Meating our Potential: Productivity

Understanding your cost of production is the cornerstone of good businesses, and fundamentally, the reason many farming businesses are so heavily impacted by changes in the market.

Farm businesses have little influence on price. But have more influence on costs. Low cost systems can produce exceptional products and maintain a high standard of production while being resilient to market forces.

To understand your cost of production, use an enterprise costings exercise to help with the questions you want to answer.

SIMPLE SUMS:

Below is an example of cost of production in action.

• Farm A obtains a higher price for its stock than Farm B
• Farm A also has a higher cost of production than Farm B
• Farm A makes a higher price but as its cost of production is higher, its margin is tighter
• When margins are tight there is more risk of losing it.
• When margins are large, there is more room to mitigate for changes in price.