Know your cost of production

Unprecedented change and challenges in the Australian pork industry makes it critical for pork producers to know their cost of production from month to month in order to assess their viability.

To help producers, NSW Agriculture has developed a simple-to-use computerised cost of production (COP) calculator, which is available free of charge from its web site.

"Pork production is a business and like any other business and it make good business sense to know its strengths, weaknesses, opportunities and threats," NSW Agriculture livestock adviser (pigs), Graeme Taylor, said.

"It is becoming increasingly difficult for efficient farmers to cut costs when margins are tight, particularly with rapidly changing world trade in pork.

"However, pork producers must firstly know their true financial position before researching options for changing market alternatives or embarking on a program of efficiency gains."

Irrespective of whether profits are low or high, it is essential to maintain an accurate handle on the cost of production to gauge piggery profitability and for benchmarking performance between piggeries.

The COP calculator assists piggery managers to assess the cost of production and profitability of their enterprise so that planning for the future direction of the business can begin.  Cost of production is calculated by adding feed costs together with non-feed costs, and the profitability margin calculated by subtracting total revenue.

The only details required for the spreadsheet are monthly herd size, carcase sales, feed costs and non-feed costs, with COP and margin calculated automatically. Comparative benchmark values are provided as a guide for industry best practice or producer benchmark figures can be inserted if preferred.

Mr Taylor said the COP calculator also includes a method of calculating profitability financial indicators (equity, ratio of liabilities to income and return to capital) to assess business performance over time.

"These indicators are calculated automatically after details of liabilities, income, assets and operating profit are inserted," he said.

"If trends don't show business improvement, it is essential to understand what problems are occurring and what can be done to reverse the trend.

"The financial indicators are based on the past five year's financial information and can be used to assess business performance.  However, it is worth remembering that the trends over time may be more important than the numbers calculated for any particular year."

The COP calculator compliments the NSW Agriculture herd recording scheme, Piggy Bank, and can be downloaded free of charge

A CD version can be purchased for $25.00.  It comes with a manual printed in colour and can be obtained from NSW Agriculture's pork products team at Tamworth.

Media contact: Graeme Taylor, NSW Agriculture's livestock officer (pigs)

Issued by: Annette Cross, NSW Agriculture Tamworth