Working for many decades in the business side of agriculture, it has always intrigued me why more farmers do not thoroughly benchmark their businesses.
Benchmarking is where you develop a full set of performance measures and comparative analysis is where you compare your performance with other years and maybe other farmers.
Developing benchmarks is a pre-requisite to comparative analysis, so it is important to get the figures right or the following comparisons become meaningless.
Having benchmarked many groups of farmers, getting the correct numbers has been a real challenge.
The old perennial question is "are you in it as a business or is it a lifestyle?" If it's the former, the figures are usually correct.
Many farmers think they are businessmen and women but the record keeping and subsequent decision-making would suggest that lifestyle is an overriding factor. Doing a tax return and a business activity statement does not qualify you fully as a business person.
Related reading: How farm benchmarking drives successful decision-making
Figures are derived by three methods - correct data, estimation and guessing - and the latter should not be tolerated in any circumstance. Estimating is where you have not actually measured something but you have ball park figures in your mind based on some known parameters. Some farmers in each of my benchmarking groups have wished to remain anonymous for the fear that they would be perceived poor farmers. They were the ones that I knew had done a fair bit of guessing and they did not want to be found out, yet they had the most to gain by being in the group.
The big challenge starts with most farmers having their production costs in last year's financials, and the output income in the following year's ledger. Strong attention needs to be paid to the changes of inventory because true enterprise output is income minus expenses plus or minus change of inventory.
Rarely do I see livestock and crop schedules being rigorously kept on a farm. At the end of the year these schedules are the true physical scoreboard from which you can reconcile the financial outcomes.
If benchmarking and comparative analysis are to be of benefit, it starts with the leader or driver of the process. They must understand economics, production, decision-making and finance.
I am all in favour of comparative analysis on your own farm from one year to the next, one crop against another, flock with herd. It is a must if you want to improve. Comparing yourself to others should only be in the hands of those who fully understand the process. Comparing farms with differing goals, risk aversion, labour costing, soil type, debt levels and interpersonal skills can end up like comparing elephants to billy goats - it can be done but may not mean much.
I am all for getting farmers together to discuss ways to improve, but we must make sure that the figures are right and the process is well understood.
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