Towards a Perfect Angora Goat Enterprise

Towards a perfect Angora goat enterprise

Testing management strategies and financial feasibility of Angora goats for the production of mohair and meat

A report for the Rural Industries Research and Development Corporation by Stephen Chaffey

June 2006

RIRDC Publication No 06/086 RIRDC Project No OSE1A

ISBN 1 74151 349 9 ISSN 1440-6845

Towards a perfect Angora goat enterprise - Testing management strategies and financial feasibility of Angora goats for the production of mohair and meat

Publication No. 06/086

Project No. OSE-1A

The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable industries. The information should not be relied upon for the purpose of a particular matter. Specialist and/or appropriate legal advice should be obtained before any action or decision is taken on the basis of any material in this document. The Commonwealth of Australia, Rural Industries Research and Development Corporation, the authors or contributors do not assume liability of any kind whatsoever resulting from any person's use or reliance upon the content of this document.

This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone 02 6272 3186.

Researcher Contact Details Stephen Chaffey Chaffey & Associates Pty Ltd PO Box 7095 East Albury NSW 2640

Phone: 02 6041 1093 Fax: 02 6041 4662 Email: [email protected] In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form.

RIRDC Contact Details

Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600

PO Box 4776 KINGSTON ACT 2604

Phone: 02 6272 4819 Fax: 02 6272 5877 Email: [email protected]. Web: http://www.rirdc.gov.au

Published in June 2006 Printed on environmentally friendly paper by Canprint

Foreword

The Australian Mohair industry currently has gross margins analysis available for current and potential growers to ascertain the financial feasibility of the mohair enterprise. The existing financial data does not reflect the costs of herd establishment, the time to build herd numbers or the price and volume differentials of mohair gained from different herd age structures.

This report outlines the development and implementation of a dynamic financial model that builds on gross margins analysis and allows existing and potential growers to test management strategies and financial performance of the Angora goat enterprise.

The Australian Mohair industry now has a detailed management and financial planning tool to assist existing growers to refine their thinking and enterprise management practices and potential growers can be given the opportunity to reduce search time and improve their planning and preparedness to enter the industry.

This project was funded from industry revenue that is matched by funds provided by the Australian Government.

This report is an addition to RIRDC’s diverse range of over 1500 research publications. It forms part of our Rare and Natural Animal Fibres R&D sub-program, which aims to facilitate the development of new and established industries based on rare natural fibres.

Most of our publications are available for viewing, downloading or purchasing online through our website:

Downloads at www.rirdc.gov.au/fullreports/index.html

Purchases at www.rirdc.gov.au/eshop

Peter O’Brien Managing Director Rural Industries Research and Development Corporation

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Acknowledgments

Lloyd Davies, Economist, Department of Primary Industries, Tocal Agricultural Centre, Paterson NSW

Andrew Gossip, Denise Riches, Mohair Australia Ltd

Ken Sykes and Mark Ferguson

Ted Scarlet, Livestock Consultant, Lavington NSW Abbreviations

AMMO - Australian Mohair Marketing Organisation Limited BMM - Biz Mod for Mohair NMP - National Mohair Pool Pty Ltd MAL - Mohair Australia Limited MLA - Meat and Livestock Australia NPV - Net present value IRR - Internal rate of return GM - Gross margin NSW DPI - NSW Department of Primary Industries MB - mega byte

About the author

Stephen Chaffey provides a business management services to private and public organisations. He has expertise in strategic planning, process improvement, product and services marketing, innovation management, capital budgeting, modelling and simulation of business dynamics, project management, financial and market feasibility analysis, group facilitation and industry development. He has conducted research on impediments to industry growth on a range of rural industries. Some of his recent work has involved developing business models enabling clients such as the Australian Prune industry, the Australian Mohair industry, Ito En Australia (Green Tea) and the Australian Bush Heritage Fund to develop management strategies and assess financial feasibility for their respective business situations.

Contents Foreword...... iii Acknowledgments...... iv Abbreviations...... iv About the author ...... iv Executive Summary ...... viii 1 Introduction ...... 1 2 Objectives...... 2 3 Methodology ...... 3 3.1 The case for modelling...... 3 3.2 The product ...... 4 3.3 Sections of Biz Mod for Mohair ...... 5 3.3.1 Structure of the herd ...... 6 3.3.2 Mohair production, quality and price ...... 9 3.3.3 Buying and selling animals...... 9 3.3.4 Operating costs ...... 11 3.3.5 Capital costs...... 11 3.3.6 Finance costs...... 12 3.3.7 Reporting ...... 12 4 Results and Findings ...... 13 4.1 Testing a new Angora enterprise ...... 13 4.1.1 Key assumptions...... 13 4.1.2 Performance of the new enterprise ...... 14 4.1.3 Exploring alternative management strategies and assumptions...... 15 4.1.4 Enterprise performance over time ...... 19 4.2 Management complexities ...... 22 4.2.1 Mohair quantity ...... 22 4.2.2 Mohair quality ...... 22 4.2.3 Herd Structure...... 22 4.2.4 Property development...... 23 4.3 Industry response ...... 23 4.3.1 Practical industry examples ...... 23 5 Implications...... 25 6 Recommendations ...... 27 6.1 Strategy 1 ...... 27 6.1.1 Programs for strategy 1...... 27 6.2 Strategy 2 ...... 27 6.2.1 Program for strategy 2 ...... 27

7 Appendices ...... 28 7.1 Appendix 1: Initial variables for a establishing a new enterprise ...... 28 7.2 Appendix 2: Initial variables for an existing enterprise...... 29 7.3 Appendix 3: Variables effecting the breeding herd ...... 29 7.4 Appendix 4: Variables effecting bucks and wethers...... 30 7.5 Appendix 5: Goat age, mohair class categories, fleece weights and shearings...... 30 7.6 Appendix 6: Mohair quality per cut and price ...... 31 7.7 Appendix 7: Live weights and dressed weight prices...... 32 7.8 Appendix 8: Initial purchases of livestock...... 33 7.9 Appendix 9: Operating costs...... 34 7.10 Appendix 10: Capital costs ...... 35 7.11 Appendix 11: Finance variables...... 36 7.12 Appendix 12: Performance measures...... 37 7.13 Appendix 13: New enterprise herd population ...... 38 7.14 Appendix 14: New enterprise income statement ...... 40 7.15 Appendix 15: New Enterprise cash flow ...... 42 7.16 Appendix 16: New enterprise performance ratios ...... 43 7.17 Appendix 17: New enterprise balance sheet ...... 44 8 References ...... 45

List of Tables

Table 1: Average dressed weight prices paid for meat goats (MLA 2005)...... 10

Table 2: Live weights and dressed weight ranges (kg) ...... 10

Table 3: Enterprise performance on assumptions for test 1 ...... 15

Table 4: Enterprise performance on assumptions for test 2 ...... 15

Table 5: Enterprise performance on assumptions for test 3 ...... 16

Table 6: Enterprise performance on assumptions for test 4 ...... 16

Table 7: Enterprise performance on assumptions for test 5 ...... 17

Table 8: Enterprise performance on assumptions for test 6 ...... 18

Table 9: Enterprise performance on assumptions for test 7 ...... 18

Table 10: Enterprise performance on assumptions for test 8 ...... 19

List of Figures

Figure 1: A simple diagrammatic representation of the scope of Biz Mod for Mohair ...... 5

Figure 2: Structure of the breeding herd...... 7

Figure 3: Structure of the wether herd...... 8

Figure 4: Structure of bucks...... 9

Figure 5: Approximate proportion of each age group of does as a percent of total doe population. The proportion will change slightly over time ...... 14

Figure 6: Change over time of gross margin per effective hectare...... 20

Figure 7: Change over time of total enterprise cash flow (total revenue less total costs less tax paid plus depreciation rebate less capital costs)...... 20

Figure 8: Net present value and discounted payback period using a discount rate of 10% ...... 21

Figure 9: Cash at bank and peak debt...... 21

Figure 10: Production of mohair over time ...... 22

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Executive Summary

What the report is about The product of this project is a computer model. The term model, in this context, stems from the need to assist people to refine their mental model of their business. Magretta (2002) identified that a business model is a mix between a story that explains how things will work and the numbers that support it, (i.e. linking narrative to numbers). When used correctly a business model enables people to think rigorously about how a business will work, what it might achieve and why. Business models describe a system and how things fit together to produce outputs. Who is the report targeted at The report (Chaffey & McGregor 2004) proposed the Mohair industry take more control of the investment decision-making process and this would lead to more people making more informed decisions about the Angora goat enterprise. The report identified a wide range of useful financial and management data existing in the mohair industry however it had not been collected and packaged into a form that enables people to make fast and informed commercial decisions about the Angora goat enterprise. This project advances the work by Davies and Murray (1997). Background The Australian mohair industry is an emerging small industry in the Australian rural landscape exporting mohair for processing into a range of luxury textiles. Low production volumes and loss of breeding stock threaten the future viability and sustainability of the industry. The mohair industry needs to expand and attract further investment by current and existing commercial farmers. Aims/Objectives The aim of the project was to create a financial analysis product, using computer software that was easy to operate yet sufficient to test a range of management strategies applicable to the Angora goat enterprise. The analysis includes revenue, direct and indirect costs, taxation, capital costs, and depreciation over a time frame of 12 years. The product is easily useable by industry and allows for experimentation and learning about the different ways the enterprise could be managed and the possible financial performance arising from different management strategies and assumptions. Method used While benchmarking has become a familiar phrase in Australian agriculture, Ronan and Cleary (2000) criticised the whole business approach to benchmarking arguing the focus should be on the processes involved in producing an output and that diagnostic power comes from showing how all the performance numbers are linked to productivity, costs, profit and return on investment. They argue ‘to act on benchmarking results without then doing modelling, cost benefit analysis or partial budgeting would miss a vital step’. This product is complementary to benchmarking work carried out within the industry. Given the case for business modelling and the complementary nature of benchmarking, the term Biz Mod has been used to describe the product. The commercially available software iThink® has been used as the platform to build the Biz Mod product. Hence through this document the product (software model) will be referred to as Biz Mod for Mohair (BMM).

