Report sheds light on profitability

Report sheds light

on profitability of WA vegetable growers

BY BRYN EDWARDS BENCHMARK LEAD, VEGETABLESWA

The third annual vegetable industry financial and production benchmark report has been released by vegetablesWA and partners Planfarm, revealing important data on the profitability and key financial performance of Western Australian growers.

The benchmarking initiative assesses the financial performance of the vegetable industry across WA, while also providing individual growers with a financial analysis of their business. The project has led to striking increases in the profitability of some participating businesses, which span across the full length of WA, from Carnarvon, Geraldton, Gingin and Metro Perth, right through to Myalup and Manjimup. vegetablesWA Benchmarking Lead Bryn Edwards said the financial and production benchmark report analysed data from the full range of vegetable crops grown during the 2018–19 financial year. “What is really powerful this year is that in addition to the single financial year 2018–19 results, we’ve also been able to produce three-year averages across the key financial measures and metrics,” Mr Edwards said.

“Having access to three years of financial data from growers now provides a new level of rigorous insight that has not been available to growers previously. “Having access to these detailed insights plays a role that will begin to set the WA vegetable industry apart from any other state,” Mr Edwards said. According to the data, an average return on capital for the financial year 2018–19 was 8% (see Figure 1), and “Producing this level of data around return on capital, the three-year average is 9% (see Figure 2). operating profit and operating efficiency measures, provides clear insights about just how viable vegetable growing is compared to other asset investment options. An average return on capital for the 2018–19 financial year was 8%. Planfarm Director Paul Omodei said the third-year results revealed again that the most profitable growers [as measured by vegetable operating profit per hectare] were not “It also highlights areas of those from a particular area, potential growth in terms of future of greater scale or a particular profitability to be gained.” vegetable type. Mr Edwards explained that having a more rigorous, longer term understanding of the industry is an extremely important step towards providing vegetable growers with key information that will empower them to make shorter and longer-term “We found that the most lucrative growers were focused on driving a higher income per hectare, through increased saleable yield and a strong focus on marketing their product, while actively managing costs,” Mr Omodei said. business decisions with confidence.

3 THE report highlights areas of potential growth in terms of future profitability to be gained.

Top 25%

Average

Bottom 25%

3%

FIGURE 1 2018–19 RETURN ON CAPITAL Source: Western Australia Vegetable Industry Benchmarks 2020 report

Top 25%

Average

Bottom 25%

2%

While this demonstrates that generating a good return is open to all WA growers, he said “the findings also suggest that there’s more profitability left on the table that could be in the pockets of vegetable growers”. When examining the operating efficiency metrics, which Mr Omodei explained is the ratio of operating costs as a percentage of income, the 2018–19 financial year industry average was 74%, while the three-year industry average is 72%. “In plain English this means growers are spending on average of 74 cents and 72 cents, respectively, to make $1 before paying for finance, tax, depreciation, land leases, or management drawings,” he said. “We’d like to see that figure closer to 65 cents, as the top 25% of growers are averaging 60 cents of operating costs to make a dollar, which shows that it is achievable.” In terms of impact on growers at an individual business level, Mr Omodei said he had been pleased with how participating growers have acted on the feedback they had received.

8% 11%

PLANFARM TARGET 8% “We have worked very hard to support those growers that have participated in the benchmarking initiative to turn their individual findings into tangible actions and changes they can make in their business,” Mr Omodei said. “This has paid off as we’ve seen some significant improvements and increases in profitability over the past three years.” The benchmarking initiative isn’t solely about increasing the profitability of horticulture businesses, Mr Edwards explained that it also places an emphasis on accelerating business management skills and strategic thinking. “Over the past three years we’ve seen growers make some impressive improvements and changes — this extends beyond the financial performance of their business and strategically into their standard of life with their family and beyond the farm,” he said. vegetablesWA CEO John Shannon said the findings of the report have a wider and more timely impact than originally foreseen. “The three-year averages will be a critical measuring stick when assessing the true impact of COVID-19 on the industry and understanding exactly where all business recovery efforts should be targeted,” Mr Shannon said.

MORE INFORMATION

Western Australia Vegetable Industry Benchmarks report was produced by vegetablesWA together with Planfarm, through funding from the Department of Primary Industries and Regional Development’s Agribusiness Innovation Fund and Hort Innovation. Contact Bryn Edwards, vegetablesWA Benchmarking Lead, on 0417 409 821 or email bryn.edwards@vegetableswa.com.au

9% 12%

WESTERN AUSTRALIA VEGETABLE INDUSTRY BENCHMARKS

2018–19 FINANCIAL YEAR

This project has been part funded by Hort Innovation and the Department of Primary Industries & Regional Development using the vegetable research and development levy and funds from the Australian Government. For more information on the fund and strategic levy investment visit horticulture.com.au Prepared by vegetablesWA and Planfarm Pty Ltd To download a copy of the report and watch a detailed presentation of the findings, please go to https://

vegetableswa.com.au/ benchmarking/

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