The gross margin for an enterprise is the difference between the gross income derived and the variable costs directly attributable to an enterprise. Such costs vary in proportion to the size of an enterprise. For example, if the number of breeding cows is doubled, then the variable costs associated with carrying the additional stock, such as drench and vaccination costs, will also roughly double.
Calculating gross margins allows the economic returns and sustainability of different production systems to be compared. It also helps identify the funds potentially available to cover fixed or overhead costs which have to be met regardless of enterprise size (such as depreciation, interest payments, rates and permanent labour).
Department of Primary Industries publishes a series of regularly updated Gross Margin Budgets for a range of typical beef enterprises, which set out gross margin returns for a range of enterprises on:
• A per head basis, which indicates the potential return per head of livestock and can be readily adjusted to reflect differing average weight at time of sale. It also allows adjustment for lower or higher prices per head.
• A per DSE basis, which allows comparison based on productive capacity.
• A per hectare basis, which allows comparison based on property size. These assume 4 DSE per hectare for largely unimproved pastures and 8 DSE per hectare for improved country.
The aim of these budgets is to provide producers with an additional planning tool to help evaluate enterprise options. They can be used to compare the relative returns of various systems or as a template for calculating property specific gross margins. The notes attached to the published gross margin budgets also provide useful descriptions of the selected cattle grazing system and herd management assumptions including the average feed requirements (DSE/ha).
The DSE ratings for equivalent enterprises in the Hunter region vary slightly from the standard published budgets because of local production differences. For instance, the more uniform rainfall pattern in the region can extend the productivity of unimproved pastures. Hence the DSE requirements of a basic Weaner production on unimproved pastures in the Hunter region is closer to that published for North Coast Weaners – Improved, than to North Coast Weaners – Unimproved.
Table 1 shows the relevant Gross Margin Budget for the five typical beef enterprises in the Hunter region.