The central feature of BMM is the herd population structure that allows population changes over time based on the parameters set by the user. Animals are weaned; they age, die, are bought and sold. As animals age the volume and quality of mohair produced changes. The model runs over a 12-year time frame with annual increments. This allows the user to think about how they might manage the enterprise over multiple years and what performance might be possible when adopting one management strategy versus another under a given set of assumptions.

viii

Results/Key Findings The results and findings section takes a case study approach by using BMM to examine the establishment of a self replacing angora enterprise with a desired breeding herd size of 300 does. The initial strategies and assumptions are outlined and base case performance illustrated. Details of each section of the model are referred to in the appendices and the base case herd population, income statement, cash flow, enterprise balance sheet and performance ratios are also illustrated. A further eight tests are applied that examine different actions and assumptions made by management and the resulting performance compared to the original base case. The management strategies and assumptions applied to the case study enterprise and the eight tests suggested an internal rate of return ranging from 9.3% to 21.2% over 12 years, a median gross margin per effective hectare ranging from $82 to $167, cash at bank in year 12 ranging from $8,700 to $56,800 and net enterprise assets ranging from $69,900 to $155,700.

Implications A key benefit of BMM is to allow new growers to explore potential management strategies and their assumptions about a future enterprise before embarking upon it. Decisions made early in the establishment of an enterprise can have significant effects on the return on investment. They can also have significant effects on delivery of mohair to Australian supply chains. For example, if the base case strategy and assumptions were adopted to manage the case study enterprise in test 1 the business would have returned an 11.5% internal rate of return and 35,771 kilograms of mohair with a farm gate value of $331,196 over twelve years of operation. If ten new growers to the industry adopted the same strategies and assumptions based on test 1 then they would contribute 357,771 kilograms of mohair to the supply chain in the same time frame with a farm gate value of $3.3 million. However, if the ten new growers were able to make small improvements on key drivers of enterprise performance, the internal rate of return could move to 17.5%, a 52% increase (see test 5). They would also contribute an extra 24,770 kilograms of mohair to Australian supply chains over twelve years, an increase in total farm gate value of mohair of $305,110 over twelve years.

Recommendations As a result of the project, the following recommendations have been made: Introduce BMM to the industry in partnership with the launch of the MLA ‘Going with Goats – Profitable producer best practise guide’ to be carried out in 2006. Use other industry functions during 2006 to promote the availability, benefits and access arrangements for BMM. Concurrently, identify private consultants, public officers or experienced growers who service the goat industry and select those who have the interest to use BMM in their consulting and advisory work. Offer this group a training program that enables them to competently present BMM to current and potential growers. The consulting group could have a BMM product that allows for data transfer to Microsoft Excel®. Examine the opportunity to maintain an ongoing partnership with the MLA product ‘Going with Goats – Profitable producer best practise guide’ particularly if this program is workshop based. Determine under what conditions BMM is transferred to growers. For example growers may need to participate in a short training program to become competent in using BMM and interpreting the output for their situation before gaining access to a version of BMM. Growers could access a product with or without links to Microsoft Excel®. Monitor the use of BMM by consultants, service providers and growers to determine the extent of its use, the value it provides to its users and if any further developments would add additional value to the industry.

Monitor the use of BMM to determine if there is value in adapting the basic model to other industry sectors such as cashmere and meat goats to create Biz Mod for Cashmere and Biz Mod for Meat Goats in a way that further complements the MLA product ‘Going with Goats – Profitable producer best practise guide’.

1 Introduction The mohair industry is an established small industry in the Australian agricultural landscape exporting mohair for processing into a range of luxury textiles. Low production volumes and loss of breeding stock threaten the future viability and sustainability of the industry. The mohair industry needs to grow by attracting further investment by current and new commercial farmers. The report ‘Making Mohair attractive to Investors’ (Chaffey & McGregor 2004) investigated impediments to industry growth and development by reviewing information existing in the mohair industry and the requirements for information particularly from potential commercial investors. The report found financial information available on the enterprise existed at gross margin level only and was outdated and insufficient to enable a potential investor to make an informed decision to invest. It also found Mohair Australia Ltd (MAL) supported the decision process by providing an information kit to interested investors. While managing this process has low complexity (i.e. just a few activities performed by the industry at low cost and requires minimal management), it allows for high divergence (i.e. people attempting to make a decision do so in their own unique way). This allows for a large range of outcomes such as people making ill-informed decisions because of lack of information, wrong information or inability to gain sufficient and reliable information. For an individual, the completeness and thoroughness of their decision-making will depend on their ability, aptitude or competence to find and make sense of information. The industry assumed people would obtain sufficient information and be competent enough to compile it in a way that establishes a sufficient business case in favour of an Angora goat enterprise. This is not happening. A recommendation from the report proposed a decision support tool that enabled potential growers to quickly and thoroughly test their management strategies and the resulting financial feasibility of their Angora goat enterprise. The report by Cull (2001) identified the reduction of search costs, thinking costs and time obsolescence costs were a benefit of industry conferences in conjunction with extension activities. However industry conferences are few and often distant in time and are not the preferred method potential commercial investors would use to assist their diversification decision making about an Angora goat enterprise. In addition traditional extension methods have given way to private consulting. In the report by Chaffey & McGregor (2004) financial feasibility was defined as the ability of the enterprise to provide a sufficient financial return over a given period of time. Commercial growers unrelated to the industry considered assessing the financial feasibility of an Angora goat enterprise over a number of years and with many variables difficult. They were unsure where they would get credible information. They indicated they would consult with other growers they respected, their adviser or the Department of Agriculture about the financial feasibility of the Angora goat enterprise. They identified the need for better use of historic information such as average fleece prices, the use of software packages, extended periods of financial analysis over a numbers of years and being able to run sensitivity analyses. Gross margins were often mentioned but some regarded them as not sufficient. Some people wanted to review cash flow over a number of years and measure the return on investment. Many would want to use computer software to do their analysis. The Angora goat industry continues to get positive publicity through rural newspapers (Weekly Times 2005, 2006). These articles publicise the favourable profitability of the Angora goat enterprise however they only raise awareness, they do not assist feasibility decision-making. The report (Chaffey & McGregor 2004) proposed the Mohair industry take more control of the investment decision-making process and this would lead to more people making more informed decisions about the Angora goat enterprise. The report identified a wide range of useful financial and management data existing in the mohair industry however it had not been collated and packaged into a form that enables people to make fast and informed commercial decisions about the Angora goat enterprise. This project advances the work by Davies and Murray (1997).

2 Objectives

The objective of the project was to build, operate and transfer a learning support tool for the Mohair enterprise that reduces search and thinking costs about management strategies and financial feasibility for the enterprise and leads to greater control of the enterprise decision making and management thinking by the industry.

The BMM product aims to provide easy access to a fuller financial feasibility analysis capability that includes revenue from sales of meat and mohair, direct and indirect costs, gross margin, depreciation, taxation and capital costs over a twelve year time frame. Typical performance measures include gross margin analysis, net present value and discounted payback period.

From a learning perspective the user will be able to experiment with decisions that have implications over three years or more and decisions that have implications from one to three years. They will be able to experiment with, and learn about the effect of events (e.g. a price change or a reduced weaning rate in a specific year), trends over time (e.g. implications of improved breeding programs that lead to a gradual increase in Mohair quantity produced or a gradual reduction in labour input) and be able to challenge the structure of the enterprise (e.g. what proportion of the breeding herd should be greater than 5 years old, or should wethers be sold at 18 or 48 months).

3 Methodology

The project commenced with a review of literature, in particular the work by Davies and Murray (1997) and other relevant industry physical and financial data that describes the structure, trends and events important to the enterprise.

A computer model was built. The software used for this project is iThink® by iseesystems Inc. This software separates formulae from model structure and the user interface. It is highly suited to simulation and has a superior communication interface compared to spreadsheets such as Microsoft Excel®. This software comes with a model viewer that can be downloaded or provided on a CD along with the model file. The model viewer software is a 3 MB download and as such may not be suitable for those people who have slow Internet speeds. The model has the ability to feed data into Microsoft Excel® for further analysis and presentation.

3.1 The case for modelling

The term modelling stems from the need to assist people to refine their mental model of their business. Magretta (2002) identified that a business model is a mix between a story that explains how things will work and the numbers that support it, (i.e. linking narrative to numbers). When used correctly a business model enables people to think rigorously about how a business will work, what it might achieve and why. Business models describe a system and how things fit together to produce outputs.

Sterman (2000) suggests successful learning involves continuous learning in both the virtual world and the real world. Modelling allows people the time to test the virtual world and challenge their assumptions and mental models in an environment of no risk and little cost. The outcome being a rich discussion and sharing of knowledge, ideas and issues that can lead to practical, sensible outcomes for individual businesses and industry.

The existence of valid and reliable data is important to be able to set the base numbers for the range of variables in the mohair enterprise. Benchmarking and comparative analysis programs have been commonly used in many Australian rural industries. The mohair industry is currently undertaking a benchmarking study. Benchmarking has been used to ‘check’ one business or enterprise against another in ways that lead to better managerial decision-making.

Worsley and Gardner (2000) undertook the study of sixty-six benchmarking programs in Australia and made a number of important observations. 1. People need to understand the stories and meanings behind the numbers. 2. Systems were needed to ensure ‘better’ information resulted in ‘better’ decision-making. 3. Data needed to be presented in ways that assisted better decision-making. 4. Continuous improvement was important through a focus on product and process improvement and innovation. 5. Benchmarking programs have focused largely on data but emerging programs and thinking are beginning to focus more on practice and operating processes. 6. The focus needs to be on the processes and practices that give rise to the numbers.

Ronan and Cleary (2000) criticised the approach to benchmarking arguing the focus should be on the processes involved in producing an output and that diagnostic power comes from showing how all the performance numbers are linked to productivity, costs, profit and return on investment. They argue ‘to act on benchmarking results without then doing modelling, cost benefit analysis or partial budgeting would miss a vital step’.

