Department of Agriculture and Water Resources Australian...

Australian farm survey results2013–14 to 2015–16

Research by the Australian Bureau of Agricultural and Resource Economics and Sciences

APRIL 2016

Department of Agricultureand Water Resources

© Commonwealth of Australia 2016

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Farm performance: broadacre and dairy farms, 2013–14 to 2015–16 7

Productivity in Australian broadacre and dairy industries 54

Disaggregating farm performance statistics by size 64

Survey methods and definitions 74

References 83

Figures

1 Farm cash receipts, broadacre industries 9

2 Farm cash costs 11

3 Financial performance, all broadacre industries 14

4 Return on capital, all broadacre industries 15

5 Farm cash income, all broadacre farms 20

6 Farm cash income, all broadacre farms, New South Wales and Queensland 27

7 Farm cash income, all broadacre farms, Victoria and Tasmania 29

8 Farm cash income, grains industries 31

9 Farm cash income, sheep industries 32

10 Farm cash income, beef industry 33

11 Farm cash income, dairy industry 38

12 Proportion of broadacre farms acquiring land 40

13 Land prices for broadacre farms 41

14 Land prices and receipts per hectare, broadacre farms 41

15 Composition of investment in farm machinery, vehicles and farm improvements, broadacre farms 42

16 Composition of farm business debt, broadacre farms 44

17 Change in farm business debt for farms subject to drought, all broadacre and dairy farms, 2014–15p 45

Contents

18 Change in farm business debt for farms not subject to drought, broadacre and dairy farms, 2014–15p 46

19 Change in farm business debt and equity, broadacre farms, Australia 47

20 Ratio of interest payments to total cash receipts, farms with debt, by industry 51

21 Ratio of interest payments to total cash receipts, farms with debt, by state 52

22 Debt servicing and borrowing capacity, all broadacre farms 53

23 Input, output and total factor productivity growth, broadacre industry, Australia, 1977–78 to 2013–14 56

24 Productivity growth, by industry, 1977–78 to 2013–14 57

25 Input, output and total factor productivity growth, cropping specialists, Australia, 1977–78 to 2013–14 59

26 Input, output and total factor productivity, beef industry, Australia, 1977–78 to 2013–14 60

27 Input, output and total factor productivity, sheep industry, Australia, 1977–78 to 2013–14 62

28 Input, output and total factor productivity, dairy industry, Australia, 1978–79 to 2013–14 63

Tables

1 Financial performance, all broadacre industries 13

2 Financial performance of all broadacre industries, by state 16

3 Rate of return to total capital (excluding capital appreciation) by industry, farm size and performance rank 17

4 Financial performance of broadacre farms, by region 21

5 Financial performance, by state, all broadacre industries 23

6 Financial performance of broadacre farms, by industry 31

7 Financial performance, by industry, broadacre and dairy industries 34

8 Financial performance, dairy industry, by state 39

9 Distribution of broadacre farms, by farm business debt and equity ratio at 30 June 2015 49

10 Distribution of farms by industry, by farm business debt and equity ratio at 30 June 2015 50

11 Input, output and total factor productivity growth, by broadacre industry, Australia, 1977–78 to 2013–14 57

12 Input, output and total factor productivity growth, broadacre cropping industries, by region, Australia, 1977–78 to 2013–14 60

13 Input, output and total factor productivity growth, beef industry, by region, Australia, 1977–78 to 2013–14 61

14 Broadacre farms, Australia, 2011–12 to 2013–14 67

15 Wheat and other crops farms, Australia, 2011–12 to 2013–14 67

16 Beef farms, Australia, 2011–12 to 2013–14 68

17 Sheep farms, Australia, 2011–12 to 2013–14 68

18 Cropping–livestock farms, Australia, 2011–12 to 2013–14 69

19 Sheep–beef farms, Australia, 2011–12 to 2013–14 69

Contents

5ABARESAustralian farm survey results 2013–14 to 2015–16

20 Dairy farms, Australia, 2011–12 to 2013–14 70

21 Vegetable farms, Australia, 2011–12 to 2013–14 70

22 Wheat and other crops farms, Western region, 2011–12 to 2013–14 71

23 Wheat and other crops farms, Southern region, 2011–12 to 2013–14 71

24 Wheat and other crops farms, Northern region, 2011–12 to 2013–14 72

25 Beef farms, Southern region, 2011–12 to 2013–14 72

26 Beef farms, Northern region, 2011–12 to 2013–14 73

Maps

1 Australian broadacre zones and regions 22

2 Grains Research and Development Corporation regions 65

3 Australian beef cattle industry 66

4 ABARES Australian broadacre zones and regions 78

5 Australian Dairy Industry Survey regions, New South Wales and Victoria 79

Boxes

1 Broadacre sector of Australian agriculture 8

2 Major financial performance indicators 10

3 Farm survey methodology 12

4 Farm sizes 18

5 Top performing farms 19

6 Productivity statistics produced by ABARES 55

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Farm performance: broadacre and dairy farms, 2013–14 to 2015–16Peter Martin

• In 2015–16 ABARES estimates that average farm cash income will increase in New South Wales, Queensland, South Australia, Western Australia and the Northern Territory. Dry seasonal conditions in Victoria and Tasmania have reduced crop and livestock production, resulting in a reduction in projected farm cash incomes.

• For Australia as a whole, farm cash income of broadacre farms is projected to average $179 000 a farm in 2015–16—the highest recorded in the past 20 years.

• The expected increase in farm cash incomes in 2015–16 has been driven by high livestock prices—especially for beef cattle—and good winter grain production in most regions. Beef cattle is by far the most common and widely dispersed agricultural activity in Australia and higher beef cattle prices result in increased farm cash incomes for a large proportion of Australian farms.

• Average farm cash income of dairy farms is projected to decline by 26 per cent to an average of $113 000 a farm in 2015–16, reflecting lower farmgate milk prices, reduced production and higher fodder costs.

OverviewABARES Australian Agricultural and Grazing Industries Survey (AAGIS) projects a strong increase in overall average incomes of Australian broadacre farms (Box 1) in 2015–16. Nationally, average farm cash income (Box 2) of broadacre farms is projected to be the highest recorded in the past 20 years in real terms. Broadacre farm cash income increased from an average of $124 460 in 2013–14 to $152 000 in 2014–15. Farm cash income is projected to increase further to average $179 000 a farm in 2015–16.

In 2015–16 farm cash income is projected to increase in most regions of Australia, with the exception of some regions subject to dry seasonal conditions during 2015.

The expected increase in farm cash incomes in 2015–16 follows a rise in farm cash income in many regions in 2014–15 and is predominately the result of higher prices for beef cattle. Beef cattle production is by far the most common and widely dispersed agricultural activity in Australia (around 57 per cent of all Australian farms carry beef cattle)(ABS 2015), and higher beef cattle prices result in increased farm cash incomes for a large proportion of Australian farms. Expected higher incomes in 2015–16 are also the result of an increase in winter grain production and higher prices for lambs and wool.

Farm performance: broadacre and dairy farms, 2013–14 to 2015–16

8 ABARESAustralian farm survey results 2013–14 to 2015–16

Higher farm cash income is projected for broadacre farms in New South Wales, Queensland, South Australia, Western Australia and the Northern Territory. However, dry seasonal conditions in Victoria and Tasmania have reduced crop and livestock production resulting in a reduction in projected farm cash incomes.

Financial pressure on farm businesses in several regions increased during 2013–14 as a result of a combination of low beef cattle prices, dry seasonal conditions, high farm debt and the erosion of farm equity through reductions in land values and livestock numbers. Those most affected included the beef industry in northern Australia and grain producers in Queensland and northern New South Wales.

Much higher farm incomes in 2014–15, particularly for beef cattle producers, reduced some of this pressure. Pressure was also reduced more broadly by a reduction in broadacre farm debt and a decline in interest rates. However, financial pressure increased in some regions in Queensland, northern New South Wales, central western Victoria and south-eastern South Australia subject to prolonged drought conditions.

In 2015–16 incomes are projected to increase for beef industry farms in all states as a result of higher cattle prices and despite reduced beef cattle turn-off. Nationally, farm cash income for beef industry farms increased to average $96 200 in 2014–15 and is projected to increase to average $130 000 a farm in 2015–16. The increase in income will reduce financial pressure in many regions but have only a small effect in regions constrained by the reduced availability of saleable cattle after three years of high turn-off. Broadacre farm incomes are also projected to decline in Tasmania, western Victoria, and parts of South Australia and Western Australia subject to dry conditions well into 2015–16.

Box 1 Broadacre sector of Australian agricultureThe sector includes five industry types:

Wheat and other crops industry: specialised producers of cereal grains, coarse grains, pulses and oilseeds.

Mixed livestock–crops industry: properties engaged in producing sheep and/or beef cattle in conjunction with substantial activity in broadacre crops such as wheat, coarse grains, oilseeds and pulses.

Sheep industry: specialised producers of sheep and wool. Sheep industry farms account for only 30 per cent of Australia’s wool production. Most wool and sheep meat production occurs on mixed enterprise farms, particularly on mixed livestock–crop industry farms.

Beef industry: properties engaged mainly in running beef cattle, which currently account for around 65 per cent of Australia’s beef production. This industry includes many small farms.

Sheep–beef industry: properties engaged in running sheep and beef cattle. This industry includes many small farms.



Farm receipts

2014–15Average total cash receipts for broadacre farms increased by around 8 per cent in 2014–15 compared with 2013–14 (Figure 1).

Much higher average prices for beef cattle, compared with 2013–14, and increased cattle turn-off resulted in an increase of 25 per cent in receipts from beef cattle.

Higher prices for sheep and lambs together with increased sales of lambs resulted in an increase of around 18 per cent in average sheep and lamb receipts a farm, despite a small decrease in the number of sheep sold. Wool receipts also increased for broadacre farms resulting from a small increase in wool production combined with higher wool prices.

In 2014–15 average crop receipts decreased by 2 per cent as a result of reduced winter grain production in all states resulting from lower grain yields and lower prices for wheat, oilseeds and pulses.

At the national level, dairy farm receipts increased by around 3 per cent on average compared with 2013–14, as higher milk production more than offset a small reduction in milk prices in southern dairying regions.

FIGURE 1 Farm cash receipts, broadacre industries average per farm

Other

2015–16$’000

Sheep and lamb receipts

y ABARES provisional estimate.Source: ABARES Australian Agricultural and Grazing Industries Survey

Wool

Beef cattle

Crops

100

200

300

400

600

500

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

2015–16Average total cash receipts of broadacre farms are projected to increase again by around 8 per cent in 2015–16 compared with 2014–15.

Further increases in average prices for beef cattle are expected to result in a rise in overall receipts for beef cattle of around 14 per cent. This is despite a sharp reduction in numbers of beef cattle sold in 2015–16.

In 2015–16 average crop receipts are projected to increase by around 8 per cent mainly as a result of increased winter grain production in all states except Victoria and Tasmania resulting from increased crop areas, higher grain yields and higher prices for oilseeds and pulses.



Higher average prices for sheep and lambs sold are projected to result in an increase of around 4 per cent in average sheep and lamb receipts per farm, despite a small decrease in the number of sheep and lambs sold. A small increase is expected in receipts from wool for broadacre farms, with higher wool prices offsetting a small reduction in wool production.

At the national level, dairy farm receipts are projected to decrease by around 3 per cent on average compared with 2014–15, with lower milk prices expected in southern regions and a small reduction in milk production. Reductions in milk receipts are expected to be partially offset by increased receipts from the sale of beef and dairy cattle, as a result of higher cattle prices.

Farm costs

2014–15For broadacre farms, average total cash costs increased by only 2 per cent in 2014–15, with small increases across several farm inputs. The largest increases in expenditure were on fertiliser, repairs and maintenance (particularly for beef industry farms) and purchases of beef cattle. Reductions were recorded in expenditure on fodder (from a relatively high level in 2013–14) and on fuel and interest payments (Figure 2).

For dairy industry farms, total farm cash costs increased by 9 per cent, mainly reflecting increased input use to boost milk production. Expenditure on purchased fodder increased by around 11 per cent, with smaller increases recorded in most other categories of farm cash costs. Lower fuel prices and reduced interest rates resulted in reduced expenditure on fuel and interest payments in 2014–15.

Box 2 Major financial performance indicatorsTotal 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 to total capital used: efficiency of businesses in generating returns from all resources used (profit at full equity/total opening capital) x 100

Rate of return to owner equity: efficiency of businesses in generating profit from capital invested by owners ( farm business profit/farm business equity) x 100



2015–16At the national level, average total cash costs per broadacre farm are projected to increase by around 4 per cent compared with 2014–15. Increases are expected in expenditure on beef cattle, as a result of higher cattle prices, and on repairs and maintenance by beef cattle producing farms in response to increased farm receipts. Lower interest rates are projected to be partly offset by a small increase in borrowing. Lower fuel prices are projected to result in reduced fuel expenditure, and reduced fertiliser prices will contribute to some reduction in fertiliser expenditure to plant the 2016 winter crop.

For dairy industry farms, total farm cash costs increased by 3 per cent in 2015–16, mainly reflecting higher fodder prices and increased use of purchased fodder in response to dry seasonal conditions in Victoria, Tasmania, South Australia and Western Australia and in an attempt to boost milk production. Increased fodder expenditure is projected to be partly offset by reduced expenditure on fuel and fertiliser in 2015–16 as a result of lower prices for these inputs, together with decreased interest payments because of lower interest rates.

FIGURE 2 Farm cash costs average per farm

2013–14

2014–15p

2015–16y

2013–14

2014–15p

2015–16y

$’000 10 20 30 40

Broadacre farms

Dairy farms

$’000 250150 20010050

p ABARES preliminary estimate. y ABARES provisional estimate.Source: ABARES Australian Agricultural and Grazing Industries Survey

Fodder

Livestock purchases

Crop and pasture chemicals

Repairs and maintenance

Fuel

Fertiliser

Interest paid

Hired labour cost

Repairs and maintenance

Fuel

Fertiliser

Fodder

Interest paid

Electricity



Box 3 Farm survey methodologyBroadacre and dairy farms accounted for 73 per cent of commercial-scale Australian farm businesses and for an estimated 60 per cent of the total gross value of Australian agricultural production in 2014–15. These farms are also responsible for managing more than 90 per cent of the total area of agricultural land in Australia and account for the majority of Australia’s family owned and operated farms. These farms are located in all regions across Australia and are vital to rural communities and local economies.

Each year, as part of its annual farm survey programme, ABARES interviews operators of around 1 600 broadacre farm businesses in its Australian Agricultural and Grazing industries Survey (AAGIS) and 300 dairy farm businesses in the Australian Dairy Industry Survey (ADIS). The AAGIS is targeted at commercial-scale broadacre farms—those that grow grains or oilseeds or run sheep or beef cattle and have an estimated value of agricultural output exceeding $40 000. Broadacre industries covered in this survey include wheat and other crops, mixed livestock–crops, sheep, beef and sheep–beef industries. The ADIS is targeted at commercial-scale milk producing farms.

The information collected provides a basis for analysing the current financial position of farmers in these industries and expected changes in the short term. Data from the AAGIS and ADIS were analysed to gain insights into the performance of Australian broadacre and dairy farms in 2014–15, including projected farm financial performance in 2015–16.

ABARES uses the latest data available to produce estimates from its surveys. This means estimates are revised as new information becomes available. Preliminary estimates previously published are recalculated to reflect updated benchmark information obtained from the Australian Bureau of Statistics (ABS).

ABARES surveys are designed, and samples selected, on the basis of a framework drawn from the ABS Business Register. This framework includes agricultural establishments in each statistical local area, classified by size and major industry.

Data provided in this article were collected through on-farm interviews and incorporate detailed farm financial accounting information. The estimates presented were calculated by appropriately weighting the data collected from each sample farm.

Sample weights are calculated so estimates of number of farms, areas of crops and numbers of livestock in various geographic regions and industries correspond as closely as possible with the most recently available ABS data, as collected in agricultural censuses and updated annually with data collected in agricultural commodity surveys.

Estimates for 2013–14 and 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 the estimates.

The 2014–15 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 benchmarks may also change.

The 2015–16 projections are based on data collected through on-farm interviews and telephone interviews between September 2015 and December 2015. The estimates include crop and livestock production, receipts and expenditure up to the date of interview, together with expected production, receipts and expenditure for the remainder of the financial year. Modifications have been made to expected receipts and expenditure for the remainder of 2015–16 where prices have changed significantly since the interview.



