improving farm capital and asset utilization michael burgis dawid van der walt 1

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FARM-EDGE Improving Farm Capital and Asset Utilization

Michael BurgisMichael@farm-edge.com

Dawid van der Walt Dawid@farm-edge.com

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New rules for 21st Century Farming (courtesy of BRW)

• Become a business, not a way of life• Do not blame other countries; play a different game.• Grow what the market wants, not what has always been grown.• Do not pray for rain, make sure there is a supply of water.• Outsource activities such as ploughing, seeding, harvesting that can be

done cheaper and better by others.• Do not own land, buildings, equipment, stock or debtors.• Work the brain (intellectual property) harder than the body.• Add value at the farm, not the factory (i.e. high-quality fresh food is often

better than processed).• Have long-term contracts and relationships, not spot markets.• Franchise or be a franchisee wherever possible.

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FarmEdge plans to review:

Farm inputs: seed, fertiliser, chemical Farm outputs: sorghum, wheat, barley,

corn, canola, pulses, chickpea, etcFarm Operational Capital and Assets Improve asset utilisation, eg equipmentAnd more…

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HOW?

• Source and collate statistical information from each farm

• Review costs of production • Work out the Return On Investment /ha for current

practices• Need to identify commonality between grower

members• Propose improvement projects

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As an example commonality between grower members

Item Grower 1

Grower 2

Grower 3

Grower 4

tonnages per grower per crop

cost per tonne for each crop

total yield per crop

price per crop/ton (farm gate price)

fixed costs per ha/per farm

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The impact of the analysis Reduce input procurement costs

Increase yields and decrease costs of production

Market larger parcels of grains

Save on logistical costs

Share benefits

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Proposed revenue model

• Farm Edge as a service provider: 2% fee + 20% risk share

• Projects reviewed on individual case-by-case basis

• Start small with aim to grow membership base to expand group activity/turnover/profit

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Introducing Dawid

• Brief overview• With Michael – spent time looking at (mainly)

sorghum supply chain– From the grower point of view– From an end customer point of view– From a capital point of view

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Generic Supply Chain

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What Michael drew

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SWOT ANALYSIS – INDUSTRY WIDESTRENGTHS•Efficient production methods•Well positioned for strong export growth•Major exporter

WEAKNESESS•Climate dependency•Volatile global commodity markets•East coast road and rail logistics

OPPORTUNITIES•Management of production risks•Increased demand from Asia•Attainment of greater efficiencies

THREATS•Input prices•Protectionism in competitor markets•Climate change•Domination by few key buyers in the world

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SWOT ANALYSIS - GROWERSSTRENGTHSYou have:•the land•experience in working the land•the product•the infrastructure

WEAKNESESSIndividually it’s difficult to: •obtain benefits of scale•expensive to increase land holding•control actual cost of inputs•control / influence selling price•control / influence selling terms •manage Return on Investment

OPPORTUNITIES•“Co-opetition” – working together in some areas and competing in others•Both on-farm and across the supply chain•Form long term buy and supply relationships•Increase visibility across the supply chain to identify threats and opportunities sooner

THREATSIt may become uneconomic to produce due to:•Changes in weather patterns•Rising input costs•Uncompetitive commodity prices•Lack of supply chain partners•Labour shortages / Labour cost•Financial threats from rising interest rates•Family business succession planning

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A few assumptions

• You want to be growers• You want to be land owners• You want to grow the financial reward from

the above (increase ROI )• (and some wish to retire)

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What does the future hold?

• Due to the mechanical nature of the grain industry, it is likely that it will become more concentrated through either consolidation or corporate entrants into the industry

• It will allow the industry to be better equipped and backed to achieve economies of scale that individuals cannot achieve

• VIRTUAL CORPORATISATION

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Virtual Corporation

Growers’ focus

Land Management

Time Management

Crop Management

FARM EDGE

Farm Edge’s focus

Sourcing

Sales and Marketing

ResearchShared Services

Business Development

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VIRTUAL CORPORATISATIONWhy do it?

• Increase efficiencies on-farm• Look across the farm boundary• Look at the entire supply chain• Increase ROIROI = Return from investment – Cost of investment Cost of Investment

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Supply Chain Analysis Roadmap1. Obtain Required

Information

3. Identify Opportunities

2. Investigate Current

Situation

4. Confirm Opportunities

5. Confirm Strategies

6. Plan and Implement

Change

7. Ongoing Measure and Management

8. Identify New Opportunities

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THE PROVEN PATH TOSUPPLY CHAIN OPTIMISATION

• At all levels: EDUCATE EDUCATE EDUCATE• Get the upfront commitment from all supply chain

stakeholders to the optimisation process• Design SCM processes so that they enable the business

strategy• Apply the necessary enablers to achieve full optimisation• Think global but plan to eat the supply chain elephant

one bite at a time• Use the “class A” methodology to ensure an exhaustive,

balanced and continuous improvement process

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EDUCATE

• Start with existing groups• Use the website http://www.farm-edge.com

(please sign up for our newsletter)

• Communicate: what do we need to learn more about?– Supplier education– Co-opetition– Analysis, etc.

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Stakeholder commitment

• YOU are the stakeholders• 1st commitment:– Agree to explore– In order to explore, we need information from you– The more detailed and accurate the information,

the better– It will be treated with the utmost confidentiality

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Obtain Required Information

• Farm-Edge has developed a questionnaire• Participating growers complete the questionnaire• Growers committing today – no charge• Growers joining at a later stage – administration

fee applies• GOAL: to analyse data on– Individual level– Group level

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The questionnaire• Basic Farm Information– Farm name– Owners– Address– Size– Etc

• Specific Information– Crops and crop history– Assets and infrastructure– Liabilities and commitments– Past performance

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Expand scopeStill work on “early

payback” rule

Launch key initiatives

“Early payback” rule

Design Process, Systems, Organization and Resources

InfrastructureDevelopment

Implement and Institutionalize

Apply Lessons

Extend across all groups

From the questionnaire - Develop a high level roll-out plan

Build infrastructure for sustainable change

Ensure regular Quick Wins

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Sample AnalysisInput Cost Item

? Time

? Equipment

? Fuel

? Weed Control

? Fertiliser

? Seed

? Land

? Wages & on-costs

?

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Next steps

• Decide whether to participate• Complete the “Commit to Explore” agreement

and return it• Receive and complete the questionnaire

•Questions and discussion