How profitable is beef production? Its really common to hear people state they are only getting paid at the same levels as they were in the 1970's. The people making these statements generally compare the average price per kilogram they received in the 1970s with the current average price per kilogram they are receiving.
While it is simple to directly compare these prices, I reckon its not actually a fair comparison or an accurate measurement of the profitability of beef production.
There has been plenty of work done with producers to evaluate the drives of profit in a beef enterprise. In simple terms, the profit of a beef enterprise is driven largely by the costs of production. In fact work by Holmes & Sackett identify that 80% of the variation in beef enterprise profitability is due to the variability in cost of production.
So the average price per kilogram received in beef enterprises only accounts for 20% of the variation in profitability. Cost of production can be really variable. Costs don't really change a lot between enterprises. The big variable is the amount of kilograms per hectare an enterprise produces.
The big driver of beef profitability comes back to how many kilograms of beef produced each year. So I reckon if you want to do a truly fair comparison between the profits of the 1970s and now, you need to be discussing how many kilograms of beef you produce per hectare and look back at how much that has changed.
The opportunities to produce more kilograms of beef per hectare have never been greater for producers. The past 30 years have seen massive improvements in cattle genetics; pasture varieties; fertiliser choices and a range of other management options.
I reckon for producers who want to be profitable or want to be more profitable, there are fantastic opportunities. Choosing to believe comparisons based based purely on historical prices won't do anything towards helping drive your profits.
If you really want to work out how far your industry or your own enterprise has come, then take the time to work out how much your production levels have changed. If they haven't really changed, then I reckon you need to look at some options to take you forward.
It doesn't mean that the average price per kilogram that you receive isn't important. There are plenty of options to improve that price. However I reckon the big wins will always come from focussing on production first, because these wins can often happen through some simple on farm changes.
So in simple terms, I reckon beef production is much more profitable than 30 years ago. Once you compare the increases in your kilograms of beef per hectare, I'd be surprised if you didn't reckon the same.