Farm income and profitNationally, average farm cash income of broadacre farms in recent years has been high compared with incomes recorded historically. Farm cash income increased from $124 460 in 2013–14 to $152 000 in 2014–15. In 2015–16 farm cash income is projected to increase further to average $179 000 a farm (Table 1). This is around 75 per cent above the 10-year average to 2014–15 of $102 000 in real terms. If achieved, it would be the highest average farm cash income for broadacre farms in the past 20 years (Figure 3). However, major differences exist in average farm cash incomes across industries, states and regions.

TABLE 1 Financial performance, all broadacre industries average per farm

2013–14 2014–15p 2015–16y

Total cash receipts $ 445 980 479 900 (3) 519 000

Total cash costs $ 321 530 327 900 (3) 339 000

Farm cash income $ 124 460 152 000 (4) 179 000

Farms with negative farm cash income % 23 14 (10) 16

Farm business profit $ 14 030 21 000 (25) 63 000

Profit at full equity

– excluding capital appreciation $ 55 880 59 400 (9) 101 000

– including capital appreciation $ 58 000 146 300 (12) na

Farm capital at 30 June a $ 3 995 730 4 231 900 (2) na

Net capital additions $ 39 330 59 200 (32) na

Farm debt at 30 June b $ 513 380 506 900 (5) 516 000

Change in debt – 1 July to 30 June b % 1 4 (45) 0

Equity at 30 June bc $ 3 337 440 3 504 700 (3) na

Equity ratio bd % 87 87 (1) na

Farm liquid assets at 30 June b $ 169 310 188 200 (6) na

Farm management deposits (FMDs) at 30 June b $ 41 740 48 300 (8) na

Share of farms with FMDs at 30 June b % 24 25 (7) na

Rate of return e

– excluding capital appreciation % 1.4 1.4 (9) 2.4

– including capital appreciation % 1.5 3.6 (12) na

Off-farm income of owner–manager and spouse b $ 31 520 34 900 (7) na

a Excludes leased plant and equipment. b Average per responding farm. c Farm capital minus farm debt. d Equity expressed as a percentage of farm capital. e Rate of return to farm capital at 1 July. p Preliminary estimates. y Provisional estimates. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: ABARES Australian Agricultural and Grazing Industries Survey



For the dairy industry, farm financial performance is projected to decline in 2015–16. Nationally, average farm cash income of dairy farms was $164 370 a farm in 2013–14. This decreased to $156 300 a farm in 2014–15 and is projected to decline further to average $113 000 a farm in 2015–16 (Table 2). Farm cash income projected for dairy farms in 2015–16 is around 4 per cent below the 10-year average to 2014–15 of $117 000 in real terms.

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; this includes interest payments but excludes depreciation 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, because it takes into account capital depreciation and changes in inventories of livestock, fodder, grain and wool.

In 2015–16 further reductions in beef cattle numbers in most states will reduce farm inventory values and result in a smaller increase in farm business profit compared with the increase in farm cash income. However, farm business profit of Australian broadacre farms is expected to average $63 000 a farm in 2015–16. If achieved, this would be the equal highest recorded in the past 20 years, similar to the average farm business profit recorded for broadacre farms in 2001–02 and 2010–11.

FIGURE 3 Financial performance, all broadacre industries average per farm

2015–16$’000

Farm cash incomeFarm business profit


–50

0

50

100

150

200

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98



Rates of returnThe average rate of return to total farm capital, including capital appreciation, for broadacre farms was high between 2000–01 and 2006–07 but declined after 2007–08 (Figure 4). Strong demand for rural land during most of the 2000s resulted in a sharp increase in land values in most agricultural regions, which raised the total capital value of farms. Rapidly rising farm capital values resulted in high rates of return, including capital appreciation. However, from 2007–08 land values generally did not increase and reported land values declined in several regions in the five years to 2013–14. The reduction in reported land values during this period resulted in lower estimates of average rate of return to total farm capital, including capital appreciation for broadacre and dairy farms.

In 2014–15 a slight rise in land values in some high rainfall regions together with an increase in the value of beef and dairy cattle resulted in an increase in average farm capital value and added around 2.1 per cent to the average rate of return including capital appreciation for broadacre farms (Table 2). This is the first significant appreciation in farm capital recorded for broadacre farms since 2007–08.

Increases in total farm capital values resulting from the general increase in land values during the 2000s also acted to reduce rates of return excluding capital appreciation.

FIGURE 4 Return on capital, all broadacre industries average per farm

%

Rate of return includingcapital appreciation

Rate of return excluding capital appreciation

2

0

4

6

8

10

12


2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98



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TABLE 3 Rate of return to total capital (excluding capital appreciation) by industry, farm size and performance rank average per farm

All farms Top 25 per cent farms a

IndustryBusiness size

Five years ending

2013–14 2014–15p 2015–16y

Five years ending

2013–14 2014–15p 2015–16y

% % % % % %

Wheat and other crops Small –0.8 –0.1 (108) 1.7 5.1 5.1 5.1

Medium 2.9 2.9 (23) 5.0 6.5 5.5 6.3

Large 5.2 4.7 (7) 7.3 7.3 6.0 7.5

Mixed livestock–crops Small –0.5 –0.8 (51) –0.4 4.3 2.7 0.8

Medium 2.4 3.1 (13) 3.6 4.8 4.9 4.7

Large 4.3 4.6 (8) 5.7 6.6 5.9 6.5

Sheep Small –0.4 –0.3 (126) 0.4 3.2 3.9 2.9

Medium 2.9 2.1 (19) 3.2 4.9 3.4 3.9

Large 5.0 5.0 (14) 6.5 6.0 6.8 8.4

Beef Small –0.8 –1.2 (18) –0.2 3.3 4.7 6.6

Medium 1.6 1.7 (22) 4.0 3.8 5.9 8.2

Large 2.3 1.0 (40) 3.7 4.5 3.9 7.4

Sheep–beef Small –0.2 –0.5 (71) 0.9 3.6 3.9 5.4

Medium 2.0 1.9 (19) 3.9 4.6 3.6 4.7

Large 3.2 2.8 (17) 3.8 4.4 4.4 5.7

All broadacre farms 1.6 1.4 (7) 3.0 5.7 5.3 6.5

Dairy Small 0.5 –0.1 (125) –0.5 4.0 4.4 4.3

Medium 2.8 2.8 (21) 1.9 4.7 5.4 4.9

Large 4.4 4.9 (8) 4.2 6.1 6.0 5.3

All dairy farms 3.7 3.2 (11) 1.8 5.4 5.8 4.7

a Farms in top 25 per cent of farms nationally ranked by three-year moving average rate of return to total capital used. p Preliminary estimates. y Provisional estimates. Source: ABARES Australian Agricultural and Grazing Industries Survey



The average rate of return excluding capital appreciation for Australian broadacre farms is estimated to have been 1.4 per cent in 2014–15, similar to the rate of return in 2013–14. The rate of return is expected to increase in 2015–16 to average 2.4 per cent, as profit increases for many farms. This is above the 10-year average to 2014–15 of 1.1 per cent.

In 2015–16 rates of return excluding capital appreciation are expected to be positive across all states. However, it is projected to be low in Victoria and Tasmania at 0.3 per cent and 0.7 per cent, respectively. The highest average rate of return excluding capital appreciation is projected in the Northern Territory, at 5.8 per cent.

Among the surveyed industries, the projected average rate of return excluding capital appreciation is highest, at 4.8 per cent, in the wheat and other crops industry. The beef industry is the lowest ranked for 2015–16, with a projected average rate of return excluding capital appreciation of 1.2 per cent, despite the large increase in projected farm cash income.

In the dairy industry, the rate of return excluding capital appreciation is projected to decline from an average of 3.2 per cent in 2014–15 to an average of 1.5 per cent in 2015–16. In 2015–16 the average rate of return excluding capital appreciation is expected to be highest in Tasmania and Western Australia, at 2.2 per cent for both, and lowest in South Australia, at 0.7 per cent. Tasmania also had the highest average rate of return in the previous three years.

Generally, larger farms generate higher rates of return, as a result of increasing returns to scale, greater access to superior technologies and greater management skill (Jackson & Martin 2014).

Box 4 Farm sizesSmall farms: farms with a total value of sales of less than $450 000. Small farms account for 70 per cent of Australian broadacre and dairy farms and around 24 per cent of the total value of sales (receipts) from broadacre and dairy farms. Small farms are mostly family owned and operated, typically with a total capital value of less than $5 million. Off-farm income from wages, salaries, investments and other non-farm businesses often accounts for more than 50 per cent of the disposable cash income of farm operators.

Medium farms: farms with a total value of sales of between $450 000 and $1 million. Medium farms account for 20 per cent of Australian broadacre and dairy farms and around 27 per cent of the total value of sales from broadacre and dairy farms. Medium farms are mostly family owned and operated, typically with a total capital value of between $5 million and $9 million. Off-farm income generally accounts for less than 50 per cent of the disposable cash income of farm operators.

Large farms: farms with a total value of sales exceeding $1 million. Large farms account for 10 per cent of Australian broadacre and dairy farms and for around 49 per cent of the total value of sales from broadacre and dairy farms. The majority of large farms are family owned and operated, but complex ownership and operating arrangements are more common among large farms. Typically, the total capital invested in large farms exceeds $10 million. Off-farm income usually accounts for only a small proportion of the disposable cash income of farm operators.



Large wheat and other crops industry farms (Box 4) generated an average rate of return excluding capital appreciation of 5.2 per cent over the five years ending 2013–14, compared with 2.9 per cent for medium sized wheat and other crops industry farms and –0.8 per cent for small farms (Table 3). In 2014–15 the average rate of return for large wheat and other crops industry farms decreased to 4.7 per cent, but it is expected to increase to 7.3 per cent in 2015–16. Similarly, large sheep industry farms generated an average rate of return of 5 per cent over the five years ending 2013–14 and 5 per cent in 2014–15. It is expected to increase to 6.5 per cent in 2015–16.

Top performing farms Farm cash income and rates of return vary year to year for all farms, but the best performing farms generate higher average farm cash income and rates of return over time. The top performing 25 per cent of broadacre farms (Box 5) recorded average rates of return excluding capital appreciation of 5.7 per cent over the five years ending 2013–14 and 5.3 per cent in 2014–15 (Table 3). They are expected to average 6.5 per cent in 2015–16. This compares with average rates of return of less than 5.3 per cent for large farms in all broadacre industries over the five years ending 2012–13 and is much higher than the 1.6 per cent recorded for all broadacre farms.

Farms classified in the top performing category are predominantly large farms, but as Table 3 indicates top performing farms exist among all industry and farm size categories.

The gap between top performing farms and other farms has increased over time as farm cash incomes of the top performing 25 per cent of broadacre farms have trended upward, while those of middle and bottom performing farms have remained relatively flat. Top performing farms have recorded average farm cash incomes exceeding $200 000 (in real terms) in 19 of the past 20 years (Figure 5).

Box 5 Top performing farmsTop 25 per cent of farms: farms are classified in the top performing 25 per cent of farms nationally by rate of return to total capital.

Rate of return to total capital is business profit before interest and tax (profit at full equity) expressed as a percentage of the total value of land, livestock, machinery and other assets used by the farm business. It is a complete measure of farm financial performance, valuing all farm inputs including unpaid family and partner labour. Rate of return to total capital represents the ability of the business to generate a return to all resources used by the business including that which is borrowed or leased regardless of the financing arrangements in place.

To reduce the effect of changes in commodity prices, seasonal conditions and other year-specific effects on farm performance, three-year moving average rates of return have been calculated for each sample farm in the ABARES farm survey database.



FIGURE 5 Farm cash income, all broadacre farms average per farm

Top 25%Middle 50%Bottom 25%

2015–16$’000


100

0

200

300

400

500

600

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

Top performing farms account for a large share of the total value of agricultural production. For example, they accounted for 60 per cent of the value of output of all broadacre farms in 2014–15. In contrast, the bottom performing 25 per cent of farms accounted for just 6 per cent.

Top performing farms also account for most new investment. Over the three years to 2014–15, high performing farms accounted for 70 per cent of net capital additions on broadacre farms. In contrast, the bottom performing 25 per cent of farms accounted for just 2 per cent. Relatively high rates of new investment for high performing farms are likely to support significant productivity gains to improve farm cash incomes in real terms over the longer term and increases in aggregate farm production.

Top performing farms dominate land purchases and account for a high proportion of aggregate broadacre sector debt (60 per cent in 2014–15). Despite accounting for a high proportion of debt, high performing farms have less difficulty servicing debt than the average for the sector. In the three years ending 2014–15, the proportion of farm receipts consumed to service interest payments averaged 8 per cent for high performing broadacre farms compared with 11 per cent for all other broadacre farms.



TABLE 4 Financial performance of broadacre farms, by region average per farm

ABARES region Farm cash income

Percent of farms with negative farm

cash income

2013–14 2014–15p 2015–16y 2014–15p 2015–16y

$ $ $ % %

New South Wales

111: NSW Far West 134 900 154 000 (19) 222 000 20 9

121: NSW North West Slopes and Plains 103 200 100 000 (22) 213 000 22 12

122: NSW Central West 115 700 171 000 (9) 174 000 5 11

123: NSW Riverina 190 100 208 000 (9) 246 000 9 19

131: NSW Tablelands 56 600 73 000 (21) 116 000 11 10

132: NSW Coastal 7 100 28 000 (25) 46 000 31 16

Victoria

221: VIC Mallee 182 100 138 000 (21) 155 000 42 27

222: VIC Wimmera 207 200 63 000 (24) 20 000 32 51

223: VIC Central North 89 000 105 000 (16) 86 000 8 15

231: VIC Southern and Eastern Victoria 47 600 96 000 (9) 100 000 11 9

Queensland

311: QLD Cape York and the Gulf 28 800 331 000 (26) 633 000 28 12

312: QLD West and South West 167 300 133 000 (47) 176 000 34 33

313: QLD Central North 91 700 140 000 (31) 169 000 39 21

314: QLD Charleville – Longreach 80 400 188 000 (17) 263 000 18 15

321: QLD Eastern Darling Downs 61 100 97 000 (18) 97 000 19 24

322: QLD Darling Downs and Central Highlands 84 600 162 000 (12) 223 000 17 17

331: QLD South Queensland Coastal 42 600 58 000 (21) 106 000 20 18

332: QLD North Queensland Coastal 21 100 96 000 (15) 84 000 7 10

South Australia

411: SA North Pastoral 184 100 243 000 (30) 479 000 11 0

421: SA Eyre Peninsula 227 900 230 000 (37) 260 000 10 2

422: SA Murray Lands and Yorke Peninsula 163 300 241 000 (18) 242 000 2 16

431: SA South East 116 400 122 000 (21) 132 000 11 22

Western Australia

511: WA Kimberley 222 200 901 000 (26) 1 402 000 21 20

512: WA Pilbara and Southern Rangelands 160 000 467 000 (161) 831 000 5 3

521: WA Central and South Wheat Belt 332 500 346 000 (10) 288 000 6 12

522: WA North and East Wheat Belt 356 900 343 000 (16) 382 000 24 14

531: WA South West 25 900 69 000 (19) 119 000 9 2

Tasmania 69 100 129 000 (10) 96 000 10 12

Northern Territory

711: NT Alice Springs District 148 200 414 000 (27) 614 000 0 0

712: NT Barkly Tablelands 2 213 500 2 987 000 (30) 4 718 000 20 12

713: NT Victoria River District – Katherine –25 200 402 000 (37) 705 000 18 4

714: NT Top End Darwin and the Gulf 28 400 199 000 (72) 342 000 28 0p ABARES preliminary estimates. y ABARES provisional estimates. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: ABARES Australian Agricultural and Grazing Industries Survey



MAP 1 Australian broadacre zones and regions

311

313 332

314312

322331

321

132

131

121111

122123221

222 223231

631

431

422421

411

711

712

713511

714

512

522

521531

Pastoral zone

Wheat–sheep zone

High rainfall zone

Note: Each region is identified by a unique code of three digits. The first digit indicates the state or territory, the second digit identifies the zone and the third digit identifies the region.Source: ABARES

Performance, by stateProjected farm financial performance in 2015–16, and its rank in historical terms, varies markedly across states and regions (Table 4 and Table 5).

