IMPACT ASSESSMENT

The ultimate way to assess the GRDC’s performance in delivering on its purpose is to measure the impact of the GRDC’s RD&E investments on Australian grain growers’ profitability.

However, this is complicated by factors such as the following:

  • The grains industry is very complex and varies greatly across location, farming system, farm type, enterprise mix and the specific financial circumstances of individual grain-growing businesses (e.g. equity). Measures of profitability vary widely between farms and even across seasons within a single farm. Arriving at performance indicators that have relevance at a national level is therefore difficult.
  • There is no single collection of profit data across the grains industry to support measurement. Some private sector advisers, however, do currently collect some financial performance data to assist their clients, particularly in business benchmarking exercises.
  • The long lag times between the conduct of R&D, the adoption of R&D outcomes on farm, and the impact of those outcomes on profit, as well as the number of interacting variables that can affect profit, make it difficult to directly link R&D investments to impacts.

The GRDC will aim to develop new impact assessment tools during the life of this five-year plan. Of major importance will be the establishment of farm performance data sets that allow the collection of data from like farms (e.g. based on region, enterprise mix or size) for analysis of trends in yield, price, input costs and management of risk that will inform future RD&E priorities. Aggregation of the data will also allow for more accurate assessment of the impact of GRDC RD&E investments.

The GRDC’s performance measurement framework will be dynamic, and will be continually reviewed and updated as new information is generated and new learnings on best practice are adopted. The GRDC aims to work with industry to develop performance measures that are relevant locally, regionally and nationally.

Key investment targets

Consultation with growers, researchers and the wider grains industry has identified 30 KITs that underpin the delivery of the GRDC’s purpose. A full strategy for the delivery of each KIT will be developed over the period of this RD&E plan. The GRDC has worked with a range of stakeholders to determine the relative urgency of developing and implementing each KIT strategy.

Utilising a program logic framework, each strategy will clearly outline:

  1. outcome—the desired impact of the investment on meeting a priority objective and purpose. The outcome clearly outlines the practice change expected and the target(s) for impact assessment.
  2. gap analysis—identification of gaps in MAKAT that must be addressed to deliver the outcome. This includes the use of external expertise to inform analysis, develop business cases to support the expected return on investment, and assess technical feasibility and adoption risk.
  3. impact assessment—the measures and methods that will be utilised to determine the effectiveness of the investment, as outlined in the outcome.

Overviews of KIT strategies will be communicated widely and reviewed regularly to assess performance and adjust focus in line with agile investment processes.

Objectives

Objectives will be monitored over a longer timeframe, as the cumulative impacts of KITs. The GRDC will utilise a combination of data from the Australian Bureau of Statistics and ABARES, information from industry and other survey data to track improvements and/or declines in achieving objectives, but will need to make assumptions to attribute effects to RD&E outputs and outcomes.

Measures will make wide use of case studies to describe the links between RD&E and practice change at the farm or industry levels. For example, it is well established that planting at the optimum time has a major impact on grain yield potential but the time of planting is constrained by the need to manage the risk of frost (in sowing earlier) and the risk of heat and terminal drought (in sowing later). RD&E investments to expand the frost and heat tolerances of crops could deliver crop varieties that can facilitate both earlier and later plantings, to manage risk and maximise yield. However, it is difficult to accurately quantify the exact improvement that investment in tolerance of extreme heat has had on yield, given that a range of other factors also influence yield. Case studies provide an important tool for inferring or estimating the impact of such RD&E and demonstrating its adoption.

Purpose

Current data from ABARES surveys provides valuable insights into the performance of grain growers at a national scale but does not allow for more localised assessments and comparisons of performance. The GRDC is working with a range of stakeholders to determine the level of support and most appropriate methodology required for the collation of more localised farm performance data. Ultimately, analysis of more localised data over multiple years would allow not only a more informed assessment of farm performance but also the identification of new investments required to create enduring profitability and the exposure of gaps in adoption of new knowledge.

KEY PERFORMANCE INDICATORS

Purpose

Direct measurement of profit on a national basis as a performance indicator is complicated by the fact that performance varies with region, business type, business size, and a range of factors (such as capital gains and losses) that are not directly influenced by RD&E outputs.

ABARES recently calculated the rate of return (ROR) across farm businesses from 2000–01 to 2015–16. ROR is described as profit at full equity expressed as a percentage of total opening capital, excluding capital appreciation. The exclusion of capital appreciation is important, as capital appreciation is generally not influenced by RD&E investment.

