Australian beef Financial performance of beef cattle producing farms, to

Transcription

1 Financial performance of beef cattle producing farms, to Peter Martin, Paul Phillips, Robert Leith and Tim Caboche Research by the Australian Bureau of Agricultural and Resource Economics and Sciences RESEARCH REPORT 13.8

2 Commonwealth of Australia 2013 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms. Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/ au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. This publication (and any material sourced from it) should be attributed as Martin, P, Phillips, P, Leith, R & Caboche, T 2013, : Financial performance of beef cattle producing farms, to , ABARES research report 13.8 prepared for Meat & Livestock Australia, Canberra, July. CC BY 3.0. Cataloguing data Martin, P, Phillips, P, Leith, R & Caboche, T 2013, Australian beef: Financial performance of beef cattle producing farms, to , ABARES research report 13.8, Canberra, July. Internet : Financial performance of beef cattle producing farms, to is available at daff.gov.au/abares/publications. Contact Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Postal address GPO Box 1563 Canberra ACT 2601 Switchboard Facsimile info.abares@daff.gov.au Web daff.gov.au/abares Inquiries regarding the licence and any use of this document should be sent to copyright@daff.gov.au The Australian Government acting through the Department of Agriculture, Fisheries and Forestry, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture, Fisheries and Forestry, ABARES, its employees and advisers disclaim all liability, including liability for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law. ISSN ISBN ABARES project 43009

3 Contents Summary 1 1 Introduction 3 2 Cattle production 9 3 Financial performance 13 4 Farm investment 35 5 Farm debt 39 6 Beef cattle selling methods 47 7 Grain finishing 49 8 Productivity 50 Survey methods and definitions 52 References 61 Figures 1 Beef cattle branding rate 7 2 Beef cattle turn-off rate 7 3 Beef cattle turn-off, Australia 11 4 Beef cattle stocking rates 12 5 Beef cattle numbers and saleyard prices, Australia 12 6 Farm receipts, northern beef cattle producing farms 13 7 Composition of farm costs, beef cattle producing farms, to Cash costs, beef cattle producers, northern Australia 14 9 Financial performance of beef producing farms, northern Australia Financial performance of beef producing farms, northern live cattle export region Farm cash receipts, southern beef cattle producing farms Composition of cash costs for beef cattle producers, southern Australia Financial performance of beef producing farms, southern Australia Farm cash income beef producers, southern Australia Proportion of beef producing farms acquiring land, Australia Land prices, beef cattle producing farms 36 ABARES iii

4 17 Net investment in vehicles, machinery and farm improvements, northern producing farms Net investment in vehicles, machinery and farm improvements, southern producing farms Composition of farm business debt, northern producing farms Composition of farm business debt, southern producing farms Proportion of beef cattle producing farms increasing farm business debt Ratio of interest payments to total cash receipts, beef cattle producing farms Debt servicing and borrowing capacity, northern cattle producing farms Debt servicing and borrowing capacity, southern cattle producing farms Method of selling cattle, southern Australia Method of selling cattle, northern Australia 48 Tables 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June 4 2 Selected physical characteristics of beef cattle producing farms, by region 6 3 Beef cattle herd group, by number of head 8 4 Financial performance of beef cattle producing farms, northern Australia 15 5 Financial performance of beef cattle producing farm businesses, northern live cattle export region 19 6 Selected estimates for beef cattle producers highly reliant on live cattle exports 21 7 Financial performance of beef cattle producing farms, northern Australia, by herd size 22 8 Financial performance of beef cattle producing farms, northern Australia, by zone 26 9 Financial performance of beef cattle producing farms, southern Australian Financial performance of beef cattle producing farms, southern Australia, by herd size Financial performance of beef cattle producing farms, southern Australia, by zone Distribution of northern cattle producing farms, by farm business debt and equity ratio, at 30 June Distribution of southern cattle producing farms, by farm business debt and equity ratio, at 30 June Average annual beef input and productivity growth by region, to Maps 1 cattle industry 5 2 Australian rainfall deciles: 1 July 2011 to 30 June Australian rainfall deciles: 1 June 2012 to 31 May Northern Australian live cattle export region 18 5 Australian broadacre zones 24 6 Australian broadacre zones and regions 56 Boxes 1 Major financial performance indicators 16

5 Summary Around Australian broadacre farms run more than 100 beef cattle. These farms are classified as beef cattle producing farms in this report. Around two-thirds of these farms derive most of their farm receipts from sales of beef cattle and around one-third are mixed enterprise, deriving a substantial proportion of their receipts from cropping, sheep, lambs and wool as well as from the sale of beef cattle. The average financial performance of cattle producing farms is estimated to have declined in This is due to lower beef cattle prices, as beef cattle turn-off increased in response to drier seasonal conditions and high beef cattle numbers, particularly in northern Australia. Beef cattle numbers increased in northern Australia in and due to above average seasonal conditions and low turn-off of cattle for slaughter and live export. In addition, reduced prices for sheep, lambs and wool, together with lower overall grain production in southern Australian regions, further reduced overall farm receipts in For northern Australia average farm cash income for beef cattle producing farms is estimated to decline from an average of $ per farm in to $ per farm in , around 10 per cent below the average for the 10 years ending , in real terms. Increased beef cattle turn-off is estimated to have resulted in a small reduction in beef cattle numbers in northern Australia and a reduction in the value of cattle inventories, compared with large increases in and As a consequence, farm business profit is estimated to have declined sharply from an average of $ per farm in to $2000 per farm in For southern Australia average farm cash income for beef cattle producing farms is estimated to decline from an average of $ per farm in to $ per farm in , around 19 per cent above the average for the 10 years ending , in real terms. Reduced growth in beef cattle numbers as turn-off increased resulted in a small increase in the value of cattle inventories compared with the large increase in and further reduced farm business profit. Farm business profit is estimated to have declined from an average of $ per farm in to $4000 per farm in ABARES 1

6 Summary Around beef cattle producing farms earn most of their total farm receipts from the sale of beef cattle. Most of these producers, termed specialist beef cattle producers in this report, are located in southern Australia. Farm cash income for specialist beef cattle producers in southern Australia is estimated to have declined from an average of $ per farm in to $ per farm in This is still around 25 per cent above the average for the previous 10 years, a period in which income for many southern cattle producers decreased because of drought. Farm business debt declined in and farm business equity ratios remained relatively high, averaging 88 per cent in northern Australia and 90 per cent in southern Australia at 30 June 2012, despite reductions in reported land values in some regions. Overall, a further reduction in farm debt is expected in and, combined with lower interest rates, is expected to lead to improvements in the debt servicing position of farms. Despite these improvements, high farm debt from borrowing for farm investment over the past 15 years, together with accumulated business losses, has resulted in a high proportion of farm receipts being needed to meet interest payments. Most cattle producing farms have relatively high farm equity and adequate farm cash income in However, lower farm cash income and reduced land values have resulted in increased financial pressure on some farm businesses. Investment in land, cattle, vehicles, machinery and farm infrastructure in recent years, together with improved animal genetics, herd and business management, provides a basis to further increase farm productivity and improve financial performance over the medium term. 2 ABARES

7 Chapter 1 Introduction More Australian farms are engaged in running beef cattle than are involved in any other form of agricultural activity. Around 55 per cent of all Australian farms carry beef cattle (ABS 2013). Running beef cattle is the most widely dispersed agricultural activity in Australia; beef cattle farms form an important part of rural communities and economies in almost all regions. In addition, farms running beef cattle are responsible for managing more than 75 per cent of the total area of agricultural land in Australia. This report presents the detailed financial performance of beef cattle producing farms for the period to and discusses recent farm financial performance and productivity in an historical context. The report draws heavily on data from the ABARES annual Australian Agricultural and Grazing Industries Survey (AAGIS) to provide an overview of the production, financial performance and productivity growth of the cattle industry. Meat & Livestock Australia funded the preparation of this report and partly funded AAGIS. ABARES uses the latest data available to produce estimates from this survey. This means estimates are revised as new information becomes available. Farm businesses with fewer than 100 head of beef cattle are excluded from the analysis to focus on larger beef cattle producers. Farm businesses with fewer than 100 head of cattle represent just 2 per cent of the national beef cattle herd and only contribute around 4 per cent to the total value of beef cattle sales (Table 1). Specialist feedlots are mainly involved in feeding cattle in a confined area with cattle on feed mostly purchased from other producers. Unlike the farm businesses included in this report, specialist feedlots have minimal involvement in cattle grazing or cattle breeding. Farm businesses finishing more than 5000 cattle on grain for more than 70 days have been excluded from this report to remove specialist feedlots and ensure a consistent definition of beef producers over the period for which AAGIS data are available. Since 2006 specialised feedlots have been listed in a separate ANZSIC industry classification in Australian Bureau of Statistics collections; they are no longer included in the broadacre group of industries surveyed in AAGIS. ABARES 3

8 Introduction TABLE 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June average between and Number of farms Share of farms Share of beef cattle Share of value of cattle sales no. % % $ Northern Australia < head head head head head > head Total Southern Australia < head head head head head > head Total Australia < head head head head head > head Total Note: Excludes major feedlots. Source: Australian agricultural and grazing industries survey (AAGIS) 4 ABARES