3.2 The product

Given the case for business modelling and the complementary nature of benchmarking the term Biz Mod was used to describe the product of the iThink® software when applied to test management strategies and financial performance. Hence through this document the product (software model) will be referred to as Biz Mod for Mohair (BMM).

A workshop facilitation outline was designed. Biz Mod for Mohair was introduced to the industry via a facilitated workshop format. This format was based around action learning principles. The workshops were run in either of the following ways. Individuals were given the opportunity to represent their enterprise and the way they manage it and to check the performance of their management against the model output. Alternatively, people worked in groups and acted as a board of directors making collective management decisions on a fictitious enterprise by using their combined enterprise experience and knowledge.

While both methods were insightful and served to validate the performance of the model against practical industry experience, the latter group situation brought forward significant discussion and management ideas that challenged the way people think about and manage their enterprise.

A workshop booklet was developed to accompany BMM. The booklet parallels the model variables and acts as a planning tool where the user can record their goals, questions, issues or risks against specific variables within thirteen sub sections of the model. Workshops were a feature of the methodology as they form an important function of learning about how the people in the industry think about managing the Angora goat enterprise. The model must be robust enough to accommodate the way a commercial grower would manage the enterprise.

During a workshop it is expected more time will be spent in discussions arising from using Biz Mod for Mohair than actually operating it. It is anticipated the discussions will lead to new knowledge, insights, ideas, changed attitudes or aspirations and then lead to behaviour changes in the form of enterprise improvements or more significantly innovations. In the case of new growers it will contribute to enabling them to make faster and more informed decisions about the suitability of Angora goats for their particular situation and help them be better planned before entering the industry.

Biz Mod for Mohair (BMM) attempts to represent sufficient breadth and depth in analysis for the user to gain useful insights into what might happen to the physical and financial performance of their enterprise if they adopt specific management strategies. BMM accommodates the purchasing of stock, the capital investments, operating inputs and labour in conjunction with the activities that occur in a commercial angora enterprise as well as the outputs to various markets (Figure 1).

Capital investments

investing selling live goats Markets for live goats

Herd maintainance, reproduction and growth

Markets for Markets for purchasing Bucks Does selling meat goats Angora goats meat goats

Wethers

selling mohair Markets for purchasing mohair

Material Labour inputs

Figure 1: A simple diagrammatic representation of the scope of Biz Mod for Mohair

BMM assists the user to explore and answer questions such as:

What is your desired breeding herd size? How long does it take to reach the desired breeding herd size? What is your weaning rate? How many wethers will you produce? At what stage will you sell wethers? How many effective hectares available for the enterprise? How DSE available? How many DSE are required? Does the property have sufficient DSE to support the enterprise? How much mohair will you produce? What will be the quality of the mohair? What price for mohair? What is the average mohair price paid $/kg? What price for livestock sold? What are the expected dressed weight prices? What is the average dress weight price ($/kg)? What direct and indirect costs are incurred? What are operating costs as a percent of income? What capital costs are incurred and when? What are the possible gross margins and net income? What is the net project cash flow? What might be the net present value of the enterprise? What is the effect on the bank account? What is the net asset position in the 12th year? 3.3 Sections of Biz Mod for Mohair

BMM can investigate starting a new enterprise or reviewing an existing one. To investigate establishing a new enterprise initial purchases of stock need to be determined (Appendix 1: Initial variables for a establishing a new enterprise). To investigate an existing herd, stock numbers at the start of the simulation need to be determined (Appendix 2: Initial variables for an existing enterprise). Once these variables are established they are unlikely to be revisited and the rest of the model can be set up to reflect the expected way the enterprise will function.

3.3.1 Structure of the herd

The angora herd is the central structure of the model. BMM assumes a self-replacing herd structure once the desired herd size is reached. Bucks are sold off at a set age to introduce new genetics, does are sold from each age group (once the desired herd size is reached) on the assumption management will select for the best traits (Figure 2).

Breeding herd age composition can be manipulated to accommodate management preferences for some age groups compared to others. For example management might prefer to keep a larger proportion of their breeding does in the age groups from 4 to 8 years because they think they might get more reliable mothering and a higher weaning rate.

Alternatively another approach might be to reduce the numbers of breeding does in the 4 to 8 years age group to a smaller proportion of the herd allowing for an increase in the proportion of higher value mohair in the total clip. Either strategy may have impacts on the herd growth rate, weaning rates and the quality and quantity of mohair produced as well as financial performance (Appendix 3: Variables effecting the breeding herd).

Wethers can be kept up to the age of 4 years or up to 100 percent can be sold off in the in any age group up to 4 years of age (Figure 3). A death rate can apply to all four age groups (Appendix 4: Variables effecting bucks and wethers).

Bucks are bought into the enterprise on the basis of the desired ratio of bucks per 100 does (Figure 4). Management can keep bucks for a desired number of years after which they are sold off.

Deaths does age 2 Deaths does age 1 Buy does aged 3 Buy does aged 4

Does age 5 or more Weaned does does age2 does age3 does age4 Does age 1 Does age 2 Does age 3 Does age 4 7 does age1 Sales of cfa does

Sales of does in year 1 Sales of does in year 3 Sales of does in year 2 Sales of does in year 4 Sales of does aged 5 plus

Figure 2: Structure of the breeding herd.

Deaths Deaths Deaths Deaths wethers aged 1 wethers aged 2 wethers aged 3 wethers aged 4

Sales of wethers age 4 Wethers 1yr old Wethers 2yrs old Wethers 3yrs old Wethers 4yrs old

weaned wethers wethers age 1 wethers age 2 wethers age 3 8

Sales of wethers in year 1 Sales of wethers in year 2 Sales of wethers in year 3

Sales of wethers in year 4

Figure 3: Structure of the wether herd

Bucks

Buy bucks Sales of bucks

Figure 4: Structure of bucks.

3.3.2 Mohair production, quality and price

The weight and quality of mohair cut from each animal will change as the Angora goat ages. Typically does and wethers are shorn every six months. As they age, the weight of the clip they produce increases and the quality changes. This is dependant on a range of factors such as genetics and feed. BMM accommodates six shearings points that occur at six-month intervals and spanning age groups from 6 months to eight years of age. Each shearing point captures a different quantity and quality of mohair as set by the user (Appendix 5: Goat age, mohair class categories, fleece weights and shearings). BMM will allow changes in fleece weights per age group over time.

The industry has recorded average fleece weights per animal in each age group and these figures are used as base numbers in BMM (MLA 2000). The quality of the fleece produced will also change over time. BMM uses eight quality descriptors; Fine kid, Kid, Strong kid, Young goat, Fine adult, Adult, Outsorts and No commercial value (NCV) (MLA 2000: AMMO 2004).

The quality categories are split into thirty-four or more classing lines that attract specific prices from buyers (National Mohair Pool 2005: Australian Mohair Marketing Organisation). BMM only uses eight quality categories and these are aligned to the age of animals. BMM will allow the user to change the quality composition of the fleece shorn off specific age groups.

The prices used in BMM are the median of the average annual price for each grade (AMMO). BMM also allows for a proportion of the mohair payment to be delayed for one or more years to more accurately reflect cash flow to the enterprise if needed (Appendix 6: Mohair quality per cut and price).

3.3.3 Buying and selling animals

BMM allows the sales of does at any age. Does not sold by year eight are automatically sold out of the system. Wethers can also be sold at any age group from 1 to 4 years. Wethers are automatically sold out of the system at the end of the fourth year.

Sales of both does and wethers work on dressed weight ($/kilogram) basis. BMM allows the user to estimate the live weight of animals at each sale point and the dressed weight is calculated automatically. This allows the sale of animals to be calculated on a dressed weight basis, which is how the buyer (abattoirs) pays the seller (Appendix 7: Live weights and dressed weight prices).

Some enterprises will sell to a live animal market and in this case the user will need to estimate the price received based on a live weight sold and dressed weight price to reflect the price for live animals.

Bucks are bought at a price and sold after they reach the useful life for bucks. They are allocated an assumed live weight at sale and return a dressed weight and price. BMM does not allow for purchases of wethers to run a wether only enterprise.

The dressed weight prices in BMM have been derived from figures supplied by Meat and Livestock Australia (MLA 2005). The prices used are historical figures from 2003, 2004 and 2005. Both high and low prices were supplied but the low prices were taken to represent prices paid for Angora goat. In total there were 58 data pints. The median price paid of the three years was recorded for each dressed

weight category (Table 1). BMM will accept a single average annual price over 12 years or the average annual price can be changed from one year to the next for each weight category.

Table 1: Average dressed weight prices paid for meat goats (MLA 2005)

Dressed Average Average Average Median prices Approximate weight grades Prices paid Prices paid Prices paid paid (2003 – Age (Months) (2003) (2004) (2005) 2005)

0-8kg $2.21 $1.77 $2.08 $2.08 6 to 12

8-10kg $1.58 $1.27 $1.47 $1.47 12 to 18

10-12kg $1.38 $1.31 $1.61 $1.38 18 to 24

12-16kg $1.41 $1.40 $1.86 $1.41 24 to 36

16-20kg $1.49 $1.48 $2.11 $1.49 36 to 48

20kg+ $1.60 $1.31 $2.11 $1.60 48+

BMM allows the user to estimate the live weight of animals at the time of sale so that a dressed weight and price can be determined. There are six dressed weight price ranges within which a low and high live weight will fit. The base case for BMM is set to the median live weights for each grade and will allow the user a minimum or maximum live weight figure for each grade and age group. (Table 2) and detailed further in Appendix 7: Live weights and dressed weight prices.

Table 2: Live weights and dressed weight ranges (kg)

Dressed Low dressed Live weight High dress Live weight Median live weight grades1 weight (kg) (kg) weight (kg) (kg) weight (kg)

0-8kg 6 9 8 13 11

8-10kg 8 13 10 16 14

10-12kg 10 16 12 19 17

12-16kg 12 19 16 25 22

16-20kg 16 25 20 31 28

20kg+ 20 31 25 39 35

1 Dressed weight is assumed to be 43% of live weight however this can be changed to suit the assumptions of the user.

Livestock are purchased at the commencement of a new enterprise and during the herd building years up until the desired number of does are reached. The user will need to be sure the purchase price for each class of stock accurately reflect market prices.

