Farm investment strategies: A case study from the Wimmera and southern Mallee

As farm businesses grow and evolve, deciding where to invest next, whether in machinery, inputs, or land, can be both exciting and challenging. With tight margins, changing seasons, and rising costs, the pressure to make the “right” decision is real.

This case study is designed to help broadacre farmers in the Wimmera and southern Mallee think through their investment options. It compares three common pathways – buying or upgrading machinery, spending more on crop inputs, and purchasing additional land and outlines the pros, cons, and financial impacts of each. By working through real-world scenarios and examples, this guide aims to support practical, informed decisions that align with your goals, risk appetite, and seasonal outlook.

Background 

Enterprise type: Broadacre cropping  

Expansion goals: There is an ongoing dilemma within the farming community regarding the ‘right’ decision for effectively investing in land, machinery or crop inputs. In the following three scenarios, we will outline the differing ratios between these investments and how farmers can capitalise on them to increase their return on investment.  

Machinery investment strategy  

Overview: Investment into machinery should be based around affordability, how much additional revenue/ cost savings is generated from the upgraded machinery and does this additional value justify the additional cost.  

According to the department economists from the Grains Research and Development Corporation (GRDC), in their 2015 presentation titled ‘Farm Machinery- understanding the true cost and getting the best value out of machinery’, they stress the importance of “place{ing} a risk weighted value on benefits that are difficult to quantify (for example, cost of failure x probability of failure occurring = potential cost savings of upgrading)”.  

Machinery Costs  

• Total cost = Capital costs + operating expenses  

• Capital costs: Expenses incurred whether the machinery is used or not, these include: 

• • Depreciation: Change in the machinery value over time  

• • Opportunity Cost: Return on investment if the funds were used elsewhere  

• • Insurance, registration, and storage (shedding) costs  

• Formula: 

• • Capital cost= Change in capital value + Insurance + Registration + Shedding + Opportunity cost  

• • Annual change in capital value= (Purchase value – Resale value) ÷ Total years in operation  

• • Operating costs: Fuel, consumables, labour, repairs and maintenance (Department of Primary Industries and Regional Development, 2018).  

Machinery investment benchmarks  

• Machinery income efficiency= Total machinery assets ÷ Total farm income  

• Total machinery assets= current value of all machinery (not purchase value).  

• Total farm income= the average income over the past four years.  

• Benchmark range: 0.7- 1.2 (moderate investment).  

• Limitations: does not factor in contractor use, hired equipment, or operating costs.  

Machinery expansion  

• The machinery investment needs to offset the losses received if critical sowing or harvesting windows are not met with machinery on hand. Compare ‘yield penalty x price x hectares in late’ and cost when investing in additional machinery.  

• Need to consider seasonal changes and environmental factors. For example, if an expert is predicting a one-in-ten-year event, investing in additional machinery will only be beneficial for that anomaly, and may result in long term financial strain (Department of Primary Industries and Regional Development, 2018).  

In Table 1, comparing differing machinery investment scenarios, the farmer often has a trade-off. Smaller investments result in the farmer relying on higher contracting costs which may negatively affect overall yield capacity, whereas investing in $2,000,000 worth of machinery, the farmer will reach optimal efficiency, however, they will be exposed to higher risk because of the high capital expenses and unpredictability of the growing season. As outlined previously, it is important that the individual carefully assesses their financial position, risk tolerance, and long-term operational goals before committing to a significant machinery investment.  

Table 1: Comparing Investment Scenarios based on different farm machinery investments 

Sensitivity analysis  

When understanding how much income to invest into new machinery, it is important to place context into the situation. As seen in Table 2, different yields and therefore differing income will affect an individual’s gross margin when purchasing new machinery. In this situation, the farmer has invested $1,000,000 into new machinery, although not a great representation as a 3-year rolling average, it is a basic model to understand that if, for example, a farmer purchased the new machinery expecting a high-yielding year, and only received 2.0 tonnes per hectare, the farmer will be in considerable financial debt in their first year. It is important to ensure that the farmer creates differing scenarios and takes into consideration their fixed costs and variable costs, when investing in new machinery.  

