BY STEFF CARSTAIRS, PLANFARM

From the shore, a wave is a wave. You can’t tell, at a distance, whether the arm going up is someone waving hello or someone going under – the movement looks the same either way.

There’s a stoicism in the vegetable industry and immense pride in the produce, hard work and family legacies built over generations. Yet, there can be a reluctance to put a hand up when it comes to the numbers, the way they would for a pest outbreak or an irrigation issue. The hesitation isn’t around the field work, but the business strategy behind it.

The most up to date industry benchmark dataset from the Hort Innovation funded Level Up Hort program shows an alarming trend. The businesses most at risk aren’t always visibly struggling from the outside. Sometimes the vital signs are difficult to spot even from the inside, because the most watched number in any business – income – can disguise a drowning signal as a wave, masking an eroding margin.

Here’s why. Income scales with how hard you’re working the land, whether you plant more intensively, and how much of the supply chain you take on yourself. As those activities expand, your top line grows and you generate more income. Margins, however, don’t move by the same measure. They depend on input efficiency, and particularly on labour efficiency. That is, margins improve when each person on the payroll generates more profit.

National vegetable benchmark data shows the gap in profit-per-labour-unit between the most and least profitable businesses is running up to seven-fold, bigger than the gap in income (two fold) or costs (1.36 fold). Two businesses can generate similar income and land on opposite ends of the profit line, and the difference is rarely the crop type, location or the season. It’s what’s happening in cost lines such as labour that is not being watched as closely as the top line.

One option in the face of an eroding margin is to do nothing. Wait for supply to drop off as growers continue to cut programs or exit, and hope prices improve. Even if that pays off, it may only move income. It may not move what is actually driving the gap between profitable growers and the rest; input efficiencies, labour productivity and a profitable enterprise mix. A better price doesn’t fix a labour structure that’s costing you more than it should to derive the income you get, and it doesn’t fix a poor crop that’s quietly bleeding the margin that a better-performing line could improve. Hoping for the market to turn isn’t a strategy. Rather, it’s outsourcing a problem that could be fixed internally.

In the Level Up Hort program, we provide a one-to-one in-depth investigation of production, profit and balance sheet of your business. That is the most important part of the program. From there we produce anonymised industry benchmarks to measure your business numbers against (much like a soil test). From here, we can look deep into your business for opportunities to regain profit margin, separating the levers beyond your control from those directly within reach. It’s not about telling you what to do but giving shape to what the numbers are already trying to tell you.

Through the numbers we pinpoint where the bleeds are and work with you to identify opportunities to stem them. Left unchecked, this bleeding erodes your equity and reduces business net worth, and in today’s uncertain environment, preserving every bit of equity you can is more important than ever.

Interestingly, the more profitable businesses in the benchmark aren’t the ones with better prices or seasons. The data doesn’t show that pattern. Instead, it shows that these profitable businesses understand how their labour and other input cost lines affect margins, and they’ve stopped growing crops that quietly cost them more than they generate in returns. It’s not luck or the market being kind. It’s decision-making based on good data, that any grower can apply, regardless of anyone else’s season.

Take Luke and Jessica. They already knew labour costs were climbing and the season had been brutal. What they didn’t have was the number that explained why it felt so hard. Labour was running at 48 percent of farm income against a 35 percent industry average, and their efficiency to turn operating costs into income had declined, meaning they were burning more to make the same money. While theirs is a self acclaimed relatively small business, the benchmark data confirms that this pattern repeats at scale. The highest-labour crop types can earn well ahead on income and retain half the margin of a leaner operation.

Two businesses can generate similar income and land on opposite ends of the profit line.

Once Luke and Jessica saw the numbers, they didn’t retreat. They shifted focus. They reduced backpacker labour and increased retained, experienced staff, adopting a strategy to gain more from every labour unit. They dropped labour-hungry crop lines with little or no return and focused on their more profitable lines instead. None of that took a rescue plan, just a hard, confidential look at where they sat against the national benchmark, and they set a date in the calendar to check back in with their consultant. A simple strategy, with no big announcements, they quietly took the guesswork out of their decision-making and let the numbers guide them.

The vegetable industry is facing a precipice. Businesses that remain profitable in the current climate won’t be the ones that waited for prices to turn. They’ll be the ones that stopped guessing the costs before the guessing costs them more equity or their business entirely. They’ll make the call, put the numbers on the table, and take action to stem the bleeding immediately. Others may choose to wait or solve it on their own, but that delay can allow the financial pressure to build until recovery becomes far more difficult. Level Up Hort exists to make sure that is not the only option. Quiet work, with a lasting impact – and it starts with a hand up.

Five ways to find the margin you didn’t know you had

1. Know your labour cost against the benchmark, not just your gut feel

National data shows a seven-fold gap in profit-per- labour-unit between the most and least profitable vegetable businesses, larger than the gap in income or costs. Find out which side of that gap you sit.

2. Chase productivity, not headcount

The goal is more output per person, not fewer people. Invest in a retained, experienced team, and where labour units don’t match productivity, tighten this specific area rather than broad labour cutting.

3. Know which crops are earning their place

The highest-income crop types in the national benchmark often hold the thinnest margins. A crop that grows income may be quietly costing you more than it returns. Run an enterprise analysis, know and understand how each crop contributes to profit.

4. Resist the instinct to cut inputs

Cutting fertiliser, chemical or crop inputs to save money is the fastest way to shrink saleable yield and this shrinks margin faster than the cost of the input ever did. Seek cost control in specific areas, not across the board cost cutting.

5. Put one number on the calendar

Labour cost as a percentage of income, or profit per labour unit – pick one, measure it, and commit to checking it again in three months.

FOR MORE INFORMATION
Please contact Level Up Hort Project Manager, Steff Carstairs 0428 712 852 steff@planfarm.com.au | leveluphort.com.au