Performance against benchmark: what does it mean?

As one of its key achievements for the 2017 Season, QSL reported that it ‘exceeded the performance benchmark’ by $29.95 per IPS tonne of sugar.1

By the way—in case you’re wondering—QCS exceeded that same benchmark by almost $75 per IPS tonne.

But what does ‘exceeding the benchmark’ really mean, and is it a valid measure of performance?

In short, the benchmark is a theoretical pricing approach where a predetermined sales and pricing pattern is adopted—that is, the pricing manager does not apply any discretion in pricing decisions or timing.

The benchmark is a valid measure in a monopoly marketing environment, where pool participants have no alternative basis for comparison. For example, as Queensland’s only sugar marketer for many years, QSL reported on its performance against the benchmark. It has continued to do so in its 2017/18 Annual Report, although it has referred to QSL-managed pools outperforming ‘the market’, rather than the ‘benchmark’.2

However, the benchmark is just not that relevant when there are multiple marketers and growers can compare the actual returns achieved by those marketers.

And while the benchmark may tell you that one marketer has outperformed another in an ‘overall’ sense, it won’t tell you the full story.

The most important factor for you, the grower, to consider is the amount per tonne of sugar your marketer has returned to you at the end of the season. And by far the two most significant components of this return will be the sugar price your marketer has achieved, through the execution of their pricing strategy, and the value of your marketer’s foreign currency management. We’ll talk more about these next week.

If you have any questions about sugar pricing and marketing, please don’t hesitate to call the team at QCS on 1800 774 246.

References

1Queensland Sugar Limited. (2018). QSL’s 2017-Season pool results finalised.Australian Canegrower, 40(16), 12.

2Queensland Sugar Limited. (2018). Queensland Sugar Limited Annual Report 2017/18, 6.

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