BMM allows one, two, three and four year old does to be purchased in the initial year to commence the breeding herd. The number of does, their age when purchased in the starting year, how long does are kept in the herd before being culled and the weaning rate will have a bearing on how long it takes to reach the desired herd size. BMM allows three and four year old does to be purchased up until the desired breeding herd size is reached. Once that is reached the herd is regarded as being self-replacing.

Wethers and bucks can also be purchased in the same way (Appendix 8: Initial purchases of livestock).

3.3.4 Operating costs

The direct costs attributed to the enterprise include vaccinations, crutching, shearing, drenching and transport of animals to market.

BMM allows feed supplements to be fed to breeding does only. The user must calculate how much supplementary feed to provide each year. For example, feeding 500 grams per breeding doe for 40 days of 1 year equals 20 kilograms per doe per year. The ratio can be changed from one year to the next. Provision is made to attach additional costs per doe to include costs not already accounted for.

Labour is calculated by estimating the number of hours per breeding doe per year. This can be changed over time. For example, as the breeding herd increases in size, management time might increase or it might decrease depending on the intention of management. Alternatively labour cost might be more time per doe in the early years of establishment and decrease as the herd size increases. Herd management hours could include time spent monitoring the herd, moving the herd from one area to the next, preparing animals for transport to market, administration or other such costs.

Indirect costs include depreciation, the cost of stock purchased in the first year and the provision for the user to change the amount of fixed costs from one year to another. Fixed costs are not linked to hectares or animals. For example the user may want to allocate costs for rates, electricity or administration of the business or there may be lease payments (lease of land) that occurs each year that is associated with the enterprise.

3.3.5 Capital costs

There are a number of capital investments that may be made to support the enterprise such as the purchase of land, fences, shearing facilities, shelter and yards, watering facilities, pasture renovation and machinery (Appendix 10: Capital costs).

BMM allows a proportion of the current value of each capital item to be recorded against the enterprise. It also allows for a depreciation rate (except for land value), today’s cost of future investment in the item, the year to start the investment, the annual intervals of the investment and the year to stop the investment of capital into each item.

Depreciating assets are deducted at a diminishing value rate of 30% for the general pool of assets under the Simplified Tax System or 5% for long life assets of 25 years or more such as fences (ATO 2005).

3.3.6 Finance costs

BMM allows the user to start the enterprise with a negative, zero or positive bank balance. If the balance is negative an overdraft is assumed and an overdraft interest rate is applied. If the balance is positive a cash interest rate is applied.

A base tax rate of 30 percent and a required rate of return on the investment of 12 percent are used however the user can change these figures to suit their circumstances (Appendix 11: Finance variables).

3.3.7 Reporting

Reports are provided in graph or spreadsheet form. Two to five variables can be compared on one graph or a single variable can be repeatedly graphed to illustrate the response to a change in one or more variables.

Spreadsheets are used to allow the user to see the results they get from changing variables in some sections of the model. Alternatively spreadsheets are used to provide summary statements for the herd population, income, cash flow, enterprise balance sheet and performance ratios. Spreadsheets also allow for recording the sensitivity of a single variable to multiple changes in one or more enterprise variables. This includes key performance lines for the herd population, mohair production, financial and enterprise performance ratios (Appendix 12: Performance measures).

BMM allows for reports to be exported to Microsoft Excel®. This allows the user to do further analysis of the data and printing in the format they desire.

A booklet to accompany BMM allows the user to record the high, low and base figures against each variable and to make notes about goals, questions, issues and risks associated with each variable or each section of the enterprise.

4 Results and Findings

Biz Mod for Mohair (BMM) provides the Angora goat industry with a product that enables new and current growers to test management strategies and financial feasibility of the enterprise over an operational period of 12 years. The following example uses the BMM program to demonstrate how it can be used and the type of results that are produced. The test results illustrated below are examples only and represent some of the many different possible performances of the Angora goat enterprise under different management and market conditions.

It is important for the user to remember that BMM is a tool for learning.

4.1 Testing a new Angora enterprise

4.1.1 Key assumptions

The following case study examines the position of a new grower. The initial strategic goal for this grower can be summarised as follows. To invest in a self-replacing 300 breeding doe Angora goat enterprise retaining wethers to 48 months of age with the main income streams being the sale of live animals to abattoirs and mohair. The following assumptions are made and details of the assumptions can be found in the appendices.

The property is assumed to be 100 effective hectares with a stocking rate of 16 DSE per hectare. Does are budgeted to require 2.2 DSE and wethers 1 DSE per year. Initially 25 does of ages 1 to 4 years are purchased to commence the breeding program (Appendix 1: Initial variables for a establishing a new enterprise). The prices paid are outlined in Appendix 8: Initial purchases of livestock. Desired breeding herd size (does aged 2 years or more) is 300. The weaning rate is a flat 80% across all years with a 50 percent split of female to male kids produced (Appendix 3: Variables effecting the breeding herd). A proportion of each age group of does is sold each year to allow for culling of inferior stock and to keep the breeding herd size within close proximity to the desired breeding herd size (Figure 5). Bucks are run at a ratio of 2 per 100 does and kept for 5 years then sold. Each age group of wethers suffer a death rate of 3 percent (Appendix 4: Variables effecting bucks and wethers). Wethers are kept for four years then sold to an abattoir. The median mohair produced per shearing per animal across all age groups and over 12 years is 2.5 kilograms per head and the median mohair produced is 3,878 kilograms per year (Appendix 5: Goat age, mohair class categories, fleece weights and shearings). The quality of the mohair cut is split into eight grades across five shearing where shearing 1 is cuts mohair off 6 month old animals and shearing 5 cuts mohair off 30 month animals or older. BMM uses a median price for mohair by grade over the last five years across all 12 years (Appendix 6: Mohair quality per cut and price). Does and wethers sold are assumed to go to an abattoir and the grower is paid on a dressed weight basis (MLA 2005). Dressed weight is assumed to be 43 percent of live weight. (Appendix 7: Live weights and dressed weight prices). Operating costs (Appendix 9: Operating costs) include $5 000 of fixed costs applied each year. The selling fee for mohair is assumed to be absorbed in the price paid.

Does aged 5 Does aged 1 16% 25%

Does aged 4 17%

Does aged 2 Does aged 3 22% 20%

Figure 5: Approximate proportion of each age group of does as a percent of total doe population. The proportion will change slightly over time

The capital costs in this simulation include fencing, shearing facilities, shelter, yards, watering facilities and pasture renovation. Some capital costs are incurred in the first year while others are spread across the 12 years. The land is assumed to be owned hence a sunk cost. Depreciation is applied to the value of the existing assets plus the extra investment made (Appendix 10: Capital costs). Finance variables include interest rates for a bank overdraft and cash in the bank (Appendix 11: Finance variables). The analysis does not include any savings made from reduction in weed control activities since introducing the angora enterprise. It does not include cash flow foregone from replacing an existing enterprise with the new one. It does not include inflation of costs although this can be tested if desired.

4.1.2 Performance of the new enterprise

Given the goal and assumptions outlined above and in the appendices, the new enterprise returns the performance outlined below (Table 3).

Table 3: Enterprise performance on assumptions for test 1

Test IRR2 Median3 Median Median Median NPV5 Cash at Net GM/Ha4 mohair mohair cut mohair bank6 enterprise produced per head price paid assets (kg/yr) (kg) ($/kg)

1 11.5% $114 3,606 2.5 $9.17 $1,650 $15,699 $69,968

4.1.2.1 Observations on test 1

The desired number of breeding does is reached in year 5 and the total herd population peaks at approximately 860 animals in the 9th year (Appendix 13: New enterprise herd population). The median total enterprise income over 12 years is $38,000 where mohair makes up 90% of total enterprise income (Appendix 14: New enterprise income statement). The enterprise has a discounted payback period of 12 years after investing $16,000 into the enterprise over that time. Peak debt occurs in the 5th year at -$25,751 (Appendix 15: New Enterprise cash flow).

4.1.3 Exploring alternative management strategies and assumptions

The example of the new enterprise represents one set of assumptions and management strategies. There are many different assumptions that can be made and strategies chosen for the enterprise. The following section tests a range of different assumptions and management strategies.

4.1.3.1 Test 2: Keep all other variables the same but increase the desired breeding herd size to 500 breeding does.

Table 4: Enterprise performance on assumptions for test 2

Test IRR Median Median Median Median NPV Cash at Net GM/Ha mohair mohair mohair bank enterprise produced cut per price assets (kg/yr) head paid (kg) ($/kg)

1 11.5% $114 3,606 2.5 $9.17 $1,650 $15,699 $69,968

2 13.7% $102 4,780 2.4 $9.48 $5,806 $28,844 $111,613

2 Internal rate of return calculated on total enterprise cash flow 3 The median is the number in the middle of a set of numbers; that is, half the numbers have values that are greater than the median, and half have values that are less. 4 All median figures are calculated over 12 years of operation 5 Net present value in the 12th year 6 Cash at bank in the 12th year

4.1.3.2 Observations on test 2

The desired breeding herd size is not reached until year 8, the total herd population reaches 1,460 animals and the DSE capacity of the allocated hectares is exceeded. Peak debt reaches $28,641 but cash at bank at year 12 is higher. The discounted payback period is reduced and occurs in year 11 compared to year 12.

4.1.3.3 Test 3: Keep the desired herd size to 500 breeding does but sell wethers at 24 months of age after the 4th shearing.

Table 5: Enterprise performance on assumptions for test 3

4.1.3.4 Observations on test 3

Total herd size reaches 1,100 animals and the DSE capacity of the allocated hectares is not exceeded. IRR is lowest of the three options as is the GM/Ha, NPV and cash at bank in year 12. Median mohair produced per year is less, as is the kilograms cut per head however the median price paid for mohair is higher.

