Thanks very much, Keith, and certainly
looking forward to having a
discussion with you this morning on
effective use of precision technology.
The research that I would like to talk
through and share with you this morning
comes from a GRDC project that we've been
working on for the last two and a half
years, and that was a national project
across all of the major grain growing
regions. That project is
around the integration of technical
data and profit drivers for more
informed decisions. Early on in that
project, we collected 300 benchmarking
data sets nationally, with three to five
years of data for each of those
benchmarking data sets, and identified the
profit drivers in the major grain
growing regions nationally. Just a
bit of an insight on an earlier
output in the differences around
profitability between average and top
20%. In Southern Australia, the top
20% - on the right-hand side there - retaining
30% of turnover as net profit
before tax, doing eight to ten
percent as an operational return on
equity and, you know, pretty exciting
place to be, pretty resilient businesses
in terms of how they're positioned for a
business or production shock. On the
left-hand side, representative of average -
which actually includes the top 20% as
well, and if it was top 20%
versus the remaining
80%, the gap would be even wider.
In Southern Australia, these businesses are
doing around three to four percent as
an operating return on equity and
retaining around 10% of turnover as
net profit - so for every million dollars
worth of turnover, the businesses on the
right are retaining $300,000 as net profit;
the businesses on the left around a $100,000,
so quite substantial differences.
A later output for the
project was to look at precision
agriculture and how precision agriculture
aligned with the profit drivers, and was
precision ag a profit driver.
We've certainly got a really exciting
range of precision agricultural
technologies available to us and so what
I'd like you to start to think through
is, with profit and profitability in mind,
which ones should we choose and why?
For me, it's about the ones that
consistently add profit margin over the
long term. When we did the research
around precision
agriculture and the influence it was having
on profit, in addition to some big
variations between technologies, we also
found that there was variation in the
benefit derived from a common technology
across different growers. As a result,
the fit for different precision
agriculture applications
is highly situational and there are
really good reasons for this and we'll
explore some of those this morning.
The take home messages from the presentation
are that the net economic benefits
derived from PA are highly situational.
As a result, I think it's important to apply a
structured and objective approach to
assessing precision ag
opportunities. Also important to keep in
mind, the excellent implementation
against the fundamentals of
crop rotation, crop agronomy and
operational timeliness are the low-hanging
fruit to capture first and, as advisors,
when we're working with growers, or
as growers, we can sometimes pass that
off and say oh, but I'm doing all that
right. I think the variation that we're
seeing in profitability between average
and the top 20% demonstrates that there
could be more opportunity here than we
first think - and when we look at the top
20%, they're generating 10-15%
more yield based on their excellent
implementation against the fundamentals.
As a result of this, we've developed a ten
point checklist to assess PA
opportunities against, and this is just to
make sure that the PA opportunity
that you're considering and looking at
actually is going to achieve the outcome
that you would like it to achieve.
Why the need for this structured approach?
If we have a look from a national
perspective, we interviewed more than
60 growers, we developed more than 20
case studies and a robust economic
analysis was undertaken for each of those.
Around one third of the PA technologies
were generating an economic benefit of
greater than ten dollars per hectare, and these
third averaged $40
per hectare as a net economic
benefit, which is quite substantial and
so there's some montys here that we
should be looking to use and
apply if we can.
The remaining
two thirds of the studied applications - and
it wasn't an exhaustive study, it didn't
cover every technology in every
application but it covered the major
ones - two thirds of them were
generating a net economic benefit of less than
ten dollars per hectare, and the average
across those two thirds was pretty close to zero.
If we then look at what are some
of the PA success stories - certainly
tailoring in N, P, K and S in Mallee environments
is a PA success story. There's those three distinct
different land classes with very
different production potential. These zones
are repeatable from year to year in
terms of their land class and land
capability, so it's fairly cost-effective
to classify them and identify them and
then it can be managed in a repeatable
manner. There's the opportunity to realise
20% more yield on the most
productive mid slopes when they're fed to
their potential and, as a result of being
able to manipulate yield on the most
productive areas there, there's a $15 to
$30 net economic benefit in that
SA, Vic, Mallee type landscape.
