Conclusion
It is the effective management of price, production and costs that drive profit. Whilst price is generally the leading profit driver by a small margin, effective management of all three profit drivers is essential. Every business has different cost structures and essentially the smaller the profit the larger the profit impact (in percentage terms) of small changes in each of the profit drivers. The more diverse the business the smaller the profit impact is of any one price or production shock, thus creating a more resilient business through the cycle.
Farm businesses should critically assess their cost structure and its flexibility under different seasons and through a series of seasons, to gain a better perspective of how reliably the business can generate profit. Once the cost structure and profit resilience is well understood decisions on appropriate debt levels and price targets can then be made without unduly jeopardising the health of the business.
There are number of strategies adopted by farm business managers to manage price, costs and production volume and some of these have been discussed in this article. Furthermore the management and organisational behaviours of the top performing farm business managers illustrate what is required to ensure business success.
To find out more information on managing your profit drivers contact your farm advisor, planner, accountant, banker or attend training workshops such as the Planning for Profit workshop run by DPIRD.