4.1.3.5 Test 4: Keep the original assumptions about herd size in test 1. Increase the quantity mohair produced in each grade by 1% per year from the 2nd year of production to achieve a 12% improvement in quantity of mohair produced by the 12th year.

Table 6: Enterprise performance on assumptions for test 4

4.1.3.6 Observations on test 4

These assumptions return the best IRR and NPV of the four runs. Median mohair production is 200 kilograms higher than test 1 and total mohair produced in the 12th year is 4,370 kg, 442 kg more than the production in run 1. Total revenue from mohair in the 12th year has increased by $3,974 from run 1. These outcomes assume that direct costs remain in the same proportions to production and no additional indirect costs have been incurred.

4.1.3.7 Test 5: Including the assumptions outlined in test 4. Increase the quality of mohair shorn in the third, fourth and fifth shearings. Assume a high standard of classing and herd selection results in a 3 percent increase in higher value mohair grades and a 3 percent decrease in mohair of lower value.

Refer to Appendix 6: Mohair quality per cut and price for specific changes in quality by grade.

Table 7: Enterprise performance on assumptions for test 5

Test IRR Median Median Median Median NPV Cash at Net GM/Ha mohair mohair mohair bank enterprise produced cut per price assets (kg/yr) head paid (kg) ($/kg) 1 11.5% $114 3,606 2.5 $9.17 $1,650 $15,699 $69,968 2 13.7% $102 4,780 2.4 $9.48 $5,806 $28,844 $111,613 3 10.0% $82 3,833 2.3 $10.79 -$329 $12,682 $87,357 4 15.8% $135 3,813 2.6 $9.17 $8,369 $32,661 $88,917 5 17.5% $144 3,813 2.6 $9.38 $11,091 $39,148 $95,862

4.1.3.8 Observations on test 5

Median mohair price paid has increased and total mohair income has increase by $915 in the 12th year. The volume of mohair produced remains the same as run 4 but the median mohair price paid has increased from $9.17 per kilogram to $9.38. These outcomes assume that direct costs remain in the same proportions to production and no additional indirect costs have been incurred.

4.1.3.9 Test 6: Including the assumptions outlined in test 5. Assume the price of each grade of mohair increases by 1 percent per year for 12 years.

Table 8: Enterprise performance on assumptions for test 6

4.1.3.10 Observations on test 6

Price is a non-managerial variable and has a large effect on enterprise performance. The discounted payback period for the enterprise is now 9 years and IRR is 3.7% higher than test 5. Total income form mohair in the 12th year has increased by $4,428 and the median mohair price paid has increased from $9.38 to $10.10 per kilogram. These outcomes assume that direct costs remain in the same proportions to production and no additional indirect costs have been incurred.

4.1.3.11 Test 7: Including the assumptions outlined in test 6. Assume inflation runs at 3 percent per annum over the 12-year period (CPI index of 3%).

Table 9: Enterprise performance on assumptions for test 7

4.1.3.12 Observations on test 7

Mohair production remains the same as test 6 however the key performance measures approximate test 1. This is also a non-managerial variable that has a diminishing effect on margins and is offset by price increases and productivity gains.

4.1.3.13 Test 8: Including the assumptions outlined in test 7. Management actions lead to a 1 percent increase per annum in weaning rate from 80 percent in year 1 to 92 percent by year 12.

Table 10: Enterprise performance on assumptions for test 8

4.1.3.14 Observations on test 8

Median mohair produced has increased as has the median mohair price paid. Total herd numbers peak at 956 compared to 890 for test 7. This assumes no additional operating or capital costs have been incurred to achieve the increased weaning rate.

4.1.4 Enterprise performance over time

The performance of the enterprise changes over time. The figures below take the average maximum and minimum figures of the eight tests outlined in the previous section. This analysis suggests a new grower will benefit from a 5 to 8 year strategic plan to optimise the performance of the enterprise. For example, the average gross margin per effective hectare exceeds $150 per hectare only after year 8 (Figure 6).

$250

$200

$150

$100

GM/ha $ $50

$0 12345678910111213 -$50 Years

Mean Max Min

Figure 6: Change over time of gross margin per effective hectare

The average total enterprise cash flow becomes positive after the 4th year and approaches its maximum by the 8th year (Figure 7).

$15,000

$10,000

$5,000

$0 Aus$ 123456789101112 -$5,000

-$10,000

-$15,000 Years

Mean Max Min

Figure 7: Change over time of total enterprise cash flow (total revenue less total costs less tax paid plus depreciation rebate less capital costs)

The average net present value reaches zero in the 11th year. Alternatively the average discount payback period takes 11 years (Figure 8) using a required rate of return on investment of 10 percent.

$25,000 $20,000 $15,000 $10,000 $5,000 $0 Aus$ -$5,000 12345678910111213 -$10,000 -$15,000 -$20,000 -$25,000 Years

Mean Max Min

Figure 8: Net present value and discounted payback period using a discount rate of 10%

Average peak debt, assuming the enterprise is funded by overdraft, occurs in year 6 and becomes positive in year 10 (Figure 9).

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Aus$ $0 -$10,000 12345678910111213 -$20,000 -$30,000 -$40,000 Years

Mean Max Min

Figure 9: Cash at bank and peak debt

The average production of mohair across all 8 tests exceeds 4,000 kilograms in year 7 and the standard deviation7 of production exceeds 500 kilograms after year 7 (Figure 10).

7 The standard deviation is a measure of how widely values are dispersed from the average value (the mean).

7,000 900 6,000 800 700 5,000 600 4,000 500 3,000 400 300 2,000 200 Standard deviation Kilograms of mohair 1,000 100 0 0 123456789101112 Years

Mean Max Min St Dev

Figure 10: Production of mohair over time

4.2 Management complexities

There are many economic drivers influencing the angora enterprise that may be taken into consideration when using BMM. The following examples illustrate the complexities of management and how property size, paddock layout and herd structure can have effects on economic drivers8.

4.2.1 Mohair quantity

The quantity of mohair cut will depend on the number of animals, their age distribution and per head production. The number of animals will depend on the property size and pasture and DSE demand variation. Classing will have an effect particularly through the issue of contamination. Increased selection pressure will present opportunities to select the better producing animals and improve the quantity of mohair cut per animal.

4.2.2 Mohair quality

The quality of mohair produced will be affected by the age distribution of the herd, per head production and classing. Increased selection pressure will present opportunities to select the better producing animals and improve the quality of mohair cut per animal.

4.2.3 Herd Structure

Herd structure is a function of the total number of animals, the numbers in each age group and the weaning rate. Manipulating the herd structure by culling and genetic improvement can impact total mohair production and / or the proportion of valuable mohair.

8 The notes for this section have been derived from an unpublished paper by Ted Scarlett, Livestock Consultant, Lavington NSW [email protected]

4.2.4 Property development

Paddock subdivision and stock movement, shelter, vegetation, buildings, watering points, sheds and yards can influence weaning rates, mohair quantity and quality.

The complexities of economic drivers and their causal linkages are best explored within group discussions with facilitators who have experience and knowledge of the Angora enterprise.

4.3 Industry response

Workshops to review the Biz Mod for Mohair product were held in Perth and Goulburn. Eleven people representing nine businesses were represented, all of who operated a current Angora goat enterprise. Five businesses had enterprises running between 50 and 100 breeding animals and two ran between 100 and 200 and two ran 200 breeding does or more. They responded to the following to the following questions. 1. How comfortable did you feel working with the BMM? (N11) Very comfortable Comfortable Not sure Uncomfortable Very uncomfortable 27% 55% 18% 0% 0%

2. To what extent have you enjoyed the discussion generated through use of the BMM? (N11) Very high High Not sure Low Very low 36% 64% 0% 0% 0%

3. To what extent does BMM reduce search time for financial information and different ways to manage a mohair enterprise? (N9) Very high High Not sure Low Very low 22% 67% 11% 0% 0%

4. To what extent does BMM help people to better understand the financial implications of the way they might manage the mohair enterprise to achieve their financial goals? (N10) Very high High Not sure Low Very low 40% 50% 10% 0% 0%

5. Do you see opportunities to change the way you manage the mohair enterprise over the next three years or more as a result of what you have learned in the workshop? (N10) Yes Not sure No 50% 40% 10%

4.3.1 Practical industry examples

The Mohair industry have experienced and professional growers operating mature commercial enterprises that have reliable and realistic information to use as benchmark data to guide a realistic use of BMM. This information periodically emerges in newspaper articles. For example, in one Weekly Times article (February 2006) the enterprise featured claimed 2 to 2.5 kilograms or up to 3.5 kilograms cut from young kids up to 18 months of age. The tests in this report used base numbers of

0.7, 1.5 and 2 kilograms cut from this age group. The same article claimed an overall gross return of $200 per goat.

In another Weekly Times article (November 2005) the enterprise featured has been operating for 14 years and ran 250 to 300 breeding does and 200 wethers. The article indicated mohair prices ranged from $10 to $25 per kilogram with an overall average price of $10 per kilogram for a 2.5 to 3 tonne clip. In the tests applied in the previous section the average clip was 3.8 tonnes with an average price of $9.80. The key difference was the test ran 450 wethers instead of 200 as in the article example.

The articles do not and cannot explore the complexities of the Angora animal enterprise and the range of physical and financial performances. They cannot provide insight into issues such as; how much capital investment has gone into the enterprise to achieve these returns? How much labour is used on an annual basis? What if the herd size was increased after the purchase of more land? How can the herd be managed differently and what are the likely results?

Biz Mod for Mohair allows users to test their Angora goat business model before they make their investment or while they are operating one. It allows more thorough and complete thinking and planning about the possible implications of management decisions and this is expected to lead to more informed investment decisions by new growers and will help to improve goal achievement and outcomes for existing growers.

5 Implications

The outcomes illustrated in the previous section have the potential to deliver significant impacts for individuals in the Australian Mohair industry and well as the industry as a whole.

Management decisions have a significant impact on the financial performance of the Angora enterprise and the supply of mohair into Australian supply chains. The eight tests illustrated above are examples of the many tests that can be applied using BMM that might inform management decision-making and lead to further enquiry and/or better enterprise outcomes.