Another winner is variable rate lime in regions
where soil amelioration and adjusting
pH is required. It's
naturally sensitive to the spread cost
of lime and the variation in soil
type, in regard to how much lime
saving you can achieve, and so if you've
got a spread cost of lime - which
includes product, freight and spreading -
of $55 a ton and
there's only 40%
of the paddock that needs lime and so
your able to save 60%, that'll
result in a $65 per hectare net benefit.
If you're working with $40 per
ton lime and 30% savings, it'll
be around $13 a hectare.
Yield mapped farm agronomy trials are
another PA success story, and what I
really like about yield mapped farm agronomy
trials is that they are specific to your farm,
your property, your soil types and your
skill set and your implementation
ability, so it's testing things under
that as a grower under
your management and your resources
that you've got available to you, and
so they're very tailored and, as a
result, there's an opportunity to refine variety
selection, define yield response to
specific inputs, and so you might find
you can use well-implemented
farm agronomy trials to
demonstrate the tipping point on the
way up, in regards to inputs, or if
you're already aggressive on some fertiliser
inputs such as N and perhaps a bit
too aggressive, you can identify the
point on the way down where you
actually can save N without compromising yield.
Well-implemented farm
agronomy trials have got an ability to add
$50 per hectare or ten
percent of gross margin. The application
of controlled traffic farming in the
northern region - so the northern GRDC
region, so northern New South Wales and
southern Queensland - is also a winner.
Controlled traffic farming and reduced
overlap is certainly a winner in all
regions around reduced fatigue and reduced
fuel, input and time savings and so
you might get $20-$30 a hectare
out of it in the southern region.
What's turbocharging the northern
return is the ability, in those really deep
soils with extra soil moisture holding
capacity, to store an additional 20
millimeters of stored soil moisture which
is boosting yield by 0.4 tons per hectare.
If we look at the PA journey and the
PA story over the last 15 to 20 years, I
certainly think that we had some early wins with
PA if we just look at
AutoSteer, reduced overlap,
reduced fuel savings, reduced labour,
reduced fertiliser and chemicals inputs,
massive benefits around reduced fatigue -
and so we had the early win with AutoSteer
and we see really high levels
of adoption with what AutoSteer, around 80 to
90% . That sort of, with some early
wins, it boosted confidence and we starting saying
what else can we do, how else can we use
precision ag technology, and I think through the
mid-range there, we potentially were working
with some technologies that had higher
margins of cost and lower
marginal benefit and so they don't
perform as strongly on economic
analysis. Important to keep in mind -
this study was taken from an economic
rationalist perspective. I'm not
a PA technician or a PA specialist
or have a vested interest in any of these
technologies, so it was certainly an
accurate economic rationalist perspective on things.
If we have a look at
some of the PA technologies with
mixed results - these are some of the ones up on
slide there - so we'll some of those mid-range
technologies and then we'll also see some
newer technologies and some very intelligent
technologies - so camera spraying technology
and variable rate irrigation, these are
some of the most advanced and
technically impressive technologies, and
the challenge with those is that at present
they have a very high capital cost, and so
that makes it challenging in an
economic analysis. These
generally range between -$5 and $8,
-$5 being a net economic loss.
Important to recognize that there could be
some very sound, non-financial reasons for
adopting these PA technologies or
technologies with mixed or moderate benefits.
PA can often be an
important source of motivation for
farming and it can encourage growers to be
monitoring their crops and monitoring
their farming system more closely, which
can be beneficial. Some of these
applications can also be an important
management tool we might not currently see
generating a strong economic
benefit, but in the case of camera sprayers,
we could be preventing something
like resistance in fleabane - which is an
expensive, hard to kill weed - and so we
haven't got resistance there yet,
but as a management tool we could
be preventing a bigger problem further
down the track. There can also be
intangible benefits to some of these
technologies that are hard to put
economic value on, and we certainly see
the commercial feasibility of newer
technologies improve over time as
acquisition cost reduces.
Another one: with camera sprayers where they can have
a fit,
there were some growers that were
in areas where they were operating at a
large scale, summer moisture conservation
was critical to their business, they
needed more than one boom spray to keep
up with summer weed control and so
where they were duplicating that source of
capital anyway, adding a camera
spraying technology - which would produce
savings in some years that favoured them -
also made sense.