9 Introduction Northern and southern Australia The performance of beef cattle producing farms in northern Australia and southern Australia is presented separately. Northern Australia is defined as northern Western Australia, the Northern Territory and Queensland. The remainder of Australia, including southern Western Australia, South Australia, New South Wales, Victoria and Tasmania, is defined as southern Australia (Map 1). MAP 1 cattle industry Northern Southern Note: Regions based on aggregations of ABS statistical local areas. Source: AAGIS Just over 8800 beef cattle producing farms were located in northern Australia in the three years ending Around 96 per cent of these farm businesses were located in Queensland and a further 2 per cent in both the Northern Territory and Western Australia. Farm businesses with the greatest reliance on the sale of live export cattle are located in the far northern and western extremes of northern Australia. Northern Australia and southern Australia have marked differences in climate, pastures, industry infrastructure and proximity to markets. These differences have resulted in the beef industry developing and growing differently in the two regions over the past 20 years, as well as differences in the characteristics of farm businesses. The focus of the beef cattle industry in Queensland is primarily beef export markets, whereas in the upper Northern Territory and northern Western Australia the focus is on the live cattle export trade. In contrast, the focus of production in southern states is spread more evenly between the domestic beef market, which accounts for around one-third of the nation s beef production, and the beef export market (Gleeson et al. 2012). ABARES 5

10 Introduction Rainfall in northern Australia is dominated by monsoon systems with distinct wet and dry seasons. The wet season usually occurs from September to March and the dry season usually occurs from April to October, which limits the growing season for pastures and makes it difficult to finish cattle for markets in one production year, as can be achieved in southern Australia. Rainfall is far from uniform; the intensity of the wet and dry seasons varies depending on the latitude, topography and distance from the coast. More variable quantity and lower quality of pasture in most northern areas results in lower stocking rates and much more extensive production systems than in southern Australia, on average (Table 2). Improved pastures in many southern beef cattle producing areas and the production of fodder crops allow for much higher stocking rates. Remote locations in the north make management practices such as short-term supplementary feeding to deal with poor seasonal conditions less cost-effective than in southern Australia. An important part of normal management practice and response to differing seasonal conditions across northern Australia is the transfer of beef cattle between the individual landholdings of large family-owned and corporate farm businesses. Transferring cattle between holdings located in different regions often provides significant flexibility in managing variable seasonal and market conditions. Transfers into and out of farm businesses are reported in the data tables in this report. TABLE 2 Selected physical characteristics of beef cattle producing farms, by region average per farm Northern Australia Southern Australia p y p y Area operated at 30 June ha (11) na (12) na Beef cattle numbers at 30 June no (4) (4) 425 Calves branded no (4) (4) 179 Beef cattle purchases no (16) (16) 32 Branding rate % (1) na (1) na Beef cattle sold no (5) (5) 181 Within year change in cattle numbers % 4 3 (23) (18) 1 Area planted to crops no (22) (9) 174 Sheep numbers at 30 June no (20) (7) Stocking rate hectares per large stock unit ha (4) na (4) na Cattle turn-on rate % 7 5 (13) (15) 8 Cattle turn-off rate % (3) (3) 46 p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 6 ABARES

11 Introduction Branding rates (calves branded as a percentage of cows mated) are typically lower and more variable in the north than in southern Australia, reflecting less favourable pasture conditions. According to AAGIS data, branding rates for northern Australia averaged 71 per cent for the 10 years ending , compared with 85 per cent for southern Australia (Figure 1). Slower growth rates and lower branding percentages for cattle in northern Australia result in lower average turn-off rates. According to AAGIS data, turn-off rates (cattle sold or transferred off-farm as a percentage of the average herd size) averaged 32 per cent for northern Australia for the 10 years ending , compared with 45 per cent in southern Australia (Figure 2). FIGURE 1 Beef cattle branding rate Southern Australia Northern Australia % p p Preliminary estimate. Note: Branding rate is defined as the number of calves marked as a proportion of cows mated. Source: AAGIS FIGURE 2 Beef cattle turn-off rate Southern Australia Northern Australia % y y Provisional estimate. Source: AAGIS ABARES 7

12 Introduction To be economically viable northern properties tend to be much larger in terms of average herd size and the area of land operated than properties in the south. For example, in northern Australia 87 per cent of the beef cattle herd is on properties with over 800 head of cattle, while in southern Australia 62 per cent of the beef cattle herd is on properties with fewer than 800 head of cattle (Table 1). The main breeds of cattle in northern Australia are Bos indicus. Over recent decades the proportion of Bos indicus in the region has increased as producers introduced and selected cattle better suited for beef production in tropical conditions. In southern Australia British and European Bos taurus breeds, such as the Angus and Hereford, remain dominant. To provide an insight into the performance of the beef cattle industry, farm businesses with different scales of operation were stratified into four groups small, medium, large and very large based on the size of their beef cattle herd in each year the farm business was surveyed. Beef cattle producers operate significantly larger properties in northern Australia than their counterparts in southern Australia. For this reason different sized groups have been used in these regions to enable meaningful analysis of financial performance by scale (Table 3). TABLE 3 Beef cattle herd group, by number of head Group Northern Australia Southern Australia Small Medium Large Very large > > 800 In this report farm businesses with more than 100 head of beef cattle are classified as specialist beef cattle producing farms if they earned, on average, more than 50 per cent of total farm receipts from the sale of beef cattle in the previous three years. An average of farms were classified as specialist beef cattle producers between and Eighty-five per cent of beef cattle producing farms in northern Australia were classified as specialist beef cattle producers between and In southern Australia the number of specialist beef cattle producers and mixed enterprise producers is more even. Between and around 47 per cent of beef cattle producing farms were classified as specialist producers. For this reason, some separate tabulation and analysis of financial performance is provided for specialist beef cattle producers in southern Australia. 8 ABARES

13 Chapter 2 Cattle production Increase in beef cattle numbers cattle numbers increased by 6 per cent between 2001 and 2011, despite dry seasonal conditions across much of Australia for most of the decade. In southern Australia, where drought conditions were more extended, beef cattle numbers declined by 5 per cent. However, in northern Australia seasonal conditions generally improved after 2008 and beef cattle numbers increased. In most of Australia s agricultural regions received well above average rainfall and summer brought widespread flooding to eastern and northern Australia, disrupting on-farm activities and cattle transport and sales. In northern Australia beef cattle numbers increased by 13 per cent between 2001 and Numbers in the northern live export cattle region increased by 16 per cent in response to improved seasonal conditions and an increase in the number of beef cattle exported live from northern ports. The number of beef cattle on farms increased by 58 per cent in the Kimberley region over this period, by 24 per cent in the Northern Territory and by 13 per cent in North-West Queensland. According to Australian Bureau of Statistics Agricultural Census data, beef cattle numbers increased by 77 per cent in Central Western Queensland and by 33 per cent in South Western Queensland. In contrast, beef cattle numbers in south-eastern Queensland remained significantly below the number recorded in 2001 (ABS 2013). Seasonal conditions in and In average to above average seasonal conditions for most beef cattle producing farms produced excellent grazing conditions. Flooding during late summer caused damage to infrastructure and to some farms in southern and western Queensland and central north and north-western New South Wales. In contrast, seasonal conditions were dry in south-western Victoria (Map 2). In below average rainfall through winter, spring and summer reduced pasture and crop growth in all states. In northern Australia the traditional wet seasons failed and by autumn dry conditions extended across most of the continental interior. Rainfall along coastal margins of New South Wales and Queensland was higher, providing adequate grazing conditions in these regions (Map 3). ABARES 9

14 Cattle production MAP 2 Australian rainfall deciles: 1 July 2011 to 30 June 2012 Rainfall deciles Western Australia Northern Territory Queensland Highest on record Very much above average Above average Average Below average Very much below average Lowest on record South Australia New South Wales Australian Capital Territory Victoria Tasmania Source: Bureau of Meteorology MAP 3 Australian rainfall deciles: 1 June 2012 to 31 May 2013 Rainfall deciles Western Australia Northern Territory South Australia Queensland New South Wales Highest on record Very much above average Above average Average Below average Very much below average Lowest on record Australian Capital Territory Victoria Tasmania Source: Bureau of Meteorology 10 ABARES

15 Cattle production Beef cattle turn-off and prices Widespread above average grazing conditions after resulted in an increase in saleyard prices for beef cattle due to strong restocker demand as available cattle were redistributed between farms and regions with abundant grazing. Turn-off of cattle for slaughter slowed sharply in as rebuilding of cattle herds commenced in southern Australia (Figure 2 and Figure 3) and branding rates rose in both southern and northern Australia (Figure 1). FIGURE 3 Beef cattle turn-off, Australia Live cattle exported Cattle and calves slaughtered Turn-off rate (right axis) head % f 20 f ABARES forecast. Source: Australian Bureau of Statistics With the continuation of above average grazing conditions in (Map 2), transactions of cattle between farms slowed, calf brandings rose, turn-off rates declined further and cattle numbers on farms increased further. Increases in cattle in northern live export regions were boosted by reduced exports of live cattle to Indonesia from mid Increases in most other regions of both northern and southern Australia resulted from high brandings and low turn-off for slaughter. According to AAGIS data, by the end of stocking rates on beef cattle producing farms in northern Australia were the highest in the past 20 years and in southern Australia stocking rates approached those last reached in (Figure 4). Despite much drier seasonal conditions, turn-off of beef cattle did not increase significantly until 2013, when failure of the northern wet season reduced pasture availability across a large area of northern Australia and particularly western Queensland. Saleyard throughput and cattle slaughter surged across the eastern states during the last quarter of Prices for slaughter age cattle were reduced by the increased supplies. Adding further pressure to markets, relatively few producers were in a position to increase stocking, with widespread dry conditions resulting in lower demand from producers for younger cattle for restocking (Map 3). Saleyard prices for all classes of cattle fell during and the weighted average saleyard prices for declined to the lowest recorded since , in real terms (Figure 5). ABARES 11