New South WalesAverage farm cash incomes are projected to increase in all regions of New South Wales in 2015–16, driven by increased receipts from beef cattle, crops, lambs and wool resulting from increased prices and higher production.

Relatively low farm cash incomes were recorded in the Far West and the North West Slopes and Plains in 2014–15, with most farms subject to dry seasonal conditions. Farm cash incomes are projected to increase in these regions in 2015–16 as a result of higher prices for beef cattle and improved seasonal conditions, which would result in increased winter crop production.

Average broadacre farm cash income in New South Wales is projected to increase strongly to average $176 000 a farm in 2015–16. If achieved, this would be more than double the 10-year average to 2014–15 of $78 000 and the highest average farm cash income recorded in New South Wales in the past 20 years (Figure 6).



TABLE 5 Financial performance, by state, all broadacre industries

New South Wales Victoria

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

Total cash receipts $ 403 270 440 200 (4) 500 000 289 990 303 000 (4) 298 000

Total cash costs $ 292 700 308 600 (4) 324 000 198 730 206 400 (4) 207 000

Farm cash income $ 110 570 131 600 (6) 176 000 91 270 96 600 (7) 91 000

Farms with negative farm cash income % 23 13 (20) 14 20 17 (21) 19

Farm business profit $ 10 140 22 300 (33) 78 000 4 990 –12 900 (50) –13 000


– excluding cap. appreciation $ 44 850 55 600 (14) 112 000 28 600 10 300 (63) 10 000

– including cap. appreciation $ 68 320 110 000 (28) na 52 390 151 500 (15) na

Farm capital at 30 June a $ 3 567 370 3 824 400 (5) na 2 763 240 3 153 100 (4) na

Net capital additions $ 28 180 71 700 (48) na 4 390 76 000 (48) na

Farm debt at 30 June b $ 456 040 474 400 (9) 504 000 239 460 267 600 (9) 281 000

Change in debt – 1 July to 30 June b % 3 6 (61) 3 –1 9 (48) 3

Equity at 30 June bc $ 3 093 280 3 209 300 (5) na 2 494 100 2 820 000 (4) na

Equity ratio bd % 87 87 (1) na 91 91 (1) na

Farm liquid assets at 30 June b $ 137 870 166 500 (14) na 154 790 153 400 (12) na

Farm management deposits (FMDs) at 30 June b $ 37 190 37 700 (15) na 37 380 43 600 (15) na

Share of farms with FMDs at 30 June b % 22 22 (14) na 20 21 (17) na

Rate of return e

– excluding cap. appreciation % 1.3 1.5 (12) 2.9 1.0 0.3 (63) 0.3

– including cap. appreciation % 1.9 3.0 (30) na 1.9 5.1 (14) na

Off-farm income of owner–manager and spouse b $ 35 570 41 300 (10) na 33 500 35 000 (14) na

continued ...




Queensland Western Australia

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

Total cash receipts $ 372 830 416 100 (5) 480 000 932 080 952 700 (6) 1 003 000

Total cash costs $ 301 620 294 500 (6) 314 000 657 870 652 600 (7) 676 000

Farm cash income $ 71 200 121 600 (8) 166 000 274 210 300 100 (10) 326 000


Farm business profit $ –84 100 –47 400 (27) 34 000 161 850 126 800 (21) 172 000


– excluding cap. appreciation $ –34 720 –1 000 (1301) 77 000 250 340 197 500 (14) 243 000

– including cap. appreciation $ –110 940 35 300 (111) na 262 840 213 100 (15) na



Farm debt at 30 June b $ 691 350 722 000 (10) 704 000 1 011 060 843 000 (12) 876 000

Change in debt – 1 July to 30 June b % 1 2 (177) 0 –3 3 (90) –3






Rate of return e

– excluding cap. appreciation % –0.6 0.0 (1302) 1.4 4.8 3.6 (14) 4.3

– including cap. appreciation % –2.0 0.7 (110) na 5.0 3.9 (15) na


continued ...

continued




South Australia Tasmania

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y


Total cash costs $ 324 860 331 300 (13) 331 000 234 800 259 600 (10) 262 000

Farm cash income $ 159 270 199 300 (13) 220 000 69 140 128 500 (10) 96 000


Farm business profit $ 28 560 64 600 (29) 95 000 8 800 26 700 (39) –3 000







Change in debt – 1 July to 30 June b % 1 1 (641) –6 1 4 (167) 3






Rate of return e




continued ...

continued




Northern Territory Australia

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

Total cash receipts $ 1 610 570 2 199 400 (13) 2 720 000 446 200 480 100 (3) 519 000

Total cash costs $ 1 252 700 1 431 800 (11) 1 482 000 321 670 328 300 (3) 340 000

Farm cash income $ 357 870 767 600 (20) 1 238 000 124 520 151 800 (4) 179 000


Farm business profit $ 463 190 472 100 (38) 956 000 14 110 20 900 (25) 63 000


– excluding cap. appreciation $ 541 590 589 100 (29) 1 078 000 56 000 59 300 (9) 101 000




Farm debt at 30 June b $ 1 249 020 1 391 900 (22) 1 372 000 510 660 506 900 (5) 517 000

Change in debt – 1 July to 30 June b % 8 –19 (65) –2 0 4 (43) 0






Rate of return e





continued



FIGURE 6 Farm cash income, all broadacre farms, New South Wales and Queensland average per farm

2015–16$’000

New South WalesQueensland


50

100

150

200

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

VictoriaVictorian broadacre crop receipts are projected to decline by around 7 per cent in 2015–16, driven by reduced winter grain, oilseeds and pulse yields resulting from prolonged dry seasonal conditions. This follows a reduction of almost 20 per cent in average crop receipts in 2014–15 compared with 2013–14. Reduction in crop receipts in 2014–15 and 2015–16 is estimated to have been largest in the Wimmera region, resulting in average broadacre farm cash income in this region declining from $207 200 a farm in 2013–14 to just $20 000 in 2015–16.

Increased receipts from beef cattle and wool are projected for Victorian broadacre farms in 2015–16. However, sheep and lamb receipts are projected to decline slightly as a result of reduced turn-off.

Average farm cash incomes are projected to decline in the Central North but to increase in Southern and Eastern Victoria, mainly driven by increased receipts from beef cattle resulting from higher beef cattle prices, high beef cattle turn-off and higher wool prices.

On average, farm cash income of broadacre farms in Victoria is projected to decline to $91 000 a farm in 2015–16. Despite this being lower than 2014–15 farm cash income, this would still be around 14 per cent more than the 10-year average to 2014–15 (Figure 7).

QueenslandFarm cash incomes increased in all Queensland regions in 2014–15 except the West and South West. The increase was partly achieved through a reduction in cattle herds as cattle turn-off increased in response to dry seasonal conditions and higher cattle prices in 2014–15.



Further increases in average farm cash income are projected for all Queensland regions in 2015–16 except North Queensland Coastal. This is driven by further increases in beef cattle prices (despite reductions in cattle turn-off), together with increased crop receipts resulting mainly from above average winter grain yields and increased grain legume production in southern Queensland.

Much of northern and western Queensland remained subject to dry conditions during the 12 months to December 2015 and turn-off of beef cattle was high. Average farm cash incomes are projected to increase in 2015–16, but the proportion of broadacre farms recording negative farm cash incomes is expected to remain relatively high in the West and South West.

For Queensland broadacre farms average receipts from beef cattle are projected to increase by around 14 per cent in 2015–16 and crop receipts by around 30 per cent, resulting in total farm receipts increasing by 15 per cent. Average total cash costs are projected to increase by around 7 per cent in 2014–15, mainly as a result of a projected increase in beef cattle purchase expenditure in some regions and increased expenditure on repairs and maintenance.

Average broadacre farm cash income in Queensland is projected to increase to average $166 000 a farm in 2015–16. This would be around 80 per cent above the 10-year average to 2014–15 and the highest average farm cash income recorded for Queensland since 2001–02 (Figure 6).

Part of the increase in farm cash income has been achieved through reduced cattle herds because cattle turn-off increased in 2013–14 and 2014–15. After adjustment for change in value of beef cattle inventories, the average farm business profit projected for Queensland broadacre farms in 2015–16 is $34 000 a farm. This would be similar to that recorded in 2010–11 and the third-highest farm business profit recorded for Queensland broadacre farms in the past 20 years.

South AustraliaBroadacre farm cash incomes are projected to increase to average $220 000 a farm in 2015–16. If achieved, this would be around 65 per cent above the 10-year average to 2014–15.

Increased winter crop production resulting mainly from increased winter crop plantings, together with a small increase in beef cattle receipts and sheep, lamb and wool receipts, is projected to result in average farm cash income increasing in all regions in 2015–16.

Slightly lower winter crop yields in the South East, Murray Lands and Yorke Peninsula regions resulting from dry seasonal conditions are projected to result in only a small increase in average farm cash income in these regions in 2015–16. Crop yields increased in the Eyre Peninsula and the increase in projected farm cash income is larger. In the North Pastoral region, higher beef cattle, sheep and wool prices together with increased turn-off of beef cattle are projected to result in a larger increase in average farm cash income.



Western AustraliaA decline in wheat and barley yields and lower grain quality driven by variable seasonal conditions is projected to result in a decrease in average broadacre crop receipts in 2015–16 in Western Australia, particularly in the Central and South Wheat Belt. The impact of lower quality grain on farm cash receipts is expected to be partly offset by pool payments received in 2015–16 for grain delivered in 2014–15 and by increased wool receipts resulting from higher wool prices in 2015–16.

In the northern pastoral regions of the Kimberley, the Pilbara and the South West regions, increased sales of beef cattle and higher beef cattle prices are projected to increase farm receipts and raise average farm cash income.

Overall, broadacre farm cash income in Western Australia is projected to increase from an average $300 100 a farm in 2014–15 to $326 000 a farm in 2015–16. If achieved, this would be around 80 per cent above the 10-year average to 2014–15.

FIGURE 7 Farm cash income, all broadacre farms, Victoria and Tasmania average per farm

2015–16$’000

VictoriaTasmania


2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

20

40

60

80

100

120

140

TasmaniaTasmanian broadacre crop receipts are projected to decline by 13 per cent in 2015–16 because of reduced production resulting from dry seasonal conditions. Receipts for beef cattle are projected to decrease from the historical high recorded in 2014–15. Receipts from sheep, lambs and wool are projected to decrease despite increased prices for beef cattle and wool resulting from reduced livestock turn-off and lower wool production.

Overall receipts are expected to decrease for broadacre farms, but average total cash costs are expected to increase driven by higher expenditure on fodder resulting from dry seasonal conditions and small increases in most other farm costs except livestock purchases.

On average, farm cash income of broadacre farms in Tasmania is projected to decline to $96 000 a farm in 2015–16 (Figure 7). This average would be much lower than the relatively high farm cash income recorded in 2014–15 but still around 36 per cent above the 10-year average to 2014–15.



Northern TerritoryMany farm businesses in the upper Northern Territory derive a large share of their total cash receipts from selling cattle for live export, particularly to Indonesia. Numbers of cattle sold for live export declined between 2009–10 and 2012–13, before rebounding strongly in 2013–14 and 2014–15. The expansion of the live export trade since 2013–14 has driven demand and cattle for this market are now being sourced from a much expanded area of northern Australia.

In 2014–15 beef cattle receipts increased by 54 per cent, as a result of a 19 per cent increase in average price received for beef cattle and a 29 per cent increase in number of beef cattle sold. Average total cash costs increased by 16 per cent, partly offsetting higher farm receipts. Expenditure was higher on beef cattle purchases, hired labour, contracts, freight and livestock selling costs. The value of cattle transferred onto stations by businesses with properties interstate also increased.

Further increases in prices of beef cattle and a small increase in beef cattle turn-off are projected to result in further increases in average farm cash income in all regions in 2015–16.

Overall farm cash incomes in the Northern Territory are projected to increase to average $1 238 000 a farm in 2015–16, compared with the 10-year average to 2014–15 of $395 000 a farm and the highest farm cash income recorded for the Northern Territory in the past 20 years in real terms.

Performance, by industryFarm financial performance in 2014–15 and projected performance in 2015–16, and how it ranks in historical terms, also vary markedly across industries (Table 6 and Table 7).

Wheat and other crops industryAverage farm cash income of the wheat and other crops industry decreased slightly in 2014–15 to average $316 200 a farm. This was driven by lower receipts from winter grain, oilseeds and pulse crops and lower rice receipts more than offsetting a small reduction in average farm cash costs resulting from lower fuel and interest payments.

In 2015–16 farm cash income of the wheat and other crops industry is projected to increase to average $381 000 a farm. This is mainly a result of increased winter crop production in all the major grain producing states except Victoria, reflecting increased crop planting and slightly higher yields in 2015–16 combined with higher prices for pulses and oilseeds. If realised, farm cash income will be around 75 per cent higher than the 10-year average to 2014–15 and the highest recorded in the past 20 years (Figure 8).

In 2015–16 crop receipts are projected to increase by 9 per cent and total cash costs by around 4 per cent, mainly as a result of the increased cost of planting, harvesting and marketing larger winter crop areas together with reduced expenditure on fuel and interest.

Wheat and other crops industry farms are projected to record the highest average rate of return excluding capital appreciation (4.8 per cent) of industries surveyed in 2015–16. However, rates vary across the states and territories. Wheat and other crops industry farms surveyed recorded the highest average rate of return among broadacre industries in 19 of the past 20 years.



FIGURE 8 Farm cash income, grains industries average per farm

2015–16$’000

Wheat and other cropsMixed–livestock crops


50

100

150

200

250

300

350

400

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

TABLE 6 Financial performance of broadacre farms, by industry average per farm

Farm cash income Farm business profit p

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

$ $ $ $ $ $

Wheat and other crops 360 210 316 200 381 000 204 260 122 400 202 000

Mixed livestock–crops 137 460 165 800 159 000 35 970 36 000 43 000

Beef industry 51 750 96 200 130 000 –58 510 –29 300 25 000

Sheep 63 490 103 300 116 000 –22 140 14 200 31 000

Sheep–beef 65 100 120 600 147 000 –27 620 9 500 55 000

All broadacre industries 124 460 152 000 179 000 14 030 21 000 63 000

Dairy 164 370 156 300 113 000 65 610 64 400 –2 000

Rate of return – excluding capital appreciation a

Rate of return – including capital appreciation a

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

% % % % % %

Wheat and other crops 5.4 3.7 4.8 5.8 7.2 na

Mixed livestock–crops 2.3 2.1 2.2 3.0 5.9 na

Beef industry –0.8 –0.1 1.2 –1.5 0.3 na

Sheep –0.1 1.2 1.7 0.3 2.9 na

Sheep–beef –0.2 0.8 2.0 0.3 3.4 na

All broadacre industries 1.4 1.4 2.4 1.5 3.6 na

Dairy 3.7 3.2 1.5 4.1 6.6 na

a Defined as profit at full equity, excluding capital appreciation, as a percentage of total opening capital. Profit at full equity is defined as farm business profit plus rent, interest and lease payments less depreciation on leased items. p Preliminary estimates. y Provisional estimates. na Not available. Source: ABARES Australian Agricultural and Grazing Industries Survey



Mixed livestock–crops industryAverage farm cash income of the mixed livestock–crops industry increased in 2014–15 to average $165 800 a farm, as a result of increases in lamb and wool receipts and despite a small reduction in total crop receipts. Total cash costs decreased, driven by reductions in expenditure on crop planting and harvesting resulting from reduced area planted to crops. Expenditure reduced on interest payments, fuel and sheep and beef cattle purchases.

In 2015–16 crop receipts are projected to increase only slightly as a result of increased winter crop production. Receipts from beef cattle, lambs and wool are expected to increase by much more, resulting in an overall increase in total farm cash receipts of around 1 per cent.

Total cash costs are projected to increase by around 3 per cent, mainly because of projected increases in expenditure on livestock purchases, repairs and maintenance and despite reduced interest and fuel payments. Crop handling and marketing costs will be higher because the crop is larger.

Average farm cash income of mixed livestock–crops industry farms is projected to decrease slightly to an average of $159 000 a farm in 2015–16, still around 50 per cent above the 10-year average to 2014–15.

Sheep industryIn 2014–15 higher prices for lambs, adult sheep and wool, together with increased sales of sheep and lambs, resulted in an increase in average farm cash income for sheep industry farms to $103 300 a farm (Figure 9). This was despite an increase in farm cash costs resulting mainly from increased expenditure on sheep purchases, fodder, fertiliser, repairs and maintenance.