Given that there's variation in net economic
benefit, we felt we needed a
checklist to navigate our way through
assessing opportunities and we've
developed a PA checklist.
The first one,
which we've spoken about, is have we
fully exhausted those internal
opportunities? Because often there's scope to
get the big rocks right first and there can
be significant uplift just from
those, and be hard on yourself or your
clients when you're looking at that.
Understanding at what stage of the
development cycle the PA technology is
and has it been robustly
tested in a commercial environment because
products and applications that are
further along the commercialisation
pathway generally have lower cost and
great capability - and we see this
massive range because these technologies
such as AutoSteer and yield
mapping, they're coming standard on new and
a lot of second-hand equipment and so
they've got a zero dollar acquisition cost.
From an economic perspective, when we
then go and apply a 15%
depreciation and a five percent
financing cost, 20% of
zero is certainly no more than zero, and yet
20% of a $300,000
investment is $60,000 per year
so you've got to get a lot of uplift in
yield or some significant cost savings to
just offset that depreciation and
financing component.
It's also important to consider which lever are you
pulling with the PA technology that
you're applying. If we're pulling
the income lever in high rainfall regions,
that's a $1000 per hectare lever.
Variable costs might be $400
per hectare; within that,
fertiliser around $110, chemical costs
overall could be $90 a hectare,
summer weed control could be $10-20
a hectare so different levers,
different sizes. Also, we need to consider
the degree to which we can influence them.
The $10-20 per hectare for summer
spraying, there's some expensive
chemical brews on weeds that might
have a low frequency across the paddock
where we can actually reduce a
significant amount of that cost but,
overall, we'll find that if we're working with
a bigger lever, we'll have more scope to
generate a robust economic benefit, and a
lot of those success stories were
based around pulling an income
labor or pulling a lever that covered
multiple variable costs or pulling a
capital cost lever like lime.
This is an interesting one as well, in
terms of the pathway - is precision
agriculture technology the most
effective mechanism to achieve the
outcome that you're striving for and what is my
starting position? Because sometimes there
can be alternative pathways to achieve an
outcome. If we look at two growers
here, they're both operating in a four ton
long term average wheat yield area, one's investing
$120 per hectare on nitrogen and
phosphorus, the other one's investing
$170 per hectare
on nitrogen and phosphorus. This isn't unusual -
we see this in benchmarking data - but
these two growers have got a very
different journey and opportunity ahead
of them in regards to rationalisation of
these inputs. Not much scope for the grower
that's investing $120, whereas there is a
journey to rationalise N and P inputs
for the grower that's investing $170. Why is
that? In most situations, you can supply
N and P to a grain crop for $30
per ton of wheat yield - which is
what Grower A is doing. Grower B
is investing around $42-43 per ton of wheat
yield on N and P. That grower - and we've
seen growers that have used N seekers
and N rich strips and they said oh, we've
taken a journey from $170
to $120, fantastic that PA has been
that enabler for them, but there can be
alternative channels to achieve that
same outcome, such as disciplined
agronomy, benchmarking or being part of a
benchmarking group - so important to
understand your
starting position and where the
opportunity is and what alternative
channels you might also be able to use.
This is just to show the situationality around
lime costs per ton and percentage
of line saved, and essentially massive range
between three dollars a hectare and
$103 depending on
conditions in each grower's property.
If we have a look at summer weed
control and we look at the brews across
the top for summer weed control and the
percentage of chemical saved - so if
we're working with a ten dollar brew and we
can save 50%, well, we're going
to save five dollars in chemical costs -
and given that to operate
an optical camera sprayer generally
costs between five and 20 dollars
per hectare, depending on your available
scale, to make that technology
pay you really need to have a low cost
per hectare, which is scale driven, and be
saving on a more expensive chemical brew,
which might be around targeting
fleabane or skeleton weed or
cooch, some of those harder to kill, more
difficult weeds.
Certainly feel that it's important
to use an objective
approach in assessing PA opportunities.