16 Cattle production FIGURE 4 Beef cattle stocking rates Southern Australia Northern Australia Large stock units/hectare p p Preliminary estimate. Source: AAGIS FIGURE 5 Beef cattle numbers and saleyard prices, Australia Beef cattle numbers Saleyard price (right axis) 5 million f Ac/kg f ABARES forecast. Sources: Australian Bureau of Statistics; ABARES 12 ABARES

17 Chapter 3 Financial performance Financial performance of northern cattle producers Farm cash income In average farm cash receipts for northern cattle producers declined by 8 per cent, due mainly to reduced beef cattle turn-off for both slaughter and live export (Figure 6). The decline occurred despite an increase of 2 per cent in the average sale prices for beef cattle due to the sale of heavier cattle. The reduction in farm receipts was more than offset by a sharp reduction in the number of beef cattle purchased in , resulting in a 32 per cent fall in expenditure on beef cattle purchases (Figure 7). This reduction, together with a 7 per cent reduction in interest payments due to lower interest rates, resulted in average farm cash income for northern cattle producing farms increasing slightly to an average of $ per farm in (Table 4). FIGURE 6 Farm receipts, northern beef cattle producing farms Other cash receipts Total crop receipts Sheep, lambs and wool sales Beef cattle sales for live export Beef cattle sales $ y y Provisional estimate. Source: AAGIS ABARES 13

18 Financial performance Beef cattle purchases are the largest cash cost of beef cattle producing farms and, as a consequence of increases in farm debt over the decade to , interest payments are now the second largest in both northern and southern Australia (Figure 7). Average total cash costs decreased in to be similar to those recorded in the late 1990s, in real terms (Figure 8). FIGURE 7 Composition of farm costs, beef cattle producing farms, to Livestock purchases and transfers Interest paid Repairs and maintainance Freight, handling and marketing Fuel, oil and lubricants Wages for hired labour Fodder Contracts Administrative costs Rates Livestock materials and chemicals Land rent Crop & pasture chemicals Fertiliser Shearing crutching Other materials Other services Other cash costs Value of owner manager and family labour Depreciation % Southern Australia Northern Australia Source: AAGIS FIGURE 8 Cash costs, beef cattle producers, northern Australia Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts $ y y Provisional estimate. Source: AAGIS 14 ABARES

19 Financial performance TABLE 4 Financial performance of beef cattle producing farms, northern Australia average per farm Farm cash receipts p y Beef cattle sales total $ (5) Beef cattle sales live export $ (25) Value of cattle transferred out $ (19) Sheep, lambs and wool sales $ (20) Total crop receipts $ (27) Total cash receipts $ (5) Farm cash costs Beef cattle purchases $ (12) Beef cattle transferred in $ (19) Wages for hired labour $ (9) Fodder $ (9) Fuel oil and lubricants $ (6) Repairs and maintenance $ (5) Contracts $ (11) Freight, handling and marketing $ (7) na Interest paid $ (10) Total cash costs $ (6) Farm capital and debt Total capital at 30 June $ (4) na Farm business debt at 30 June a $ (11) Equity ratio at 30 June a % (1) na Farm financial performance Farm cash income $ (11) Farm business profit $ (29) Profit at full equity $ (15) Rate of return Return on capital excluding capital appreciation % (14) 1.1 Return on capital including capital appreciation % (324) na Return on owners equity % (46) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 15

20 Financial performance In drier seasonal conditions and high beef cattle numbers in northern Australia led to an increase in beef cattle turn-off and to a small reduction in cattle numbers in many regions in northern Australia. However, lower average sale prices for beef cattle are estimated to have more than offset the increase in turn-off to result in average beef cattle receipts declining by around 8 per cent for northern beef producing farms. The reduction in beef cattle receipts is estimated to be partially offset by increased grain receipts for mixed enterprise farms in Queensland (Table 4). Despite further reductions in expenditure on beef cattle, together with lower interest expenditure, the reduction in beef cattle receipts is estimated to result in average farm cash income for beef cattle producing farms in northern Australia declining slightly to average $ per farm in This is around 10 per cent below the average for the previous 10 years, in real terms (Figure 9). FIGURE 9 Financial performance of beef producing farms, northern Australia Farm cash income Farm business profit $ y y Provisional estimate. Source: ABARES Box 1 Major financial performance indicators Total cash receipts: total revenues received by the business during the financial year Total cash costs: payments made by the business for materials and services and for permanent and casual hired labour (excluding owner manager, partner and family labour) Farm cash income: total cash receipts total cash costs Farm business profit: farm cash income + change in trading stocks depreciation imputed labour costs Profit at full equity: return produced by all the resources used in the business farm business profit + rent + interest + finance lease payments depreciation on leased items Rate of return: return to all capital used profit at full equity x 100 total opening capital 16 ABARES

21 Financial performance Farm business profit and rates of return Farm cash income is a measure of cash funds generated by the farm business for farm investment and consumption after paying all costs incurred in production, including interest payments but excluding capital payments and payments to family workers. It is a measure of short-term farm performance because it does not take into account depreciation or changes in farm inventories. A measure of longer term profitability is farm business profit, as it takes into account capital depreciation and changes in inventories of livestock, fodder, grain and wool. Reductions in herd sizes on many farms in northern Australia and slowing in growth of beef herds on others, resulting from increased cattle turn-off, will result in a reduction in the value of cattle inventories. As a consequence, farm business profit for beef cattle producing farms in northern Australia is projected to decline from an average of $ per farm in to just $2000 per farm in Profit at full equity, also referred to as earnings before interest and taxes (EBIT), adjusts farm business profit by adding back interest and leasing expenditure so that the performance of all farms can be compared regardless of the financing arrangements in place. For northern beef cattle producing farms, profit at full equity averaged $ in , declined to $ in and is estimated to have declined further to $ in (Table 4). Rate of return on total capital used (profit at full equity expressed as a percentage of total capital) averaged 1.6 per cent in both and and is estimated to decline to 1.1 per cent in Reductions in land values resulted in small negative average rates of return on total capital used when capital appreciation is included in both and Return on owners equity (farm business profit as a percentage of the equity owners have in the farm business) in both and was less than the return on total capital used. This indicates that interest and lease costs were greater than the income generated by the assets they finance, on average. Financial performance of live export region Live exports became a significant trade for the northern industry in the early to mid-1990s, encouraged by a growing feedlot industry in South-East Asia, particularly in Indonesia and the Philippines. Cattle exported live from northern Australia over the past decade have mostly been sourced from the northern live export region (Map 4). This region contains around 1500 farm businesses. AAGIS data indicate that around 300 of these businesses derive more than 50 per cent of their beef cattle receipts from live export sales. Indonesia has been the largest market for feeder and slaughter cattle from northern Australia for 15 of the past 21 years, including every year since Live cattle exports to Indonesia peaked at close to head in However, from January 2011 the Indonesian Government began to implement the policy of achieving 90 per cent self-sufficiency in beef production by 2014 and imposed weight limits and quotas on live cattle, and quotas on boxed beef imports. The desire to achieve self-sufficiency in meat production has been Indonesian Government policy since 2000, with the target completion date of 2005 postponed firstly to 2010 and then to Implementation of the policy has put pressure on the future of beef producers in the northern live export region. ABARES 17

22 Financial performance MAP 4 Northern Australian live cattle export region Note: Regions based on aggregations of ABS statistical local areas. Source: AAGIS Enforcement of a 350-kilogram weight limit and imposition of an import quota by the Indonesian Government contributed to exports falling to head in In addition to the reduction in Indonesian imports, animal welfare concerns pose a serious risk to the live cattle trade. Video footage taken by animal welfare activists of animal cruelty in a number of Indonesian abattoirs, which was broadcast on Australian national television and social media, led to a public outcry against the live export trade and temporary suspension, on 8 June 2011, of export to Indonesia of all livestock for slaughter. In response, the Australian Government implemented a through-chain animal welfare assurance framework that ensures all Australian livestock exported for feeder or slaughter is treated at or above World Organisation for Animal Health standards. The supply chain assurance regulations applied to Indonesia when trade resumed in July The Indonesian quota was further reduced for 2012 and exports declined to head in Exports to Indonesia in are estimated to have been head, a decline of 29 per cent from ABARES

23 Financial performance In turn-off of cattle for live export was reduced by 20 per cent for beef cattle producing farms in the live export region, on average. The effect on farm cash receipts of the reduction in turn-off for live export was partially offset by the sale of other cattle for high prices, reflecting above average pasture conditions. In addition, purchase of beef cattle and transfer of beef cattle to properties in the region was reduced and transfer of cattle out to other regions increased by corporate operators. This resulted in reductions in average farm cash costs and slowed the increase in beef cattle numbers within the region. Overall, beef cattle numbers are estimated to have increased by around 3 per cent during Farm cash income increased slightly from an estimated average of $ per farm in to $ in and inventories of beef cattle increased on properties (Table 5). TABLE 5 Financial performance of beef cattle producing farm businesses, northern live cattle export region Farm cash receipts p y Beef cattle sales total $ (10) Beef cattle sales live export $ (26) Value of cattle transferred out $ (21) Total cash receipts $ (9) Farm cash costs Beef cattle purchases $ (17) Beef cattle transferred in $ (25) Interest paid $ (19) Total cash costs $ (8) Farm capital and debt Total capital at 30 June $ (6) na Farm business debt at 30 June a $ (19) Equity ratio at 30 June a % (3) na Farm financial performance Farm cash income $ (23) Farm business profit $ (23) Profit at full equity $ (17) Rate of return Return on capital excluding capital appreciation % (14) 1.0 Return on capital including capital appreciation % (101) na Return on owners equity % (27) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 19

