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Pay-offs possible by taking a profit-first approach to precision agriculture

Precision agriculture - DecipherAg
Agriculture / Company News / Industry News

Pay-offs possible by taking a profit-first approach to precision agriculture

A GRDC investment looking into the economics of precision agriculture (PA) in the southern cropping region has identified three broad pathways to profit from implementing the practice.

The investment ‘Assessing the economic value of precision agricultural tools for grain farming businesses in the southern region‘ is being led by Rural Directions agribusiness consultant Patrick Redden and Think Agri founder Kate Burke.

While there is a vast array of PA tools available in the agricultural space, the challenge for many growers is making the individual tools profitable for their operation and hence taking a ‘profit first, PA second’ approach to adoption.

Mr Redden says an initial review conducted as part of the GRDC investment identified the three pathways to profit from PA as:

  • Strategic
  • Tactical
  • Reactive

“It is recommended growers first consider the opportunities for their business at a strategic level, as these are likely to have the greatest economic benefit,” he says.

“Tactical applications of PA can have merit, but generally enable smaller gains than the strategic pathway.

“There can also be situations where a reactive approach to PA can be useful to solve a problem that emerges suddenly or in response to a seasonal challenge.”

2019 GRDC Grains Research Updates paper from Quenten Knight, of Agronomy Focus, delves into the use of PA to make better agronomic decisions and GRDC has produced a podcast focusing on PA made easy.

Profit drivers

In order to consistently influence profit, Mr Redden says PA tools must positively impact on at least one of four profit drivers of:

  • Gross margin optimisation
  • Low-cost business model
  • Risk management
  • People and management.

“PA alone will not overcome the major management considerations associated with these key profit drivers,” he says.

“In other words, it will not make up for deficiencies in other areas of the business, such as high cost structure or poor agronomy.”

Mr Redden says taking a ‘profit first, PA second’ approach and focusing on the four primary profit drivers can articulate the role PA can play in improving profit.

“There is a need to clearly identify the constraints and opportunities for profit on growers’ own farms before considering if PA has a role in addressing them,” he says.

“PA is very situational. It is not a matter of using someone else’s economic analysis and extrapolating that on to another farm because every situation is different.

“It is important to note, though, that PA can negatively impact on profitability if poorly implemented through increasing the business cost base or delaying rather than improving the timeliness of operations.

PA is very situational. It is not a matter of using someone else’s economic analysis and extrapolating that on to another farm because every situation is different– Rural Directions consultant Patrick Redden

“Before making a decision to invest in PA, it is best to first prepare a thorough business case which includes a fully costed partial budget analysis at a minimum.”

Management guidelines

Mr Redden says as part of the GRDC investment project, growers in the southern region will have access to management guidelines to help with this kind of business analysis.

The management guidelines will help growers and their advisers follow a pathway to assist with decision-making and will include a checklist, as well as practical PA considerations.

Mr Redden says a secondary goal of the project is to broaden growers’ perceptions of PA technologies.

“PA can be perceived as just variable-rate phosphorus at seeding, but in reality there are bigger opportunities for some growers with technology such as variable-rate lime application to target acidic soils,” he says.

“There is a lot of opportunity in wetter areas for technology such as precision drainage.”

 

Originally published by the GRDC.


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