In 2015–16 farm cash income of sheep industry farms is projected to increase further to average $116 000 a farm, mainly as a result of higher lamb and wool prices. Total farm cash costs are projected to remain largely unchanged because reductions in expenditure on interest payments, fuel and fertiliser mostly offset small increases in expenditure on other cost items. If achieved, farm cash income of sheep industry farms would be around 69 per cent above the 10-year average to 2014–15 of $69 000 a farm in real terms.

FIGURE 9 Farm cash income, sheep industries average per farm

2015–16$’000

Sheep–beefSheep


30

60

90

120

150

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98



Sheep–beef industryIn 2014–15 a large increase in receipts from the sale of beef cattle, together with small increases in receipts from the sale of sheep, lambs and wool, resulted from higher prices for beef cattle, lambs, adult sheep and wool and higher turn-off of beef cattle. Turn-off of beef cattle increased, particularly in regions with drier seasonal conditions in Queensland, northern New South Wales, Victoria and South Australia. Farm cash income for sheep–beef industry farms increased to average $120 200 a farm compared with just $65 100 in 2013–14.

In 2015–16 farm cash income of sheep–beef industry farms is projected to increase further to average $147 000 a farm as a result of higher beef cattle, lamb and wool prices and despite a sharp reduction in beef cattle turn-off. If achieved, this would be around 80 per cent above the 10-year average to 2014–15 and the highest average farm cash income of sheep–beef farms in the past 20 years.

Beef industryBeef industry farm cash incomes increased strongly in 2014‒15 as a result of increased cattle prices and the highest beef cattle turn-off in 36 years. High cattle turn-off from mid 2013 continued in eastern Australia through 2014‒15, partly as a result of dry seasonal conditions. Depreciation of the Australian dollar and strong export demand for Australian beef and live cattle resulted in a 24 per cent increase in beef cattle prices and further encouraged turn-off. Average farm cash income of beef industry farms is estimated to have increased from an average of $51 750 a farm in 2013‒14 to an average of $96 200 in 2014‒15 (Figure 10).

FIGURE 10 Farm cash income, beef industry average per farm


20

40

60

80

100

120

140

2015–16$’000

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98



continued ...

TABLE 7 Financial performance, by industry, broadacre and dairy industries average per farm

Wheat and other crops industry Mixed livestock–crops industry

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

Total cash receipts $ 1 117 280 1 050 300 (5) 1 142 000 489 710 499 000 (5) 502 000

Total cash costs $ 757 070 734 100 (5) 761 000 352 250 333 300 (6) 343 000

Farm cash income $ 360 210 316 200 (7) 381 000 137 460 165 800 (7) 159 000


Farm business profit $ 204 260 122 400 (14) 202 000 35 970 36 000 (32) 43 000






Farm debt at 30 June b $ 1 201 760 1 160 900 (7) 1 124 000 543 130 503 900 (12) 528 000

Change in debt – 1 July to 30 June b % 1 6 (37) –2 0 3 (112) 0






Rate of return e






continued ...


Sheep industry Beef industry

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y


Total cash costs $ 182 520 208 400 (8) 208 000 198 730 213 300 (7) 219 000

Farm cash income $ 63 490 103 300 (11) 116 000 51 750 96 200 (9) 130 000


Farm business profit $ –22 140 14 200 (54) 31 000 –58 510 –29 300 (31) 25 000


– excluding cap. appreciation $ –2 960 33 800 (25) 51 000 –32 210 –4 000 (225) 50 000

– including cap. appreciation $ 8 740 81 800 (24) na –62 590 13 600 (233) na


Net capital additions $ –12 400 71 000 (46) na 17 260 11 700 (361) na


Change in debt – 1 July to 30 June b % 2 4 (107) 3 0 2 (209) 1






Rate of return e

– excluding cap. appreciation % –0.1 1.2 (22) 1.7 –0.8 –0.1 (226) 1.2

– including cap. appreciation % 0.3 2.9 (22) na –1.5 0.3 (234) na


continued




Sheep–beef industry Dairy industry

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y


Total cash costs $ 193 990 221 500 (10) 238 000 580 100 630 600 (4) 648 000

Farm cash income $ 65 100 120 600 (13) 147 000 164 370 156 300 (10) 113 000


Farm business profit $ –27 620 9 500 (130) 55 000 65 610 64 400 (21) –2 000


– excluding cap. appreciation $ –6 170 31 400 (45) 77 000 136 950 133 700 (12) 64 000





Change in debt – 1 July to 30 June b % 2 0 (400) 5 0 2 (163) 3






Rate of return e

– excluding cap. appreciation % –0.2 0.8 (42) 2.0 3.7 3.2 (11) 1.5




continued



Beef cattle turn-off is projected to decline sharply in 2015–16 as a result of reduced numbers of saleable cattle and as farmers commence herd rebuilding in response to improved seasonal conditions across several regions previously affected by dry seasonal conditions. Despite reduced turn-off, further increases in saleyard prices for beef cattle are projected to result in an increase in beef cattle receipts and total farm receipts of around 14 per cent.

This increase is projected to more than offset a small increase in average total cash costs, resulting in average farm cash income of beef industry farms increasing to $130 000 a farm in 2015–16. If achieved, this would be around double the 10-year average to 2014–15 of $65 000 and the highest average farm cash income of beef industry farms in the past 20 years.

The increase in farm cash incomes has been achieved partly through increased cattle turn-off and reduced herds. Despite the reduction in value of beef cattle inventories, farm business profit is estimated to have increased from an average loss of $29 300 a farm in 2014‒15 to a profit of $25 000 in 2015‒16. If achieved, this will be the highest farm business profit for the beef industry since 2004‒05.

Dairy industryIn 2014–15 average farm cash incomes declined in Victoria, Tasmania and South Australia despite increased milk production, driven by reduced farmgate milk prices and an increase in farm cash costs. In Queensland, higher milk prices resulted in a small increase in average farm cash income despite a reduction in production and higher farm cash costs. In New South Wales and Western Australia, average farm cash income increased as a result of both increased milk prices and increased milk production. Nationally, average farm cash income declined from $164 368 in 2013–14 to $156 270 in 2014–15 (Figure 11).

In 2015–16 average farm cash incomes are projected to decline in all states except Western Australia, driven by a decline in average farmgate milk prices in most regions except those in Queensland, northern New South Wales and Western Australia and a small reduction in milk production in most states except Western Australia. Cash costs of production are also projected to increase because of increased expenditure on purchased fodder as a result of drier seasonal conditions in Victoria, South Australia and Tasmania, together with reduced irrigation water availability and higher fodder prices. Farm cash costs are expected to increase despite reduced expenditure on fertiliser and fuel and lower interest rates on borrowings.



FIGURE 11 Farm cash income, dairy industry average per farm


30

60

90

120

150

180

2015–16$’000

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

Average farm cash income is projected to decline from $152 130 a farm in Victoria in 2014–15 to $103 000 a farm in 2015–16 (Table 8). In South Australia, average farm cash income is projected to decline from $133 500 a farm in 2014–15 to $86 500 in 2015–16 and, in Tasmania, from $221 810 in 2014–15 to $132 500 in 2015–16. The reduction in farm cash income is expected to be smaller in New South Wales because of milk prices being maintained in the northern regions. NSW farm cash income is projected to decline from $179 660 a farm in 2014–15 to $158 600 a farm in 2015–16. In Queensland, farm cash income is expected to decline only slightly to an average of $90 600 a farm, mainly as a result of increased cash costs. In contrast, average farm cash income in Western Australia is projected to increase from an average of $234 940 a farm in 2014–15 to an average of $253 900 in 2015–16, driven by higher average milk prices received and increased milk production.

When variations to projected farm cash incomes of dairy farms across Australia are taken into account, the overall average farm cash income of Australian dairy farms is projected to decrease to average $113 000 a farm in 2015–16, around 5 per cent below the 10-year average to 2014–15.



TAB

LE 8

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capi

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2013

–14

2014

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2015

–16y

2013

–14

2014

–15p

2015

–16y

2013

–14

2014

–15p

2015

–16y

2013

–14

2014

–15p

2015

–16y

$$

$$

$$

%%

%%

%%

Dai

ry in

dust

ry

New

Sou

th W

ales

118

312

179

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(11)

158

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1.73.

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174

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152

130

(15)

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66

770

(29)

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1.43.

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Que

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73

283

91

810

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90

60

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7 80

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81.3

(42)

0.4

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3.9

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34 9

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70

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2.2

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(19)

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62 9

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(26)

86

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62

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–9 0

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71.7

(47)

0.7

3.3

5.4

(42)

na

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238

133

221

810

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132

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164

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156

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Farm investmentProducers’ capacity to generate farm income will be influenced by their past investments 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 decade to 2014–15 broadacre and dairy farmers invested heavily in land, plant and machinery. In 2014–15 new investment remained relatively high in historical terms.

In 2014–15 the proportion of broadacre and dairy farms acquiring additional land through purchase or lease increased (Figure 12). Around 8 per cent of broadacre farms acquired additional land in 2014–15. This was above the average of 5 per cent for the previous 10 years but well below the rates of the late 1990s and early 2000s.

FIGURE 12 Proportion of broadacre farms acquiring land percentage of farms

%

p ABARES preliminary estimate. Source: ABARES Australian Agricultural and Grazing Industries Survey

2

4

6

8

10

2014–15p

2011–12

2008–09

2005–06

2002–03

1999–2000

1996–97

Land values reported for broadacre and dairy farms declined in some regions between 2009–10 and 2013–14, particularly in the pastoral zone of northern Australia (Figure 13). Reported land values in 2013–14 were up to 30 per cent below those reported in 2007–08 in some regions of northern Australia, where very large increases were recorded over the previous decade. Farmers in the high rainfall zone reported small reductions in land values between 2009–10 and 2013–14. Reductions in land values averaged around 7 per cent. In 2014–15 reported land values in the high rainfall zone increased slightly. Despite the increase in land sales, reported broadacre land values did not increase in most regions.

Average land prices for broadacre farms increased sharply relative to the cash receipts per hectare generated by farming activity between 2001–02 and 2007–08 (Figure 14). On broadacre farms, the ratio of average land price per hectare to total cash receipts per hectare doubled from an average of 5:1 in the three years to 2001–02 to 10:1 in the three years to 2009–10. The ratio increased from 7:1 to 14:1 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, from 4:1 to 9:1.



FIGURE 13 Land prices for broadacre farms average per farm

Wheat–sheepPastoral


High rainfall

100

200

300

400

500

600

700

800

2014–15p

2010–11

2006–07

2002–03

1998–99

1994–95

1990–91

1986–87

1982–83

1978–79

index100=1977–78

FIGURE 14 Land prices and receipts per hectare, broadacre farms average per farm

2015–16$/ha

p ABARES preliminary estimate.Source: ABARES Australian Agricultural and Grazing Industries Survey

100

200

300

400

500

600 Land value per hectareReceipts per hectare

2014–15p

2011–12

2008–09

2005–06

2002–03

1999–2000

1996–97

Only a relatively small proportion of farms buy land in any one year, but most producers make some annual investment in plant, vehicles, machinery and/or infrastructure. The value of land purchases typically dominates total investment because of the much larger average value of land transactions.



Net investment in plant, vehicles, machinery and farm infrastructure on broadacre farms has been relatively high since 2007–08 (Figure 15). Net investment is the difference between total value of plant, vehicles, machinery and farm infrastructure purchased and total value of those items sold or disposed of. In addition to acquiring new capital items and replacing old items, farms must cover ongoing maintenance and repair of existing plant, vehicles, machinery and farm infrastructure. This expenditure is recorded in ABARES surveys as the cash cost of repairs and maintenance. Some reported annual expenditure on repairs and maintenance is actually the capital cost of replacing and upgrading items of farm capital, such as fencing, stockyards, buildings 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 falls in years of lower farm cash income.

FIGURE 15 Composition of investment in farm machinery, vehicles and farm improvements, broadacre farms average per farm

Computer, office, workshop and other equipment

2015–16$’000

Repairs andmaintenance


Buildings, fences, yards and structures

Grain storageAccommodation

VehiclesIrrigation equipment

Harvesting andhandlingCultivation, sowing,fertiliser and spraying

Tractors

10

20

30

40

50

2014–15p

2012–13

2010–11

2008–09

2006–07

In the five years to 2013–14, investment in crop growing plant and machinery on broadacre farms continued at a high level, but investment in equipment related to livestock production or used more generally across all farm activities declined in real terms. Investment by beef industry farms declined by almost 50 per cent between 2006–07 and 2013–14. Beef industry incomes in 2014–15 were higher, and beef industry farm investment in 2014–15 increased by around 25 per cent. Investment by dairy industry farms remained high throughout 2008–09 to 2014–15 in real terms.

Most of the rising trend in real expenditure on net capital additions and repairs and maintenance over the past 20 years for both broadacre and dairy farms resulted from increases in average scale of operations of farms, production of crops and intensification of enterprises.



Farm debtDebt is an important source of funds for farm investment and ongoing working capital for the broadacre and dairy industries because more than 95 per cent of farms in these sectors are family owned and operated. Funding by family farms for expansion and improvement is limited to the funds available to the family, the profits the business can generate and the funds it can borrow.

Farm business debt more than doubled in real terms in the decade to 2009. Nationally, total indebtedness of the agriculture, fishing and forestry industries to institutional lenders increased from $42.2 billion at 30 June 2001 by 77 per cent to $74.7 billion in real terms at 30 June 2009. Total rural debt subsequently declined in real terms to $68.5 billion at 30 June 2015. Bank lending accounts for around 95 per cent of total institutional lending, and bank lending declined from $66.9 billion at 31 December 2009 to $64.4 billion at 30 September 2015 (RBA 2016a, 2016b).

Change in farm debt over time is the balance between the amount of principal repaid and the increase in principal owed (new borrowing). The increase in broadacre and dairy industry debt is the result of increased borrowing together with reduced loan principal repayments through much of the 2000s.

Lower interest rates from the late 1990s and increased lending fuelled the boom in land prices, raising farm equity (net wealth) and inducing lenders to provide more finance. This continued until a correction in land values in some regions after 2009 and banks tightening lending practices in recent years. Provision of interest subsidies to farmers in drought through exceptional circumstances arrangements supported debt servicing. In many regions this assistance was sustained for most of the 2000s.

Borrowing to fund new on-farm investment, particularly purchase of land, machinery and vehicles, made the largest contribution to the increase in average broadacre farm debt. In particular, debt to fund land purchase accounted for the largest share of debt—an estimated 44 per cent of average debt of broadacre farms in 2014–15 (Figure 16).

Several factors in addition to lower interest rates contributed to the growth in debt over this period. Structural adjustment resulted in broadacre farmers changing the mix of commodities produced and increasing farm size. An increase in the average size of farm enterprises resulted in higher borrowing for ongoing working capital. Factors that contributed to increased working capital debt included movement away from less input-intensive wool production into more intensive cropping, changes in grain payment methods, higher variability in crop incomes compared with livestock incomes and movement to more intensive production technologies involving greater use of purchased inputs such as herbicides.

In addition, loan repayment slowed and borrowing to meet working capital requirements increased during the 2000s drought. Working capital debt accounted for 37 per cent of average farm debt of broadacre farms in 2014–15.

Similar to broadacre farm debt, average dairy farm debt more than doubled between 2000–01 and 2014–15, mainly resulting from an increase in average farm size. The increase in average debt per farm is modest relative to the increase in average litres of milk produced per farm (a measure of capacity to generate income to service debt). Borrowing has increased most for land purchase and on-farm investment. Borrowing for ongoing working capital has risen with increases in average herd size and with greater mechanisation and intensification of dairy enterprises.



FIGURE 16 Composition of farm business debt, broadacre farms average per farm

Other debt

2015–16$’000

Buildings and structures


Land developmentMachinery, plant and vehiclesReconstructed debt

Land purchaseWorking capital

100

200

300

400

500

600

2014–15p

2011–12

2008–09

2005–06

2002–03

1999–2000

1996–97

Growth in average debt of farm businesses in the broadacre and dairy industries has slowed in recent years as a result of a reduction in new borrowing and continued debt repayments. Broadacre debt is estimated to have increased by 4 per cent to average $506 900 a farm at 30 June 2015. Dairy industry debt increased by around 2 per cent during 2014–15 to average $888 200 a farm.