24 Financial performance In turn-off of cattle for live export is estimated to have decreased by a further 20 per cent. However, turn-off of cattle to slaughter markets is estimated to increase by around 14 per cent as high cattle numbers are reduced, and transfers of cattle out of the region by corporate businesses is also estimated to increase. As a result, a small increase in total cash receipts and a small increase in average farm cash income to an estimated $ per farm is estimated. However, reduction in cattle inventories is estimated to result in farm business profit falling to $ per farm (Table 5 and Figure 10). FIGURE 10 Financial performance of beef producing farms, northern live cattle export region Farm cash income Farm business profit $ y y Provisional estimate. Source: AAGIS The average financial performance of beef cattle producing farms in the northern live export region is heavily influenced by the performance of very large herd size corporate farms. These farms dominate turn-off and performance estimates and typically have financial performance that is well above the average for other smaller herd size businesses in the region and performance that is very variable from year to year (Thompson & Martin 2012). The performance of smaller farm businesses more reliant on live cattle exports can be substantially different to the regional average. Farms most reliant on live cattle exports Generally farm businesses with the greatest reliance on the sale of live export cattle are located in the far northern and western extremes of the northern live cattle export region. Farm businesses located relatively close to the live export ports of Darwin, Broome, Wyndham and Port Hedland derived more than 70 per cent of their total beef cattle receipts from sale of cattle for live export, on average, in the three years ending Businesses in the south of the region and in Queensland generally, are far less reliant on live export sales (Gleeson et al. 2012). The recent financial performance of 25 farm businesses that in obtained most of their farm cash receipts from the sale of cattle for live export is reported in Table ABARES

25 Financial performance Reductions in the number of cattle sold for live export to Indonesia in resulted in farm cash income for these farms declining by around 27 per cent, from an average of $ per farm in to around $ per farm in The number of cattle transferred to properties in other regions increased and beef cattle numbers on farms increased by 2 per cent, on average. In lower beef cattle prices and continued reduction in the number of cattle sold for live export are estimated to have resulted in a further decline in farm cash income to an estimated average of $ per farm (Table 6). TABLE 6 Selected estimates for beef cattle producers highly reliant on live cattle exports a average per farm Physical p y Beef cattle purchases no (46) 19 Beef cattle transferred in no Calves branded no (27) Beef cattle sold total no (23) Beef cattle sold live export no (28) 750 Beef cattle transferred out no (55) 350 Beef cattle numbers at 30 June no (20) Percentage change in cattle numbers no. 2 2 (111) 0 Stocking rate hectares per large stock unit no (14) na Cattle turn-on rate % 1 0 (33) 0 Cattle turn-off rate % (12) 26 Farm cash receipts Beef cattle sales total $ (23) Beef cattle sales live export $ (29) Value of cattle transferred out $ (55) Total cash receipts $ (20) Farm cash costs Total cash costs $ (20) Farm financial performance Farm cash income $ (35) Farm business profit $ (120) a Estimates are for a sample of 23 farms in the northern live cattle export region, highly reliant on live cattle exports and remaining in the AAGIS for each of the three years ending p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 21

26 Financial performance TABLE 7 Financial performance of beef cattle producing farms, northern Australia, by herd size average per farm Farm cash receipts Small Medium p y p y Beef cattle sales total $ (21) (8) Beef cattle sales live export $ (84) (77) 510 Value of cattle transferred out $ (85) Sheep, lambs and wool sales $ (51) (38) Total crop receipts $ (218) (21) Total cash receipts $ (45) (7) Farm cash costs Beef cattle purchases $ (45) (23) Beef cattle transferred in $ (60) Wages for hired labour $ (115) (42) Interest paid $ (135) (14) Total cash costs $ (41) (8) Farm capital and debt Total capital at 30 June $ (21) na (7) na Farm business debt at 30 June a $ (137) na (14) na Equity ratio at 30 June a % (8) na (1) na Farm financial performance Farm cash income $ (102) (19) Farm business profit $ (20) (309) Profit at full equity $ (46) (37) Rate of return Return on capital excluding capital appreciation % (64) (36) 0.5 Return on capital including capital appreciation % (129) na (346) na Return on owners equity % (26) na (308) na Other Off-farm income a $ (22) na (30) na continued ABARES

27 Financial performance TABLE 7 Financial performance of beef cattle producing farms, northern Australia, by herd size average per farm continued Farm cash receipts Large Very large p y p y Beef cattle sales total $ (6) (11) Beef cattle sales live export $ (49) (26) Value of cattle transferred out $ (35) (20) Sheep, lambs and wool sales $ (67) Total crop receipts $ (26) (96) Total cash receipts $ (6) (9) Farm cash costs Beef cattle purchases $ (22) (18) Beef cattle transferred in $ (35) (20) Wages for hired labour $ (16) (9) Interest paid $ (14) (32) Total cash costs $ (8) (12) Farm capital and debt Total capital at 30 June $ (4) na (10) na Farm business debt at 30 June a $ (13) na (33) na Equity ratio at 30 June a % (2) na (5) na Farm financial performance Farm cash income $ (14) (23) Farm business profit $ (17) (19) Profit at full equity $ (10) (15) Rate of return Return on capital excluding capital appreciation % (10) (16) 2.3 Return on capital including capital appreciation % (57) na (95) na Return on owners equity % (16) na (38) na Other Off-farm income a $ (23) na (27) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 23

28 Financial performance Financial performance by herd size Farm financial performance varies between producers with different herd sizes. Generally farm cash incomes, farm business profits and rates of return are higher for larger herd size producers (Table 7) Reduced farm business profit is estimated for all herd size groups in as lower values of cattle inventories on farms are expected because of increased turn-off, slower growth in cattle numbers on some farms in northern Australia and reductions in cattle numbers on others. However, higher average farm cash incomes are estimated for medium and large herd size groups as larger increases in turn-off are estimated to more than offset the reductions in average prices received, resulting in higher farm cash receipts. Financial performance by zone Farm business profit of beef cattle producers in each zone (Map 5) is strongly related to herd size. The northern pastoral zone, which has the largest average herd size, had the highest average farm business profits in the three years ending (Table 8). This zone also recorded rates of return that were above the average for northern Australia. MAP 5 Australian broadacre zones Northern pastoral zone Northern wheat sheep zone Northern high rainfall zone Southern pastoral zone Southern wheat sheep zone Southern high rainfall zone Source: AAGIS 24 ABARES

29 Financial performance Of the three zones in the region, the northern high rainfall zone had the lowest estimated average farm cash income in the three years ending Small herd size is the primary cause of low performance across a range of financial performance measures. In the three years ending the average herd size in this region was 810 head, the lowest of all zones in northern Australia. This is fairly typical of higher rainfall regions with a high proportion of smaller farm businesses. While the average financial performance of these businesses is low, most generate positive farm cash income because of the substantial input of unpaid family labour. Including the value of this unpaid labour in the calculation of farm business profit results in most farm businesses generating negative profits and returns to capital Reduced farm cash income and farm business profit is estimated for the northern high rainfall and pastoral zones in as a reduction in cattle prices received more than offset increased turn-off and as inventories of cattle are reduced on farms. In contrast, farm cash income and business profit is estimated to have increased on northern wheat sheep zone farms. Larger increases in turn-off in this zone, combined with the sale of heavier cattle resulting in a lesser decline in prices received for cattle compared with other zones, is estimated to have resulted in increased beef cattle receipts and an increase in farm cash income and farm business profit in (Table 8). ABARES 25

30 Financial performance TABLE 8 Financial performance of beef cattle producing farms, northern Australia, by zone average per farm Pastoral Wheat sheep High rainfall p y p y p y Farm cash receipts Beef cattle sales total $ (8) (8) (7) Beef cattle sales live export $ (26) (56) Value of cattle transferred out $ (20) (53) (99) Sheep, lambs and wool sales $ (23) (33) (109) Total crop receipts $ (43) (31) (42) Total cash receipts $ (6) (10) (7) Farm cash costs Beef cattle purchases $ (15) (22) (22) Total cash costs $ (7) (12) (9) Farm capital and debt Total capital at 30 June $ (6) na (6) na (9) na Farm business debt at 30 June a $ (17) na (19) na (15) na Equity ratio at 30 June a % (2) na (2) na (1) na Farm financial performance Farm cash income $ (16) (19) (15) Farm business profit $ (16) (129) (47) Profit at full equity $ (12) (39) (303) Rate of return Return on capital excluding capital appreciation % (11) (38) (301) 1.3 Return on capital including capital appreciation % (86) na (120) na (236) na Return on owners equity % (20) na (168) na (50) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 26 ABARES

