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Kilos and Costs - the Profit Drivers

09 April 2013

Understanding the profit drivers in beef production is not a complex exercise, according to the facilitator of six Beef Profit Groups in northern New South Wales.

The simple philosophy of the groups is based on establishing two figures - the kilograms of meat produced and the costs of producing that meat.

Facilitator Bill Hoffman, of Hoffman Beef Consulting, said each group addresses unique production and profit issues at quarterly meetings, but at their core is a strong focus on measuring and monitoring business health through annually calculating the kilograms and the costs.

Located at Guyra, Ebor, Yarrowitch, Baryulgil, Northern Rivers and in the North West, the groups involve 72 producers who collectively manage 79,900 cattle, conservatively valued at $63.9 million, across 119,850ha.

“The most profitable beef producers do not necessarily have the lowest cost of production (CoP), but they have it under control, it's relatively low, and importantly, they're using the figure to improve their beef enterprise,” Bill said.

Most of the groups have been calculating CoP for a number of years, which has enabled Bill to develop indicative regional benchmarks for different beef operations in various locations.

Comparing CoPs

Within the six groups there is a wide range of CoP each year from $0.79/kg to $3.92/kg. Each year there are outliers (notably different figures from the bulk of the data) for a range of reasons, but the median 2010-11 CoP across the Ebor, Guyra and Yarrowitch groups was $1.22/kg.

“The benefit of having six beef profit groups with the same facilitator is we can compare the CoP within the group, and across the groups, because it was calculated in the same way,” Bill said.

“In the early days the group environment offers support and confidence in calculating CoP. Over time the capacity is built within the individual members so that if the group was to dissolve, producers would continue to calculate their CoP individually as a measure of business health.”

Bill emphasised any form of benchmarking needs to be approached with caution.

“Benchmarking an individual business year-to-year with itself gives the most informed view of where the business is going. A high CoP in one year may indicate one off events such as major pasture renovation or significant repairs and maintenance so it is important to look at the trend over a minimum of three years, preferably five,” Bill said.

“To date we have kept the process simple as that is what group members tell me they want. We focus on the operational level of the business and a small number of Key Performance Indicators that are strongly collated with profit and I am sure that has strong flow on benefits to overall profit.”

CoP and kilograms of beef produced are strong indicators of profit. Between 2008-09 and 2010-11 CoP has fallen by $0.33/kg and kilos of beef produced has risen by 14,896kgs across the three NSW northern tablelands Beef Profit Network groups.

“In 2010-11 86% of the members would have achieved a positive operating margin in $/kgs of beef they produced and that is a pleasing result,” Bill said.

Average Cost of Production (/kg) and Total Kilograms of Beef Produced Over Three Years for Six Beef Profit Groups.

Source: Bill Hoffman

January 2013

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