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Title: Annual 2006 Boyce Cotton Comparative Analysis
Authors: Newnham, David
Keywords: comparative
best management practices
profit margins
cotton inputs
water reliability
economic analysis
Issue Date: 30-Jun-2008
Publisher: Boyce Chartered Accountants
Series/Report no.: ;CRC145
Abstract: The 2006 Australian Cotton Comparative Analysis (ACCA) is the sixth report produced by Boyce Chartered Accountants in conjunction with the Cotton Research & Development Corporation (CRDC) / Cotton Catchment Communities CRC. In this report, we present an analytical review of the 2006 results, a comparison with prior years and comments on emerging trends. Feedback from participants and growers has been very positive. The clear message in this and previous reports has been the required focus on yield as opposed to cost reduction or price enhancement. In the 2005 report we highlighted that, due to drought in the 2003 and 2004 years, the reduction in area grown on each farm during these years caused a significant increase in the per hectare non direct costs such as depreciation, interest, wages, repairs and maintenance, and channel spraying. When reviewing the ten year schedules, this needs to be taken into account. To state the obvious, water makes a world of difference. Again in the 2006 year the area of cotton grown has been significantly effected by water shortages (but not quite to the extent of 2003 and 2004). The industry has been hit by the unreliability of water in the past few years. It is worthwhile to stress that, in drought years, a grower may not be included in this analysis as they may not have grown a crop under normal irrigation practices. If you assume that the figures would not have shown good profits in that year, then the 5 and 10 year average figures should not be used as an indicator for industry profitability. As a general statement, the 10 year average figures should not be used when analyzing the profitability of the industry as a whole without making an allowance for the drought years where the figures on non irrigated farms will not be included in the report. • As in previous years, the analysis includes the results of farmers who were able to plant, grow and pick their crop using close to normal irrigation practices. In the sample there may be some growers who had to stretch their water or were unable to give part of their crop a final water. The total number of hectares in the sample decreased again due to a decrease in the availability of water throughout many of the cotton growing areas of Australia. The average hectares planted per participant decreased from 1,027 hectares in 2005 to 889 hectares in 2006. • It is important to note that the analysis does not show the health of the cotton industry. Where a cotton grower grew skip or solid cotton that did not receive the full water, or grew no cotton at all, these figures are excluded from the analysis. In most, if not all cases, these alternate crops would have returned a reduced profit in comparison to growing fully irrigated cotton. Therefore, although the grower may have made a healthy per hectare profit on the hectares grown, the net profit of the total farm would have been significantly less than if the grower was able to have normal production. PAGE • While recognising marketing as an important part of management, growers and interested parties were concerned that participants in the top 20% may be there only due to receiving a high cotton price and not as a result of good farming practices. Alternatively, good cotton growers, due to adverse currency, lint and basis positions, may have been excluded from the top 20%. As many growers review their operation against the top 20% to look for areas of improvement, it was suggested that the top 20% and bottom 20% be selected using an average price. We have therefore selected the top 20% and bottom 20% by substituting the price that the grower received with a price of $375. This was the average net price for all participants. Using this average price, the participants with the highest and lowest operating profits per hectare were noted for inclusion in the top and bottom 20%. Even though the average price was used to select the participants in the top and bottom 20%, the growers’ actual figures are reported in this analysis. Financial analysis using comparative statistics helps farmers identify relative strengths and weaknesses. Accompanying budgets and long term business plans will then focus on ways to overcome weaknesses and build on strengths. In other words, this comparative analysis is a management tool to implement change and to identify where effort should be directed on a day to day basis. Obviously, this analysis does not provide all the answers. It is a benchmark or a standard to strive for. It is up to management to develop and implement specific action plans, based on their improved knowledge, to reach new goals set. These reliable, independent figures are the starting point for farmers to develop "best practice". We encourage participants in this survey to discuss their results with us and to clarify any queries, so everyone can develop a better understanding of the industry.
Appears in Collections:2008 Final Reports

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