31 Financial performance Financial performance of southern cattle producers Farm cash income In average farm cash receipts for southern cattle producers declined by 2 per cent due mainly to reduced beef cattle turn-off and slightly lower average grain receipts (Figure 11). The reduction in farm receipts was mostly matched by a small reduction in average total cash costs due mostly to reduced expenditure on purchases of beef cattle (Figure 12). This reduction, together with a 7 per cent reduction in interest payments due to lower interest rates, resulted in average farm cash income for southern cattle producing farms remaining largely unchanged at an average of $ per farm in (Table 9). FIGURE 11 Farm cash receipts, southern beef cattle producing farms Other Crops Sheep, lambs and wool Beef cattle $ y y Provisional estimate. Source: AAGIS FIGURE 12 Composition of cash costs for beef cattle producers, southern Australia Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts $ y y Provisional estimate. Source: AAGIS ABARES 27

32 Financial performance TABLE 9 Financial performance of beef cattle producing farms, southern Australian average per farm Farm cash receipts All beef cattle producing farms Specialists beef cattle producers p y p y Beef cattle sales $ (6) (14) Sheep, lambs and wool sales $ (7) (26) Total crop receipts $ (15) (28) Total cash receipts $ (6) (14) Farm cash costs Beef cattle purchases $ (14) (42) Interest paid $ (10) (19) Total cash costs $ (6) (16) Farm capital and debt Total capital at 30 June $ (4) na (6) na Farm business debt at 30 June a $ (11) (13) Equity ratio at 30 June a % (1) na (1) na Farm financial performance Farm cash income $ (9) (16) Farm business profit $ (30) (873) Profit at full equity $ (16) (53) Rate of return Return on capital excluding capital appreciation % (14) (50) 0.1 Return on capital including capital appreciation % (31) na (476) na Return on owners equity % (33) na (200) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. In drier seasonal conditions resulted in an increase in beef cattle turn-off and a slowdown in the rate of increase in beef cattle numbers in many regions in southern Australia. Lower average sale prices for beef cattle are estimated to have more than offset the increase in turn-off, resulting in average beef cattle receipts declining by around 2 per cent for southern beef producing farms. In addition, receipts from grain, sheep, lamb and wool are also estimated to have declined, resulting in average total cash receipts declining by 10 per cent (Table 9). 28 ABARES

33 Financial performance Despite further reduced expenditure on purchase of beef cattle and lower interest expenditure, average farm cash income for beef cattle producing farms in southern Australia is estimated to have declined slightly to average $ per farm in This is still around 19 per cent above the average for the previous 10 years, in real terms. However, farm cash incomes for many southern cattle producing farms were low through most of the 2000s due to drought. Farm business profit and rates of return Much smaller increases in beef cattle numbers during will result in a smaller average increase in the value of cattle inventories on beef cattle producing farms. As a consequence, farm business profit is estimated to decline by a larger amount than farm cash income. Farm business profit is estimated to decline from an average of $ per farm in to just $4000 per farm in (Figure 13). FIGURE 13 Financial performance of beef producing farms, southern Australia Farm cash income Farm business profit $ y y Provisional estimate. Source: AAGIS For southern beef cattle producing farms, profit at full equity averaged $ in , declined to $ in and is estimated to have declined further to $ in (Table 9). Rate of return on total capital used (profit at full equity expressed as a percentage of total capital) averaged 1.6 per cent in both and and is estimated to decline to 1.0 per cent in The return on owners equity in both and was less than the return on total capital used, indicating that interest and lease costs were greater than the income generated by the assets they finance, on average. ABARES 29

34 Financial performance Financial performance of specialist beef cattle producers Around 47 per cent of beef cattle producing farms in southern Australia are classified as specialist producers, deriving more than 50 per cent of average farm cash receipts from the sale of beef cattle. Specialist beef cattle producing farms account for the majority of farms in the southern high rainfall zone. On average, specialist beef cattle producers in southern Australia derived 81 per cent of their average total cash receipts from the sale of beef cattle in the three years ending (Table 9). Over most of the past two decades average farm cash income for specialist beef cattle producers in southern Australia has been substantially below the average for all beef cattle producing farms in southern Australia (Figure 14). This is mainly a result of the much higher proportion of small herd size farms among specialist beef cattle producers. FIGURE 14 Farm cash income beef producers, southern Australia Beef cattle producing farms Specialist beef cattle producers $ y y Provisional estimate. Source: AAGIS In average farm cash receipts for southern cattle producers remained largely unchanged, reduced beef cattle receipts were offset by a 16 per cent increase in receipts from sheep, lambs, and wool. However, a small reduction in average total cash costs, due to a reduction in the number of beef cattle purchased and a reduction in interest payments, resulted in average farm cash income for southern cattle producing farms increasing slightly to $ per farm in (Table 9). In lower average sale prices for beef cattle are estimated to have more than offset increased cattle turn-off, resulting in average beef cattle receipts for southern beef producing farms declining by 4 per cent and average total cash receipts decreasing by 3 per cent. 30 ABARES

35 Financial performance Despite a further reduction in expenditure on purchase of beef cattle, lower average total cash receipts are estimated to result in average farm cash income for beef cattle producing farms in southern Australia declining slightly to average $ per farm in This is still around 25 per cent above the average for the previous 10 years, in real terms. Slowing in growth in cattle numbers will result in smaller values for the build-up in trading stocks on specialist beef cattle producing farms. As a consequence, farm business profit for the beef industry is estimated to decline by more than farm cash income, from an average of $800 per farm in to $ per farm in Financial performance by herd size Farm financial performance for southern cattle producing farms varies between different herd size groups. Generally farm cash incomes and farm business profits and rates of return are higher for larger herd size producers (Table 10). Small herd size farms are often substantially reliant on off-farm income to support the farm s operators, particularly small specialist beef cattle producers Farm cash incomes and farm business profit are estimated to decrease for all herd size groups in as receipts from beef cattle are reduced and as the increase in cattle inventories on farms in southern Australia is reduced. Financial performance by zone Similar to northern Australia, farm business profit of beef cattle producers in each zone of southern Australia (Map 5) is strongly related to herd size. The southern pastoral zone, which has the largest average herd size, had the highest average farm business profits in the three years ending and the highest rates of return (Table 11) Farm cash income and farm business profit are estimated to decrease for beef cattle producers in all southern zones in (Table 11), although they will remain above the average for the decade ending Beef cattle turn-off is estimated to have increased in all zones but to have increased most in the wheat sheep zone. In contrast to other zones, purchases of beef cattle are estimated to remain relatively high in the southern wheat sheep zone in as producers replace stock sold for slaughter with unfinished stock purchased from other areas. Overall, beef cattle numbers are estimated to have increased by around 2 per cent in the southern wheat sheep zone. ABARES 31

36 Financial performance TABLE 10 Financial performance of beef cattle producing farms, southern Australia, by herd size average per farm Small Medium Farm cash receipts p y p y Beef cattle sales $ (8) (7) Sheep, lambs and wool sales $ (14) (23) Total crop receipts $ (19) (40) Total cash receipts $ (10) (15) Farm cash costs Beef cattle purchases $ (24) (31) Wages for hired labour $ (19) (25) Interest paid $ (16) (20) Total cash costs $ (8) (15) Farm capital and debt Total capital at 30 June $ (8) (8) Farm business debt at 30 June a $ (16) na (20) na Equity ratio at 30 June a % (2) na (1) na Farm financial performance Farm cash income $ (23) (21) Farm business profit $ (999) (877) Profit calculated at full equity $ (69) (52) Rate of return Return on capital excluding capital appreciation % (66) (50) 0.3 Return on capital including capital appreciation % (283) na (137) na Return on owners equity % (999) na (876) na Other Off-farm income a $ (21) na (18) na continued ABARES

37 Financial performance TABLE 10 Financial performance of beef cattle producing farms, southern Australia, by herd size average per farm continued Farm cash receipts Large Very large p y p y Beef cattle sales $ (10) (28) Sheep, lambs and wool sales $ (17) (20) Total crop receipts $ (32) (66) Total cash receipts $ (13) (23) Farm cash costs Beef cattle purchases $ (25) (76) Wages for hired labour $ (28) (25) Interest paid $ (18) (38) Total cash costs $ (14) (26) Farm capital and debt Total capital at 30 June $ (8) (12) Farm business debt at 30 June a $ (19) na (45) na Equity ratio at 30 June a % (2) na (5) na Farm financial performance Farm cash income $ (27) (20) Farm business profit $ (80) (22) Profit calculated at full equity $ (38) (22) Rate of return Return on capital excluding capital appreciation % (36) (15) 3.4 Return on capital including capital appreciation % (97) na (23) na Return on owners equity % (84) na (18) na Other Off-farm income a $ (12) na (24) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 33

38 Financial performance TABLE 11 Financial performance of beef cattle producing farms, southern Australia, by zone average per farm Pastoral Wheat sheep High rainfall p y p y p y Farm cash receipts Beef cattle sales $ (19) (11) (6) Sheep, lambs and wool sales $ (18) (10) (10) Total crop receipts $ (27) (17) (20) Total cash receipts $ (18) (9) (5) Farm cash costs Beef cattle purchases $ (27) (24) (14) Total cash costs $ (14) (9) (6) Farm capital and debt Total capital at 30 June $ (10) (6) (5) Farm business debt at 30 June a $ (54) (15) (11) Equity ratio at 30 June a % (5) na (2) na (1) na Farm financial performance Farm cash income $ (34) (16) (9) Farm business profit $ (54) (94) (24) 100 Profit at full equity $ (46) (29) (15) Rate of return Return on capital excluding capital appreciation % (48) (26) (15) 0.6 Return on capital including capital appreciation % (48) na (23) na (105) na Return on owners equity % (43) na (88) na (30) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 34 ABARES