Biz Mod for Mohair is essentially a tool for learning and better planning. Caution must be exercised when using it, as it is not capable of reflecting the full complexities of a real enterprise. The user is advised to always query the output and apply practical reality checks along the way in particular the recognition of causal effects of a change in one area of the enterprise and its effect on another. For example, the assumption fleece weights will increase with no corresponding increase in costs such as supplementary feeding may not be practical. Likewise an increase in weaning rates may require additional capital costs to be achieved in practice.

There are many more tests that could be applied to the enterprise. For example; what would be the effect of reaching the desired breeding herd size faster either through increased weaning rates (that may require an increased labour input to the enterprise in the first five years) or through purchasing more stock to build the herd up faster (which raises the issue of where larger umbers of genetically acceptable stock may be found)? People experienced in the industry would apply further rigorous testing, questioning and examination of casual effects with the outcome being better decision making.

If Biz Mod for mohair leads to improving the confidence of ten new growers to the industry to invest in a self replacing breeding herd of 300 does then, based on test 1 above, that would deliver a 11.5 percent return on their investment over 12 years and 357,771 kilograms of mohair to the supply chain in the same time frame with a farm gate value of $3.3 million.

If the same ten growers developed well thought out business plans that adopted the assumptions and strategies outlined in test 5, then their return on investment would be 17.5 percent and they would contribute an extra 24,770 kilograms of mohair to Australian supply chains, an increase in farm gate value of $305,110 over the same period.

BMM is best used in a workshop environment facilitated by people with experience and knowledge about the cause and effect of production parameters that impact on enterprise margins and financial targets.

Possible outcomes for the industry include the following:

New growers entering the industry with well developed strategic action plans, achieving their goals and being successful, leading to: o Positive word of mouth about the industry compelling more people to investigate the industry for investment. o Increased gross production of mohair being sold into the processing sector. o More exports of mohair Existing growers refocusing their enterprise goals and fine tuning aspects of their enterprise leading to: o Productivity improvements in the industry affecting mohair volume and quality and / or the quality of animals sold for meat.

o Increased awareness and knowledge on cost management and labour input leading to better enterprise margins. o Increased awareness and knowledge about the appropriate levels of capital investment in different size enterprises leading to improved investment performance over the long term. o Increased awareness and knowledge about the tradeoffs to be made in enterprise management and issues such as cause and effect leading to better management choices and goal achievement.

6 Recommendations

The following strategies and programs are suggested to maximise the value to the industry from using Biz Mod for Mohair. BMM is a product that would be used strategically by individuals to test and learn about aspects of the Angora enterprise. It is a product that, when used, would not require reuse for a year or more as it provides an intense learning experience that then gets applied in on ground operational situations over one year or more.

6.1 Strategy 1

Introduce Biz Mod for Mohair to the Australian Mohair industry in a staged and controlled manner and monitor its use and value to the industry.

6.1.1 Programs for strategy 1

Introduce BMM to the industry in partnership with the launch of the MLA ‘Going with Goats – Profitable producer best practise guide’ to be carried out in 2006. Use other industry functions during 2006 to promote the availability, benefits and access arrangements for BMM. Identify private consultants, public officers or experienced growers who have an interest in using BMM in their consulting and advisory work. Offer this group a training program (train the trainer) that enables them to competently present BMM to current and potential growers in a group or individual situations. The consulting group could have a BMM product that allows for data transfer to Microsoft Excel®. Examine the opportunity to maintain an ongoing partnership with the MLA product ‘Going with Goats – Profitable producer best practise guide’ particularly if this program is workshop based. Determine under what conditions BMM is transferred to growers. For example growers may need to participate in a short training program to become competent in using BMM and interpreting the results for their situation before gaining access to a version of BMM. Growers could access a product with or without links to Microsoft Excel®. Monitor the use of BMM by consultants, service providers and growers to determine the extent of its use, the value it provides to its users and if any further developments would add additional value to the industry. 6.2 Strategy 2

Determine whether the Biz Mod product offers value to the Cashmere and Meat Goat industries or other animal industries.

6.2.1 Program for strategy 2

7 Appendices

7.1 Appendix 1: Initial variables for a establishing a new enterprise 1. What is the desirable breeding herd size? 2. What are the initial stock purchases to commence the herd and additional purchases until the herd size is reached?

Variable Unit Comments Desired breeding herd size Head 300 - (aged 2 plus) First purchases does at age 1 Aged 1 25 First purchases does at age 2 Age 2 25 First purchases does at age 3 Age 3 25 First purchases does at age 4 Age 4 25 First purchases wethers age Age 1 0 1 First purchases wethers age Age 2 0 2 First purchases wethers age Age 3 0 3 First purchases wethers age Age 4 0 4 Does bought each year until Age 3 25 herd size is reached Age 4 25 Weaning percentage % Female If 100 kids are weaning from their mothers what percent do you expect to female and what male. The assumes % Male 50:50

7.2 Appendix 2: Initial variables for an existing enterprise 3. How many animals of what age makes up the herd in the first year?

Variable Unit Comments

Does at age 2 Age 2 Numbers at the start

Does at age 3 Age 3 Numbers at the start

Does at age 4 Age 4 Numbers at the start

Wethers age 1 Age 1 Numbers at the start

Wethers age 2 Age 2 Numbers at the start

Wethers age 3 Age 3 Numbers at the start

Wethers age 4 Age 4 Numbers at the start

Bucks (assume The model will automatically calculate and include bucks based on the age 1) ratio of bucks to does 7.3 Appendix 3: Variables effecting the breeding herd

Variables Unit Comments affecting Does Death rate for %/Year 5% - The death rate only applies to the younger age group of 1 and 2 does (age 1 & 2 year old does. This simplifies the model structure and assumes the only) younger does are more likely to die than the older ones. Years to keep Age 5 and 5 – does after age 5 sold In the early stages of herd development does may be kept longer to but before herd help build the herd size quicker. Once the desired herd size is reached size is reached does may be sold at an earlier age. This can have the effect of reducing Years to keep Age the amount of lower value fleece cut by the herd because the average does after age 5 sold age of the herd has decreased. and after herd size is reached Weaning rate % If it is 80% then for example, 100 kids are born to 100 does but only 80 are weaned Does culled age 1 %/Year In order to maintain the breeding herd size around the desired breeding herd size then sales of each age group of does must be made. This is the Does culled age 2 %/Year same as a culling process for inferior animals. The percent sold will be Does culled age 3 %/Year of a proportion of the total population of each age group rather than a percentage of the total population because of the way the software does Does culled age 4 %/Year its calculations, hence the user can’t sell the lot but a proportion that Does culled age 5 %/Year provides a satisfactory population of each age group and keeps the total plus population within its limits.

7.4 Appendix 4: Variables effecting bucks and wethers

Variables affecting Bucks & Unit Comments Wethers Death rate for wethers % / Year This applies across all age groups of wethers from age 1 to 4 years. Useful life of bucks Years 5 Ratio of bucks per 100 does Ratio 2 Wethers sold in year 1 % Age 1 The percent of the population of each age group at each calculation point in the model. For example if Wethers sold in year 2 % Age 2 100% of age 1 wethers are sold the model assumes Wethers sold in year 3 % Age 3 they the population in that age group at that calculation point is sold. Wethers sold in year 4 % Age 4 DSE’s per wether DSE 1 7.5 Appendix 5: Goat age, mohair class categories, fleece weights and shearings

Mohair weights Order of Shearing Range (kg per head) Age 6 months 1st shearing 0.7 Age 12 months 2nd shearing 1.5 Age 18 months 3rd shearing 2.0 Age 24 months 4th shearing 2.5 Age 30 to 36 months 5th shearing 2.5

Age 42 months plus 6th shearing 2.5

7.6 Appendix 6: Mohair quality per cut and price

The grade composition at each shearing changes as the animal gets older. This is an example of the base settings in BMM. The proportions of each grade can be changed for each shearing. The figures in brackets are related to a change in the quality of mohair shorn based on improvement management practises.

Grade Unit Shearing1 Shearing2 Shearing3 Shearing4 Shearing5 plus

Fine kid % 83% 14% 0% (1%) 0% 0%

Kid % 5% 50% 10% (11%) 0% 0%

Strong kid % 0% 18% 36% (37%) 0% (2%) 0% (3%)

Young goat % 0% 0% 27% (26%) 30% (31%) 10%

Fine adult % 0% 1% 10% (9%) 43% (41%) 30%

Adult % 0% 0% 0% 10% (9%) 43% (40%)

Outsorts % 10% 15% 15% (14%) 15% 15%

NCV % 2% 2% 2% 2% 2%

Sum 100% 100% 100% 100% 100%

Grade $/kg Unit Base Comments Fine kid Average $/kg/year $31.65 These prices can be varied by each grade and each year. Kid Average $/kg/year $19.97

Strong kid Average $/kg/year $12.00

Young goat Average $/kg/year $10.40

Fine adult Average $/kg/year $5.46

Adult Average $/kg/year $4.67

Out sorts Average $/kg/year $3.66

NCV Average $/kg/year $0

Delays to payment Years 1 Amount delayed %/Year 50%

7.7 Appendix 7: Live weights and dressed weight prices

Target live weights at sale Unit Low Base High

Does & wethers 6 to 12 months Kg live 9 11 13

Does & wethers 12 to 24 months Kg live 13 14 16

Does & wethers 24 to 36 months Kg live 16 17 19

Does & wethers 36 to 48 months Kg live 19 22 25

Does & wethers 4 years old Kg live 25 28 31 cfa bucks and does Kg live 31 35 39

Dressed weight for does & wethers % live weight 43%

Goat selling prices Unit Base

Does & wethers at 6 to 12 months < 8 kg$/kg dressed $2.08

Does & wethers 12 to 24 months 8 to 10 kg$/kg dressed $1.38

Does & wethers 24 to 36 months 10 to 12 kg$/kg dressed $1.41

Does & wethers 36 to 48 months 12 to 16 kg$/kg dressed $1.49

Does & wethers 4 years old 16 to 20 kg$/kg dressed $1.60 cfa bucks and does 20 plus kg$/kg dressed $1.60

