Farmers at an Agriculture and Horticulture Development Board (AHDB) meeting in Cornwall (England) were warned of the dangers of buying new equipment without proper costings.
Howard Emmett, the host of the Truro Monitor Farm, is considering whether he should keep or replace his current combine harvester, a 12-year-old Claas Lexion 570 which has done 991ha of combining.
“Until you calculate machinery costs per hectare and per hour you can’t have a machinery replacement strategy,” fellow monitor farmer Julian Gold told members of the group.
“You need to know how the elements add up to make up the full cost,” he added.
Breaking it down
Gold explained that farmers should start by calculating the full machinery cost per hectare and per hour before making any business decision on whether new kit is needed.
He said: “Your farm machinery strategy may be one of high depreciation; buying new machines and changing them regularly; or low depreciation from buying second-hand machines and keeping them longer – or somewhere between these extremes.
“There is no right or wrong answer with both approaches having advantages and disadvantages. To some extent the strategy used will depend on the farmer’s management style.
Are you someone who rides the roller coaster, taking the highs and lows of the business as they come, or are you risk-averse and try to iron out the peaks and the troughs?
Protocols for recording systems to capture costs and fuel usage are important, Gold explained.
Gold gave a breakdown of running costs and figures which make up the total cost per hectare.
These included:
- Total area to be harvested;
- Total engine hours;
- Drum hours (78% of engine hours);
- Depreciation per hectare;
- Average interest per hectare;
- Insurance per hectare;
- Repairs and spares per hectare;
- Fuel per hectare;
- Labour per hectare.
Running costs versus ownership costs
He explained depreciation is the biggest cost with combines, although this can be alleviated by cutting larger areas. In Howard’s case the depreciation was around 42% of his total combining costs per hectare.
By working out machinery ownership costs, the group heard how they could calculate whether it was more cost-effective to own machines, to hire them or to use a contractor. Ownership costs are the costs before labour, fuel, repairs and spares.
With lower output, the labour cost per hectare of smaller machines becomes more significant, which may be more important in the future if labour gets scarce and expensive.
Labour is also an important consideration, both in terms of attracting staff and taking into account that labour may become more expensive after Brexit.
Keep production costs low
Philip Dolbear, AHDB Cereals and Oilseeds knowledge exchange manager, said: “The important things are attention to detail and management time.
We need to relentlessly drive lower costs of production as the key strategy to manage future commodity price volatility.
AHDB’s monitor farm programme bring together groups of farmers who want to improve their businesses by sharing performance information and best practice around a nationwide network of more than 30 host farms.
Monitor Farms are part of AHDB’s wider Farm Excellence Platform, which works with the industry to improve performance through knowledge exchange and benchmarking.
This year the programme is hoping to include Northern Irish monitor farms for the first time.