39 Chapter 4 Farm investment Producers capacity to generate farm income will be influenced by their past investments both in additional land to expand the scale of their farming activities and in new infrastructure, plant and machinery to boost productivity in the longer term. Over the past decade beef cattle producers have undertaken considerable new investments in land, plant and machinery. The proportion of beef cattle producing farms acquiring land was high in both northern Australia and southern Australia in the period between and (Figure 15). The proportion dropped sharply from and has remained relatively low since, particularly in northern Australia. FIGURE 15 Proportion of beef producing farms acquiring land, Australia 10 8 Southern Australia Northern Australia % p p Preliminary estimate. Source: AAGIS ABARES 35

40 Farm investment Land values reported for beef cattle producing farms have declined since , with land values reported in as much as 25 per cent below those reported in in some pastoral regions of northern Australia. Very large increases in reported land values occurred over the previous decade. Much smaller reductions in reported land values occurred in many regions in the high-rainfall and wheat sheep zones (Figure 16). FIGURE 16 Land prices, beef cattle producing farms Southern Australia Northern Australia (right axis) $/ha $/ha p p Preliminary estimate. Source: AAGIS Average land prices for beef cattle producing farms increased sharply between and , particularly compared with cash receipts generated per hectare which increased only modestly over this period. The ratio of average land price per hectare to total cash receipts per hectare almost doubled from around 5:1 before to around 9:1 in on beef cattle producing farms. This ratio more than doubled across all agricultural zones. The ratio increased from 7:1 to 15:1 in the high-rainfall zone and from 4:1 to 8:1 in the wheat sheep zone. The largest increase was reported in the pastoral zone of northern Australia, where the ratio increased from 4:1 to 10:1. Only a relatively small proportion of beef cattle producing farms buy land in any one year, but most producers make some investment in plant, vehicles, machinery and/or infrastructure each year. However, because of the much larger average value of land transactions, the value of land purchases dominates total investment. Net investment in plant, vehicles, machinery and farm infrastructure for beef cattle producing farms has been historically high since (Figures 17 and 18). 36 ABARES

41 Farm investment FIGURE 17 Net investment in vehicles, machinery and farm improvements, northern producing farms $ p Computer, office, workshop and other equipment Livestock handling Buildings, fences, yards, water facilities and structures Grain storage Accommodation Irrigation equipment Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintainance p Preliminary estimate. Source: AAGIS FIGURE 18 Net investment in vehicles, machinery and farm improvements, southern producing farms $ p Computer, office, workshop and other equipment Livestock handling Buildings, fences, yards, water facilities and structures Grain storage Accommodation Irrigation equipment Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintainance p Preliminary estimate. Source: AAGIS ABARES 37

42 Farm investment In and investment in plant, machinery and farm infrastructure (such as buildings, irrigation systems, water supply structures and fencing) was stimulated by the investment allowance offered to businesses as part of the Australian Government s Nation Building and Jobs Plan to support economic activity during the global financial crisis. Net investment is the difference between the total value of plant, vehicles, machinery and farm infrastructure purchased and the total value of those items sold or disposed of. In addition to acquiring new capital items and replacing old items, ongoing maintenance and repair of existing plant, vehicles, machinery and farm infrastructure is needed. This expenditure is recorded in ABARES surveys as the cash cost of repairs and maintenance. A significant proportion of reported annual expenditure on repairs and maintenance is the capital cost of replacing and upgrading items of farm capital, such as fencing, stockyards and watering facilities. Annual expenditure on repairs and maintenance is strongly correlated with farm income. Expenditure on repairs and maintenance rises in years of high farm cash income and decreases in years of lower farm cash incomes. In northern Australia, fencing, stockyards and watering facilities account for a high proportion of total farm capital value. Expenditure on the repair and maintenance of this infrastructure, together with plant machinery and vehicle repairs, typically exceeds net capital additions (Figure 17). Since expenditure on repairs and maintenance and net capital additions in northern Australia have trended downward as total farm cash receipts have declined. In the five years ending motor vehicles accounted for around 40 per cent of average total net capital additions for northern beef cattle producing farms. Tractors accounted for a further 25 per cent, but most expenditure was by mixed enterprise beef cattle producing farms. Investment in plant, vehicles, machinery and farm infrastructure for southern cattle producing farms has also been very strong since (Figure 18). In the five years ending motor vehicles accounted for 27 per cent of average total net capital additions for southern beef cattle producing farms. Reflecting the reliance of many southern beef cattle producers on crop production, tractors also accounted for 27 per cent of net capital additions and crop harvesting equipment and cultivation and planting equipment each accounted for a further 15 per cent. Most of the increase in real expenditure on net capital additions and repairs and maintenance over the past 20 years for both northern and southern beef cattle producing farms is due to an increase in the average scale of operations of farms, increased production of crops and increased intensification of beef cattle enterprises. 38 ABARES

43 Chapter 5 Farm debt Debt is an important source of funds for farm investment and ongoing working capital, particularly because more than 95 per cent of beef cattle producing farms are family-owned and operated. For family farms, funding for farm expansion and improvement is limited to the funds available to the family, the profits the farm business can generate and the funds it can borrow. Average debt per farm business more than doubled in real terms for beef cattle producing farms between and , in both northern Australia and southern Australia. In northern Australia average debt per farm business increased from $ per farm in to $ per farm in (Figure 19). Debt in southern Australia increased from an average of $ per farm in to $ per farm in (Figure 20). FIGURE 19 Composition of farm business debt, northern producing farms Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital $ p p Preliminary estimate. Source: AAGIS ABARES 39

44 Farm debt FIGURE 20 Composition of farm business debt, southern producing farms Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital $ p p Preliminary estimate. Source: AAGIS A number of factors contributed to the growth in debt over this period, including the effects of lower interest rates, increases in farm size, changes in commodities produced and reduced farm cash incomes during the 2000s because of widespread and extended drought conditions. Throughout much of the 2000s interest rates were historically low, reducing the cost of servicing debt and encouraging borrowing for farm investment. Interest rate subsidies provided to many farms as part of drought assistance programs also supported borrowing. Structural adjustment resulted in beef cattle producers in the wheat sheep zone changing the mix of commodities produced, and farm size increased in both northern and southern Australia. The largest contribution to increases in farm debt in the past two decades has been borrowing to fund new investment, particularly purchase of land, machinery and vehicles and to develop land and farm improvements. Debt to fund land purchase accounts for the largest share of debt on beef cattle producing farms, accounting for an estimated 60 per cent of average debt in northern Australia and 45 per cent of average debt in southern Australia in Increased size of farm enterprises also resulted in higher borrowing for ongoing working capital. Additionally, borrowing to meet working capital requirements increased for producers during the 2000s as drought depressed farm cash incomes in many regions. Working capital debt accounted for 22 per cent of average farm debt in northern Australia in and 37 per cent of average debt in southern Australia, second only to land purchase debt. 40 ABARES

45 Farm debt Growth in average debt per farm business has slowed for beef cattle producing farms in recent years because of a diminished appetite for further increases in debt by farm businesses, a reduction in land values and more restricted access to credit from lending institutions. The proportion of farms increasing debt declined significantly in and to be closer to the historical lows recorded in (Figure 21). Average farm debt for beef cattle producing farms has declined slightly since in both northern Australia and southern Australia, according to AAGIS data. FIGURE 21 Proportion of beef cattle producing farms increasing farm business debt Southern Australia Northern Australia % p p Preliminary estimate. Source: AAGIS Distribution of farms by debt and equity The proportion of beef cattle producing farms with relatively high debt varies across the regions and herd sizes. Around 12 per cent of farms in southern Australia, 15 per cent of farms in northern Australia and 19 per cent of farms in the northern live cattle export region carried in excess of $1 million in debt at 30 June The higher proportion of such farms in northern Australia and the northern live cattle export region largely reflects the much higher proportion of large and very large herd size businesses in those regions (Table 12 and Table 13). In contrast, around 59 per cent of beef cattle producing farms in southern Australia and 56 per cent in northern Australia were recorded as having less than $ in debt at 30 June A high proportion of these businesses are small and medium herd size farms, but more than 20 per cent of very large herd size businesses were also recorded as having less than $ in debt at 30 June The general increase in land values to 2008 boosted the equity most farmers have in their businesses. For some farms, reductions in farm debt, increases in capital investment and increased livestock numbers have resulted in further improvement in farm equity. However, in a number of regions farm equity is estimated to have fallen significantly over the past three years as a consequence of reductions in reported land values. ABARES 41