Table 2: Investing in $1,000,000 worth of machinery and the resulting gross margins based on yield 

Land investment strategy  

Overview: In general terms, farm expansion is linearly correlated with increased production. However, often increasing the productivity of existing land areas can be just as or more beneficial, in terms of return on investment.  

Before making a major decision to invest in additional land, it is important to have a clear understanding of the following:  

• Succession plan: investing with the hope to increase family’s future prosperity.  

• Personal retirement: investing to fund retirement as there is no succession plan.  

• Financial security: you can afford ongoing payments with interest for the foreseeable future. You also have stability in knowing that if it was a poor-yielding season, you could still see the investment as justifiable.  

Farm expansion can occur via two routes: (1) The purchasing of additional land or (2) the leasing or share farming of additional land. Interestingly it can also involve the increase in productivity of existing farmland (However, in this case we will be delving into scenarios based on purchasing additional land). Although, farm expansion is often linked with increases in wealth and productivity, it requires heavy capital investments, thereby increasing the businesses’ risk profile. It is also important to consider capital gain and wealth creation when deciding whether to lease out land. Often purchasing land, has further long-term benefits in terms of capital gains. In some instances, rates in capital growth of agricultural land can be as high as 50 per cent in a single year (GRDC, 2017).  

Table 3- Comparing Farm Business Models: Pros and Cons of Share Farming, Leasing and Land Purchasing 

Crop inputs investment strategy  

Overview: With increasing global energy prices and continued disruptions to the global supply chains as a result of geopolitical complications, farm input prices have increased by 139 per cent over the past decade (DAFF, 2023; GRDC, 2024). Therefore, because market conditions are very relative to external conditions, it can be very difficult to predict future input prices. 

Key inputs and cost drivers:  

1. Fertilisers: prices often fluctuate due to global supply chain issues and geopolitical events (e.g. Russian- Ukraine conflict thas affected nitrogen-based fertiliser prices).  

1. Chemicals (herbicides and pesticides): Costs continue to rise due to regulations, resistance issues and global supply chain issues.  

1. Seed: ongoing research and development into higher yielding varieties but also come at a higher cost as a result.  

Challenges & risks 

• Price volatility: Input costs fluctuate due to external economic and political conditions, making budgeting difficult. 

• Supply chain disruptions: Dependence on imports for fertilisers and chemicals means delays and shortages. 

• Climate variability: Uncertain rainfall and extreme weather affect yield potential, making input investments riskier. 

• Return on investment (ROI) uncertainty: High input costs don’t always translate to high yields, especially in dry years 

 Investment strategies: Breaking down three different approaches to investment – land, machinery, and crop inputs – showing the ratios and the expected outcomes  

When determining where and what ratio to invest, it is crucial to consider factors such as return on investment (ROI), risk tolerance, cash flow and long-term financial goals. Table 4, outlines different investment strategies in agriculture, showing how capital is allocated among land, machinery and crop inputs, along with the expected return on investment (ROI), risk level, and key comments for each strategy. Here’s an explanation of each strategy: 

1. Land-heavy strategy: This strategy prioritises long-term land appreciation and stability over immediate profitability. While the returns will be slower, land investments generally carry low risk due to the capital gains associated and the financial security over time. However, the limited purchasing of machinery and crop inputs may impact productivity gains in the short term.  

1. Balanced strategy: A moderate risk approach to investment, as it spreads risk across land, machinery and crop inputs. It offers flexibility, maintaining both productivity and stability. There will be very little financial risk, which means the farmer will be neither in trouble nor expanding rapidly. 

1. Machinery-focused strategy: Prioritising investment in machinery improves efficiency, productivity and cost savings (e.g. reduced labour costs, faster operations). However, high capital investment in machinery may lead to a higher debt burden and high maintenance costs. The returns depend heavily on whether increased efficiency translated into higher yields and reduced expenses such as labour costs.  

1. Input-intensive strategy: This strategy focuses on maximising short- term yields by prioritising investment into fertilisers, seeds and chemicals. While this scenario has the potential to be very high yielding in optimal seasonal conditions, it can carry significant risk. This scenario heavily depends external factors such as weather conditions, rainfall, market prices and pest/disease impacts which are considerably unpredictable especially in the Southern Mallee region. If a poor season occurs, it results in substantial loss.  

