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Tri-Nations Revisited


PROFITABILITY VARIATIONS BETWEEN THE AVERAGE AND THE BEST IN SOUTH AFRICA, AUSTRALIA AND NEW ZEALAND

By David A Beca, Managing Director, Red Sky Agricultural Pty Ltd

INTRODUCTION

This paper sets out to determine the differences between the levels of profitability in pasture-based dairying in South Africa, Australia and New Zealand.  In particular the paper examines where the performance in the three countries differs as well as where it is similar.  The comparisons are based on 2004/05 data analysed on an identical basis via the same software.  The data is based on:

Although there is no way to verify how representative the samples are of each industry as a whole, they are sufficiently large to provide a valid group for comparative purposes.  In all three countries the farms are most likely to represent the top 50%-70% of farms rather than a true average, and as a result the group identified as the ‘Top 10%’ is most likely to represent the top 5%-7%.

EXECUTIVE SUMMARY

  1. Levels of profitability are higher in South Africa than in Australia, with both countries having a higher level of profit than in New Zealand, when compared on Return on Assets (excluding the impact of changes to asset values).  This trend is also evident within the Top 10% group in each country.
  2. The differences between the three countries are smaller when compared on either Profit per Hectare or Profit per Cow, although the same trend remains evident.  This trend is also evident within the Top 10% group in each country, although New Zealand performs ahead of Australia on a Profit per Hectare basis.
  3. The narrower differences in profit on a Per Hectare or Per Cow basis as compared to a Return on Assets basis illustrate the impact of the substantially higher value of farm land in New Zealand compared to Australia, as well as Australia compared to South Africa.
  4. The Cost of Production is significantly higher in South Africa compared to Australia and New Zealand, which indicates a higher level of financial risk.  Australia has a higher Cost of Production than New Zealand, and these trends are also evident within the Top 10% group in each country.
  5. Interest rates are higher in South Africa compared to Australia and New Zealand, which also produces a higher level of financial risk.  These higher interest rates suggest that the market believes that the South African economy (and by implication South African dairy farming), carries a higher level of risk than Australia and New Zealand.
  6. Milk production per hectare is higher in South Africa compared to Australia and New Zealand when assessed on the basis of litres per hectare, though all three countries are similar when compared on the basis of milksolids per hectare (which is the basis of milk payments in Australia and New Zealand).  This trend is also evident within the Top 10% group in each country.
  7. Milk production per cow in South Africa is similar to Australia and higher than in New Zealand, and again this trend is also evident within the Top 10% group in each country.
  8. Pasture harvested per hectare in South Africa is similar to Australia and significantly lower than in New Zealand (when compared either on an irrigated or dryland basis).  This trend is also evident within the Top 10% group in each country.  It is not possible to draw conclusions from these comparisons given the different climatic conditions (including differences in latitude, temperature, humidity, and rainfall), as well as differences in soil type and pasture species.
  9. The full Pasture Cost is similar across all three countries, although South Africa does have the lowest cost and New Zealand the highest cost.  This trend is also evident within the Top 10% group in each country.
  10. The full Forage Cost in South Africa is similar to Australia and lower than in New Zealand.  This trend is also evident within the Top 10% group in each country.
  11. The full Concentrate Cost in South Africa is higher than in Australia and similar to New Zealand.  Within the Top 10% group, South Africa is higher than both Australia and New Zealand.  Throughout most of New Zealand there is not presently an opportunity to purchase cost-effective grains and as a result concentrate byproducts are utilised, and feeding rates are lower than in South Africa and Australia.
  12. Labour efficiency calculated on the basis of Cows per Full Time Staff Equivalent is substantially lower in South Africa compared to Australia and New Zealand.  This trend is also evident within the Top 10% group in each country.  However Management & Staff Costs per Cow are similar across all three countries, with Australia being higher than South Africa and New Zealand while New Zealand is lower than South Africa and Australia within the Top 10% group in each country.
  13. Core per Cow Cost is similar across all three countries.  This trend is largely evident within the Top 10% group in each country, although South Africa has marginally higher costs than Australia and New Zealand.
  14. Core per Hectare Cost in South Africa is similar to New Zealand and higher than in Australia.  This trend is also evident within the Top 10% group in each country.

To read the full paper please click here.

To view the Appendix please click here.

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