46 Farm debt TABLE 12 Distribution of northern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012ap percentage of farms Herd size Northern Australian live cattle export region Northern Australia Small Medium Large Very large Farm business debt b < $ % 79 (9) 49 (15) 31 (20) 25 (37) 39 (23) 56 (7) $ and < $ % 10 (31) 13 (37) 6 (38) 2 (80) 13 (37) 10 (25) $ and < $ % 3 (61) 10 (42) 10 (34) 1 (49) 12 (52) 7 (27) $ and < $1m % 5 (61) 19 (24) 10 (35) 1 (39) 17 (42) 11 (19) $1m and < $2m % 3 (98) 6 (35) 23 (25) 11 (49) 4 (39) 8 (22) $2m % 1 (99) 3 (40) 20 (19) 61 (18) 15 (22) 7 (14) Total % Average farm debt at 30 June $ (137) (14) (13) (33) (19) (11) Farm business equity ratio bc 90 per cent % 85 (8) 69 (8) 54 (11) 39 (23) 54 (17) 71 (4) 80 and < 90 per cent % 7 (47) 14 (28) 22 (25) 28 (27) 23 (29) 13 (16) 70 and < 80 per cent % 4 (62) 10 (32) 13 (31) 14 (35) 15 (44) 9 (21) 60 and < 70 per cent % 1 (99) 4 (54) 6 (41) 10 (66) 3 (54) 3 (36) < 60 per cent % 3 (90) 3 (50) 5 (39) 10 (44) 6 (38) 3 (30) Total % Average farm business equity ratio at 30 June % 94 (8) 92 (1) 87 (2) 80 (5) 83 (3) 88 (1) Population of farms no a Excludes debt for large corporate farms. b Average per responding farm. c Equity ratio defined as total owned business capital at 30 June less debt as a percentage of total owned business capital. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: AAGIS 42 ABARES

47 Farm debt TABLE 13 Distribution of southern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012ap percentage of farms Herd size Small Medium Large Very large Southern Australia Farm business debt b < $ % 63 (10) 68 (6) 50 (14) 30 (28) 59 (5) $ and < $ % 15 (41) 10 (35) 10 (38) 13 (45) 12 (21) $ and < $ % 6 (46) 9 (26) 13 (43) 7 (51) 9 (19) $ and < $1m % 8 (35) 6 (35) 7 (38) 17 (31) 8 (18) $1m and < $2m % 5 (23) 5 (37) 11 (26) 21 (21) 8 (14) $2m % 3 (32) 2 (55) 9 (34) 13 (43) 4 (16) Total % Average farm debt at 30 June $ (16) (20) (19) (45) (11) Farm business equity ratio bc 90 per cent % 76 (5) 83 (4) 67 (7) 59 (11) 76 (3) 80 and < 90 per cent % 11 (31) 11 (27) 14 (29) 22 (18) 12 (14) 70 and < 80 per cent % 5 (48) 4 (38) 7 (40) 15 (35) 6 (22) 60 and < 70 per cent % 4 (42) 3 (35) 8 (31) 1 (69) 4 (25) < 60 per cent % 3 (58) 0 (74) 4 (62) 2 (110) 2 (30) Total % Average farm business equity ratio at 30 June % 90 (2) 93 (1) 88 (2) 86 (5) 90 (1) Population of farms no a Excludes debt for large corporate farms. b Average per responding farm. c Equity ratio defined as total owned business capital at 30 June less debt as a percentage of total owned business capital. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: AAGIS ABARES 43

48 Farm debt On average, farm business equity remains strong for most beef cattle producing farms. The average equity ratio for beef cattle producing farms, at 30 June 2012, was estimated to be 88 per cent for northern Australian farms and 90 per cent for southern Australian farms. Six per cent of beef cattle producing farms in both northern Australia and southern Australia and around 9 per cent in the northern live cattle export region were estimated to have equity ratios below 70 per cent in In contrast, 71 per cent of beef cattle producing farms in northern Australia and 76 per cent in southern Australia were estimated to have equity ratios exceeding 90 per cent at 30 June Equity ratios are typically lower for larger herd size farms because they are able to service larger debts. Debt servicing The proportion of farm receipts needed to fund interest payments rose substantially in the decade ending This was due to a combination of large increases in farm debt and reduced farm receipts, as a result of extended drought conditions. Interest rate subsidies paid to farm businesses as drought assistance partially offset the increase in interest paid between and Higher farm receipts in and and reductions in interest rates in resulted in farm receipts needed to fund interest payments declining. In the ratio of interest payments to farm receipts is estimated to have reduced further because of lower interest rates, to around 12 per cent in northern Australia and 7 per cent in southern Australia (Figure 22). Nevertheless, the proportion of farm receipts needed to meet interest payments remains relatively high, compared with those recorded historically, particularly in northern Australia. FIGURE 22 Ratio of interest payments to total cash receipts, beef cattle producing farms 20 Northern Australia Southern Australia % y y Provisional estimate. Source: AAGIS 44 ABARES

49 Farm debt In the proportion of beef cattle producing farms recording negative farm cash incomes, and therefore potentially needing to borrow additional working capital, is estimated to have increased by around 5 per cent in both northern Australia and southern Australia. The capacity farm businesses have to undertake further borrowing depends on both the equity (security) farmers have in their businesses and the business s capacity to service increased debt from farm receipts. The proportion of beef cattle producing farm businesses in northern Australia with relatively low additional borrowing capacity (equity ratio of less than 70 per cent) and relatively high debt servicing commitments (interest to receipts ratios exceeding 15 per cent) has increased slightly since to an estimated 6 per cent in This is still well below the high recorded in , when beef cattle prices were historically low (Figure 23). In the northern live cattle export region the proportion increased to around 9 per cent in FIGURE 23 Debt servicing and borrowing capacity, northern cattle producing farms Farms with greater than 15% interest to receipts ratio Farms with less than 70% equity ratio Farms with equity ratio less than 70% and interest to receipts ratio greater than 15% 5 % of farm businesses y y Provisional estimate. Source: AAGIS ABARES 45

50 Farm debt The proportion of beef cattle producing farm businesses in southern Australia with relatively low borrowing capacity and relatively high debt servicing commitments has declined since to around 4 per cent in , which is around half the historical highs recorded in the late 1990s (Figure 24). FIGURE 24 Debt servicing and borrowing capacity, southern cattle producing farms Farms with greater than 15% interest to receipts ratio Farms with less than 70% equity ratio Farms with equity ratio less than 70% and interest to receipts ratio greater than 15% 5 % of farm businesses y y Provisional estimate. Source: AAGIS 46 ABARES

51 Chapter 6 Beef cattle selling methods cattle producers sell cattle primarily through auction, in the paddock and over the hooks. AAGIS data indicate significant differences between the preferred method of sale of northern and southern Australian producers. In southern Australia the auction system remained the main method of sale in , with 69 per cent of beef cattle sales (Figure 25). Auction sales are most favoured by producers who have smaller herds and who sell in small lot sizes, particularly in southern Australia. These producers are generally located closer to settled areas so distances to saleyards and freight costs are relatively small. These areas also produce and trade a range of cattle types, including store, finished and stud, which are able to be sold at auction. FIGURE 25 Method of selling cattle, southern Australia Other Over hooks Paddock Auction % p p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for the period to Source: AAGIS ABARES 47

52 Beef cattle selling methods Larger herd size producers are more likely to sell over the hooks or in the paddock because they are able to generate larger sale numbers. Direct methods of sale, such as over the hooks, can also reduce the carcase damage and loss of meat quality caused by the additional handling involved in saleyard and auction sales. In the proportion of cattle sold at auction in northern Australia declined to 33 per cent and the proportion sold over the hooks increased to 34 per cent. The proportion sold in the paddock increased to 32 per cent (Figure 26). In northern Australia the proportion of cattle sold over the hooks typically exceeds the proportion sold via auction. However, in the proportion of cattle sold at auction exceeded the proportion sold over the hooks for the first time since This appears to be the result of increased demand from restockers for young cattle sold at auction. FIGURE 26 Method of selling cattle, northern Australia Other Over hooks Paddock Auction % p p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for the period to Source: AAGIS 48 ABARES

53 Chapter 7 Grain finishing In the three years to around 4 per cent of southern Australian and 3 per cent of northern cattle producers used grain to finish beef cattle for sale. In both regions grain finishing farms, on average, operated a smaller area than non-grain finishing farms. Despite operating on a smaller area, grain finishing farms sold significantly more cattle than non-grain finishing farms. Based on AAGIS results most beef cattle producers in northern Australia that used grain to finish cattle for sale were in south-eastern and central Queensland. In northern Australia the proportion of beef cattle producers using grain to finish beef cattle decreased significantly from around 7 per cent in to just 1 per cent in This decrease is likely to have been due to several factors, including improved pasture availability and a reduction in turn-off rates as more cattle were retained for herd rebuilding. While the proportion of farms grain finishing cattle decreased, farms that did grain finish sold a higher proportion of grain finished cattle. In the north the margin between the average price received for cattle sold directly for slaughter by grain finishing farms and non-grain finishing farms also fell markedly. In cattle sold for slaughter by grain finishing farms received an average of around $170 per head more than cattle sold for slaughter by non-grain finishing farms. During grain finishing farms only received $66 per head more for cattle sold for slaughter. By contrast, the proportion of farms using grain to finish beef cattle for sale in southern Australia remained around 4 per cent in both and Unlike in northern Australia, the average proportion of cattle finished on grain did not change significantly. The margin between the average price received for cattle sold directly to slaughter by grain finishing farms widened, from an average premium of around $86 per head for grain finished farms in to $101 per head in ABARES 49