1. Aggressive growth strategy: While this strategy showcases the highest ROI, it is the most high-risk of the strategies as it focuses on maximum production and expansion but exposes the business to market volatility, input cost fluctuations and financial instability. It requires strong financial management to mitigate the risks involved.  

Table 4: land, machinery, and crop inputs – showing the ratios and the expected outcomes. 

Conclusion  

Across the agricultural sector, decisions around investing in land, machinery, or crop inputs require careful consideration of individual business goals, seasonal risk, and financial capacity. Each investment pathway offers unique advantages and limitations: land provides long-term capital growth and stability but ties up liquidity; machinery boosts efficiency and timeliness but requires significant upfront costs; and crop inputs can drive short-term profitability but are highly sensitive to seasonal and market variability. 

Striking the right balance between these areas is critical. Some farmers may prioritise land acquisition to secure future generations or build long-term wealth, while others invest in machinery to reduce labour reliance and improve operational control. Alternatively, those chasing productivity gains may choose to maximise returns through high-quality crop inputs, particularly in years with favourable seasonal outlooks. 

Ultimately, there is no one-size-fits-all strategy. The ideal investment mix will vary depending on farm size, enterprise structure, market conditions, succession plans, and appetite for risk. A well-considered and flexible approach backed by scenario planning and financial modelling, can help farm businesses remain resilient and profitable in a changing and uncertain operating environment. 

References  

Agriculture and Food. (2018). Machinery purchasing decision support for broadacre growers. Western Australia Department of Primary Industries and Regional Development. https://www.agric.wa.gov.au/harvesting/machinery-purchasing-decision-support-broadacre-growers?nopaging=1 

Department of Agriculture, Water and the Environment. (2023). Analysis – How global energy prices are affecting the price of Australian farm inputs. Australian Government. https://www.agriculture.gov.au/about/news/analysis-how-global-energy-prices-are-affecting-price-australian-farm-inputs 

Grains Research and Development Corporation. (2017). Making good farm expansion decisions. https://grdc.com.au/__data/assets/pdf_file/0027/248166/GRDC_ORM_FS_Farm-expansion-decisions_LR.pdf 

Grains Research and Development Corporation. (2024, February 20). Are rising input costs the biggest threat to farm profitability? https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-papers/2024/02/are-rising-input-costs-the-biggest-threat-to-farm-profitability 

Transparency Portal. (2025). Grains Research and Development Corporation annual report 2021-22 – Optimise input costs. Australian Government. https://www.transparency.gov.au/publications/agriculture/grains-research-and-development-corporation/grains-research-and-development-corporation-annual-report-2021-22/3.-our-performance/objective-3%E2%80%93optimise-input-costs 

Victorian Government. (2014). Wimmera Southern Mallee regional growth plan summary: May 2014. Department of Transport, Planning and Local Infrastructure. https://www.planning.vic.gov.au/__data/assets/pdf_file/0033/639267/Wimmera-Southern-Mallee-Regional-Growth-Plan-Summary-May-2014.pdf 

About RiskWi$e

RiskWi$e is a 5-year, $30 million national initiative (2023–2028) aimed at helping Australian grain growers navigate increasing levels of risk from weather variability and price volatility. By improving understanding of the risk-reward relationships in on-farm management decisions, RiskWi$e supports growers in making informed, confident choices that maximise rewards and minimise potential losses. RiskWi$e is conducted in partnership with grower groups, 6 action research group leads, research/extension partners, CSIRO and the Grains Research and Development Corporation (GRDC). Birchip Cropping Group (BCG) is leading RiskWi$e work on supporting farm business decision-making across three key areas: enterprise agronomic decisions, enterprise financial decisions, and nitrogen (N) decisions. BCG leads this work in collaboration with Mallee Sustainable Farming (MSF) and FAR Australia, as part of a broader RiskWi$e network.

Find out more https://grdc.com.au/research/partnerships-and-initiatives/strategic-partnerships/riskwise