Financial Performance of vegetable Growers’
Financial performance of vegetable farms, by State
- Average cash income per vegetable farm in Australia fell by 3.4% in 2007-08 from the previous year. Average cash receipts were flat in 2007-08, but costs rose by 1.6%.
- The largest increase in average income in 2007-08, by a considerable margin, was in Tasmania; a substantial rise in income due to higher prices received led to a 56% increase in receipts which outstripped a 31% rise in costs. Tasmanian growers still had the lowest average income but the figure was closer to the national average than in the previous two years.
- Average farm income in New South Wales, Western Australia, and Victoria, rose by 8-11% in 2007-08. Average income in the Northern Territory rose a more modest 2.6%. Average incomes fell by 27% in Queensland, and by 11% in South Australia.
- Western Australia displaced Queensland to become the state with the highest average farm income in 2007-08, with incomes 30% above the national average.
- Average cash receipts rose in all states in 2007-08 except Queensland which experienced a 17% decline following the substantial 72% increase achieved in 2006-07 following the drought impacted 2005-06..
- Queensland was also the only state where average costs fell, declining by 12% in 2007-08, again following a strong 60% increase in the previous year. Increases in average costs in the other states ranged from 1.4% in Victoria to 24% in Western Australia and 31% in Tasmania (and 46% in the Northern Territory).
Vegetable farms with negative farm cash income
- Negative farm cash income (receipts – costs) is non-sustainable in the long run. In the short term growers in this situation have to rely on borrowed funds or off farm income.
- Although there was an improvement in the number of vegetable growers reporting negative cash income, 13% had negative cash income in 2007-08, down from 17% in 2006-07.
- There is significant variation in the performance of farms in individual states, both within a specific year and from year-to-year.
- In the latest vegetable farm survey, no farms in the Northern Territory and only 2% of farms in New South Wales reported negative cash income, compared with proportions of over 20% doing so in South Australia and Victoria.
- In Tasmania, 19% of farms had negative cash income in 2007-08, down sharply from 44% in 2006-07 due to improved receipts. The proportion of farms with negative cash income also declined in New South Wales, Queensland, and the Northern Territory, but rose in the other states.
Farm business profit of vegetable farms
- Farm business profit reflects the business return to vegetable growers and takes account of all costs including depreciation, changes in stocks and an imputed cost for own and family labour.
- Average farm business profit in Australia which rose sharply in 2006-07 following the drought impacted 2005-06 but fell back 9% in 2007-08 to $75,000.
- The biggest change was in Tasmania, with the strong rise in income reflected in an average profit of $32,000 per farm, a major turnaround from an average loss of $55,000 incurred in 2006-07.
- Average profits in 2007-08 rose by 55% in Victoria and by 20% in Western Australia, but declined in other states.
- Reflecting the changes in average incomes, farms in Western Australia became Australia’s most profitable in 2007-08 with average profit of almost $123,000, ahead of Queensland where average profits fell to $110,000, 40% below the previous year’s result.
- The lowest average profits were in New South Wales which, at around $29,000 in 2007-08, were less than 40% of the national average. This reflects the dominance of smaller vegetable farms in the Sydney basin area.
Rate of return to capital, excluding capital appreciation
- The average rate of return to capital, excluding capital appreciation, for Australian vegetable farms fell slightly to 4.0% in 2007-08 from 4.2% in 2006-07. These returns in general exceed the rates of return achieved in the broadacre industries.
- The strongest rates of return were recorded in the Northern Territory (5.8%), Western Australia (5.0%), and Queensland (4.9%).
- The lowest rates of return were New South Wales (2.4%), Tasmania (3.3%), and Victoria (3.6%).
- The biggest improvements were in Tasmania (from -0.9% in 2006-07 to 3.3% in 2007-08) and Victoria (from 2.4% to 3.6%), and the sharpest deteriorations were in Queensland (9.4% to 4.6%) and the Northern Territory (9.6% to 5.8%).
Financial performance and debt characteristics of different vegetable farms
- Farm cash income of specialist potato growers rose by 2.9% in 2007-08 from 2006-07 to $164,000, reflecting a 1.1% rise in cash receipts and a 0.4% increase in cash costs.
- Profits of specialist potato growers rose by 11.2% over the same period to $69,000, and the rate of return on capital excluding capital appreciation improved from 3.2% in 2006-07 to 6.7% in 2007-08. The equity ratio was steady at 90%, farm business debt rose by 11% to $341,000, and the debt servicing ratio rose from 4% in 2006-07 to 5% in 2007-08.
- Farm cash income of specialist tomato growers fell by 21% in 2007-08 from 2006-07 to $147,000, reflecting declines of 19.1% and 18.4% in cash receipts and cash costs respectively.
- Profits of specialist tomato growers fell by 47.1% over the same period to $56,000, and the rate of return on capital excluding capital appreciation fell from 7.0% to 4.6%. The equity ratio dipped from 86% to 84%, farm business debt rose by 8% to $295,000, and the debt servicing ratio rose from 2% to 3%.
- Comparisons between growers of potatoes, tomatoes, and other vegetables show that those in the other category had the highest cash income and best profit in 2007-08, displacing tomato growers who had the leading position in these categories in 2006-07.
- A prominent feature of the financial performance of growers in the other category in 2007-08 was a sharp increase in farm business debt from $222,000 in 2006-07 to $423,000 in 2007-08, compared to the more modest increases in the farm business debts of tomato and potato growers.
Cost of production per tonne for vegetable producers
- Cash costs for root vegetables are much lower than above the ground vegetables reflecting lower harvesting costs.
- Carrot growers had the lowest costs per tonne at $213 in 2007-08 and it is no coincidence that carrots are Australia’s leading fresh vegetable export.
- Potato growers have experienced the lowest increase in cash costs per tonne since 2004-05 with a cumulative rise of 13% to $240.
- Cash costs per tonne (excluding imputed labour costs) in 2007-08 were only 2.3% lower than if these costs are included for carrots, but 8.7% lower in the case of cauliflowers.
Components of costs of production for vegetable growers
- The components of costs of production of ten vegetables are examined and broken into thirteen components.
- The actual dollar cost of production in 2007-08 is highest for broccoli ($1113), with broccoli production incurring the highest actual dollar costs in 8 of the 13 categories.
- The next most costly vegetables to produce are tomatoes ($764), cauliflowers ($727), and pumpkins ($661). Tomatoes incur the highest actual dollar costs for contracts paid and freight, cauliflowers for packing material and labour, and pumpkins for repairs and maintenance.
- The most significant cost components for all surveyed vegetables are hired labour (19% of total costs), fertiliser (10.5%), contracts paid (10.4%), and repairs and maintenance (8%). A miscellany of small cost items are grouped together in an ‘other costs’ category, which accounts for 20% of total costs.
- Analysis of individual cost components as a proportion of total costs reveals that fuel and oil costs are heaviest for potatoes, accounting for 10.4% of total costs, well above the average of 6.6% for all vegetables.
- Hired labour costs are highest for lettuce (almost 27% compared with an average of 19%), contracts paid are highest for tomatoes (22% vs 10.4% average), fertiliser for potatoes (16.3% vs. 10.5% average), repairs and maintenance for beans (10.2% vs. 8.1%), seed for broccoli (11.7% vs. 7.6%), spray and chemicals for onions (7.5% vs. 5.5%), and labour costs for cabbages (11.2% vs. 5.6%).
- The other individual components account for 2.5% or less of total costs on average for all vegetables. Electricity costs account for 2.5% of the total, administration for 2.4%, freight for 1.1%, and packing materials for just 0.3%.
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