Are you spending too much on your machinery?

An investigation led by Knowledge Exchange Manager Harry Henderson found that growers were spending too much on their machinery, which on average accounted for 25–30% of the farm’s wheat growing cost.

With Britain’s impending departure from the European Union expected to bring about big changes in agricultural payments, the pressure on farms to streamline costs is considerable. By undertaking a review of what is a major component of a farm’s operational spend, growers were able to identify where they could make savings.

Twenty-two monitor farmers undertook an in-depth analysis of their machinery operational costs, taking into account tractors, implements and other equipment such as sprayers and harvesters.

The review looked at purchase price, number of years of ownership, estimated value at sale and depreciation, as well as running costs such as fuel and labour.

While the sample is not big enough to draw firm conclusions, there were some common themes from the reviews carried out across AHDB’s Monitor Farm network. The farms with the lowest 25% of costs had:

• Depreciation below £63/ha
• Low repair costs through tactical hiring andexperience 
• Diesel use below 100 L/ha
• Farm size 500–1,000 ha

Harry said: “While the review showed that many farmers can stand to reduce their machinery expenditure, the correct strategy isn’t about spending as little as possible: this could mean exposing your business to possible machinery breakdowns.”

With every farm different, Harry said that it wasn’t possible to apply a set of hard and fast rules, but by having a grasp of what the equipment is costing the farm, it is possible to weigh the potential benefits of contractors and analyse timelines, allowing a manager to adjust their system accordingly. 

As a first step, Harry recommended looking at tractors and other machinery, particularly if they’re being used for non-essential work. Keeping a piece of equipment on farm over a longer period could dramatically reduce its running cost per hour.

“Trade-in values will be lower, but the cost of keeping machinery for longer is still lower than early replacement. In the longer term, a planned replacement policy, a review of the whole system and appropriate machinery care responsibilities placed with the operator are all important factors. Work with your dealer and remember that a special deal is unlikely to be the last: trade in when you are ready.”

Harry also said that farmers should consider using Farmbench to help assess machinery and business costs. The online tool enables farmers to manage resilience to risks and to cope with volatility. It is free to levy payers and allows farmers to analyse their cost structure and make comparisons with others.

One further benefit of staying on top of machinery costs could also be an improved work–life balance. Robert Cross, AHDB’s Warrington's Monitor Farm host, said that having a better understanding of his equipment spend could enable him to reduce the amount of time he’s out in the field.

“Having a sprayer with a little bit of extra capacity, where it’s not ridiculous in terms of costs but where I’m able to then choose the times I go out or take an hour out in the evening to spend time with my family over a meal, is important to me.”

Watch this webinar where Harry discusses machinery investment and operation costs in more detail:

This article appeared in the Summer 2019 edition of Grain Outlook