The viability of cattle production

This article is the third in a series that shares highlights from this year’s Zimbabwe Herd Book’s annual Beef School. Presented by Jaco Erasmus, the technical adviser to the Zimbabwe Beef Producers Society, it focuses on the viability of cattle production. Spread over three days, the Beef School allows attendees to network with fellow beef producers and sector stakeholders.

What does it cost to run a cow per year?

Starting with the question of what constitutes a viable herd size and what return on investment can be made from cattle farming, Erasmus points out that there is no “one size fits all” answer; investment can begin with just a single animal. It's important to note that negative or double-digit returns can occur on an investment. A business with a 2% return takes 35 years to double, while a business with a 7.2% return will double in just 10 years.

Erasmus emphasises the importance of record-keeping to establish your business's position. Key records include:

• Livestock inventory
• Record of sales and purchases
• Record of direct expenses (variable) and overhead expenses (fixed)

A great example of record management is using ear tags to identify your cattle, allowing you to track their progress.

Understanding viability

To assess viability, one must consider profit and loss and determine the breakeven point. Fixed and variable costs come into play.

• Variable costs: These costs change with production and include veterinary fees, cattle feed, and labour.
• Fixed costs: These overhead expenses remain constant regardless of production levels, such as land rent, electricity, accounting and admin fees.

The breakeven point occurs where output equals total costs (fixed costs + variable costs) and occurs at a certain number of animal units (AUs).

Erasmus states, “We want to be more efficient, which is why we come to Beef School. By increasing our efficiency, we can achieve a bigger output for less input.” We can also achieve viability at a lower number of AUs.

Factors impacting output

Output is determined by several factors, including:

• The number of cattle sold ( determined by calving percentage, mortalities, and stocking rate)
• The weight of cattle sold (reflected in the rate of live gain)
• Price (determined by season of sale and cattle condition)

To increase efficiency, herd output can be calculated using the formula:

Herd Output (AU) = (Sales + Growth) / Opening or Average AU

A figure of 30% or higher is considered efficient for herd output.

Maximising business performance requires optimising per animal performance while maintaining long-term carrying capacity. Producers are encouraged to spend where a dollar will yield more than a dollar in return, for example, buying protein in winter and phosphate in summer.

Leveraging economies of scale

Producers should also take advantage of economies of scale (the more cattle you have, the more you can spread fixed costs). The efficiency of labour input is an essential part of this. The industry is currently facing a cost-price squeeze, characterised by an increase in supply alongside a decrease in real prices. An increase in demand, such as an export market, can have a firming effect on prices.

Economies of scale - the more cattle you have, the more you can spread fixed costs

Economic sustainability of beef producers

Is the average beef producer economically sustainable? It is possible to achieve viability at a lower herd size than the average producer if operational efficiency is prioritised.

Planning, implementation and control

Effective planning and measurement are crucial. Reverse engineering your livestock inventory to come up with a herd model, involves tracking animal units over time, beginning with opening stock and breakdowns of numbers and categories. Implement a cash flow system that accounts for both variable and fixed expenses.

Key planning components include:

• Net cash flow
• Changes in livestock valuation
• Sum the above to calculate the net position
• Calculation of internal rate of return (IRR) using opening and closing livestock values and cash flows
• Return on livestock capital %, you can also include other capital e.g. land. As a rule of thumb, from a grazing point of view the value of the land is roughly equivalent to the value of the cattle you can carry on it.

Steps toward viability

To enhance viability in cattle production, consider the following:

• Increase income through improved productivity.
• Achieve greater efficiency with targeted expenditure on variable costs.
• Monitor labour efficiency.
• Keep overhead or fixed costs in check.
• Measure and plan for profit through efficient cash flow management, aiming for higher income per dollar spent.

Jaco Erasmus, who hails from a Chatsworth cattle farming family and holds a Master of Agricultural Management degree, shares his knowledge and expertise free of charge with members of the Zimbabwe Beef Producers Society. Members have access to various spreadsheet tools, including templates for sales, purchases, income and expenses by category, livestock inventory returns, and a herd model and cash flow analysis.

ZBPS membership

Communal and small-scale farmers (A1) - Up to 20 people in one membership, USD20 per year; all other farmers, USD20 per individual per year.

For more information contact ZBPS directly on Tel: 242 - 2756 600 / 2777 391 / 2772 915 / 0774 122 660, or email zhb-sec@lit.co.zw