HOME
Productivity
Cost of Production

Productivity

Understanding your cost of production is the cornerstone of good business, 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 in the face of market forces.

To understand your cost of production, use an enterprise costings exercise to help with the questions you want to answer; identify where the high costs are impacting the margins in your business and plan to reduce them where possible.

Cost of Production

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: 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.

Activity

Review Your Year

Review your year to date and focus on your system, your management, and your stock, taking time to evaluate where the main costs in the business are. Ask yourself tough questions about how where the costs in your business come from:

- Are the main costs incurred, in the setup of the business or how you manage it?

- Are you utilising a type of stock that doesn’t fit your farms profile?

- Are costs incurred to improve return or to add convenience?

- How many costs are critical and could not be removed?

- How many could be removed?