There's a report that we've got
that includes the case studies and I can
also provide the template, if anyone would
like it, around how to assess the
opportunity and, in that, we're applying
a 15% depreciation cost
and a five percent financing cost. When we
do that analysis, we also need to be
careful around the attribution of yield
increases. We saw
a variable rate lime case study that
was written up and they were factoring in
a yield increase in that case study and
the yield increase was achieved through pH
amelioration, that could either be achieved
through a blanket rate or a variable
right approach.
It's only the cost saving between the
variable rate approach and the blanket
rate approach thatshould be
attributed to PA, because the yield
increase could be achieved either way.
Also, if you look at yield
increases over time, that can be driven
by a number of factors around the genetic
influence, seasonal influence as well as
some management changes or PA that you might have changed.
Also really important to
understand how seasonality will influence
PA, and this comes out of camera sprayers,
we were talking with a number of
growers and they were mentioning that in
their season they used a camera
sprayer and their first summer it saved them
$60,000 worth of chemical and they thought
this is working, it's on track to achieve
what we want it to achieve and then they had a
different summer, a wetter summer, and
a need for more blanket sprays and in
that second summer, the savings were only around
$5,000 across their program, so
very different outcomes in two
different years, and the fantastic thing is
that we've got tools such as CliMate
that we can use to put some
objectivity around how we factor in
the influence of seasonality
on the benefit that we might
receive or the cost saving that we might receive.
Seasonality also influences other
technologies such as inter-row
sowing and and how much inoculum
are we working with in regard to
disease in different seasons. i'm
Understanding the operating scale that
you've got and how that influences
commercial feasibility is important,
because a technology which is
commercially feasible for one business
might not be commercially feasible for
another. The classic example there is
if we look at that camera spraying - if
you're running a camera sprayer across
10,000 hectares, you can get the cost of
ownership and running of that down to
around five dollars per hectare, and if
you're farming 2,000 hectares,
it would be closer to $20 per hectare
to run that machine. Also important
to think through effective areas,
so some of these technologies that we're
applying - we might be farming 4,000
hectares, but it's actually only
providing a benefit in cereal crops or
in cereal on cereal, and so we need to
think through the effective area that
the technology actually benefits
when we're doing our economic analysis.
Number eight is around ensuring that you're using
Decile 5 pricing rather than spot
pricing when calculating the net economic
benefit. If we reflect back to 2008
timing, we had conditions there where DAP
was at $1,400
a ton, urea was at $900
a ton - seems hard to believe it
got that high with current pricing and
so some of the numbers that were run
with those high pricing, the net economic
benefit looked relatively strong, whereas if
we took a longer term view, it could be quite
different and so that relates to both
commodity pricing and input pricing
to take the long term Decile 5 view.
It's a unique area,
there's specific skills and technical
knowledge that you need to be able to
get the best out of precision ag
technologies, and so it's important to
reflect and say have I got that skill set
and capacity internally or easily
accessible to me to get the best
out of it? And also, think about the
complexity and the influence on
labour productivity that the
application of the technology might have
because labour productivity is also a key
profit driver. I also think it's important to
challenge ourselves when we do an
assessment on the net economic benefit of
a PA technology - challenged ourselves,
have we actually been PA
neutral? Because personal bias can easily
influence an economic assessment and
the assumptions that we apply, and so I'd
challenge all of us to take a
PA neutral approach, because if we're
overly PA positive, we might be
a bit glossy in our view of what the benefits
might be; if we're PA negative, we could
be overlooking a low cost, high impact
technology that is available to us. Often,
the technical feasibility is exciting
and we get excited by that - it's the
commercial feasibility which
influences our bank balance and I
think being PA neutral is a valuable
thing to do when you're doing an
economic assessment.
Precision agriculture - it's a fast-moving space,
it'll continue to be. Assessing PA
opportunities against that checklist,
I think, will assist us with more
consistently identifying the low cost,
high impact technologies that will
have the best fit for our farms to
achieve what we're looking to achieve.
Just a quick reflection there on the
take home messages. The benefits
are highly situational; as a result, we need
to be structured and objective in our approach.
Don't overlook excellent implementation
against the fundamentals and apply
the 10-point checklist when you're
looking at adoption of a new technology, to
make sure it is going to achieve what you're
wanting it to achieve.
Certainly happy to take questions.
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