Cost of production

Cost of production (COP) measures the outlay of producing beef in cents per kilogram. It is a tool that can be used by graziers to analyse their operations and benchmark against peers and industry. The benefit of this approach is that it guides management decision making by providing an indicator of strengths and weaknesses of the businesses with a straightforward calculation. COP can help graziers allocate funds away from inefficient, unnecessary overheads to more efficient, better performing business practices. An excessive COP will reduce business performance, reduce profit and potentially jeopardise the business. Furthermore, analysis of COP involves keeping good data and financial records, as well as being active in seeking improvement. This in itself is good business management practice.

COP provides many benefits for decision making; however, other factors such as asset availability and operation size need to be considered when analysing results or using benchmark comparisons. For example, a low COP might be possible on a large scale operation yet may not be achievable on smaller scales. Trying to achieve a lower, unsustainable COP may mean quality of output is reduced or riskier business practices are employed. Variations of COP between groups and years can also be caused by external factors, such as rainfall, which is outside the control of the business. Taking these factors into account, comparing COP over a number of years is a good analysis tool to discover cost saving opportunities.

Read more about COP at Meat & Livestock Australia, along with tips, tools and a COP calculator or contact your local beef extension officer.

Attend a Business EDGE workshop.