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Sunflower Economics - Measuring Performance

Managing a Formula One race team and growing a successful crop of sunflowers might seem to be poles apart, but dig a little deeper and you may find the road to success is surprisingly similar.

The success of racing cars used to be down to the driver and split-second decisions made on the track.

Then, in the 1970s, telemetry systems started to be fitted to cars to measure how they were functioning.

Today, every aspect of an F1 car is monitored by hundreds of sensors, measuring lap times, tyre and brake temperatures, airflow, and engine performance.

Formula One races are now won on razor-thin margins, and measuring the performance of the car and driver, then responding to that data, is key to success.

While sunflower fields are a long way from the Nurburgring, we also need to think about measuring performance to increase our chances of success.

If we don’t measure it, how can we manage it?

Plan, Manage, Measure, Review

Growers are incredibly good at planning and managing logistics.

Every year you plant crops, feed them, protect them, then harvest them with speed and efficiency.

Sometimes growers are possibly less good at measuring, reviewing, and refining the following year’s plan based on new information. We often react to a situation rather than planning for it.

By measuring and reviewing our performance we can plan and manage more effectively.

Measuring performance

There are two parts to measuring performance: gathering reliable data, then comparing it with something else.

Take yield for example. 

If we measure and record our crop yield, we can see how this compares with the national or the regional average, or the top third of all businesses, and year on year to see if there is a trend.

We can do this with any part of our business, if we can measure it, we can compare it.

Measuring our performance and comparing it against something else, allows us to see how we are performing, and encourages us to look deeper into our business.

This is often referred to as benchmarking, when we collect data and compare it against another farm.

Benchmarking

Research indicates the most profitable agricultural businesses undertake some form of financial or technical benchmarking.

Benchmarking helps you fully understand your total cost of production.

By comparing your performance with peers, you can identify your strengths and areas for development, you can learn valuable lessons by raising questions.

Why are others better? How are others better? How can we catch up?

It doesn’t need to be complicated, and sometimes several small changes can result in a big financial gain.

In addition to making your business more profitable, it will also give you greater confidence when making decisions.

Anything that can be measured can be benchmarked, but we need to think about what information gives us the best effect?

When asked, growers say overall profitability, input costs and physical performance are the most important things to benchmark.

Physical performance

This is not an exhaustive list but here are some useful examples of physical performance benchmarks.

·         Yield

Perhaps yield is the first thing we think of when measuring crop performance.

The components of yield – heads per hectare, seeds per head, seed weight – can all be measured, adjusted and benchmarked.

·         Labour

Calculate cropped hectares per employee, this will indicate if labour costs are too high.

For an arable farm, >300 hectares per person is considered good, <200 hectare per person is low.

·         Wheel slip

Do you know what your tractor wheel slip is, what it should be, and how to reduce it?

Reducing wheel slip will lower your fuel consumption and improve your work rate, you could save $10 -$20 per hectare.

The solution may be as simple as reducing tyre pressure.

·         Fuel

Measuring how many litres per hectare you use can be insightful.

Some farms will be using 60-70l/ha or more, while others use 30-40l/ha or less.

The number of passes and the depth of cultivation all contributes to fuel consumption.

Reducing fuel consumption could save you $30-$40 per hectare.

·         Horsepower

Calculating your HP per hectare will indicate whether you have too much powered machinery.

To calculate your horsepower per hectare, add up the horsepower of all your machinery, except the combine, to get a total figure, then divide it by the cropped area.

The horsepower per hectare target for an arable farm is 0.8-1.0hp/ha.

You can reduce your horsepower per hectare by increasing your cropped area, reducing the number of machines you own, using hired machines or sharing machinery with neighbours.

·         Work rates

Calculating the work rate of a machine and then comparing it with actual work rates is a useful indicator of efficiency.

Low efficiency can be caused by slow forward speeds, excessive overlapping, poor turning discipline at the end of a run, slow loading or filling, and other routine time delays associated with the operation.

·         Seed

Do you stick to the same seed rates each season?

Adjusting seed rates for conditions and seed weight, can improve yield and reduce your seed costs.

(See “Spotlight on practical sunflower agronomy” in this series for more information).

Financial performance

There is almost no limit on what financial information you can measure, but you can think of them in two parts.

Individual enterprise benchmarks

These are useful to compare specific inputs and how effective they are in contributing to income.  Here are some examples.

·         Gross output

This is the value of the crop sold and is an indication of yield and price.

Comparing your gross output will indicate if your yield and selling prices are appropriate.

·         Variable costs

Variable costs are the costs associated with one crop and generally include seed, fertiliser, and pesticides.

Knowing your per hectare input costs for each crop and then benchmarking against other farms, is a useful way to see if you are using too much or too little of each input, or paying too much for them.

·         Gross margin

The gross margin for an enterprise is the gross output less the variable costs.

When expressed in per hectare terms, gross margin is a useful tool to monitor profitability from season to season, with other farms and with other crops.

Whole farm financial benchmarks

These are useful to indicate the profitability and financial efficiency of the entire operation.

The starting point is your balance sheet, analysing and understanding your balance sheet will give you valuable insight into your business.

There is a lot of information contained within a balance sheet, for example, net worth and profitability.

·         Net worth

Net worth is the value of all assets less liabilities and is a useful guide to the overall health of your business.

A positive and increasing net worth indicates good financial health, while a decreasing net worth might signal there are problems in the business.

To improve your net worth:

·         Reduce liabilities – such as long-term debt and short-term borrowings – while assets remain constant or rise.

·         Increase assets while liabilities remain constant or fall.

·         Profitability

Not to be confused with profit.

Profit is the total revenue minus total expenses, and is an absolute number.

Profitability is a business’s ability to produce a return on an investment in comparison with an alternative investment.

Conclusion

Getting into the mindset of “Plan, Manage, Measure, Review” is a great way to look at and think about your business.

Successful businesses will measure their performance and then react. 

How you do this and what you measure will be different for each business.

Looking outside your business and comparing with a benchmark or comparative data, will give you the confidence you are heading in the right direction, or, if not, that you should do something about it while you have time.

If you don’t measure it, how can you manage it?