What are the benefits and limitations of farm benchmarking?

All this week on Table Talk, we are talking benchmarking, or comparative analysis.

We’ve rounded up some information from farm benchmarking experts to answer some frequently answered questions to unpack the concept and how it can be a helpful tool to analyse and improve your business.

Today, we ask the following questions:

  1. What are the benefits of farm benchmarking?
  2. What are the limitations of farm benchmarking?
  3. Why aren’t more farmers benchmarking?

What are the benefits of farm benchmarking?

  1. To make educated decisions about your business, you need facts and statistics. Business Benchmarking gives you a greater understanding of your business, you will know exactly how it is performing, rather than making assumptions.  Having this data on hand will enable you to develop strategies to improve business performance (Proadvice).
  2. It is a tool that can be used to help identify excessive costs and inefficiencies, and thereby help solidify and stabilise the financial structure of farms, and increase business competitiveness (Franks, Collis).
  3. The bench marking opportunity allows you to explore the strengths and weaknesses of your business which leads to astute decision making to achieve additional profits whilst identifying areas for cost cutting and value-adding to your bottom line (Monaro Farming Systems).
  4. Understanding your entire business and being able to benchmark its performance are essential tools in the long-term success of your farm (Walter and Lovett 1998) (Ronan and Cleary).
  5. Benchmarking can highlight the production and management practices and processes that are driving enterprise costs of production and profitability. One farm’s ‘drivers’ may differ from that of other farm businesses. Knowing what and why helps the farm manager to review the scope for change (Ronan and Cleary).
  6. Benchmarking has the potential to add more objective business comparison information to the type of information that farmers have traditionally valued from field days, farm walks, group networks and consulting services. So, while it may be a different tool, it is just another way of getting more of the same ‘learning by comparison’ information that farmers have drawn upon in the past (Ronan and Cleary).
  7. There is some value in knowing benchmarks for basic performance (such as maximum crop yields, stocking rates and lambing percentage) to give context within your district, if for no other reason than to gain an understanding of what is possible (GRDC).
  8. Farm benchmarking will help you achieve high levels of profitability, sustainably over time. By identifying what the best producers are achieving from similar farms, benchmarking will allow you to get a more accurate fix on how much room there is for you to improve. Benchmarking analyses business performance and will provide the basis of good decision making to achieve additional profit (Holmes & Sackett).
  9. Comparative analysis helps with paddock and enterprise selection (Phil O’Callaghan, GRDC).

What are the limitations of farm benchmarking?

  1. No two businesses – or business people – are the same, so care is needed when comparing your business to others, as you may not be comparing ‘apples with apples’. ´ Defining your goals will help clarify what is most important to measure. ´ Benchmarking figures alone may be of little use without understanding their context (GRDC).
  2. Benchmarks are usually easily calculated and readily available. However, one of their limitations is that they commonly focus on components of the business rather than the whole farm and it can be difficult to interpret such indicators in isolation (GRDC).
  3. Benchmarking is a lot of work for a limited result. While industry still has experienced and capable extension officers, options analysis (budgeting) on practices currently in use, or not yet in use but revealed by research, will achieve a faster result than benchmarking (Future Beef).
  4. Benchmarking may tell you that something is wrong, but it may not accurately identify where the problem lies or what is most profitable for your business (GRDC).
  5. The role of benchmarking information can therefore be seen as an important supporting source of background information. It is not a replacement for a proper farm business analysis (GRDC).

Why aren’t more farmers benchmarking?

  1. Management time and expertise is often a key constraint in farming. It is not possible to justify spending managerial resources on benchmarking if the systems required to facilitate accurate comparisons and to be able to identify beneficial production processes that are likely to increase profitability are not in place (Franks, Collis).  
  2. Understandably, business operators are often reluctant to discuss publicly the performance of their own business (GRDC).
  3. McGonagle (1993) believes that many businessmen and farmers believe that benchmarking is the domain of only the largest firms (Franks, Collis). 
  4. But only a relatively low proportion of farmers benchmark. This may be because farmers do not know how to benchmark, or it may be because they can seen no benefit in benchmarking (Franks, Collis).  
  5. Are you performing adequately? What are your cost and income trends? How does your farm compare with other similar farms? Where should you concentrate your efforts to get the most improvement? To answer these questions many growers often end up relying on intuition or subjective and generalised information rather then objective analysis of their specific farm (Phil O’Callaghan, GRDC)

Previous post: What is Farm Benchmarking and what does it involve?

And, in our final post, we will help you get started on your benchmarking journey.

Head over to our Farm Benchmarking Toolkit to learn more.