Comparison of RORs from 2000–01 to 2016–17 demonstrates that in general grain producers maintain a positive ROR, averaging approximately 2.1% but with large variations across years. It is not sufficient for the GRDC to support the maintenance of average 2.1% ROR over the next five years. Analysis of the trend in ROR since its most recent low (in 2006–07) suggests that the GRDC should be targeting RD&E investment to support a national average RORs of at least 6% by 2023 (Figure 16), taking into consideration that the RORs of individual farm businesses will vary widely around this.

In addition, the GRDC will work with industry to collect farm performance data at a more localised level to allow for the development of performance indicators that better reflect farm scale, enterprise mix and region.

Figure 16: Rate of return for Australian grain farms

Source: Australian Bureau of Statistics

Note: The trend projection is based on actual annual average rate of return from 2000–01 to 2016–17.

Objectives

Improve yield and yield stability

Improvements in grain yield can be generated by increasing yield potential and stability through several options, including genetics of new varieties, and by implementing improved practices that allow more of that yield potential to be realised (closing the yield gap).

The impact of RD&E investment in genetic technologies on grain yield potential and stability can be assessed through improvements in the performance of crop varieties as measured in National Variety Trials (NVT). The NVT data set now comprises one of the most comprehensive measures of variety performance in the world.

Measurements of actual grain yield compared with current potential grain yield (the yield gap) will require more complex assessment. CSIRO, supported by the GRDC, has been undertaking regional assessments of the current yield gap. While the approaches to closing the yield gap will differ across regions and farm types, and especially need to take into account risk, a 20% closure of the current gap would generate in excess of $3.8 billion per annum across the grains industry.

The impact of RD&E investment in meeting the objective of improving yield will be measured in terms of:

  • minimum yield increases equivalent to 1% per annum for cereals, 2% per annum for pulses and 1.5% per annum for oilseeds, achieved while identifying and investing in technology for transformational improvement in yield potential and yield stability
  • minimum 20% closure of the gap between potential and actual yields over five years.

View all of the Key Investment Targets (KITs) relating to Improve Yield and Yield Stability

Maintain and improve price

The link between bulk commodity grain prices and international supply and demand provides relatively little opportunity for GRDC RD&E investment to impact on bulk commodity grain prices. Grain prices are also affected by external factors completely isolated from GRDC influence, such as exchange rates, tariffs and non-tariff trade barriers. Therefore, measuring the direct impact of RD&E investment on grain prices is difficult. However, a range of RD&E activities are known to either support current commodity prices or promote further differentiation and, therefore, the opportunity to extract higher grain prices.

The GRDC will determine the impact of RD&E investments on grain prices through:

  • identification of potential new products and investments where a supportive business case can be established
  • support for and enhancement of current products through identification of opportunities for differentiation and maintenance of current market access programs.

View all of the Key Investment Targets (KITs) relating to Maintain and Improve Price

Optimise input costs

Input costs are composed predominately of crop protection chemicals, fertiliser and machinery and labour. Growers expect to maximise their long-term profit by making profits through short-term decisions around crop choices and their allocation of inputs to produce grain. The GRDC aims to assist growers to reduce their input costs relative to outputs over the next five years.

The Australian grain production environment is diverse geographically and environmentally. Growers in various regions produce different crops, use different input mixes, and employ management techniques focused on their local conditions. Growers across all regions face different costs and challenges, so it is difficult to identify a single measure for performance that is relevant for all growers at a national scale.

The GRDC’s efforts to work with growers and their advisers to establish benchmark farm performance data will be critical in allowing the grouping of like farms to compare input cost trends that not only indicate the impact of previous and current RD&E but also highlight the areas of focus where future RD&E might have greatest benefit to profitability. A farm performance database will take at least three years to establish and provide useful trend information. In the meantime, the GRDC will use two measures to monitor costs over time: input costs per hectare, and the ratio of costs to crop revenue. Input costs measured by dollars per hectare are a good measure of inputs relative to farm size and type while the ratio of costs to crop revenue takes greater account of changes in cropping mix that demand different inputs. Taken together, the two measures help to explain costs at the whole-of-farm level.

