Any investment should come with a return that justifies the initial expense. But how do you know when that investment is justified and just how far it will take you? Benchmarking group, Source BI, has developed a model that could provide all the answers.
‘If you don’t measure, you can’t improve,’ goes the saying. But it doesn’t stop there and in order to get the full picture, one needs to understand where the status of your farm fits into the greater picture.
During the 2020 macadamia season, a need was identified among macadamia farmers to be able to measure a farm’s ability to effectively produce macadamias, while remaining competitive and ensuring maximum profitability.
Agricultural economist at Source BI, Juan Winter, developed a tool that can be used to measure a grower on each of various aspects within the production process. This entailed collating raw data from multiple macadamia producers in relatively homogenous production areas, creating averages as well as maximums and minimums, and then comparing each grower to the benchmark average. A homogenous production area entails similar topographical area, soil type, and weather patterns, for example.
Winter explained that the macadamia benchmark platform was developed using Microsoft’s Power BI programme, where participating producers can compare their own production results to various other growers anonymously.
“The interactive model gives producers the ability to view information and benchmark themselves given the criteria they choose, which includes cultivars, production regions, tree ages, irrigation types and seasons.
Figure 1: Age Distribution of trees
“The benchmark firstly creates context of what an individual production unit will be benchmarked against by providing a breakdown of the age distribution of trees of the production unit, as well as the benchmark. This can be seen in figure 1 below.
The figure describes the “Logged in Entity” compared against the benchmark where it can be
seen that the benchmark has a significantly larger portion of trees aged 19 years and older, where this farming unit has got close to 60% of the farm with trees aged between 15 to 18 years of age, with the remaining orchard falling into the age categories of between 3 to 6 years of age, only starting to come into production. This will have a significant effect on this production unit’s ability to yield macadamia nuts, as well as to produce income. It can be seen that this benchmark group of about 3300 hectares of planted macadamias, has a large portion of trees aged 0 to 8 years of age, and is relatively young on average,” Winter explained.
After this context is created, the grower can then measure his own ability to produce competitively. This is done by comparing the average yield in kilogrammes of Dry-In-Shell (DIS) per hectare.
“The benchmark 2019 and 2020 average for trees aged seven years and older across Levubu, Tzaneen, White River, Kiepersol, Barberton and Nelspruit realised 2404kg’s per hectare. This can be seen in figure 2 below. Each participating production unit (entity) has a unique anonymised grower code with the benchmark average represented by the brown line.
Figure 2: Average kilogram DIS per hectare per entity
“The figure above shows that there were four producers that managed to produce on mature trees over two years more than 3t/ha, with the top producer averaging 3.5t/ha,” Winter pointed out.
When measuring efficacy, the total kernel recovery and the combination of sound and unsound kernel needs to be considered. The same 2019 and 2020 average is shown in figure 3 below, where the benchmark average sound kernel crackout was 31.9%, represented by the brown bar. Stacked on top in blue is each entity’s unsound kernel crackout percentage. Winter explained that the producers on the far right could still be slightly competitive in terms of total kernel recovery rates, but at a much lower sound kernel recovery rate and a much higher unsound kernel recovery rate. “This leads to a higher cost implication at factory level to process those nuts, and therefore a lower back-on-farm income per kilogramme.”
Figure 3: Sound and unsound kernel recovery per entity
If one combines the above-mentioned variable of age distribution of trees, kilogram per hectare as well as sound kernel recovery rates, then it is possible to accurately benchmark the weighted average sound kernel kilogram produced per hectare by each entity. This is seen in Figure 4 below, where the effective sound kernel kilogram per hectare for all trees older than seven years of aged are compared. The 2019 and 2020 combined weighted average across all production regions was 761kg sound kernel per hectare, represented by the brown line. Only five producers were able to consistently produce 900 kilograms of sound kernel per hectare.
Figure 4: Sound kernel kilogram per hectare per entity
“When we then take into consideration that the benchmark on weighted average earned R69.75 of back-on-farm (BOF) income per kilogram, with a maximum of R80.77/kg and a minimum of R34.37/kg, the net result of each entity is listed below in Figure 5. All the measured production variables come into play to get the results below, from age distribution of trees; ability to yield a good crop; ability to produce good quality nuts in the form of sound kernel recovery; and finally the ability to get a good back-on-farm income per kilogram of DIS macadamias marketed.”
Figure 5: Back-On-Farm income per hectare per producer
Winter stated that it is very evident that in figure 5 that the combined variable produces had widely differing results for each production unit entity. “Only two production units managed to produce more than R210 000 of BOF income per hectare. This is naturally driven by the large number of hectares in the benchmark that are less than six years of age.”
The final measurement of efficacy is to calculate the cost of production. “Here the weighted average age of the farm plays a critical role in determining the actual cost per hectare, as a mature farm’s average production cost is R64 926 per hectare (represented by the first seven growers in figure 6 below). The weighted average production cost per hectare across all participating entities for the 2019 season was calculated at R45 794 per hectare, but this includes nine entities with a weighted average age of five years and younger (mostly the last 8 growers in figure 6 below) with a weighted average total production cost per hectare of R29 961,” Winter explained.
Figure 6: Total production cost per hectare per entity
“Analysing the different variables mentioned, one can accurately measure a macadamia production unit’s net effectivity and identify strength and weakness areas by quantifying the over or underperformance on each variable. By doing that, it is much easier to calculate the opportunity cost of rectifying a specific weakness,” Winter concluded.