Farm Table says:
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:
- Southern Midlands: 1,800 hectares, grass clover pastures, 600mm rainfall (winter/spring dominant)
- North West Coast: 1,100 hectares, grass clover pastures, 1,100 rainfall (spring summer dominant and autumn break)
Three different enterprise types were modelled:
- Beef cattle breeding and finishing (diversified);
- Beef cattle breeding only (specialised); and
- Beef cattle finishing only (specialised).
What were the key findings?
10 rules of thumb for a profit share agreement were outlined:
- Coordinate production
- Balances the pros and cons of specialisation
- Minimise the costs of risk and uncertainty
- Reduce the cost of post-agreement opportunism
- Do not kill cooperation
- Motivate long-term agreements
- Balance the pros and cons of renegotiation
- Reduce the direct costs of the agerement
- 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.
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.