The opportunities to increase income and reduce the cost of production are called ‘profit drivers’. For example, increasing the number of livestock weaned or the number that meet a high-value market specification while incurring proportionally less costs, will make an enterprise more profitable.
In simple terms, profit is the difference between income and expenses. Understanding what drives profit in a breeding enterprise can help producers make decisions that will improve profitability.
Profit drivers vary from enterprise to enterprise and between regions, but those most relevant to breeding are:
- Meeting market specifications, which will help ensure producers realise the best price for their product in a given market
- Reproductive performance
- Wool and meat production, which are both potentially major contributors to the production of kilograms of saleable product.
Meeting market specifications can be measured through market compliance metrics (premiums and discounts received).
Reproductive performance can be measured through scanning, marking and weaning percentages.
Wool production can be measured by the amount of wool grown per hectare or per sheep, and meat production measured by the kilograms of lamb or mutton turned off per hectare.
The more effective the sheep that can be bred, the more kilograms of product a producer will have available to sell relative to their cost of production. If this product meets market specifications, it will be of higher value compared with a product that doesn’t.
Driving business profitability
In livestock enterprises producers can breed and manage animals to improve profit and manage future risks by:
- increasing income
- decreasing the cost of production, or
- both.
When identifying which profit drivers to focus on, it’s important to consider how profitability is measured. Profitability can be measured on a per hectare or a per head basis. Whichever method is adopted, it is important to apply the method consistently over time so progress can be measured and monitored.
In higher-rainfall areas with higher stocking rates, consider productivity and profitability on a per hectare rather than a per head basis. In lower-rainfall areas, with more variable land system distribution and less reliable climatic conditions across properties, profitability per head can be a more appropriate measure.
Rainfall is sometimes also factored into the equation. For example, profitability per hectare per 100 mm of rainfall.
A distinction needs to be made between reducing costs and reducing cost of production. Relentlessly driving costs down can result in corners being cut, which compromises productivity (e.g. not vaccinating). Strategically reducing the cost of production and increasing efficiency improves productivity and will aid profitability.
For example, by improving reproductive performance, income can be increased as there will be more animals and therefore product to sell, whether that is wool or meat, with only modest increases in stocking rate. Improving reproductive performance may also mean there are fewer dry ewes and more live lambs, which reduces the cost of running dry ewes. Similarly, increasing growth rates generally means animals can achieve market specifications or joining weights sooner and more efficiently.
Other profit drivers, such as stocking rate and labour use efficiency, are also important. Most profit drivers are linked in some way, for example, improving reproductive performance is an effective way to increase stocking rate.
Meeting market specifications improves profit
Meeting market specifications through breeding generally involves presenting a more consistent product in terms of both quantity and quality or producing this product more efficiently, through strategies such as increased growth rates or fleece weights.
Aspects of quantity can include:
- carcase weight, lean meat yield
- fleece weight, staple length
- number and liveweight of surplus sheep.
Areas of quality can include:
- carcase fat, intramuscular fat and shear force
- fibre diameter, staple strength, position of break, wool colour, vegetable matter
- age, pregnancy status, type of surplus sheep.
The areas important to each flock will be specific to each business and will depend on both current and future markets. Suitable markets may change for each flock or opportunities may arise to obtain premiums for products, such as those associated with eating quality, welfare and sustainability.
Animal welfare is an example of how markets have and are currently shifting, especially around the demand for wool and meat from sheep mulesed with pain relief or unmulesed sheep. Breeding is an effective way to reduce reliance on mulesing, but this takes time and planning, so producers need to start now if this is of interest to them or their customers.
Breeding can also help produce more efficient animals, which meet market specifications sooner for weight or fibre length, for example while consuming less feed.
While it is important to anticipate market events, it is also important to avoid frequently chopping and changing or chasing fads. This can adversely impact genetic progress and profitability. Make sure each breeding approach is consistent with the broader business objectives.
Improving reproductive performance improves profit
There are many components that contribute to reproductive performance. Industry analysis has identified areas of the reproductive cycle where the most financial gain can be achieved through improvements in genetics, nutrition and management. Understanding the relative importance of these areas and how a business is tracking can help identify opportunities for improvement.
Producers can target a range of areas to increase profitability through improved reproductive performance, including:
- lamb survival (particularly in multiple-born lambs)
- reducing the incidence of dystocia (lambing difficulty)
- improving ewe and weaner survival
- improving weaning rates
- joining ewe lambs
- optimising number of lambs conceived.
Understanding how a business is performing across these areas can direct priorities and management strategies and influence the traits selected to improve reproductive performance and profitability. Be consistent in how performance is measured and assessed to gain a true impression of how a business is performing and the progress it is making.