A joint research study by the University of Western Australia and BankWest has found farms that specialise in either crops or livestock have, on average, a higher rate of return on assets than mixed production farms.
The higher rate of return on assets in specialist farms was found to be coupled with a higher level of risk for the farm, in the form of greater variability in the return on assets from year to year.
BankWest's Agribusiness Market Analyst Dan Fels said the study also showed that the return on assets does not increase with total farm size, but increases with the proportion of the total farm area rented or leased.
"This suggests that there is evidence of decreasing returns to scale in WA farms and that farms which rent additional land are possibly growing rapidly and achieving a better return on their capital investment," Mr Fels said.
"The study also found that specialist farms are significantly more profit efficient than their mixed production counterparts," he said.
Profit efficiency assesses individual farm performance relative to the profits of the best farms had they been given the same land, machinery and other inputs.
The aim of the study was to present statistical support to farmers in understanding farm profitability in WA.
The research is part of an ongoing study and used BankWest Benchmark data for the crop years 1995/96 to 2003/04.
The results for the BankWest Benchmark data for 2005/06 are due out next week.
The study was a CEED honours project undertaken by Matt Titmanis a Combined Degree student in Agriculture and Economics at UWA. The project was supervised jointly by Ben White of the School of Agricultural and Resource Economics and Dan Fels of BankWest Agribusiness.