Change in farm debt 2014–15Around 40 per cent of broadacre and dairy industry farm businesses reduced overall farm debt in 2014–15. The largest reductions were in regions with high farm cash incomes during 2014–15, including pastoral regions of Queensland and Western Australia, and the Northern Territory. In contrast, in 2014–15 debt increased on 24 per cent of broadacre and dairy farm businesses, particularly those undertaking additional investment and subject to drought.

Farms subject to drought in 2014‒15In 2014–15 around 9 per cent of broadacre and dairy farms were subject to drought conditions. Most of these farms were located in Queensland, north-western New South Wales, the Victorian Wimmera and the NT Alice Springs District. Debt increased by an average of 7 per cent for drought-affected farms in 2014–15, but this average masks substantial variation.

Debt increased for 35 per cent of farms subject to drought, by an average of 27 per cent. Cashflow shortfall (business losses) accounted for 47 per cent of the increase in principal owed by drought-affected farms in 2014–15. A further 36 per cent went to the purchase of land; 8 per cent to the purchase of farm machinery and vehicles; 8 per cent to purchase of livestock; 1 per cent to farm development, including provision of watering facilities; and 1 per cent to other purposes (Figure 17).

Around 28 per cent of farms subject to drought recorded little or no change in farm debt in 2013–14.



Debt decreased for 38 per cent of farms subject to drought, by an average of 10 per cent. The main contributor to reductions in farm debt was cashflow, mainly from sale of cattle. This accounted for 53 per cent of the reduction in principal owed. A further 18 per cent of the reduction was achieved by sale of farm assets, including land; 12 per cent by using and/or reducing liquid assets, including bank deposits and farm management deposits; 7 per cent from off-farm income; and 9 per cent from other sources.

Drought affects farm businesses in many ways in addition to debt. Cattle numbers, stocks of grain and fodder and, typically, liquid assets available are reduced to fund cash outlays. The combined effect in 2014–15 was that farm business equity declined for 49 per cent of drought-affected farms. On average, farm business equity ratio declined by just over 1 per cent for drought-affected farms. A high proportion of farms subject to drought in Queensland in 2014–15 were beef industry farms. Beef cattle account for more than 20 per cent of farm assets on beef industry farms. When these farms reduce beef cattle numbers during drought, they incur larger reductions in equity.

FIGURE 17 Change in farm business debt for farms subject to drought, all broadacre and dairy farms, 2014–15p average per farm

Other

Purchase of non-farm assets

Livestock purchase

Farm development

Cash�ow shortfall

Machinery andvehicle purchase

Land purchase

Other

Reduction in liquid assetsand FMDs a

Sale of non-farm assets

O�-farm income

Sale of farm assets

Cash�ow surplus

$’000

$’000

a Farm management deposits. p ABARES preliminary estimate. Note: Other includes borrowing to fund changes in farm business ownership/partnership.Source: ABARES Australian Agricultural and Grazing Industries Survey

10 20 30 40 50 60

10 20 30 40

Reduction

Increase



Farms not subject to drought in 2013‒14Most (91 per cent) broadacre and dairy farms were not subject to drought in 2014–15. For these farms debt increased by an average of 3 per cent.

Around 37 per cent of farms not affected by drought in 2014–15 recorded little or no change in farm debt.

In 2013–14 debt increased for 23 per cent of farms not affected by drought, by an average of 28 per cent in 2013–14. Land purchase accounted for 46 per cent of the increase in principal owed. A further 23 per cent was used to purchase farm machinery and vehicles; 16 per cent to cover cashflow shortfalls; 3 per cent to farm development; 1 per cent to livestock purchase; and 9 per cent to other purposes (Figure 18). Most of the ‘other’ category went to funding changes in business ownership or partnership arrangements.

Debt decreased for 40 per cent of farms not affected by drought, by an average of 14 per cent. The main contributor to reductions in farm debt was cashflow surplus. This accounted for 68 per cent of the reduction in principal owed. Sale of farm assets accounted for 18 per cent of the reduction. The remainder was 5 per cent from off-farm income, 3 per cent from sale of non-farm assets, 2 per cent from reduction in liquid assets and 3 per cent from other sources.

FIGURE 18 Change in farm business debt for farms not subject to drought, broadacre and dairy farms, 2014–15p average per farm

Other

Purchase of non-farm assets

Livestock purchase

Farm development

Cash�ow shortfall

Machinery andvehicle purchase

Land purchase

Other

Sale of non-farm assets

O�-farm income

Reduction in liquid assetsand FMDs a

Sale of farm assets

Cash�ow surplus

$’000

$’000

a Farm management deposits. p ABARES preliminary estimate. Note: Other includes borrowing to fund changes in farm business ownership/partnership.Source: ABARES Australian Agricultural and Grazing Industries Survey

10 20 30 40

10 20 30 40

Reduction

Increase



Farm equityThe decline in land values between 2007–08 and 2013–14 reduced farm equity in some regions and prompted financial institutions to tighten lending. This restricted access of some farm businesses to further finance.

In regions including the pastoral regions of northern Australia, farm equity is estimated to have fallen significantly over the five years to June 2014, mainly as a consequence of reported reductions in land values. However, farm equity strengthened in other regions because of reduced farm debt and increased capital investment. Farm equity for many beef and sheep farms increased slightly with the general rise in beef cattle and sheep prices in 2014–15 and the small increase in land values for beef industry farms in some high rainfall regions.

On average, farm business equity remains strong for broadacre farms. It declined only slightly after the large increase of the 2000s (Figure 19). The average equity ratio for broadacre farms at 30 June 2015 was estimated at 87 per cent, unchanged from 30 June 2014. Around 82 per cent of farms had equity ratios exceeding 80 per cent at 30 June 2015.

FIGURE 19 Change in farm business debt and equity, broadacre farms, Australia average per farm

index1999–2000

= 100 %

Farm businessequity

Farm businessdebt


Equity ratio (right axis)

100

200

300

400

500

20

40

60

80

100

2014–15p

2011–12

2008–09

2005–06

2002–03

1999–2000



At the national level, the average equity ratio for dairy farms has declined since 2004–05 as debt levels have increased with increased herd size and milk production—particularly in regions with increased focus on dairy production for export, including Tasmania, Western Victoria and South Australia. The average farm equity ratio of dairy industry farms at 30 June 2015 was 80 per cent, up 1 per cent from 30 June 2014 and around 9 per cent lower than in 2004–05.

Change in farm equity ratios over time should also be considered against the background of the increase in average farm size. Equity ratios are typically lower for larger farms because they are generally able to service larger debts.

Distribution of farms by debt and equityThe proportion of broadacre farms with relatively high debt varies across jurisdictions and industries (Table 9 and Table 10).

Around 31 per cent of broadacre farms in Western Australia and around 32 per cent of Northern Territory farms carried in excess of $1 million in debt at 30 June 2015. The high proportion of farms with debt exceeding $1 million reflects a high proportion of larger businesses in those jurisdictions.

Similarly, around 35 per cent of wheat and other crops industry farms and 31 per cent of dairy industry farms nationally carried in excess of $1 million in debt at 30 June 2015. Both industries have a high proportion of large farms.

In contrast, 68 per cent of beef farms and 53 per cent of sheep–beef farms nationally were recorded as having debt less than $100 000 at 30 June 2015. Many of these businesses are small. The number of dairy farms with debt less than $100 000 was 17 per cent at 30 June 2015.

Much of the aggregate broadacre sector debt is held by a relatively small proportion of mostly larger farms. Around 70 per cent of aggregate broadacre sector debt, at 30 June 2015, was held by just 13 per cent of farms. On average, these were large farm businesses and in aggregate they produced around 50 per cent of the total value of broadacre farm production in 2014–15.

Aggregate debt is slightly less concentrated with larger farms in the dairy industry. Nevertheless, around 70 per cent of aggregate dairy sector debt at 30 June 2015 was held by 30 per cent of farms.



TABLE 9 Distribution of broadacre farms, by farm business debt and equity ratio at 30 June 2015 pa percentage of farms

New South Wales Victoria Queensland

South Australia

Western Australia Tasmania

Northern Territory Australia

Farm business debt b

<$100 000 % 52 (7) 60 (8) 52 (7) 59 (10) 49 (10) 60 (13) 38 (37) 54 (4)

$100 000 and <$250 000 % 14 (19) 17 (27) 8 (25) 7 (38) 6 (38) 9 (66) 0 12 (13)

$250 000 and <$500 000 % 10 (21) 9 (23) 11 (21) 8 (33) 6 (40) 15 (38) 9 (72) 9 (11)

$500 000 and <$1m % 11 (16) 7 (17) 10 (20) 15 (28) 8 (31) 4 (50) 21 (58) 10 (9)

$1m and <$2m % 8 (22) 5 (21) 10 (18) 8 (32) 19 (16) 5 (55) 11 (73) 9 (10)

≥$2m % 5 (15) 3 (21) 9 (15) 5 (26) 12 (18) 8 (24) 21 (28) 6 (8)

Total % 100 100 100 100 100 100 100 100

Average farm debt at 30 June $’000 474 (9) 268 (9) 722 (10) 425 (15) 843 (12) 454 (18) 1 392 (22) 505 (5)

Farm business equity ratio bc

≥90 per cent % 65 (5) 77 (4) 68 (5) 67 (8) 62 (7) 79 (4) 50 (26) 68 (2)

80 and <90 per cent % 20 (14) 11 (26) 11 (20) 13 (26) 12 (22) 7 (29) 33 (35) 14 (9)

70 and <80 per cent % 6 (24) 8 (25) 8 (20) 13 (26) 11 (23) 8 (36) 13 (48) 8 (11)

60 and <70 per cent % 5 (23) 3 (32) 6 (20) 4 (30) 10 (25) 1 (167) 2 (125) 5 (12)

<60 per cent % 5 (37) 2 (38) 6 (23) 3 (61) 5 (31) 5 (43) 3 (71) 4 (17)

Total % 100 100 100 100 100 100 100 100

Average farm business equity ratio at 30 June % 87 (1) 91 (1) 86 (2) 89 (2) 84 (2) 88 (2) 85 (3) 87 (1)

Population of farms no. 17 609 12 770 9 394 6 550 6 428 993 167 5 3912

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 ABARES preliminary estimates. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: ABARES Australian Agricultural and Grazing Industries Survey



TABLE 10 Distribution of farms by industry, by farm business debt and equity ratio at 30 June 2015 pa percentage of farms

Wheat and other crops

Mixed livestock–

crops Sheep Beef Sheep–beef Dairy

Farm business debt b

<$100 000 % 32 (13) 44 (12) 62 (8) 68 (5) 53 (10) 17 (33)

$100 000 and <$250 000 % 7 (35) 16 (23) 12 (35) 10 (29) 17 (29) 8 (34)

$250 000 and <$500 000 % 9 (24) 11 (26) 12 (25) 7 (21) 11 (32) 20 (28)

$500 000 and <$1m % 16 (19) 13 (22) 7 (26) 6 (19) 11 (31) 25 (20)

$1m and <$2m % 19 (13) 11 (20) 5 (40) 6 (29) 5 (36) 19 (24)

≥$2m % 16 (10) 6 (23) 3 (33) 4 (15) 2 (43) 12 (17)

Total % 100 100 100 100 100 100

Average farm debt at 30 June $’000 1 161 (7) 504 (12) 256 (14) 368 (10) 307 (17) 888 (8)

Farm business equity ratio bc

≥90 per cent % 49 (8) 57 (9) 73 (5) 82 (3) 72 (6) 31 (20)

80 and <90 per cent % 17 (17) 20 (20) 15 (24) 9 (21) 17 (26) 25 (21)

70 and <80 per cent % 14 (17) 12 (26) 7 (35) 4 (23) 8 (26) 21 (24)

60 and <70 per cent % 13 (18) 7 (24) 3 (39) 2 (24) 3 (47) 13 (25)

<60 per cent % 8 (24) 5 (31) 2 (51) 4 (39) 0 (104) 10 (40)

Total % 100 100 100 100 100 100

Average farm business equity ratio at 30 June % 81 (1) 86 (2) 91 (1) 91 (1) 92 (1) 80 (2)

Population of farms no. 9 206 11 488 8 443 19 646 5 102 6 913

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 ABARES preliminary estimates. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: ABARES Australian Agricultural and Grazing Industries Survey



Debt servicingFor the broadacre and dairy industries, the proportion of farm receipts needed to fund interest payments rose substantially between 2001–02 and 2007–08. This resulted from a large increase in farm debt and reduced farm receipts after extended drought conditions. Interest rate subsidies paid to farm businesses as drought assistance partially offset the increase in interest paid over this period.

Higher farm receipts since 2009–10 and reductions in interest rates resulted in a decline in the average proportion of farm receipts needed to fund interest payments for grains, dairy and sheep industry farms (Figure 20).

Much larger increases in borrowing through the 2000s and a reduction in farm receipts between 2004–05 and 2013–14 resulted in the proportion of receipts needed to fund interest payments being historically high in the beef industry. The proportion of farm receipts needed to fund interest payments peaked at almost 16 per cent in 2007–08 as northern beef industry farms restocked after the cessation of the 2000s drought. The proportion has since trended steadily downwards, to 11 per cent in 2014–15, and is projected to be around 9 per cent in 2015–16. If achieved, this would be slightly above the historically low proportion recorded in the period 1999–2000 to 2001–02, when drought interest subsidies were in place and beef cattle prices were high, but below the average of 11 per cent for the 20 years to 2014–15.

FIGURE 20 Ratio of interest payments to total cash receipts, farms with debt, by industry average per farm

%


4

8

12

16

20 BeefSheepDairyGrains

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

In 2015–16 the ratio of interest payments to farm receipts is projected to reduce further in most industries and regions, declining to 7 per cent for NSW and Victorian broadacre farms, 6 per cent for WA broadacre farms and 5 per cent for SA broadacre farms (the lowest recorded in the past 20 years). The proportion of farm receipts needed to meet interest payments is projected to increase in Tasmania to around 9 per cent, driven by lower farm receipts because of dry seasonal conditions. This would be around the average of the past 20 years for Tasmanian broadacre farms.



The proportion of farm receipts needed to meet interest payments is estimated to have declined to 13 per cent for Queensland broadacre farms in 2014–15 and is projected to decline to 10 per cent in 2015–16 (below the average for the previous 20 years of 12 per cent) (Figure 21).

FIGURE 21 Ratio of interest payments to total cash receipts, farms with debt, by state average per farm

%


4

8

12

16

20 QueenslandNew South WalesRest of Australia

Victoria

2015–16y

2012–13

2009–10

2006–07

2003–04

2000–01

1997–98

Farm cash incomes of broadacre and dairy farms were highly variable over the 15 years ending 2014–15 (see farm cash income charts for industries and states). Mechanisms that farm businesses employ to manage income variability include holding liquid financial assets (such as farm management deposits) and maintaining high farm equity to provide a reserve of credit to manage income downturns. Credit reserves are unused borrowing capacity, such as an overdraft or line of credit. Maintaining a credit reserve avoids costs of liquidating farm assets to meet cash demands and reacquiring those assets once the adversity has passed.

Critical to maintaining credit reserves is a lender’s willingness to provide loans. Financial institutions lend to farm businesses on the basis of the equity farmers have in their businesses and the capacity of the business to service increased debt long term. Most businesses that institutional lenders allow to operate with an equity ratio of less than 70 per cent are large operations that mostly generate high farm cash incomes or have access to substantial off-farm assets or income.

The proportion of broadacre farms with relatively low additional borrowing capacity (equity ratio of less than 70 per cent) and relatively high debt servicing commitments (interest-to-receipts ratio exceeding 15 per cent) reached 8 per cent in 2006–07 and 7 per cent in 2009–10 before declining to an estimated 5 per cent in 2014–15 (Figure 22). This was well below the highs of around 12 per cent recorded in the early 1990s, when interest rates were high and farm cash incomes were uniformly low across all industries.



FIGURE 22 Debt servicing and borrowing capacity, all broadacre farms average per farm

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 ratiogreater than 15%

5

10

15

20

25

30

y ABARES provisional estimate.

2015–16y

2011–12

2007–08

2003–04

1999–2000

1995–96

1991–92

In 2015–16 the proportion of broadacre farms with relatively low additional borrowing capacity and relatively high debt servicing commitments is projected to decrease further to around 4 per cent, the lowest proportion recorded since 2005–06. Reductions in interest rates and higher receipts for livestock farms are projected to offset small increases expected in debt in most states and industries.


