What are the energy management challenges?

Many producers of agricultural commodities are price takers, with limited options for value added or product differentiation. The key strategies for optimising operating income are to minimise production costs and maximise yield.

Energy is a significant cost to many agricultural producers. The convergence of high input costs, the [until recently] strong Australian dollar and increasingly variable climatic conditions has resulted in a decline in the growth of Australia’s export share and placed pressure on profit margins across many Australian agriculture sub-sectors.

Across ANZSIC Division A: Agriculture, Forestry and Fisheries, energy spend is equal to about a third of pre-tax profit. Given prevailing margins of approximately 17%, saving one dollar in energy cost is equal to an additional $6 at the farm gate.

Optimising energy productivity will, therefore, contribute to the increased resilience of Australian agricultural producers, helping farmers to better withstand the cyclical nature of the industry.

The key energy cost driver for agricultural producers is often diesel prices. Diesel accounts for 81% of agriculture energy use; this equates to 76% of total sector energy cost or $2.8 billion per annum. 

What is the size of the opportunity for agriculture?

Parts of the agriculture sector have made significant investments in energy efficiency in recent years. Leading-edge research is underway that will assist Australia in maintaining its position as a leader in agricultural production.

Notably, the agriculture sector stands to benefit from advances in precision agriculture and robotics, exploiting the wealth of data available for sustainable gains in productivity with considerations of yield, water, electricity and chemicals.

Farmers are also realising the benefits of upstream and downstream collaboration, including the sharing of infrastructure at regional level, such as community bore pumps and solar photovoltaic (PV) installations, thus increasing the utilisation of assets, which influences the return on investment in equipment.

Farmers are adopting innovative business models. These models typically focus on reducing costs through vertical integration, increased specialisation and scale or enhancing the resilience of the business to climate variability and natural resource constraints.

What are the elements of an energy productivity program?

1. ‘Traditional’ energy management –On-farm energy efficiency improvements and cost savings for agricultural producers, improved utilisation of resources and equipment (i.e. capacity utilisation) at individual farms and more generally; for example, via local energy generation and load shifting.  Also multiple dividends in terms of reduced maintenance and downtime, as well as reduced waste and improved water management. 

2. Systems optimisation – Adopting a system view of ‘everything that happens on a farm’ can unlock significant economic benefits. Areas of potential benefit include waste-to-energy systems, as well as considering end-to-end resource input profiles, precision agriculture and field robotics.

3. Business model transformation – New business models should consider three dynamics: ways in which to remove cost from the value chain, specialisation and economies of scale and enhancing the resilience of the sector in the face of increased climate variability. Regardless of commodity prices and climatic conditions, the Australian agricultural sector and individual farm businesses need to design strategies that will withstand the cyclic nature of the sector.

Solutions are likely to vary, but an example includes the decoupling of farming from weather variability, water and soil quality.

Note:  The text above is an extract from the A2SE's "Developing an energy productivity roadmap for Australian agriculture".  Energetics' Anita Stadler was the lead author.

Access the report:  Developing an energy productivity roadmap for Australian agriculture

Talk to one of Energetics experts about the energy productivity opportunity in your farming business.