Investigating the costs associated with the production, sale and distribution of vegetables (VG12086)

What was it all about?

The Australian Vegetable Industry Strategic Investment Plan 2012 – 2017 identified increasing input costs as one of the key challenges facing the industry. Input costs along the value chain impact the competitiveness of Australian produced vegetables in both domestic and export markets, and have direct impact on grower profitability.

This project investigated the costs associated with the production, sale and distribution of vegetables with a view to developing an improved strategic approach.

The researchers began by analysing data from ABARES surveys of Australian vegetable growers that were conducted from 2005/06 to 2010/11. They examined the data on a per unit basis and compared the cost of production by business financial performance, scale of business, commodity and state.

Key findings included:

• Average total costs of vegetable growing farms are increasing, mostly due to overhead costs, including electricity, insurance, plant hire, motor vehicle repairs and operator and family labour
• High overhead costs are reducing profitability, especially for smaller operations
• Larger scale growers and the better performing growers have lower costs per tonne
• There is no direct relationship between which vegetable is grown and grower profitability
• Location was not related to profitability.

In a second body of work, the research team developed case studies of 19 vegetable businesses that have successfully increased the scale of their business to improve competitiveness. They found eleven factors that the best growers had in common:

1. Learn from others
2. Customer and supply chain relationships
3. Continuous improvement
4. Monitor cost of production
5. Be prepared to change
6. Take considered risks
7. Succession plans in place
8. Know own strengths and weaknesses
9. Future focus
10. Have alternatives and insurance
11. Build a good team.

These characteristics were used to inform the development of three strategic programs that researchers propose will assist growers to lower production costs:

• A regional benchmarking program
• A business discussion group program
• A business skill development program.