications of a product and methods used to meet
requirements

 Protein percentage – payment to dairy producers are adjusted according to protein

content-no minimum but the incentives are worth the farmers while to have a higher %.
If protein is low, this is indicative of insufficient protein in diet of cows – essential that
cows are grazed on good quality improved pastures containing legumes for protein –
extra protein pellets can be supplied

 Butterfat % – heavily influenced by breed of dairy cows. Jersey and Guernsey produce
milk with high butterfat – Holstein-Friesians do not produce such high butterfat % but do
produce a very large quantity of milk. No.9 sacrifice butterfat % for higher quantity and
use Holsteins

 Bacteria levels (Standard Plate Count) – must be less than 14000cfu/ml (Colony Forming
Units) for zero demerits. Repeat offenders over 50000cfu/ml risk refusal by processing
factory to collect milk.
Problems with high bacteria may occur due to:
 - Milk not cooled fast enough to below 4˚C straight after milking (milk is body
temp - 37˚C)
- Milk not stored at a consistent temp (less than 4˚C) on the farm before
transport to processing factory
- Milk allowed to increase in temperature during transport to processing
factory

 Somatic Cell Count – must be less than 200 000 cells/ml for zero demerit points.
Maximum allowable level on a monthly average basis is 400 000 cells/ml.
When results are consistently above 400000, produces will be advised in writing by Dairy
Farmers and collection will be suspended until the Cooperative is satisfied that a suitable
mastitis control programme is in place

Outline strategies for advertising and promotion of the product

 COUNTRY VALLEY:
- Labels on products (emphasise the local, good, honest production of milk that has
superior quality due to the minimal processing that is undertaken by larger,
commercial factories)
- Same branding for all products
- Displays in retail shops
- Website, social media
- Visual presentation of product on supermarket shelves (make sure it’s at the front…)
- Local newspaper ads
- Milkshake stalls – free milkshake to advertise
- The family like to distribute their own product (they drive the truck) so that they can
talk to shop owners and directly get feedback
 Other dairy brands (eg, Dairy Farmers, Oak) do similar but also advertise on TV, radio &
major print media

Assess a current advertising or promotional campaign for the product

Oak – Hungry Thirsty advertising campaign

- Man at night in a carnival

- Describes what ‘hungry thirsty’ is – when you’re hungry and thirsty
- Advertises that’s only one cure for “hungry thirsty”
- At end the oak choc milk floats up to his hand attached to a balloon
- “oak, kill hungry thirsty dead”