Yield and quality determine profits, nothing else!

Costs under your control such as yield and product quality are what determine farming success. Don’t waste time on costs you cannot influence or control.

Managing for profit by Peter Hughes

I bumped into Francois (not his real name) at the supermarket. He was irate.

“See these?” he said, pointing to some mangoes.

“They’re off my farm. Look at the price! It’s ridiculous.”

It’s an age-old lament of farmers the world over: “We take all the risk. The middlemen make all the profit!”

The Citrus Academy recently ran a series of workshops for new entrants into the industry.

As part of this process, Louis von Broembsen, the facilitator, wished to set out details of a typical cost chain from farm to consumer. He asked me for help. Without giving it much thought, I agreed.

Little did I know what an enlightening voyage of discovery it would be.

We identified and costed each step of getting fruit from farm to export market: production, harvesting, packing, transport to port, local port costs, shipping, overseas port costs, transport, pre-packing costs and retailer’s margin.

In between, there are costs such as inspection, agents’ commissions and a few others.

Citrus, of course, is produced from the Limpopo River to the Southern Cape region, and almost everywhere in between. There are many different varieties, each with its own characteristics and costs, and Louis wanted costs of all the options.

Key messages
We built cost chain models for each main production area and variety, enabling us to test the sensitivity of farm profits to each item of cost, selling prices and exchange rates. As we prepared this material for the workshops, two key messages for the young farmers became clear:

  • Yield and product quality affect farm profits far more than any other factor. It’s these two factors, both largely under the control of the farmer, which determine the success or failure of the business.
  • ‘Middlemen’ operate in a highly competitive and transparent environment. If they charge extortionate prices for their services, they quickly lose their clients. What’s more, in the overall cost chain, these costs are relatively minor and have much less impact on profits than yield and product quality.

One of the goals of the workshops was to demonstrate the ultra-sensitivity of farm profit to yield and product quality, and to stress the importance of devoting time and energy to production and product quality management, not chasing down relatively minor middlemen costs.

That’s not to say service providers shouldn’t be carefully selected for their expertise and cost competitiveness. They should be, but a farmer should not burn up energy in areas that will bring little return for the effort.

The importance of records
What applies to citrus probably applies to all fruit, as well as nuts, vegetables, milk, grain, fibre, meat or almost any other product. Maximising yields and product quality will have the single greatest impact on profit.

It’s therefore crucial that the system used delivers yield and quality information in a format that provides an early warning system if these aspects are slipping.

As I have often written before, most of our farmers are highly production-oriented, and are well aware of recent yield figures. But when one starts interrogating history of yields in depth, information is often lacking. For example, when the following questions are asked, there are often no quick and ready answers available:

  • What’s the trend of overall average yields over the past three to five years? Up or down?
  • What’s the trend of product quality over the same period? Up or down?
  • How do these trends compare with the best farm in the area? Better or worse?
  • What has been the yield/quality trend from your worst-performing land? Improving or getting worse?
  • What’s the trend for each main variety?

To get answers to these and other crucial yield and quality questions, records need to be available at the push of a button.