The Economic Drivers of Beef Production in the Eastern Cape: A situation analyses

Transcription

1 The Economic Drivers of Beef Production in the Eastern Cape: A situation analyses Chrisna Coetsee Agricultural Economist

2 Introduction Income and costs influence return on investment and determine profit. Income is determined by: quantity of product price received per unit The higher the price you get for your livestock, the greater the income - but not necessarily the profit. Successful producers aim to improve product quality (red meat) and evaluate selling options to maximise the price received, or to minimise price fluctuations. However, producers have a much greater chance of improving profitability by managing the quantity of product produced and controlling cost structures. Factors that significantly impact on profit are called profit drivers, e.g. kilograms of red meat produced per hectare. It takes less time and effort to reduce cost of production than to influence price.

3 R/LSU Gross Margin R R R R R R R R R 500 R 0 All Groups, Gross Margin per LSU (R/LSU), / / / / / /2014 Beef Cattle Angora Mutton Sheep Wool sheep

4 R/LSU Beef Cattle Enterprise R Beef Cattle, All study Groups, (R/LSU) R R R R 500 R 0 Meat income Stock purchases Capital change Gross Production Value Enterprise expenses 2008/ / / / / /2014 Gross Margin

5 R/LSU Beef Cattle Gross Margin R Beef Cattle, Gross Margin per LSU (R/LSU), 2013/2014 R R R R R 500 R 0 Bedford Burgersdorp Jamestown Noupoort Philipstown Utrecht Alle Groepe

6 R/LSU Bedford Gross Margin per LSU R R R Bedford, Gross Margin per LSU (R/LSU), R R R R R R R 500 R / / / / /2015

7 R/LSU Beef Cattle Enterprise R3 000 R2 500 R2 000 R1 500 R1 000 R500 Bedford: Beef Cattle enterprise (R/LSU), 2014/ R R R- Livestock income/lsu Enterprise expenses/lsu Gross Margin/LSU

8 Direct Cost (Variable) Variable costs are associated with running an enterprise - they vary according to the size of the livestock enterprise or the number of stock and can include supplementary feeding, animal health, marketing cost etc. Increasing production increases total variable costs Spend a Rand to make two Rand

9 Beef Cattle Direct cost as % of Income 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Bedford: Beef Cattle, Direct cost as % of Income, 2014/ % 2.4% 10.1% 1.9% 1.4% 7.9% 0.5% 3.3% 0.8% 1.7% 4.9% 2.2% 2.7% 1.9% 3.2% 3.2% 4.1% Feed Animal Health Marketing cost Reproduction resources Sundries Lowest GM Highest GM

10 Reproduction Definitions Conception% (cows pregnant/cows mated) Calving% (calves born alive/cows mated) Weaning% (calves weaned/cows mated)

11 Reproduction 90% 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% Bedford, Beef Cattle Reproduction (%), % 87.4% 85.1% 76.9% 76.9% 76.3% Conception% Calving% Weaning% 2010/ / / / /2015

12 Bedford 3 Year Average Bedford 3 Year Average Gross Margin/LSU R R R R R Direct cost as % of Income 15.8% 9.8% 4.6% 8.4% 6.7% Kg meat marketed/lsu (kg) Marketing% 31.1% 37.6% 35.9% 13.9% Conception% 75.7% 91.8% 88.8% 81.6% 90.8% Calving% 74.1% 90.0% 88.1% 78.5% 82.1% Weaning% 71.5% 88.4% 86.7% 76.1% 81.7%

13 Overhead Cost (Fixed) Fixed costs are incurred regardless of the number or quality of livestock run and include labour cost, fuel, insurance, infrastructure etc. The easiest way to reduce costs onfarm is to spread the fixed costs across as much product as possible. This is generating economies of scale. Increasing production increases total variable costs, but fixed costs per kilogram of product should decrease and therefore the total cost of production per kilogram falls.

14 Overhead Cost as % of Total Income All Groups 08/09-10/11 09/10-11/12 10/11-12/13 11/12-13/14 Permanent labour 7.8% 7.7% 8.4% 8.5% Fuel, oil and lubricants 5.8% 5.7% 5.8% 5.7% Mechanisation: Maintenance & Repairs 3.9% 3.7% 3.5% 3.1% Fixed improvements: Maintenance & Repairs 3.2% 3.4% 3.6% 3.7% Total Overhead Cost 30.3% 29.7% 30.2% 29.6%

15 Total Cost as % of Income 60% All Groups, Cost as % of Income, 3 Year Average Enterprise cost as % of total income Overhead cost as % of total income 50% 40% 30% 30.3% 29.7% 30.2% 29.6% 20% 10% 0% 23.5% 22.0% 20.6% 18.5% 08/09-10/11 09/10-11/12 10/11-12/13 11/12-13/14

16 R/Ha Net Farm Income per Ha Net Farm Income per Ha (R/Ha), 3 Year Average (11/12-13/14) R 552 R 267 R 278 R 147 R 112 R 58 R 77 R 97 R 127 R 99 R 62 R 190

17 Spend a Rand to make two Rand Farmer A Farmer B Carrying capacity (ha/lsu) Hectares available (Farm size) Farmer A Farmer B Net Farm Income/Ha R 30 R 125 Total Net Farm Income R R If you do what you always did, then you will get what you always got. So do different to what you always did, then you will get different to what you always got!

18 Conclusion Profit drivers: Factors that significantly impact on profit Farm Management Veld management & supplementary feeding Animal Health Reproduction Breeding Financial management Direct cost (variable) Overhead cost (fixed) Marketing and risk reduction strategies (such as forward contracts, futures, reserve prices) require a solid understanding of costs of production.

19 Conclusion (Cont.) Benchmarking studies show the most financially successful producers tend to do some or all of the following: have better fodder flow and veld management, to generate economies of scale know their costs of production per kilogram of product and tend to be in the lowest 20% have a business management focus objectively assess and record pasture and animal performance are prepared to spend a Rand to make two Rand run many more stock per unit of labour than the district average continually benchmark themselves against other similar producers to keep in front Source:

20 Chrisna Coetsee Segard Masurel Wool Brokers Cell: