GETTING bigger is paying off for Australia’s largest broadacre farmers who are regularly achieving at least twice the rate of return on capital compared with smaller and medium-sized farm businesses.
But the difference is not so stark among the top 25 per cent of broadacre farms, where the average return on capital (excluding capital appreciation) is expected to reach 4.6pc in 2014-15.
Figures released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) at last week’s Outlook conference in Canberra showed that small (annual sales of less than $450,000 a year) and medium (sales of between $450,000 and $1 million) farms are expected to outperform large farms (sales over $1m) in some broadacre categories among the top 25pc of producers.
Medium-sized broadacre crop specialists in the top 25pc group are tipped to return 4.9pc on capital this financial year compared with 4.3pc for large businesses.
The story is the same for sheep producers, with medium farms predicted to earn a rate of return of 6.6pc compared with 3.3pc for large farms.
Top 25 small (4.2pc) and medium-sized (4.4pc) sheep-beef specialists are both predicted to outperform their larger counterparts (3.7pc). Large farms in the top 25pc group are expected to do best this financial year in beef (a rate of return of 5.7pc) and mixed livestock and crops (5.2pc).
While most of the farm in the top 25pc are large, size is no barrier to making strong returns on capital, ABARES' assistant secretary of farm analysis, Peter Gooday, told Outlook.
Top performing farms have achieved average farm cash incomes of more than $200,000 (in real terms) in 19 of the past 20 years. They produced 60pc of the total value of output from broadacre farms in 2013-14 compared with just 6pc from the bottom 25pc.
The latest data from ABARES demonstrated that returns on agricultural investment were often equivalent to, or higher, than investing in alternative assets generally available to the broader community, Mr Gooday said.
He said larger farms generally generated higher rates of return because of economies of scale, access to new technologies and better management skills.
“We know that some farms earn risk-adjusted returns that are comparable with those generated by alternatives such as bank deposits and shares, but many farms generate relatively low or negative returns,” Mr Gooday said.
“Understanding the causes that underlie differences in farm profits will be essential to improving farm performance, developing appropriate policy settings and attracting investment across the sector.”
Large farms now account for only 10pc of broadacre and dairy farm numbers but produce 50pc of the value of total outputs.
Farm aggregation in recent times has focused on purchasing medium-sized properties, which now number 20pc of broadacre and dairy farms and produce 27pc of the value of total output from the sector.
The bulk of properties are small (70pc) which produce 24pc of total sales receipts. Mr Gooday said many small farms were close to towns which raised their value and often were underpinned by off-farm income.
Meanwhile, the rate of return for large dairy farms is expected to decline to 3.8 per cent in 2014-15 compared with 1.6pc for medium-sized dairies and minus 1.7pc for small dairies. But small dairies in the top 25pc category are predicted to earn a rate of return on capital of 5.5pc in 214-15 compared with 3.1pc for medium and 4.6pc for large farms.
Vernon Graham
Group editor of Fairfax Agricultural Media.
Group editor of Fairfax Agricultural Media.