In the first instance, the trends in the costs of fertiliser and chemicals will be monitored. The other major operating cost relates to machinery (including annual costs of contracting, fuel and oil, leasing etc.). However, overall trends in machinery operating costs are largely unaffected by R&D as are machinery capital costs. Therefore, while individual investments around machinery operating costs may be made, impact assessment at the more holistic scale will be limited to active monitoring of operating and capital machinery costs and how these may affect delivery on purpose.

All input costs will vary annually around a long-term trend, as shown in Figure 17. In wetter seasons growers are expected to use more inputs to combat pests and diseases and take advantage of the opportunity to increase yields by applying more fertiliser. The effectiveness of inputs (i.e. the impact they have on yield and profit) will also vary. The impact figures below, do not account for input effectiveness directly but such differences are likely to be reflected in improved annual rates of return.

Figure 17: Long-term trends in average annual chemical and fertiliser costs ($/ha)

Source: AgSurf

Note: Solid lines are actual or forecast (f) costs; dotted lines are trend lines

Figure 18: Medium-term trends average annual in chemical and fertiliser costs ($/ha)

Source: AgSurf

Note: Solid lines are actual or forecast (f) costs; dotted lines are trend lines

Comparison of the long-term trend (Figure 17) with the shorter trend (Figure 18) allows an estimation of a range of predicted input costs as shown Table 5.

Table 5: Comparison of actual and predicted input costs ($/ha)
Input Cost in 2017 cropping season Predicted cost in 2023 based on five-year trend Predicted cost in 2023 based on long-term trend
Chemicals 76.50 85.51 72.22
Fertiliser 81.00 84.32 79.21

The GRDC’s RD&E investments will aim to maintain input costs below the five-year trend and reduce them below the long-term trend.

Growers may use more inputs if they are producing higher yields over time, i.e. to replace nutrients. Therefore, measuring trends in input use relative to output production can be an informative measure of input efficiency. Growers located in wetter regions will typically use more inputs relative to growers in dryer regions. However, growers in wetter regions will also typically produce more tonnes of crop per hectare relative to growers in dryer regions.

The GRDC’s second measure is therefore the trend in the ratio of input costs for machinery, chemicals and fertilisers relative to the output value (crop revenue). The actual ratios and trend estimates over the long term are shown in Figure 19 and over the shorter term in Figure 20.

Figure 19: Ratio of input costs to crop value

Source: AgSurf

Note: Solid lines are actual or forecast (f) costs; dotted lines are trend lines

Figure 20: Ratio of input costs to crop revenue

Source: AgSurf

Note: Solid lines are actual or forecast (f) costs; dotted lines are trend lines

Comparison of the long-term trend (Figure 19) with the trend since 2012 (Figure 20) allows an estimation of a range of predicted input to output ratios as shown in Table 6.

Table 6: Comparisons of actual and predicted ratios of input costs:crop revuene
Input Input costs: crop revenue 2016-17 cropping season Predicted input costs: crop revenue in 2023 based on five-year trend Predicted input costs: crop revenue in 2023 based on long-term trend
Chemicals 0.148 0.166 0.135
Fertiliser 0.156 0.164 0.147

View all of the Key Investment Targets (KITs) relating to Optimise Input Costs

Reduce post-farm-gate costs

Post-farm-gate costs associated with freight and supply chain logistics are complex and largely beyond the direct influence of the GRDC. However, the GRDC will continue to support R&D into understanding variables that drive supply chain costs, to inform policy.

Impact on lowering post-farm-gate costs will be measured in terms of timely RD&E-based submissions to government to support policy decision-making.

View all of the Key Investment Targets (KITs) relating to Reduce Post-Farmgate Costs

Manage risk to maximise profit and minimise losses

In developing RD&E investments to deliver on its purpose, the GRDC undertakes assessment of the risks associated with technical failure and level of adoption. Likewise, growers adjust farming and business practices to account for production and business risks.

The variable nature of production and business risks makes it difficult to identify impact indicators that encompass all growers on a national scale. However, several activities are known to support grower management of risk. Support for growers to undertake business training enhances their capability to appropriately deal with risk. In addition, behavioural economics is a fertile field of study that provides insights into growers’ decision-making and attitude to risk.

Impact on managing risk will be measured in terms of:

  • proportion of growers undertaking business training
  • establishment of a behavioural economics initiative to research grower decision-making.

View all of the Key Investment Targets (KITs) relating to Manage Risk to Maximise Profit and Minimise Losses

Last Updated: 29 Aug 2019 | Created: 03 Jul 2018