Development and Demonstration of a Beef Industry Profit-Share Agreement

Meat & Livestock Australia - Macquarie Franklin

Type: Research Paper
Knowledge level: Advanced

Farm Table says:

Interesting modelling study, but recommendations and conclusions not very clear from the data presented..

What is the problem?

This research focused on the energy requirements of delivering an animal to market. It wanted to investigate whether a profit share arrangement that split key tasks based on specialisation could reduce risk, increase utilisation of resources, increase utilisation of pasture and increase beef production/hectare and business profit.

The project aimed to:

Allow breeders and finishers to share in the profits of both enterprise types on an equitable basis, while running either a specialised breeding, or specialised finishing enterprises (the most profitable) on their farm.

What did the research involve?

An Excel-based whole farm bioeconomic model was built. It was based on two Tasmanian farm types:

  1. Southern Midlands: 1,800 hectares, grass clover pastures, 600mm rainfall (winter/spring dominant)
  2. North West Coast: 1,100 hectares, grass clover pastures, 1,100 rainfall (spring summer dominant and autumn break)

Three different enterprise types were modelled:

  1. Beef cattle breeding and finishing (diversified);
  2. Beef cattle breeding only (specialised); and
  3. Beef cattle finishing only (specialised).

What were the key findings?

10 rules of thumb for a profit share agreement were outlined:

  1. Coordinate production
  2. Balances the pros and cons of specialisation
  3. Minimise the costs of risk and uncertainty
  4. Reduce the cost of post-agreement opportunism
  5. Do not kill cooperation
  6. Motivate long-term agreements
  7. Balance the pros and cons of renegotiation
  8. Reduce the direct costs of the agerement
  9. Use transparent agreements

Key findings included:

  • reductions in transport costs to and from the point of sale
  • a decrease in levies
  • ability of farmers to specialise in either breeding or finishing.

Final Comment

The profit share agreement detailed in this study provides a practical tool that farmers can use run a specialised enterprise, specific to their individual farm, while minimising the impact of variability and market risk on their profit.

2011 - Australia - Meat & Livestock Australia - Macquarie Franklin
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