Summary• Productivity in the broadacre industries grew by 1.1 per cent a year on average

between 1977–78 and 2013–14.• Broadacre productivity growth was driven largely by declining input use (–1 per cent

a year) while maintaining modest output growth (0.1 per cent a year).• The long-run decline in total input use is largely attributable to trends in livestock

industries, which have outweighed increases in input use by cropping industries.• Dairy industry productivity grew by 1.6 per cent a year on average between

1978–79 and 2013–14. This reflects strong output growth (1.3 per cent a year) and some reduction in input use (–0.2 per cent a year).

IntroductionProductivity is an important measure of performance for Australian agriculture because it reflects improvements in the efficiency with which inputs such as land, labour and capital are used to produce outputs such as crops, meat, wool and milk. Productivity growth is important for maintaining international competitiveness and profitability given long-term declines in Australian farmers’ terms of trade.

As part of its ongoing research into productivity, ABARES releases updated indexes of productivity performance in Australian broadacre and dairy industries annually. This article updates ABARES productivity series to include measures for the 2013–14 financial year and summarises previous research on the drivers of Australian agricultural productivity.

Productivity growth is determined as an increase in output beyond any associated increase in input (or a decrease in the quantity of inputs needed to produce a unit of output). ABARES measures productivity using total factor productivity (TFP), which takes into account the full range of inputs and outputs that are generated on-farm (Box 6). Productivity growth is generally measured over the long term because it is treated as an indicator of technological progress, which can involve significant time lags in both on-farm implementation and realised benefits. Further, short-term variability in productivity can reflect seasonal conditions rather than shifts in underlying technology or efficiency.

Productivity in Australian broadacre and dairy industriesHaydn Valle

Productivity in Australian broadacre and dairy industries


Box 6 Productivity statistics produced by ABARESABARES preferred estimate of productivity is total factor productivity (TFP), which is the ratio of a quantity index of market outputs relative to a quantity index of market inputs. To produce industry-level TFP estimates, multiple outputs and inputs across farms are aggregated using the Fisher index. Average annual TFP growth rates are estimated by fitting an exponential trend line. A detailed description of ABARES TFP methodology is in Zhao, Sheng & Gray (2012).

Data used to estimate the productivity of Australian broadacre (non-irrigated cropping and grazing) and dairy industries are collected annually through the ABARES national farm survey programme. A consistent method for conducting these surveys has been applied to broadacre farms since 1977–78 and to dairy farms since 1978–79. In particular, a weighted sample of farms is constructed using population estimates supplied by the Australian Bureau of Statistics.

The broadacre and dairy industries accounted for approximately 73 per cent of commercial-scale Australian farm businesses and more than 60 per cent of the total gross value of agricultural output in 2013–14. In addition, these farms managed more than 90 per cent of the total area of agricultural land in Australia and accounted for most of Australian family owned and operated farms (ABARES 2015).

The broadacre and dairy industries are defined by the Australian and New Zealand Standard Industrial Classification (ANZSIC), which is managed by the Australian Bureau of Statistics (ABS 2006). Typically, a farm is classified as specialist if more than 50 per cent of whole-farm receipts is generated by a particular enterprise. Farms that do not meet this criterion for any single enterprise are classified as mixed crop–livestock producers.

Crops industry (ANZSIC06 Class 0146 and 0149)—farms engaged mainly in growing cereal grains, coarse grains, oilseeds, rice and/or pulses.

Mixed crop–livestock industry (ANZSIC06 Class 0145)—farms engaged mainly in running sheep or beef cattle, or both, and growing cereal grains, coarse grains, oilseeds and/or pulses.

Beef industry (ANZSIC06 Class 0142)—farms engaged mainly in running beef cattle.

Sheep industry (ANZSIC06 Class 0141)—farms engaged mainly in running sheep.

Sheep–beef industry (ANZSIC06 Class 0144)—farms engaged mainly in running both sheep and beef cattle. TFP estimates are not reported separately for these farms, although they are included in the aggregate broadacre estimates.

Dairy industry (ANZSIC06 Class 0160)—farms engaged mainly in running dairy cattle.



Broadacre productivityBroadacre productivity increased at an average annual rate of 1.1 per cent between 1977–78 and 2013–14 (Figure 23). Productivity growth is defined as output growth minus input growth. As shown in Figure 23, productivity growth over the past 37 years has been driven mainly by reduced input use rather than output growth.

FIGURE 23 Input, output and total factor productivity growth, broadacre industry, Australia, 1977–78 to 2013–14

index

Total factor productivityOutputInput

50

100

150

200

2013–14

2009–10

2005–06

2001–02

1997–98

1993–94

1989–90

1985–86

1981–82

1977–78

Source: ABARES Australian Agricultural and Grazing Industries Survey

Total input use in the broadacre industry declined from 1977–78 to 2013–14 at an average annual rate of 1 per cent (Figure 23). Land use, which accounts for the largest share of total broadacre input use, has declined on average by 1 per cent a year.

Similarly, aggregate use of capital and labour declined by 1.6 per cent and 2.2 per cent a year, respectively. In contrast, the use of material inputs, including fertiliser and crop chemicals, increased by 1.7 per cent a year over the same period, largely reflecting a trend towards more intensive crop production systems.

Despite declining input use, broadacre output increased slightly (0.1 per cent) between 1977–78 and 2013–14. However, this has varied substantially over time, mostly because of changing seasonal conditions. The relatively small change in aggregate broadacre output over this period masks significant structural change, including a 48 per cent decline in the number of farms and a shift from livestock to crop production in many regions.

Productivity has increased in all broadacre industries (Table 11). In the mixed crop–livestock, sheep and beef–sheep industries, growth has been driven by reductions in input use, which have outstripped declines in output. In contrast, the cropping industry increased input use but growth in outputs was much greater. In the beef industry, productivity growth was driven by both a reduction in input use and growth in outputs.



TABLE 11 Input, output and total factor productivity growth, by broadacre industry, Australia, 1977–78 to 2013–14

Industry Input (%) Output (%) TFP (%)

All broadacre –1.0 0.1 1.1

Cropping specialists 1.1 2.6 1.5

Mixed crop–livestock –1.7 –0.8 0.9

Sheep –2.9 –2.6 0.3

Beef –0.2 1.1 1.3

Beef–sheep –2.2 –2.1 0.0


Productivity growth has slowed across broadacre agriculture since 1999–2000. However, changes in productivity growth within the sector have varied over time, and some industries have increased productivity growth in the past decade. In particular, the cropping and mixed crop–livestock industries had much higher productivity growth between 1977–78 and 1988–89 than in the two subsequent decades, while estimated productivity growth in the beef industry was higher in the 1990s and 2000s than in the 1980s. Sheep industry productivity began to grow in 1993–94 and average productivity growth turned positive between 2000–01 and 2013–14 (Figure 24).

FIGURE 24 Productivity growth, by industry, 1977–78 to 2013–14

2000–01 to 2013–141988–89 to 2000–011977–78 to 1988–89

%

–1

0

1

2

3

4

CroppingMixedcrop–livestock

SheepBeefAll broadacre




Drivers of broadacre productivityAgricultural productivity indexes are highly sensitive to climate variability (Hughes et al. 2011; Sheng, Mullen & Zhao 2011). Much of the productivity growth between the late 1970s and mid 1990s has been attributed to generally above average rainfall, which increased cropping yields and contributed to strong pasture growth. Likewise, a slowdown in productivity growth since the mid 1990s can be partly attributed to adverse seasonal conditions, particularly during the 2000s. Some farmers postponed making productivity-enhancing investments and instead used debt finance or savings to overcome below average cash flow as a result of drought.

Australian agricultural industry reforms, such as removing marketing and price support mechanisms, have contributed directly and indirectly to productivity growth (Gray, Oss-Emer & Sheng 2014). These reforms led to structural change, through the amalgamation of farms, better risk management and change in mix of agricultural commodities produced. In turn these changes altered the allocation of resources between farms, with more efficient producers tending to obtain a greater share of inputs and market share over time. Resource reallocation in broadacre agriculture accounted for around half of the industry-level productivity growth that occurred between 1977–78 and 2013–14, and its contribution appears to have increased over time (Sheng, Jackson & Davidson 2015).

Public and private investment in R&D has significantly contributed to productivity growth in the Australian agriculture industry (Sheng, Gray & Mullen 2011). In particular, technical change has been the primary driver of long-run productivity growth over the past three decades through the development and adoption of new technology and management practices (Hughes et al. 2011). Farmers have captured developments in technology and knowledge by investing in higher yielding pest and disease-resistant crop varieties, superior planting and harvesting techniques, and better livestock genetics.

Farm size has increased over the past four decades. Individual farms have expanded, and some small farms have left the industry. ABARES has found that the productivity of larger farms tends to be higher than that of their smaller counterparts. This is most likely because large farms are better positioned to make productivity-enhancing investments because technology providers are more likely to produce technologies fit for large farms and because these farms generally have greater ability to fund such investments (Jackson & Martin 2014).

Managers also have a significant bearing on the productivity of farms. Farming is an inherently complex production process, requiring a broad skill set to maximise profit given significant uncertainty about seasonal conditions and future prices. Good managers are more likely to take advantage of information flows and change technology when it is advantageous to do so. This allows them to maximise output from a given set of inputs, leading to higher productivity.



CroppingProductivity growth among Australian cropping specialists is higher than in any other broadacre industry, with TFP increasing at an average annual rate of 1.5 per cent between 1977–78 and 2013–14 (Figure 25). Total output grew at an average annual rate of 2.6 per cent while total inputs grew more slowly, at 1.1 per cent.

FIGURE 25 Input, output and total factor productivity growth, cropping specialists, Australia, 1977–78 to 2013–14

index


50

100

150

200

250

300

350

2013–14

2009–10

2005–06

2001–02

1997–98

1993–94

1989–90

1985–86

1981–82

1977–78


Jackson (2010) and Knopke, O’Donnell & Shepherd (2000) attributed strong productivity growth in the cropping industry in the 1980s and 1990s to developments in technology such as larger tractors, new plant varieties, better water management and a better understanding of harvesting and planting strategies. Productivity growth in the cropping industry has declined since the early 2000s. This has been attributed to drought, the slower spread of new technology, a decline in the increment of technological progress, knowledge constraints, the loss of a profitable break crop and broader focus for R&D investment beyond productivity-related factors (Jackson 2010).

In some regions, productivity growth in the cropping industry has also been constrained by land degradation, such as dryland salinity and loss of topsoil. This has increased the need for additional inputs to produce the same amount of output. Resistance of weeds and pests to herbicides and pesticides can also constrain productivity growth. Despite these challenges, cropping still has the highest TFP growth of all industries and, with the exception of the sheep industry, has had the highest productivity growth in the past decade.

The Grains Research and Development Corporation (GRDC 2015) identifies three broad grain growing regions: northern, southern and western. The regions are differentiated by their climate conditions, soil types and farming characteristics. Productivity growth in the western and southern regions averaged 1.4 per cent and 1.8 per cent a year, respectively, between 1977–78 and 2013–14 (Table 12). This was driven by strong input growth and even stronger growth in outputs. Similar productivity growth occurred in the northern region (1.4 per cent a year), but this resulted from reduced input use and more moderate output growth.



TABLE 12 Input, output and total factor productivity growth, broadacre cropping industries, by region, Australia, 1977–78 to 2013–14

Cropping specialists Input (%) Output (%) TFP (%)

Northern –0.7 0.7 1.4

Southern 1.5 3.2 1.8

Western 2.2 3.6 1.4

Mixed crop and livestock enterprises

Northern –1.7 –1.3 0.5

Southern –1.2 –0.1 1.1

Western –2.3 –1.2 1.1

Source: ABARES Australian Agricultural Grazing Industries Survey

Productivity growth among cropping specialists has been higher than in the mixed crop–livestock industry, and this has been the case in all regions. In contrast with cropping specialists, productivity growth in the mixed crop–livestock industry has been the result of input use declining more rapidly than output has contracted.

BeefProductivity in the Australian beef industry increased by 1.3 per cent a year on average between 1977–78 and 2013–14. Output increased by 1.1 per cent a year while inputs declined by 0.2 per cent a year (Figure 26). Productivity growth in the beef industry has been supported by improvements in pastures, herd genetics and disease management. This has led to increased branding rates (calves marked as a percentage of cows mated) and lower mortalities.

FIGURE 26 Input, output and total factor productivity, beef industry, Australia, 1977–78 to 2013–14

index


50

100

150

200

2013–14

2009–10

2005–06

2001–02

1997–98

1993–94

1989–90

1985–86

1981–82

1977–78




Productivity in the beef industry can be further disaggregated into the broad regions of northern and southern Australia. These two regions have marked differences in climate, pastures, infrastructure and markets. This has affected the development and nature of the beef industry in each region.

Most of the productivity gains in the beef industry between 1977–78 and 2013–14 were made in the northern region (Table 13). Productivity growth in this region averaged 1.5 per cent a year, driven by output growth of 1.1 per cent a year and reduced input use of 0.4 per cent a year. This can be partly attributed to improved reproductive performance and reduced death rates resulting from the brucellosis and tuberculosis eradication campaign of the 1980s. Managers culled poor performing stock and invested significantly in fences, on-farm infrastructure and cattle management systems. Expansion of the feedlot sector and the live export trade during the 1990s also drove shifts in herd structure and greater use of hardy Bos indicus breeds.

TABLE 13 Input, output and total factor productivity growth, beef industry, by region, Australia, 1977–78 to 2013–14

Beef farms Input (%) Output (%) TFP (%)

Northern –0.4 1.1 1.5

Southern 0.5 1.2 0.6

Australia –0.2 1.1 1.3


Productivity in the southern beef region increased by 0.6 per cent a year between 1977–78 and 2013–14. Southern region output growth of 1.2 per cent a year was greater than that of northern Australia, but its substantially higher growth in input use (0.5 per cent a year) meant that productivity increased at a slower rate.

Farms in the southern region face different constraints from their northern counterparts. The climate is more varied and beef farms in the southern region are more sensitive to drought conditions, which lead to increased feed purchases and destocking and restocking cycles that hamper output growth. Beef cattle farms in southern Australia are more intensive and diversified than those in the northern region. They are also smaller and less profitable, which is likely to have contributed to lower average productivity growth (Jackson & Valle 2015).

SheepProductivity growth in the sheep industry averaged 0.3 per cent a year between 1977–78 and 2013–14. Inputs declined by 2.9 per cent a year, which was slightly faster than the contraction in outputs of 2.6 per cent a year. TFP in the sheep industry was lower than in other broadacre industries. All productivity growth in the sheep industry occurred between 1993–94 and 2013–14. Over this period, productivity growth was faster than in any other broadacre industry.



The Australian sheep industry has undergone significant structural adjustment since the early 1990s, when price support mechanisms for wool were removed (Figure 27). In particular, many farmers shifted their enterprise mix away from wool and towards cropping, resulting in lower sheep numbers. This was exacerbated by farmers destocking their properties during periods of drought. Sheep meat and lamb production increased in importance compared with wool production after deregulation of the wool industry (Ashton 2004).

Productivity growth in the sheep industry has also been attributed to advances in animal breeding and genetics and improved herd, disease and fodder management (Gray, Leith & Davidson 2014).

FIGURE 27 Input, output and total factor productivity, sheep industry, Australia, 1977–78 to 2013–14

index


50

100

150

200

250

Collapse of the wool reserve price scheme

2013–14

2009–10

2005–06

2001–02

1997–98

1993–94

1989–90

1985–86

1981–82

1977–78


Since the early 1990s, a significant increase in the share of ewes in flocks and a corresponding decline in that of wethers has contributed to long-term growth in lamb production, although wool production has declined at a faster rate (Dahl, Leith & Gray 2013). Increased use of non-Merino rams, first-cross ewes and specialty meat breeds, combined with increased emphasis on selection and breeding for meat production traits, has boosted productivity through higher lamb growth rates and greater incidence of twinning. Improved pastures and greater use of fodder crops and supplementary feed has improved ewe fertility, reduced lamb mortality rates and increased average slaughter weights.

Dairy productivityProductivity growth across the Australian dairy industry was 1.6 per cent a year between 1978–79 and 2013–14. Output grew by 1.3 per cent a year while input use declined by 0.2 per cent a year. This is faster than the broadacre sector as a whole.