54 Chapter 8 Productivity The beef industry has achieved average productivity growth of 0.9 per cent a year, primarily through output growth (0.6 per cent a year on average) and moderate reductions in input use (0.3 per cent a year on average) (Table 14). In the northern region productivity growth has resulted from moderate output growth and moderate input reductions (primarily in land and labour). In contrast, productivity growth in the southern beef industry is a result of higher output growth accompanied by moderate growth in input use, particularly land and materials including seed, fertiliser and crop chemicals. TABLE 14 Average annual beef input and productivity growth by region, to Productivity growth Output growth Input growth % % % Northern region Southern region All beef Note: Estimates are for the beef industry and for specialist beef producing farms and exclude large feedlots. The northern beef industry has expanded over the past 20 years, driven partly by growth in the live export trade. Since average herd size has increased at an average rate of 1.3 per cent a year and stocking rates have increased by 2 per cent a year on average Increases in the average size of northern beef operations have increased the capacity of producers to invest in improved pastures, sophisticated cattle management systems and on-farm infrastructure, facilitating productivity growth. In addition, the shift to a higher proportion of Bos indicus breeds and the eradication of brucellosis and tuberculosis from the herd have led to improvements in animal health, increasing branding rates and reducing mortalities (Gleeson et al. 2012). 50 ABARES

55 Productivity Productivity growth in the southern beef industry has been slower than in the northern industry (Table 14). Output growth has been highly variable, largely because of climate factors. Southern beef producers tend to be smaller, more intensive operations that rely on improved pastures (reflected by higher average stocking rates) and are more diversified than northern producers (Nossal et al. 2008). As a result, productivity growth in the southern region is more sensitive to drought conditions, which increase use of purchased feed, adversely affect crop yields and drive significant destocking and restocking activities that hamper output growth. Similar to the northern beef industry, advances in animal genetics and herd, disease and fodder management have contributed to higher branding rates and reduced mortalities, increasing productivity. However, the rate of improvement has been less significant in the south than in the north, partly because of the better rates already achieved by southern beef producers. This is one factor that may explain the lower productivity growth of southern producers. Another factor is be the prevalence of small farms with less capacity to invest in and benefit from improved technology and farm systems (Nossal et al. 2008). ABARES 51

56 Survey methods and definitions ABARES has conducted surveys of selected Australian agricultural industries since the 1940s. These surveys provide a broad range of information on the economic performance of farm business units in the rural sector. This comprehensive information is widely used for research and analysis and forms the basis of many publications, briefing material and industry reports. The information in this report is derived from the annual Australian Agricultural and Grazing Industries Survey (AAGIS). This survey covers farm business units that are mainly engaged in running sheep or beef cattle or growing grain, oilseeds or pulses. Definitions of industries Industry definitions are based on the 2006 Australian and New Zealand Standard Industrial Classification (ANZSIC06). This classification is in line with an international standard applied comprehensively across Australian industry, permitting comparisons between industries within Australia and internationally. Farms assigned to a particular ANZSIC have a high proportion of their total output characterised by that class. Further information on ANZSIC and on farming activities included in each of these industries is provided in Australian and New Zealand Standard Industrial Classification (ABS 2006). The five broadacre industries covered by AAGIS are: Wheat and other crops industry (ANZSIC06 Class 0146 and 0149) ሲሲfarms engaged mainly in growing rice, other cereal grains, coarse grains, oilseeds and/or pulses Mixed livestock crops industry (ANZSIC06 Class 0145) ሲሲfarms engaged mainly in running sheep and/or beef cattle and growing cereal grains, coarse grains, oilseeds and/or pulses Sheep industry (ANZSIC06 Class 0141) ሲሲfarms engaged mainly in running sheep Beef industry (ANZSIC06 Class 0142) ሲሲfarms engaged mainly in running beef cattle Sheep beef industry (ANZSIC06 Class 0144) ሲሲfarms engaged mainly in running both sheep and beef cattle. 52 ABARES

57 Survey methods and definitions Target populations AAGIS is designed from a population list drawn from the Australian Business Register (ABR) and maintained by the Australian Bureau of Statistics (ABS). The ABR comprises businesses registered with the Australian Taxation Office. The ABR-based population list provided to ABARES consists of agricultural establishments with their corresponding geography code (currently Australian Statistical Geography Standard), ANZSIC and a size of operation variable. ABARES surveys target farming establishments that make a significant contribution to the total value of agricultural output (commercial farms). Farms excluded from ABARES surveys will be the smallest units and, in aggregate, will contribute less than 2 per cent to the total value of agricultural production for the industries covered by the surveys. The size of operation variable used in ABARES survey designs is usually estimated value of agricultural operations (EVAO). EVAO is a standardised dollar measure of the level of agricultural output. A definition of EVAO is given in Agricultural industries: financial statistics (ABS 2001). Before the survey included establishments with an EVAO of $ or more. Between and the survey included establishments with an EVAO of $ or more. Between and the survey included establishments with an EVAO of $ or more. Since ABARES farm surveys have included establishments classified as having an EVAO of $ or more. Survey design The target population is grouped into strata defined by ABARES region, ANZSIC and size of operation. The sample allocation is a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable and an allocation proportional to the population of the stratum. A large proportion of sample farms is retained from the previous year s survey. The sample chosen each year maintains a high proportion of the sample between years to accurately measure change while meeting the requirement to introduce new sample farms. New farms are introduced to account for changes in the target population, as well as to reduce the burden on survey respondents. The sample size for AAGIS is usually around 1600 farms. The main method of collecting data is face-to-face interviews with the owner manager of the farm business. Detailed physical and financial information is collected on the operations of the farm business during the preceding financial year. Respondents to AAGIS are also contacted by telephone in October each year to obtain estimates of projected production and expected receipts and costs for the current financial year. ABARES surveys also allow supplementary questionnaires to be attached to the main or to the telephone surveys. These additional questions help address specific industry issues such as grain cost of production, livestock management practices and adoption of new technologies on dairy farms. ABARES 53

58 Survey methods and definitions Sample weighting ABARES survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. Sample weights are calculated so that population estimates from the sample for numbers of farms, areas of crops and numbers of livestock correspond as closely as possible to the most recently available ABS estimates from data collected from Agricultural Census and Surveys. The weighting methodology for AAGIS uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described in Bardsley and Chambers (1984). For AAGIS, the benchmark variables provided by the ABS include: total number of farms in scope area planted to wheat, rice, other cereals, grain legumes (pulses) and oilseeds closing numbers of beef and sheep. Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects both the strategy of sampling a higher fraction of the large farms than smaller farms and the relatively lower numbers of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output. Reliability of estimates The reliability of the estimates of population characteristics published by ABARES depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample farms. Preliminary estimates and projections Estimates for and all earlier years are final. All data from farmers, including accounting information, have been reconciled; final production and population information from the ABS has been included and no further change is expected in these estimates. The estimates are preliminary, based on full production and accounting information from farmers. However, editing and addition of sample farms may be undertaken and ABS production and population benchmarks may also change. The estimates are projections developed from the data collected through on-farm and telephone interviews from October to December, as well as from the preliminary estimates. Projection estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production and receipts and expenditure for the remainder of the projection year. Modifications are made to expected receipts and expenditure where significant production and price change has occurred post interview. Projection estimates are necessarily subject to greater uncertainty than preliminary and final estimates. Preliminary and projection estimates of farm financial performance are produced within a few weeks of the completion of survey collections. However, these may be updated several times at later dates. These subsequent versions will be more accurate, as they will be based on upgraded information and slightly more accurate input datasets. 54 ABARES

59 Survey methods and definitions Sampling errors Only a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called sampling errors. The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, national estimates are likely to have lower sampling errors than industry and state estimates. To give a guide to the reliability of the survey estimates, standard errors are calculated for all estimates published by ABARES. These estimated errors are expressed as percentages of the survey estimates and termed relative standard errors. Calculating confidence intervals using relative standard errors Relative standard errors can be used to calculate confidence intervals, which give an indication of how close the actual population value is likely to be to the survey estimate. To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $ with a relative standard error of 6 per cent, the standard error for this estimate is $6000. This is one standard error. Two standard errors equal $ There is roughly a two-in-three chance that the census value (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $ and $ ($ plus or minus $6000). There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $ and $ ($ plus or minus $12 000). Comparing estimates When comparing estimates between two groups, it is important to recognise that the differences are also subject to sampling error. As a rule of thumb, a conservative estimate of the standard error of the difference can be constructed by adding the squares of the estimated standard errors of the component estimates and taking the square root of the result. ABARES 55

60 Survey methods and definitions For example, suppose the estimates of total cash receipts were $ in the wheat and other crops industry and $ in the mixed livestock and grains industry a difference of $ and the relative standard error is given as 6 per cent for each estimate. The standard error of the difference can be estimated as: ((6 x $ / 100) 2 + (6 x $ / 100) 2 ) = $9605 A 95 per cent confidence interval for the difference is: $ ± 1.96*$9605 = ($6174, $43 826) Hence, if a large number (toward infinity) of different samples are taken, in approximately 95 per cent of them the difference between these two estimates will lie between $6174 and $ Also, since zero is not in this confidence interval, it is possible to say that the difference between the estimates is statistically significantly different from zero at the 95 per cent confidence level. Regions Broadacre statistics are also available by region (Map 6). These regions represent the finest level of geographical aggregation from which reliable estimates can be produced. MAP 6 Australian broadacre zones and regions Pastoral zone Wheat sheep zone High rainfall zone Note: Each region is identified by a unique code of three digits. The first digit identifies the state or territory, the second digit identifies the zone and the third digit identifies the region. Source: ABARES 56 ABARES