How Agribusinesses can prosper in environment of rising input costs

Rising input costs are eroding the margins and profitability of virtually every Australian agribusinesses. Factors including the pandemic, geopolitical shifts, legislative changes, and a dramatic change in the composition of the seasonal workforce, are affecting everything from energy and transport to packaging and labour costs.  

With limited ability to pass these costs onto customers, without dampening demand, agribusinesses must explore innovative strategies to contain expenses and sustain profitability in an increasingly challenging environment.

Rising Input Costs: A New Reality for Agribusinesses

In the wake of the pandemic, geopolitical tensions, legislative changes, workforce composition and skills shortages, Australian agribusinesses are facing unprecedented increases in the cost of doing business (CODB). No sector within agribusiness can escape the rising unit costs of primary production inputs, energy, transport, construction, packaging, and labour. Most agribusinesses lack the market power to pass these costs onto their customers without significantly impacting their volume. 

Price Increases Are Not the Solution

Raising domestic or export prices is not a silver bullet. With domestic consumers already feeling the squeeze of rising living costs, there is a limit to how much they can bear in price hikes. Excessive price increases risk stifling consumer demand. Australia, already a high-cost exporter in the Southern Hemisphere, has seen a decrease in export volumes of fresh produce from 785,000 tonnes in 2019 to 699,888 tonnes in 2023. While there were modest increases in fresh seafood and pork exports, the overall trend underscores the need to maintain competitive pricing. 

Labour Market Transformations and Challenges

The pandemic and subsequent legislative changes have dramatically reshaped the agricultural labour market. Out of necessity the regulated and bureaucratic PALM (Pacific Australia Labour Mobility) workforce in Australia has grown from 8,000 in 2018 to 38,000 in 2023.  While the PALM scheme provides a strong foundation for many businesses seasonal workforce it is cumbersome and far more expensive than traditional seasonal labour once all management, welfare and compliance costs have been factored in. 

Investing in Automation and AgTech: A Necessity

To counter rising costs, agribusinesses must make calculated investments in automation, mechanisation, and AgTech.  

The right technology can reduce production costs, reduce labour requirements, and enhance quality and productivity. However, unless these technologies are proprietary, they won’t offer a sustainable competitive advantage in the market. 

Efficiency: The Key to Control and Profitability

Ultimately, how agribusinesses utilise their resources will differentiate the successful from the struggling. Efficient use of natural, capital, and human resources is crucial. Agribusinesses control decisions about market targeting, crop selection, production techniques, harvest and manufacturing system design, and investment in automation. Effective sourcing, training, and management of the seasonal workforce, along with precise data utilisation and workforce design, can lead to lower costs and higher productivity. 

Agribusinesses that refine their production processes to use fewer inputs, energy, and labour while increasing the portion of premium raw material produced will achieve the lowest cost of production. Those who master this balance will be best positioned to maintain and grow profit margins, demand, and volume, ensuring a resilient future in a challenging economic landscape.

In summary

In the face of rising input costs, Australian agribusinesses must focus on what they can control. Efficiently utilising resources—natural, capital, and human—will be key to maintaining and growing profit margins.  

Strategic decisions about market targeting, crop selection, production techniques, and technological investments will set successful agribusinesses apart. By refining their production processes to maximise efficiency and reduce waste , these businesses can achieve the lowest cost of production and maintain competitiveness.  

Those who adapt and innovate in their resource utilisation will be best positioned to thrive in this challenging economic landscape.