Focused expenditure is key for optimal performance: Grain market daily

The importance of cost management is one of the key take-aways from ‘The Characteristics of Top Performing Cereals and Oilseeds Farms in the UK’ report, in particular ensuring that expenditure is focused on achieving optimum margin and output.

As margins are inherently tight within a commodity business, top performers carefully manage and optimise costs in order to maximise profit from turnover, striving to improve their business efficiency. The report highlights that total costs are much lower per hectare for top performing farms, which seems obvious. But an important distinction was that high performers spend more on variable costs that directly impact yield and turnover and less on overheads. Poorer performing businesses have been found to spend more than one-third extra on overheads for every £1 spent.

The report showed that spending on variable costs that improve the output per hectare and output per £ spent, such as seed, fertiliser, crop protection, and contracting was significantly higher for top performers. Additionally, the report highlighted that top performing farms have lower fixed costs, notably for power and machinery. This demonstrates that although shrewd expenditure is key, spending more in targeted areas of the farm business makes good financial sense should the forecasted return be greater than the expenditure. For example, contracting is a significantly greater expense for top performers but there are several tangible and intangible gains that can result in greater efficiency for the business overall, such as reduced depreciation costs or access to better machinery for the task at hand.