7.8 Appendix 8: Initial purchases of livestock

Stock Type Unit Base

Prices paid for stock $\head [Does at 2yrs] $/head $16

Prices paid for stock $\head [Does at 3yrs] $/head $14

Prices paid for stock $\head [Does at 4yrs] $/head $12

Prices paid for stock $\head [Wethers age 1] $/head $10

Prices paid for stock $\head [Wethers age 2] $/head $8

Prices paid for stock $\head [Wethers age 3] $/head $6

Prices paid for stock $\head [Wethers age 4] $/head $5

Bucks $/head $300

7.9 Appendix 9: Operating costs

Operating costs Unit Low Base High

Operating costs [Crutching $\head] $/head $1.00

Number of crutching operations Per year 2

Operating costs [Mohair selling fee $\kg] $/kg $0

Operating costs [Shearing $\head] $/head $3.00

Number of shearing operations Per year 2

Operating costs [Transport $\head] $/head $5.00

Operating costs [Labour $\hr] $/hour $20.00

Labour for kidding Hours/doe/yr 0.25

Operating costs [Drenching $\head] $/head $0.50

Number of drenches Per year 2

Operating costs [Vaccinating $\head] Kg/head $0.35

Number of vaccinations Per year 2

Operating costs [Feed supplements $\t] $/tonne $150

Operating costs [Other costs $\doe] Hrs/doe/year $0.00

Fixed costs $/year $5,000

7.10 Appendix 10: Capital costs

Capital & Finance costs Unit Low Base High Land (including water) $ $0 Current value of [Fencing] $ $10,000 Today’s cost of future investment in fencing $ $2,000 Year to start investing in fences Year 1 Annual intervals of the investment Year 2 Year to stop investing in fences Year 6 Depreciation rate for fences % 5% Current value [Shearing facility] $ $8,000 Today’s cost of future investment in Shearing facility $ $2,000 Year to start investing in Shearing facility Year 1 Annual intervals of the investment Year 0 Year to stop investing in Shearing facility Year 1 Depreciation rate for Shearing facility % 30% Current value [Shelter] $ $0 Today’s cost of future investment in Shelter Year $0 Year to start investing in Shelter Year Annual intervals of the investment Year Year to stop investing in Shelter % Depreciation rate for Shelter $ Current value [Yards] $ $5,000 Today’s cost of future investment in Yards Year $1,000 Year to start investing in Yards Year 1 Annual intervals of the investment Year 0 Year to stop investing in Yards % 1 Depreciation rate for Yards $ 30% Current value [Watering facilities] $ $2,000 Today’s cost of future investment in Watering $ $1000 facilities Year to start investing in Watering facilities Year 1 Annual intervals of the investment Year 0 Year to stop investing in Watering facilities Year 1 Depreciation rate for Watering facilities % 30% Current value [Pasture Improvement] $ $0

Capital & Finance costs Unit Low Base High Today’s cost of future investment in Watering Year $1,000 facilities Year to start investing in Watering facilities Year 2 Annual intervals of the investment Year 2 Year to stop investing in Watering facilities % 12 Depreciation rate for Watering facilities $ 30% Current value [Machinery] $ $0 Today’s cost of future investment in Machinery Year $0 Year to start investing in Machinery Year 0 Annual intervals of the investment Year 0 Year to stop investing in Machinery % 0 Depreciation rate for Machinery $ 30%

7.11 Appendix 11: Finance variables

Finance variable Unit Low Base High

Cash at bank $ Year 1 $0

Overdraft interest rate %/Year 9%

Cash interest rate %/Year 5.5%

Tax rate %/Year 30%

Required rate of return on investment %/Year 10%

7.12 Appendix 12: Performance measures

Performance Indicator Unit Low Base High

Direct costs as % of income % of income

Gross margin as % of income % of income

Gross margin $/Ha

Gross margin $/head

Gross margin $/doe

Labour Days/year

Total mohair production Kg/year

Average mohair Kg/head/shearing

Mohair income $/head/year

Average mohair price paid $/kg

Average dressed weight price paid $/kg

Effective grazed hectares Ha

Total DSE's available DSE

Total DSE's required DSE

DSE surplus\deficit DSE

7.13 Appendix 13: New enterprise herd population Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Does age 1 25 35 58 80 102 103 107 108 108 109 110 111 112

Does age 2 25 25 37 57 77 90 94 96 97 97 98 99 100 Does age 3 25 43 51 64 70 84 80 82 83 84 84 85 86 Does age 4 25 50 65 76 78 73 69 68 69 70 70 71 71 "Does age 5 or more" 0 31 55 68 79 68 69 65 65 66 66 67 67 Total breeding does 75 150 208 265 304 316 312 311 314 317 319 321 324

Wethers 1yr old 0 30 57 81 104 108 112 113 113 114 115 116 117 Wethers 2yrs old 0 8 31 56 79 99 107 111 112 113 114 115 115 Wethers 3yrs old 0 0 11 32 55 77 93 102 106 108 108 109 110

38 Wethers 4yrs old 0 0 2 14 33 54 75 90 98 102 104 106 107 Total wethers 0 37 101 182 270 338 387 415 430 437 442 446 449 Bucks 0 2 3 4 5 6 5 5 5 5 6 5 5 Total herd numbers 100 223 370 531 682 763 812 838 856 867 876 883 890

Deaths does age 1 1 2 3 4 5 5 5 5 5 5 5 6 6 Deaths does age 2 1 1 2 3 4 5 5 5 5 5 5 5 5 Total doe deaths 3 3 5 7 9 10 10 10 10 10 10 10 11 "Deaths wethers aged 1" 0 1 2 2 3 3 3 3 3 3 3 3 4 "Deaths wethers aged 2" 0 0 1 2 2 3 3 3 3 3 3 3 3 "Deaths wethers aged 3" 0 0 0 1 2 2 3 3 3 3 3 3 3 "Deaths wethers aged 4" 0 0 0 0 1 2 2 3 3 3 3 3 3 Total wether deaths 0 1 3 5 8 10 12 12 13 13 13 13 13 Total deaths 3 4 8 12 17 20 22 23 23 23 24 24 24

"Buy does aged 3" 25 25 25 25 0 0 0 0 0 0 0 0 0 "Buy does aged 4" 25 25 25 25 0 0 0 0 0 0 0 0 0 Buy bucks 2 1 1 1 1 1 1 2 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 Sales of does in year 1 0 0 0 0 10 10 11 11 11 11 11 11 11 Sales of does in year 2 0 0 0 0 15 18 19 19 19 19 20 20 20 Sales of does in year 3 0 0 0 0 21 25 24 25 25 25 25 25 26

Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Sales of does in year 4 0 0 0 0 31 29 28 27 28 28 28 28 29 Sales of does aged 5 plus 0 0 0 0 48 40 42 38 40 38 40 40 42 Sales of cfa does 0 25 50 65 54 56 51 49 48 49 48 48 49 Total sales of live does 0 25 50 65 180 179 174 169 171 170 172 173 176 Sales of wethers in year 1 0 0 0 0 0 0 0 0 0 0 0 0 0 Sales of wethers in year 2 0 0 0 0 0 0 0 0 0 0 0 0 0 Sales of wethers in year 3 0 0 0 0 0 0 0 0 0 0 0 0 0 "Sales of wethers in year 4" 0 0 0 0 0 0 0 0 0 0 0 0 0 "Sales of wethers age 4" 0 0 2 14 33 54 75 90 98 102 104 106 107 Total sales of live wethers 0 0 2 14 33 54 75 90 98 102 104 106 107 Sales of bucks 0 0 0 0 0 2 1 1 1 1 1 1 2

7.14 Appendix 14: New enterprise income statement Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Income from mohair[FineKid] $1,798 $3,720 $5,393 $6,991 $8,221 $8,503 $8,501 $8,491 $8,552 $8,627 $8,697 $8,765 $8,835 Income from mohair[Kid] $684 $1,737 $3,044 $4,228 $5,468 $5,609 $5,814 $5,848 $5,872 $5,911 $5,970 $6,019 $6,067 Income from mohair[StrongKid] $378 $980 $1,743 $2,433 $3,285 $3,385 $3,517 $3,541 $3,555 $3,578 $3,614 $3,644 $3,673 Income from mohair[YoungGoat] $644 $1,230 $2,222 $3,319 $4,720 $5,343 $5,626 $5,764 $5,843 $5,891 $5,943 $5,993 $6,048 Income from mohair[FineAdult] $581 $1,066 $1,868 $2,819 $4,106 $4,759 $5,028 $5,187 $5,289 $5,340 $5,387 $5,432 $5,486 Income from mohair[Adult] $487 $955 $1,586 $2,350 $3,505 $4,051 $4,281 $4,431 $4,543 $4,594 $4,636 $4,674 $4,724 Income from mohair[Outsorts] $248 $506 $866 $1,260 $1,775 $1,986 $2,083 $2,135 $2,171 $2,191 $2,211 $2,229 $2,250 Income from mohair[NCV] $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total income from mohair $4,820 $10,194 $16,722 $23,400 $31,079 $33,636 $34,850 $35,398 $35,825 $36,132 $36,458 $36,756 $37,082 Income 6mth wethers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Income 18mth wethers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Income 30 mth wethers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Income 42 mth wethers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 40 Income 48 mth wethers $0 $0 $34 $244 $587 $969 $1,344 $1,608 $1,762 $1,838 $1,874 $1,894 $1,911 Income cfa bucks $0 $0 $0 $0 $0 $48 $24 $24 $24 $24 $24 $24 $48 "Total income from sales of $0 $0 $34 $244 $587 $1,017 $1,369 $1,632 $1,786 $1,862 $1,898 $1,918 $1,959 wethers" Income from does age 1 $0 $0 $0 $0 $71 $72 $74 $75 $75 $76 $76 $77 $78 Income from does age 2 $0 $0 $0 $0 $128 $150 $156 $160 $161 $161 $163 $164 $165 Income from does age 3 $0 $0 $0 $0 $216 $260 $248 $253 $258 $259 $261 $263 $265 Income from does age 4 $0 $0 $0 $0 $438 $413 $391 $383 $389 $394 $397 $400 $403 Income from does aged 5 plus $0 $17 $34 $45 $1,193 $1,002 $1,047 $949 $996 $949 $996 $996 $1,045 Total income from sales of does $0 $17 $34 $45 $2,047 $1,896 $1,916 $1,820 $1,879 $1,839 $1,893 $1,900 $1,956 Total enterprise income $4,820 $10,212 $16,790 $23,689 $33,713 $36,550 $38,134 $38,850 $39,490 $39,833 $40,248 $40,573 $40,996