Throughout the 1980s and 1990s, many dairy farms transitioned to more intensive production systems. This reduced labour and land requirements but increased material inputs such as fertiliser and supplementary feed (Ashton et al. 2014) (Figure 28). This trend peaked in 2000 following deregulation of milk marketing arrangements and the resulting exit of many small farms. Since then, productivity growth has been characterised by declining input use. Output has been declining at a slower rate.



FIGURE 28 Input, output and total factor productivity, dairy industry, Australia, 1978–79 to 2013–14

index


50

100

150

200


2013–14

2009–10

2005–06

2001–02

1997–98

1993–94

1989–90

1985–86

1981–82

Widespread adoption of new technologies has been a significant driver of productivity growth on dairy farms (Ashton et al. 2014). Larger, automated milking sheds have allowed farmers to reduce their labour input. Better understanding of calving patterns and pasture systems has allowed dairy producers to cope with varying regional climate conditions. Improved animal genetics, herd health and animal welfare has also led to higher productivity.

Improvements in human capital have also driven productivity growth on dairy farms. Dairy farmers are now better educated and continue learning through information sources provided by extension officers and industry bodies and by participating in benchmarking groups. Dairy farmers’ greater awareness of the industry and their individual circumstances has allowed them to make more informed decisions and better manage risk (Ashton et al. 2014).

Disaggregating farm performance statistics by size


Disaggregating farm performance statistics by sizeTom Jackson and Walter Shafron

Clarifying which businesses are represented in farm performance statistics is becoming increasingly important because of substantial differences between small and large farms. Although aggregate statistics illustrate the overall performance of farms in a particular industry, they do not necessarily reveal trends within particular subsectors. For example, corporate agriculture businesses and investors have a growing interest in data on the performance of large Australian farms. Conversely, the majority of Australian farms are relatively small and the performance of these farms is important to many farmers.

Reflecting these diverse interests, ABARES regularly releases farm performance statistics for small, medium and large farms in various industries (for example, see ABARES 2015, p. 16). In this article, a more detailed disaggregation of farm performance statistics with 10 size categories is introduced. These tables will be updated annually and historical data will be available on the ABARES website.

Defining categoriesDisaggregating farm performance statistics based on size is useful because of the strong relationship between farm size and performance. Farm performance tends to improve as farm size increases in all major agricultural industries (Jackson & Martin 2014). Few other variables within farmers’ control influence farm performance so consistently. As such, to understand the economic performance of farms and the agriculture sector more broadly, evaluating farms in the context of their size is useful.

Farm size can be measured in several ways. The measure used in this article is the annual value of receipts generated. This variable is preferred to physical measures of size, such as the number of hectares operated or the number of dry sheep equivalents that can be carried, because it accounts for ways in which farmers can increase the size of their operations other than by purchasing more land—for example, by intensifying their operations or switching from producing low-value to high-value outputs.



In selecting the number of size categories to distinguish, a number of factors must be balanced. Using a relatively large number of categories allows data for more similar groups of farms to be constructed than would be possible when using a relatively small number of categories. However, as the number of categories increases, the reliability of statistics declines because the number of surveyed farms in each category decreases. In addition, the effect of farm size on particular variables can be more easily seen with fewer categories but a more detailed analysis is possible with more categories.

In this article, farm performance statistics are presented for 10 size categories, each of which represents 10 per cent of the farm population within each industry and region, ranked from smallest to largest according to total farm receipts. Farm revenues vary substantially from year to year, as does the value of receipts that corresponds to each size category.

The industries represented in these statistics include broadacre, dairy and vegetables. The broadacre industry is further split into wheat and other crops, beef, sheep, mixed cropping–livestock and sheep–beef. Many farms produce more than one type of output. They are classified into whichever industry accounts for 75 per cent or more of total receipts. If no industry accounts for 75 per cent or more then they are classified as a mixed farm. The method used to allocate farms into particular industries varies between studies. As such, the results presented in this article are not necessarily directly comparable with those published in other ABARES reports.

Statistics for each industry are presented for Australia. In addition, the cropping industry is separated into the Grains Research and Development Corporation’s western, northern and southern regions (Map 2) and the beef industry is separated into Meat & Livestock Australia’s northern and southern regions (Map 3). Overall, this classification by industry and region creates a set of 13 tables.

MAP 2 Grains Research and Development Corporation regions

Source: Grains Research and Development Corporation

Western regionSouthern regionNorthern region



MAP 3 Australian beef cattle industry

NorthernSouthern

Note: Regions based on aggregations of ABS statistical local areas.Source: ABARES Australian Agricultural and Grazing Industries Survey

Each of the tables contains the most recently available data for a set of variables that summarise the output and economic performance of farms in each size category. The variables are:• share of total output produced• total cash receipts• total cash costs• profit at full equity• total opening capital• net capital additions• rate of return, including capital appreciation• equity ratio.

Tables that contain these data for each industry and region are presented in this article. Farm returns are highly variable from year to year, reflecting variation in factors such as seasonal conditions and commodity prices. As such, data are averaged over the most recent three years to provide the most meaningful picture of farm performance. Historical data for farms in each size category are available from the ABARES website.



Key points for 2011–12 to 2013–14• The largest 10 per cent of farms produced 48 per cent of all broadacre farm

output, while the smallest 50 per cent of farms produced 11 per cent of total broadacre output.

• The average rate of return including capital appreciation generated by the largest 10 per cent of broadacre farms was 4.5 per cent, while the smallest 10 per cent generated average returns of –3.7 per cent.

• The largest 10 per cent of broadacre farms made 56 per cent of investment in net capital additions, while the smallest 10 per cent of farms accounted for 1 per cent of total investment.

• The largest 10 per cent of broadacre farms had the lowest average equity ratio of all farms, at 79 per cent, while the smallest 10 per cent of farms had the highest average equity ratio at 97 per cent.

TABLE 14 Broadacre farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)

Cash costs ($) Profit ($) Capital ($)

Net capital additions ($)

Rate of return (%)

Equity ratio (%)

1 0.8 37 341 47 236 –51 138 1 670 178 5 894 –3.7 97.0

2 1.4 67 010 69 257 –50 649 1 582 045 8 086 –3.8 94.7

3 2.1 98 849 83 179 –41 406 1 978 668 928 –2.2 94.4

4 2.7 126 544 101 791 –35 626 2 570 964 –4 652 –1.7 96.1

5 3.6 171 969 147 630 –26 245 2 570 678 –20 973 –0.5 90.6

6 4.9 234 070 175 448 –7 382 3 124 322 19 174 –0.6 92.4

7 7.2 342 199 249 307 25 845 4 061 376 20 156 1.2 91.6

8 11.0 520 997 378 336 70 249 5 009 710 54 944 1.0 88.2

9 18.3 866 866 608 487 192 018 6 317 840 132 444 2.9 83.4

10 47.9 2 272 402 1 611 384 618 882 13 179 067 271 628 4.5 78.6

TABLE 15 Wheat and other crops farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 0.8 74 532 64 285 –37 644 1 292 032 16 626 –4.5 97.7

2 1.6 162 903 121 934 –33 933 1 983 626 21 480 –1.6 95.3

3 2.7 273 157 211 069 –3 315 2 368 386 75 879 –1.2 89.0

4 4.3 427 899 331 881 40 794 3 069 619 70 891 2.1 82.4

5 5.6 592 690 405 957 125 041 3 550 702 43 844 4.4 80.7

6 7.3 763 631 530 888 156 810 4 596 907 46 079 4.1 84.0

7 9.8 1 001 590 659 074 331 654 5 620 148 366 332 5.7 80.9

8 13.3 1 366 485 943 783 353 912 6 682 957 132 752 5.7 80.8

9 18.0 1 860 324 1 288 761 567 433 9 002 853 451 131 6.4 73.8

10 36.7 3 772 578 2 565 994 1 229 890 17 083 887 271 888 7.9 76.2



TABLE 16 Beef farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 1.1 27 685 44 156 –45 487 1 710 812 19 678 –2.7 96.3

2 2.0 47 158 53 556 –62 962 1 798 336 –4 895 –5.4 97.3

3 2.1 62 337 74 587 –63 177 1 607 534 10 382 –3.3 93.6

4 2.9 81 719 84 911 –56 961 2 275 101 –7 084 –3.2 93.0

5 4.1 103 373 83 522 –32 474 2 300 922 32 697 –1.0 95.0

6 4.2 120 434 94 955 –48 964 3 618 778 17 831 –1.2 98.8

7 6.0 163 051 138 354 –35 905 3 090 168 27 899 –2.6 92.8

8 9.0 240 261 202 537 –7 077 4 516 254 9 463 –0.7 91.3

9 15.0 406 000 274 920 44 947 6 805 635 –10 543 0.2 93.3

10 53.6 1 456 999 1 106 726 210 159 15 543 751 149 285 –0.6 84.8

TABLE 17 Sheep farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 2.4 46 092 46 291 –39 773 1 351 615 –22 263 –3.0 95.5

2 2.8 70 616 65 628 –44 713 1 181 229 6 977 –5.8 95.7

3 4.6 97 999 87 986 –35 816 2 110 839 8 018 –2.3 93.5

4 5.1 113 474 76 346 –1 706 1 550 244 –60 511 –0.2 96.1

5 6.3 135 861 106 968 –20 494 2 137 009 12 420 0.4 95.1

6 7.3 162 531 123 896 –9 063 2 016 385 –44 449 0.1 93.9

7 8.8 187 735 153 193 –27 088 2 287 989 32 356 –0.3 87.8

8 11.2 245 476 179 951 6 496 2 950 840 –51 604 0.0 91.9

9 15.7 355 050 258 502 34 014 3 738 259 –636 1.5 90.9

10 35.8 784 078 555 496 167 734 6 315 560 14 444 2.5 86.0



TABLE 18 Cropping–livestock farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 1.7 88 318 79 805 –61 342 1 645 235 –43 650 –5.8 95.0

2 2.4 147 797 149 947 –35 597 1 851 886 7 619 –0.5 81.3

3 3.5 198 728 146 543 –14 149 1 925 493 –11 080 0.2 91.1

4 4.3 260 765 199 345 –12 197 2 853 068 85 846 –1.3 92.8

5 5.7 332 683 237 607 38 766 3 834 901 27 155 2.3 92.5

6 6.9 402 363 276 235 54 843 3 543 784 76 588 3.2 92.1

7 9.0 532 216 378 591 57 175 4 202 801 64 905 1.6 88.2

8 12.8 746 159 529 787 131 693 5 422 984 125 774 4.5 84.0

9 18.0 1 050 510 773 402 211 173 6 943 666 22 451 3.0 79.8

10 35.8 2 094 734 1 559 264 505 866 12 298 925 239 338 4.6 80.3

TABLE 19 Sheep–beef farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 2.1 44 530 34 487 –59 852 1 397 176 30 –4.3 99.9

2 2.2 67 308 71 192 –40 757 2 133 434 0 –1.9 93.8

3 3.1 84 325 74 043 –39 797 1 002 521 10 002 –1.5 95.1

4 4.0 124 083 111 757 –61 488 1 864 495 10 877 –3.3 96.2

5 5.6 146 585 97 269 –5 315 2 152 542 28 552 1.8 96.4

6 6.4 174 951 152 577 –37 405 4 406 743 –322 395 –0.6 94.8

7 7.9 222 069 162 850 –11 181 3 419 487 –17 969 0.2 91.9

8 11.2 301 075 206 522 30 747 3 350 516 –23 131 0.0 91.4

9 16.6 480 034 393 529 40 934 5 760 534 37 760 0.1 88.0

10 41.1 1 176 971 889 390 261 424 12 040 319 323 468 1.2 86.4



TABLE 20 Dairy farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 3.1 143 707 139 431 –27 557 1 503 911 9 821 –1.9 79.3

2 1.6 234 064 183 357 –12 934 894 097 168 668 1.2 87.7

3 4.0 307 725 221 522 3 086 2 137 121 62 883 –1.9 92.2

4 5.8 419 170 326 785 71 103 3 415 918 179 621 1.8 88.3

5 9.0 557 734 436 174 91 907 3 624 432 34 633 2.5 82.1

6 8.1 662 905 555 815 79 373 3 699 846 –93 943 1.8 73.5

7 11.2 842 590 703 903 154 326 4 667 787 76 326 1.8 75.5

8 13.5 1 001 417 810 809 234 967 4 981 383 118 214 4.7 72.1

9 16.3 1 223 759 973 721 254 841 5 699 878 153 580 4.1 78.2

10 27.6 2 057 188 1 711 686 411 092 8 272 698 293 065 3.8 73.2

TABLE 21 Vegetable farms, Australia, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 0.4 34 865 42 694 –77 986 903 701 0 –8.6 97.3

2 0.9 77 107 67 894 –58 580 1 304 430 –4 295 –5.0 93.6

3 1.3 116 223 90 106 –66 106 1 515 201 0 –4.4 94.9

4 2.0 169 104 125 085 –20 639 2 119 059 –15 960 –0.9 91.8

5 2.7 224 361 194 340 –53 332 2 177 274 53 147 –2.9 92.4

6 3.6 318 781 218 725 20 762 4 547 664 5 007 4.1 96.0

7 5.3 466 267 358 421 30 675 2 959 765 4 697 1.2 89.3

8 8.1 693 083 532 489 60 965 4 706 284 –27 550 1.2 88.6

9 13.3 1 156 232 910 320 144 758 5 846 243 28 250 6.0 81.8

10 62.5 5 395 081 4 243 992 1 069 571 13 632 698 145 983 8.9 80.5



TABLE 22 Wheat and other crops farms, Western region, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 0.6 57 114 73 442 –56 072 2 245 889 2 094 –2.5 96.2

2 1.2 120 122 127 542 –62 222 1 671 293 –1 055 –3.7 90.0

3 2.0 195 367 147 498 –19 829 3 775 649 –329 278 1.4 95.8

4 4.2 393 106 304 902 28 908 4 022 100 –18 175 4.2 92.0

5 5.3 566 783 438 953 115 574 3 690 556 51 740 6.3 77.2

6 8.0 773 241 584 108 104 510 5 291 983 180 441 0.6 80.3

7 9.7 998 013 763 424 327 182 6 043 546 208 896 3.8 77.0

8 14.1 1 368 476 1 051 897 307 880 6 577 813 –10 755 4.8 73.2

9 18.5 1 862 343 1 345 916 549 043 9 039 940 287 406 6.1 68.5

10 36.4 3 680 395 2 529 416 1 249 883 15 971 304 279 381 7.4 75.0

TABLE 23 Wheat and other crops farms, Southern region, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 1.1 67 915 67 796 –53 607 1 285 568 39 823 –6.0 93.4

2 1.9 116 161 101 137 –30 045 1 908 027 –48 945 1.4 93.4

3 2.6 175 730 143 104 –25 890 2 056 547 11 340 –0.3 89.8

4 3.8 234 894 171 524 –15 649 2 743 949 85 036 –0.6 93.0

5 5.0 315 611 212 271 38 264 3 048 425 24 047 2.0 92.7

6 6.4 402 274 277 361 46 929 3 151 894 72 539 1.1 88.3

7 8.9 554 670 390 393 90 760 4 204 207 41 502 2.9 86.3

8 12.7 783 779 510 334 179 719 5 120 367 160 101 4.6 85.9

9 18.3 1 171 717 767 631 359 041 7 004 552 197 357 5.5 85.0

10 39.3 2 461 461 1 675 351 712 574 12 017 578 399 436 6.6 79.5



TABLE 24 Wheat and other crops farms, Northern region, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 1.6 67 497 67 760 –62 761 1 658 860 31 217 –4.6 92.3

2 1.9 107 092 78 570 –34 872 2 021 036 –69 273 –1.8 95.3

3 2.5 131 216 125 943 –79 455 2 182 904 8 650 –3.7 95.4

4 3.5 169 747 164 488 –39 149 2 301 677 33 531 –1.7 86.6

5 3.6 198 012 158 445 –21 179 2 609 971 –56 659 –1.6 92.8

6 5.3 264 562 208 176 –3 779 3 848 733 14 966 –0.8 91.8

7 7.8 368 230 327 323 –8 068 4 803 671 89 804 0.3 88.1

8 10.5 553 999 416 636 71 388 5 335 094 74 731 0.1 87.6

9 16.3 820 846 650 569 82 492 7 738 662 17 546 0.6 84.5

10 46.9 2 378 932 1 795 335 525 070 17 892 799 258 944 2.8 80.2

TABLE 25 Beef farms, Southern region, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 1.8 30 396 53 682 –57 159 1 699 629 5 602 –3.4 97.2

2 3.1 49 932 48 344 –45 318 1 737 236 7 981 –4.3 96.1

3 3.0 60 289 64 688 –59 188 1 418 581 7 069 –3.3 99.3

4 3.9 72 300 65 085 –39 225 1 902 210 –50 012 –2.3 94.4

5 5.5 92 408 87 614 –55 487 1 947 230 11 394 –2.9 92.8

6 5.7 106 806 80 065 –30 808 2 592 556 48 342 –0.4 95.4

7 7.2 122 753 85 582 –43 276 2 972 270 6 736 –1.3 98.8

8 8.3 169 108 138 553 –41 237 2 782 918 –1 944 –1.2 93.9

9 14.4 259 804 197 790 –1 078 4 198 090 10 829 0.3 93.8

10 47.2 863 245 606 446 168 995 9 038 933 96 896 2.0 92.7



TABLE 26 Beef farms, Northern region, 2011–12 to 2013–14

Size decile

Output share (%)

Cash receipts ($)



Rate of return (%)

Equity ratio (%)

1 0.9 27 594 33 264 –35 598 1 837 211 31 807 –2.8 96.5

2 0.8 44 060 71 022 –102 542 1 645 041 –41 878 –8.5 98.2

3 1.8 72 206 109 702 –81 475 2 535 386 70 895 –4.2 88.7

4 2.7 109 382 95 062 –53 269 3 306 877 29 911 –1.7 97.4

5 3.2 134 629 127 150 –49 437 4 419 600 4 248 –3.1 96.0

6 4.8 193 512 188 108 –17 881 3 906 730 76 705 –2.5 88.3

7 6.7 268 044 214 771 13 495 5 147 050 4 691 –0.5 90.3

8 9.9 404 611 275 698 45 311 8 013 529 15 642 0.0 94.2

9 14.7 607 512 421 624 28 456 8 692 223 35 584 –2.4 89.6

10 54.5 2 226 183 1 766 686 303 454 23 729 119 149 656 –1.2 78.7


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 dataset is used for research and analysis that forms the basis of many publications, briefing material and industry reports.

