In search of profitable and efficient farmers

A recent UK study has found that more efficient and profitable farmers tend to have certain properties in common.

Global farming - Dr Koos Coetzee

All farmers are not the same. The frequently repeated, but still unverified, claim is that 20% of farmers produce 80% of the total production. This is frequently wrongly interpreted as referring to ‘mega-farms’. In many cases, medium-sized farmers are more profitable as they can keep a tighter rein on their businesses.

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The huge diversity of farmers makes it difficult to pinpoint specific success factors. However, a recent study carried out in the UK has identified some of the characteristics common to more efficient farmers in the UK and internationally.
The researchers found that the majority of successful farmers had previous job experience outside of agriculture. This endowed them with basic managerial skills that enabled them to be more efficient.

These farmers also had further education qualifications, either in agriculture or some other discipline. This is true in South Africa where we see many commercial farmers with graduate and post-graduate qualifications. Interestingly, the UK study found that inherited assets had a negative impact on future farming success. This is not true in South Africa where many farming operations are now managed by third- and fourth-generation farmers.

Benchmarking
The study confirmed that top farmers all over the world use modern business methods. This includes proper planning, up-to-date budgets, and actual income and expense statements. Without these, no farmer can be successful.
Successful farmers also use benchmarking to enable them to improve efficiency. This may involve a neighbouring farm or similar farms in other areas, or even industry standards.

Farmers in New Zealand, the US and other countries can benchmark against national databases. Unfortunately, this facility is still seriously lacking in South Africa. Successful farmers employ modern technology. They use the Internet and personal contact with researchers and formal and informal knowledge-based systems to stay abreast of new developments and to identify market trends.

Cost control

Strict cost control is another common feature. The main reason the best UK farmers make more money than the worst is because they spend less per unit of output. While higher output accounts for about 10% to 30% higher profits, lower costs contributed 65% to 90%. However, indiscriminate cost-cutting is not good either, and one should heed the Afrikaans expression Moenie jouself bankrot spaar nie, or ‘Don’t save yourself into bankruptcy’.

The study also highlighted the role of research and development (R&D) in enabling farmers to meet market demand. In South Africa, government expenditure on R&D is declining. The frequently quoted 2010 study by Piesse and Thirtle suggests that this will have a negative effect on agricultural productivity in about 10 years. The signs of this are already evident.

Industry bodies and the private sector have to fund applied research. Government’s total expenditure on R&D is among the lowest in the world and will not enable South Africa to remain globally competitive.

Lessons for SA
As should be obvious by now, most of the study’s findings apply to farmers in South Africa looking to boost their products. Encourage your son or daughter to obtain a tertiary qualification before start working on your farm. It may also be beneficial to let them gain work experience outside of agriculture.The world is changing at a furious pace. Those who do not keep up-to-date with current and future trends will not survive.

It’s true there are some areas in South Africa where Internet connectivity is poor. However, the cost of not linking to the Internet is much higher than the cost of getting connected. The benefits of keeping good financial and other records are now generally accepted. The detailed records generated with new computerised systems should be used as tools to improve efficiency and profitability.

Individual farmers’ efficiency and other measures should be compared with figures from similar farms. Benchmarking is not about determining who is better but where and how a particular farmer can improve. In summary, there are many factors that influence farm profitability and efficiency. But those who are optimistic and continually strive to improve farm efficiency will enjoy the fruits of their labour.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.