The (un)natural attrition of Australian farmers will continue at pace.

I’ve noticed a resurgence of articles in the rural press, centred on the old adage that farmers make no money and are not rewarded for the work they do.

A nice sentiment but I’ve yet to see a pricing method based on effort.  Nor do markets pay for effort, let alone pay a premium for it.  If only.

A common complaint I read is that farmers need to be price makers, not price takers.


Once again, a nice sentiment, but I’m not aware that Australian farmers are producing anything for which there is no substitute.

Let’s forget the price taker / price maker thing.  If you are a primary producer then you are a price taker.

What a farmer needs to be is a margin maker.

Why is this important?  Well, the business model of farming is already skewed.  Inputs are purchased at retail prices and outputs are sold at the bottom rung of wholesale.  If retail prices are rising faster than wholesale prices, there is only one way for everyone involved to survive this business model = equity.  You are ‘margin called’ by the industry.

Farmers have been carefully groomed as consumers of inputs, equipment, finance and services.  This is driven by the other common complaint I read about farmers needing to get more productive.

Of course the more you produce, the more you consume – putting equity at risk.

There is still too much emphasis on productivity and scale, and not enough on profitability.  Can you believe that in the National Food Plan released by the Australian Government, productivity is mentioned 100 times and profitability is referred to 9 times.

 

The industry obsession with productivity has led many farmers to over-capitalising on expensive farming systems.  For example, in the grains industry some farmers have financed enough production equipment to farm a small country.

Productivity – be careful what you wish for.

Sure, ‘get big or get out’ but unless you have a solid understanding of cost behaviour and how specific costs respond to increased business activity, you could be headed down the path of low profit or no profit - especially if the business is simply producing more of the same.  And you are now working 100 hours a week feeling very unloved.

As some farmers have described to me “I’ve done everything I was advised to do, and I’ve gone backwards – and I’m exhausted.”

 

There once was a time of less interference, when farmers knew their business.

It brings me back to my point of knowing how to make a margin - something that has been bred out of the primary industry.  Those not controlling margins are being squeezed by everyone else in Australia’s food system that does, including their neighbours.  It’s tough when buyers and suppliers know more about your margins than you do.  They go to great lengths to know your business.

So, if every Australian farmer wants to remain a primary producer, then under the current conditions of continuing to do business in this globalised industry, there are still too many farmers trying to do the same thing.  Global supply chain systems are designed to remove excess, as there are no longer enough margins for as many participants as before.

Where did the margins go?  I’ll talk about that in another blog.

‘Get big or get out’ no longer applies.  It’s too late.  What applies now is ‘change, or get driven out.’  This is why the proposition that productivity (i.e. produce more of the same for fewer buyers) will save Australian farmers will continue to put many of them in a precarious position, and we will continue to read articles about Australian farmers making no money and feeling unloved.

What needs to change?  Two things.

Change the business model of our primary industry.

Strengthen Australia’s marketing network so that it is globally competitive.

I’ll talk about the power of these changes to improve margins in future blogs.