The annual agricultural surveys are:• Australian Agricultural and Grazing Industries Survey (AAGIS)• Australian Dairy Industry Survey (ADIS).

Definitions of industriesIndustry 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, both 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)

ሲ farms engaged mainly in growing rice, other cereal grains, coarse grains, oilseeds and/or pulses

• Mixed livestock–crops industry (ANZSIC06 Class 0145) ሲ farms engaged mainly in running sheep and/or beef cattle and growing cereal grains, coarse grains, oilseeds and/or pulses

• Sheep industry (ANZSIC06 Class 0141) ሲ farms engaged mainly in running sheep

• Beef industry (ANZSIC06 Class 0142) ሲ farms engaged mainly in running beef cattle

• Sheep–beef industry (ANZSIC06 Class 0144) ሲ farms engaged mainly in running both sheep and beef cattle.

ADIS covers farms that are engaged in dairying.

Survey methods and definitions



Target populationsAAGIS 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.

The population list for ADIS is derived from farms that have paid levies based on their milk deliveries. This list is provided to ABARES by Dairy Australia and consists of dairy businesses with their corresponding region and total milk production. The design measure for ADIS is total milk production for each dairy business on the frame.

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). However, in some surveys in recent years other measures of agricultural production have also been used. 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). Since 2004‒05 the ABARES survey has included establishments classified as having an EVAO of $40 000 or more. Between 1991‒92 and 2003‒04 the survey included establishments with an EVAO of $22 500 or more. Between 1987‒88 and 1990‒91 the survey included establishments with an EVAO of $20 000 or more. Before 1987‒88 the survey included establishments with an EVAO of $10 000 or more.

Survey designThe 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 and for ADIS around 300.

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.



Sample weightingABARES 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 its 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.

For ADIS, the benchmark variables provided by Dairy Australia are:• total number of in-scope dairy farms• total milk production.

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 estimatesThe 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 projectionsEstimates for 2013‒14 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 2014‒15 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 2015‒16 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.

Sampling errorsOnly 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 errorsRelative standard errors can be used to calculate ‘confidence intervals’ that 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 $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6 000. This is one standard error. Two standard errors equal $12 000.

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 $94 000 and $106 000 ($100 000 plus or minus $6 000).

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 $88 000 and $112 000 ($100 000 plus or minus $12 000).



Comparing estimatesWhen 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.

For example, suppose the estimates of total cash receipts were $100 000 in the beef industry and $125 000 in the sheep industry—a difference of $25 000—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 $100 000 / 100)2 + (6 x $125 000 / 100)2) = $9605

A 95 per cent confidence interval for the difference is:

$25 000 ± 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 $6 174 and $43 826. 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.

RegionsBroadacre and dairy statistics are also available by region (Map 4). These regions represent the finest level of geographical aggregation for which the survey is designed to produce reliable estimates.

MAP 4 ABARES Australian broadacre zones and regions

311

313 332

314312

322331

321

132

131

121111

122123221

222 223231

631

431

422421

411

711

712

713511

714

512

522

521531

Pastoral zone

Wheat–sheep zone

High rainfall zone

Note: Each region is identi�ed by a unique code of three digits. The �rst digit indicates the state or territory, the second digit identi�es the zone and the third digit identi�es the region.Source: ABARES



For states other than New South Wales and Victoria, the Australian Dairy Industry Survey regions comprise the entire state (Map 5).

MAP 5 Australian Dairy Industry Survey regions, New South Wales and Victoria

231

11

12

1322

21 23

Note: New South Wales and Victoria are divided into multiple regions. These regions are indenti�ed by a unique two digit code. The �rst digit indicates the state and the second digit indicates the region within the state.Source: ABARES



GlossaryOwner–manager The primary decision-maker for the farm business. This person is usually

responsible for day-to-day operation of the farm and may own or have a share in the farm business.

Physical itemsBeef cattle Cattle kept primarily for the production of meat, irrespective of breed.

Dairy cattle Cattle kept or intended mainly for the production of milk or cream.

Hired labour Excludes the farm business manager, partners and family labour and work by contractors. Expenditure on contract services appears as a cash cost.

Labour Measured in work weeks, as estimated by the owner–manager or manager. Includes all work on the farm by the owner–manager, partners, family, hired permanent and casual workers and sharefarmers but excludes work by contractors.

Total area operated Includes all land operated by the farm business, whether owned or rented by the business, but excludes land sharefarmed on another farm.

Financial itemsCapital The value of farm capital is the value of all the assets used on a farm,

including the value of leased items but excluding machinery and equipment either hired or used by contractors. The value of 'owned' capital is the value of farm capital excluding the value of leased machinery and equipment.

ABARES uses the owner–manager’s valuation of the farm property. The valuation includes the value of land and fixed improvements used by each farm business in the survey, excluding land sharefarmed off the sample farm. Residences on the farm are included in the valuations.

Livestock are valued at estimated market prices for the land use zones within each state. These values are based on recorded sales and purchases by sample farms.

Before 2001–02 ABARES maintained an inventory of plant and machinery for each sample farm. Individual items were valued at replacement cost, depreciated for age. Each year the replacement cost was indexed to allow for changes in that cost.

Since 2001–02 total value of plant and machinery has been based on market valuations provided by the owner–manager for broad categories of capital, such as tractors, vehicles and irrigation plant.

The total value of items purchased or sold during the survey year was added to or subtracted from farm capital at 31 December of the relevant financial year, irrespective of the actual date of purchase or sale.

Change in debt Estimated as the difference between debt at 1 July and the following 30 June within the survey year, rather than between debt at 30 June in consecutive years. It is an estimate of the change in indebtedness of a given population of farms during the financial year and is thus unaffected by changes in sample or population between years.



Farm business debt Estimated as all debts attributable to the farm business but excluding personal debt, lease financed debt and underwritten loans, including harvest loans. Information is collected at the interview, supplemented by information contained in the farm accounts.

Farm liquid assets Assets owned by the farm business that can be readily converted to cash. They include savings bank deposits, interest bearing deposits, debentures and shares. Excluded are items such as real estate, life assurance policies and other farms or businesses.

Receipts and costs Receipts for livestock and livestock products sold are determined at the point of sale. Selling charges and charges for transport to the point of sale are included in the costs of sample farms.

Receipts for crops sold during the survey year are gross of deductions made by marketing authorities for freight and selling charges. These deductions are included in farm costs. Receipts for other farm products are determined on a farmgate basis. All cash receipt items are the revenue received in the financial year.

Farm receipts and costs relate to the whole area operated, including areas operated by on-farm sharefarmers. Thus, cash receipts include receipts from the sale of products produced by sharefarmers. If possible, on-farm sharefarmers’ costs are amalgamated with those of the sample farm. Otherwise, the total sum paid to sharefarmers is treated as a cash cost.

Some sample farm businesses engage in off-farm contracting or sharefarming, employing labour and capital equipment also used in normal on-farm activities. Since it is not possible to accurately allocate costs between off-farm and on-farm operations, the income and expenditure attributable to such off-farm operations are included in the receipts and costs of the sample farm business.

Total cash costs Payments made by the farm business for materials and services and for permanent and casual hired labour (excluding owner–manager, partner and other family labour). It includes the value of livestock transfers onto the property as well as any lease payments on capital, produce purchased for resale, rent, interest, livestock purchases and payments to sharefarmers. Capital and household expenditures are excluded from total cash costs.

Handling and marketing expenses include commission, yard dues and levies for farm produce sold.

Administration costs include accountancy fees, banking and legal expenses, postage, stationery, subscriptions and telephone.

Contracts paid refers to expenditure on contracts such as harvesting. Capital and land development contracts are not included.

Other cash costs include stores and rations, seed purchased, electricity, artificial insemination and herd testing fees, advisory services, motor vehicle expenses, travelling expenses and insurance. While other cash costs may comprise a relatively large proportion of total cash costs, individually the components are relatively small overall and, as such, have not been listed.

Total cash receipts Total of revenues received by the farm business during the financial year, including revenues from the sale of livestock, livestock products and crops, plus the value of livestock transfers off a property. It includes revenue received from agistment, royalties, rebates, refunds, plant hire, contracts, sharefarming, insurance claims and compensation, and government assistance payments to the farm business.



Financial performance measuresBuild-up in trading stocks

The closing value of all changes in the inventories of trading stocks during the financial year. It includes the value of any change in herd or flock size or in stocks of wool, fruit and grains held on the farm. It is negative if inventories are run down.

Depreciation of farm improvements, plant and equipment

Estimated by the diminishing value method, based on the replacement cost and age of each item. The rates applied are the standard rates allowed by the Commissioner of Taxation. For items purchased or sold during the financial year, depreciation is assessed as if the transaction had taken place at the midpoint of the year. Calculation of farm business profit does not account for depreciation on items subject to a finance lease because cash costs already include finance lease payments.

Farm business equity

The value of owned capital, less farm business debt, at 30 June. The estimate is based on those sample farms for which complete data on farm debt are available.

Farm business profit

Farm cash income plus build-up in trading stocks, less depreciation and the imputed value of the owner–manager, partner(s) and family labour.

Farm cash income The difference between total cash receipts and total cash costs.

Farm equity ratio Calculated as farm business equity as a percentage of owned capital at 30 June.

Imputed labour cost

Payments for owner–manager and family labour may bear little relationship to the actual work input. An estimate of the labour input of the owner–manager, partners and their families is calculated in work weeks and a value is imputed at the relevant Federal Pastoral Industry Award rates.

Off-farm income Collected for the owner–manager and spouse only, including income from wages, other businesses, investment, government assistance to the farm household and social welfare payments.

Profit at full equity Farm business profit, plus rent, interest and finance lease payments, less depreciation on leased items. It is the return produced by all the resources used in the farm business.

Rates of return Calculated by expressing profit at full equity as a percentage of total opening capital. Rate of return represents the ability of the business to generate a return to all capital used by the business, including that which is borrowed or leased. The following rates of return are estimated: rate of return excluding capital appreciation; and rate of return including capital appreciation.


ABARES 2015, Australian farm survey results, 2012–13 to 2014–15, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, March.

ABS 2001, Agricultural industries, financial statistics, Australia, Preliminary, 1999‒2000, cat. no. 7506.0, Australian Bureau of Statistics, Canberra, available at abs.gov.au/ausstats/[email protected]/cat/7506.0.

ABS 2006, Australian and New Zealand standard industrial classification (ANZSIC) 2006 (Revision 1.0), Australian Bureau of Statistics, cat. no. 1292.0, Australian Bureau of Statistics, Canberra.

ABS 2015, Agricultural commodities, Australia, 2013–14, cat. no. 7121, Australian Bureau of Statistics, Canberra, available at abs.gov.au/AUSSTATS/abs@nsf/DetailsPage/7121.02013-14.

Ashton, D 2004, ‘Sheep and wool outlook to 2008–09’, in Agricultural commodities: March quarter 2004, Australian Bureau of Agricultural and Resource Economics, Canberra.

Ashton, D, Cuevas-Cubria C, Leith, R & Jackson, T 2014, Productivity in the Australian dairy industry: pursuing new sources of growth, ABARES research report 14.11, Canberra, September.

Bardsley, P & Chambers, RL 1984, ‘Multipurpose estimation from unbalanced samples’, Journal of the Royal Statistical Society, Series C (Applied Statistics), vol. 33, pp. 290–9.

Dahl, A, Leith, R & Gray, E 2013, ‘Productivity in the broadacre and dairy industries’, in Agricultural commodities: March quarter 2013, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Gray, E, Leith, R & Davidson, A 2014, ‘Productivity in the broadacre and dairy industries’, in Agricultural commodities: March quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Gray, E, Oss-Emer, M & Sheng, Y 2014, Australian agricultural productivity growth: past reforms and future opportunities, ABARES research report 14.2, Canberra, February.

GRDC 2015, ‘Our grains industry’, Grains Research and Development Corporation, available at grdc.com.au/About-Us/Our-Grains-Industry.

References

mailto:abs.gov.au/ausstats/[email protected]/cat/7506.0

mailto:abs.gov.au/ausstats/[email protected]/cat/7506.0

References


Hughes, N, Lawson, K, Davidson, A, Jackson, T & Sheng, Y, 2011, Productivity pathways: climate adjusted production frontiers for the Australian broadacre cropping industry, ABARES research report 11.5, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Jackson, T 2010, Harvesting productivity: ABARE–GRDC workshops on grains productivity growth, ABARE research report 10.6 for Grains Research and Development Corporation, Australian Bureau of Agricultural and Resource Economics, Canberra.

Jackson, T & Martin, P 2014, ‘Trends in the size of Australian farms’, in Agricultural commodities: September quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Jackson, T & Valle, H 2015, ‘Profitability and productivity in Australia’s beef industry’, in Agricultural commodities: March quarter 2015, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Knopke, P, O’Donnell, V & Shepherd, A 2000, Productivity growth in the Australian grains industry, ABARE research report 2000.1 for Grains Research and Development Corporation, Australian Bureau of Agricultural and Resource Economics, Canberra.

RBA 2016a, ‘Bank lending to business—total credit outstanding by size and sector’, Reserve Bank of Australia, Sydney, available at rba.gov.au/statistics/tables, accessed 2 February 2016.

RBA 2016b, ‘Rural debt by lender’, Reserve Bank of Australia, Sydney, available at rba.gov.au/statistics/tables, accessed 2 February 2016.

Sheng, Y, Gray, E & Mullen, J 2011, ‘Public investment in R&D and extension and productivity in Australian broadacre agriculture’, paper presented at Australian Agricultural and Resource Economics Society conference, Melbourne, 9–11 February.

Sheng, Y, Jackson, T & Davidson, A 2015, Resource reallocation and its contribution to productivity growth in Australian broadacre agriculture, ABARES technical report 15.1, Canberra, April.

Sheng, Y, Mullen, J & Zhao, S 2011, A turning point in agricultural productivity: consideration of the causes, ABARES research report 11.4 for Grains Research and Research and Development Corporation, Canberra, May.

Zhao, S, Sheng, Y & Gray, E 2012, ‘Measuring productivity of the Australian broadacre and dairy industries: concepts, methodology and data’, in KO Fuglie, SL Wang & VE Ball (eds), Productivity growth in agriculture: an international perspective, CABI, Wallingford.

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