Setting the strategic direction of the beef enterprise


Developing a Plan is important for your farm

Why is setting the strategic direction of the beef enterprise important?

Every business has a plan, whether it is in your head, written down in a formal document or scribbled on the fridge door. A written plan is often more detailed, which helps to clarify goals and objectives for you and others involved in the business. Many businesses fail within five years of set-up because there is no vision or business plan. They are often under-capitalised with a poor business structure and lack of market understanding. When a business does not have a clear objective, its chances of success are considerably reduced. Well established businesses can fail for similar reasons.In a beef enterprise, a sound strategic direction and business analysis:

  • Develops clear goals and objectives and the directions to achieve them;
  • Reveals whether it is possible to meet your future needs and goals as well as those of your family;
  • Assists in borrowing money at competitive rates;
  • Provides a plan that sets you up to improve profitability by, eg: increasing stocking rate and pasture utilisation (key drivers of profitability) while managing climatic variability;
  • Supplies the flexibility to take advantage of better than expected seasonal conditions and market opportunities;

Setting directions ;

Key actions:

  • Set clear business goals and monitor and review progress.
  • Use specialist advisers to decide on business, herd structure and market options to maximise profit.
  • Plan, cost and test beef enterprise options.
  • Determine the sequence of investments (capital and time) that will best meet enterprise goals.
  • Maintain accurate records for comparison of performance with expected targets.
  • Builds the confidence to consider new options and predict and plan for more difficult periods;
  • Helps to clearly communicate the nature of the business when more than one person is involved in its ownership and/or management.
The enterprise profitability tree  below provides an outline of the key areas of the production system and shows where there are opportunities to have a major impact on the productivity and profitability of your beef enterprise. Some of these opportunities are greater than others. By identifying each production factor that either incurs cost or generates revenue, the tree can help you to assess those components of your enterprise that can be manipulated to have the most impact on overall profitability.

You need to look at setting the strategic direction for your beef enterprise as part of the whole farm business. It  considers the economic merit of options for increasing feed supply, changing feed demand, or targeting particular markets. The options you choose also determine your scope to adapt to unexpected monthly or seasonal fluctuations in feed supply and market prices. This is the foundation of risk management.

The procedures provide guides for determining the structure of your herd, and marketing opportunities that will provide the most profit given your physical and financial resources, your preferred lifestyle, and your ability and confidence to take on risks.

Setting the initial strategic directions of the beef enterprise includes setting targets for stocking rate for a set of pasture growth patterns, market prices and other constraints. The matching of animal demand to feed supply is an essential part of management that needs to be undertaken more frequently.

References to other articles.

The process of manipulating stock numbers is described in the article: Tactical stock control, and this is strongly linked to the article: Pasture utilisation. Detail on the selection of markets is outlined in the article: Meeting market specifications, and the article: Cattle genetics, also affects producers’ capacity to supply target markets.

The same economic principles apply to all enterprises in the farming business.

The pasture-based beef enterprise is rarely the sole enterprise of an Australian farm business. Most farm businesses consist of several interrelated enterprises such as sheep, cropping and fodder conservation for use on the farm or for sale. These enterprises compete for shared resources such as land (pasture), labour, and capital, but may also complement each other in the way they are structured. They use common assets, shared labour and forage supply.

The principles of economic analysis need to be applied across all enterprises within the farm business to ensure that the competition and supporting links between enterprises are accounted for and managed. This ensures that significant changes planned within the pasture-based beef enterprise are evaluated for their impact on the whole farm business. When a whole-of-business economic analysis has been completed the most appropriate herd structure, timing of important management practices and target markets for the pasture beef enterprise can be determined to maximise profit for a multi-enterprise business.

Principles of setting the strategic direction of the beef enterprise.

  • Set clear business goals first.
  • Determine the enterprise strategy, herd structure and markets that will achieve the beef  business goals in the most appropriate and efficient way.

Setting the strategic direction of a beef enterprise needs to be carried out as part of planning the whole farm business.

Procedure 1: Determine the enterprise strategy and herd structure most likely to maximise profit.

  1. Determine the enterprise strategy and herd structure most likely to maximise profit, while operating at acceptable risk; taking into account business and personal goals and constraints.
  2. Develop a transition plan from the current enterprise to the preferred position, to achieve beef enterprise targets.
  3. Measure and analyse current performance and compare with expected physical and financial targets, to ensure business and financial stability are not compromised during the transition phase. Periodically review the strategic direction in relation to changes in technology, pasture resource and your goals.
  4. Enterprise strategy refers to the allocation of resources such as labour, pastures and finance that will support the chosen herd structure and markets.

Herd structure refers to the:

  • Stocking rate
  • Numbers of each stock class (such as weaner steers, weaner heifers and cows with calves)
  • Age and sex
  • Breed
  • Calving date
  • Weaning date
  • Target market and time of sale
  • Buffers you require to manage risk.