"Cost of stock purchased" $1,250 $950 $950 $950 $300 $300 $300 $600 $300 $300 $300 $300 $300 Crutching $200 $447 $741 $1,063 $1,364 $1,525 $1,623 $1,677 $1,712 $1,734 $1,752 $1,766 $1,780 Drenching $100 $223 $370 $531 $682 $763 $812 $838 $856 $867 $876 $883 $890 Feed supplements $225 $449 $624 $794 $913 $947 $936 $933 $941 $950 $957 $964 $972 Herd monitoring $2,970 $5,704 $7,674 $9,057 $10,040 $10,321 $10,206 $9,613 $9,502 $9,592 $9,569 $9,642 $9,719 Labour for kidding $375 $749 $1,040 $1,324 $1,521 $1,578 $1,561 $1,555 $1,568 $1,583 $1,595 $1,607 $1,620 Mohair selling costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Shearing $1,260 $2,597 $4,277 $6,061 $8,238 $9,063 $9,431 $9,621 $9,762 $9,851 $9,939 $10,021 $10,113 Transport to market $0 $125 $259 $395 $1,062 $1,163 $1,247 $1,293 $1,344 $1,365 $1,382 $1,393 $1,414 Vaccinating $70 $156 $259 $372 $477 $534 $568 $587 $599 $607 $613 $618 $623 Other herd costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total direct costs $6,450 $11,400 $16,195 $20,548 $24,597 $26,194 $26,684 $26,718 $26,585 $26,849 $26,982 $27,193 $27,430

Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Gross margin -$1,630 -$1,189 $595 $3,141 $9,116 $10,356 $11,450 $12,133 $12,904 $12,985 $13,266 $13,380 $13,566 Cost of stock year 1 $1,550 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Depreciation $5,000 $4,844 $3,886 $3,029 $2,584 $2,098 $1,920 $1,529 $1,494 $1,208 $1,249 $1,018 $1,101 Fixed costs $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 $2,050 Total indirect costs $8,600 $6,894 $5,936 $5,079 $4,634 $4,148 $3,970 $3,579 $3,544 $3,258 $3,299 $3,068 $3,151 Taxable income -$10,230 -$8,083 -$5,340 -$1,938 $4,482 $6,208 $7,480 $8,554 $9,360 $9,727 $9,966 $10,312 $10,416 Tax payable -$3,069 -$2,425 -$1,602 -$581 $1,345 $1,862 $2,244 $2,566 $2,808 $2,918 $2,990 $3,094 $3,125 plus depreciation $5,000 $4,844 $3,886 $3,029 $2,584 $2,098 $1,920 $1,529 $1,494 $1,208 $1,249 $1,018 $1,101 Net income -$2,161 -$814 $147 $1,673 $5,721 $6,443 $7,156 $7,516 $8,046 $8,017 $8,226 $8,237 $8,392

7.15 Appendix 15: New Enterprise cash flow Years 1 2 3 4 5 6 7 8 9 10 11 12 13 "First payment for mohair" $2,959 $5,900 $9,193 $12,557 $15,109 $16,239 $16,783 $17,035 $17,218 $17,384 $17,538 $17,682

"Final payment for mohair" $0 $2,959 $5,900 $9,193 $12,557 $15,109 $16,239 $16,783 $17,035 $17,218 $17,384 $17,538

Cash receipts \wethers $0 $0 $75 $324 $682 $1,102 $1,453 $1,675 $1,808 $1,859 $1,902 $1,921 Cash receipts \does $0 $22 $38 $47 $1,043 $962 $973 $925 $954 $935 $962 $965 Total cash receipts $2,959 $8,881 $15,206 $22,122 $29,391 $33,411 $35,448 $36,418 $37,014 $37,397 $37,786 $38,106

Cash payments $15,671 $19,514 $23,176 $26,570 $28,006 $28,943 $29,172 $28,905 $28,689 $28,854 $28,716 $29,004

EBIT -$12,712 -$10,633 -$7,970 -$4,448 $1,384 $4,469 $6,276 $7,513 $8,325 $8,542 $9,070 $9,102

Tax calculation -$3,814 -$3,190 -$2,391 -$1,334 $415 $1,341 $1,883 $2,254 $2,497 $2,563 $2,721 $2,731 42 Depreciation tax shield $1,250 $4,253 $4,324 $3,625 $3,038 $2,495 $2,178 $1,808 $1,644 $1,402 $1,336 $1,167 Operating cash flow -$7,648 -$3,190 -$1,255 $512 $4,007 $5,623 $6,571 $7,066 $7,471 $7,382 $7,685 $7,538 Total capital expenditure $6,000 $1,000 $2,000 $1,000 $2,000 $1,000 $0 $1,000 $0 $1,000 $0 $1,000 Total enterprise cash flow -$13,648 -$4,190 -$3,255 -$488 $2,007 $4,623 $6,571 $6,066 $7,471 $6,382 $7,685 $6,538

Enterprise NPV $0 -$13,498 -$17,246 -$19,918 -$20,301 -$19,000 -$16,203 -$12,574 -$9,538 -$6,127 -$3,485 -$586 $1,650

"Interest received after tax" $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $116 $401

Interest paid after tax $328 $981 $1,313 $1,547 $1,654 $1,561 $1,318 $1,003 $642 $235 $0 $0 Net cash flow -$13,977 -$5,171 -$4,568 -$2,035 $353 $3,062 $5,253 $5,063 $6,830 $6,147 $7,801 $6,940

Cash at Bank $0 -$13,977 -$19,148 -$23,716 -$25,751 -$25,398 -$22,335 -$17,082 -$12,019 -$5,189 $957 $8,759 $15,699

7.16 Appendix 16: New enterprise performance ratios Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Direct costs as % of income 134 112 96 87 73 72 70 69 67 67 67 67 67 Direct costs $\head $64.50 $51.01 $43.73 $38.68 $36.07 $34.35 $32.88 $31.87 $31.06 $30.96 $30.80 $30.80 $30.82

Gross margin as % of income -34 -12 4 13 27 28 30 31 33 33 33 33 33 Gross margin $\effective hectare -$16.30 -$11.89 $5.95 $31.41 $91.16 $103.56 $114.50 $121.33 $129.04 $129.85 $132.66 $133.80 $135.66

Gross margin $\head -$16.30 -$5.32 $1.61 $5.91 $13.37 $13.58 $14.11 $14.47 $15.07 $14.98 $15.14 $15.16 $15.24

Gross margin $\doe -$21.73 -$7.94 $2.86 $11.86 $29.96 $32.81 $36.68 $39.00 $41.15 $41.02 $41.59 $41.63 $41.88

Labour days\yr 21 40 54 65 72 74 74 70 69 70 70 70 71

Total mohair production kgs\yr 473 962 1,633 2,365 3,315 3,701 3,878 3,972 4,038 4,075 4,112 4,146 4,185 43 Average mohair kg\head\shearing 2.3 2.2 2.3 2.3 2.4 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Mohair income $\head\yr $22.95 $23.55 $23.46 $23.16 $22.64 $22.27 $22.17 $22.08 $22.02 $22.01 $22.01 $22.01 $22.00 Average mohair price $\kg $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 $10.98 Average mohair price paid $\kg $10.20 $10.60 $10.24 $9.89 $9.38 $9.09 $8.99 $8.91 $8.87 $8.87 $8.87 $8.87 $8.86

Average price paid for wethers $\kg dw -1.#IND -1.#IND $1.49 $1.49 $1.49 $1.56 $1.52 $1.51 $1.51 $1.51 $1.51 $1.51 $1.53 Average price paid for does $\kg dw -1.#IND $1.60 $1.60 $1.60 $1.53 $1.52 $1.53 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 Average market price for goat meat $\kg $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 $1.57 Effective grazed hectares 100 100 100 100 100 100 100 100 100 100 100 100 100 Total DSE's available 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 Total DSE's required 165 366 559 765 940 1,033 1,074 1,100 1,119 1,133 1,143 1,153 1,162 DSE surplus\deficit 1,435 1,234 1,041 835 660 567 526 500 481 467 457 447 438

7.17 Appendix 17: New enterprise balance sheet Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Cash on hand $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $957 $8,759 $15,699 Total value of capital items $25,000 $25,694 $22,027 $20,349 $18,359 $17,882 $16,751 $14,937 $14,336 $12,919 $12,618 $11,431 $11,309

Value of land & water $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Value of herd $0 $5,927 $11,429 $16,256 $20,457 $22,444 $23,824 $24,592 $24,723 $24,756 $24,981 $24,979 $25,279 Accounts receivable $0 $2,959 $5,900 $9,194 $12,557 $15,109 $16,239 $16,783 $17,035 $17,218 $17,384 $17,538 $17,682 Total enterprise assets $25,000 $34,580 $39,356 $45,799 $51,372 $55,436 $56,814 $56,312 $56,093 $54,893 $55,941 $62,707 $69,968 0 0 0 0 0 0 0 0 0 0 0 0 0 Bank overdraft $0 -$13,977 -$19,148 -$23,716 -$25,751 -$25,398 -$22,335 -$17,082 -$12,019 -$5,189 $0 $0 $0

Total enterprise liabilities $0 $13,977 $19,148 $23,716 $25,751 $25,398 $22,335 $17,082 $12,019 $5,189 $0 $0 $0 Net enterprise assets $25,000 $20,604 $20,209 $22,083 $25,621 $30,038 $34,479 $39,230 $44,074 $49,704 $55,941 $62,707 $69,968

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