By Nick Fone
WITHOUT THE inclusion of subsidy payments in gross margins, many farmers are running their business at a net loss, warns John Bailey, machinery consultant for The Arable Group.
He explains his belief that up until recently producers have relied too heavily on subsidy payments to make enterprises appear financially viable, ignoring the true picture.
“I would calculate that many farmers are producing wheat at a cost of about 85/t,” he says.
“We shouldn”t kid ourselves – with wheat prices down around the 65/t mark, those growers are making a loss of 20 on each tonne sold – that is clearly unacceptable and unsustainable in the long run.”
He believes the only way to resolve the situation is to tackle operational costs, as few farmers will be able too squeeze variable inputs any further without adversely affecting crop quality or yield.
“The key is to set targets and work towards them gradually. It might be a slow, step-by-step process involving some pretty tough decisions, but there”s a good chance that taking a fresh approach will at least bring costs down closer to the break-even point. We should be aiming to produce wheat at 60/t, if we are to have any guarantee of profit,” adds Mr Bailey.
“Look at your spraying operation – if you”re running a self-propelled unit would it be more cost effective and versatile to move to a trailed machine of a similar capacity?
“Are you spending more than is necessary on combines? Could their working life be extended? When looking for a replacement consider a used example that has already lost that initial chunk of depreciation.”
According to Mr Bailey”s calculations, cultivations account for between 40% and 50% of labour and machinery costs. Tillage oper<00AD>ations and drilling tend to dictate staffing levels and tractor needs. That was exacerbated because farmers now need to cover more ground in a shorter time, he says.
With an average plough-based estab<00AD>lishment system costing about 90/ha (35/acre) it is clearly worth considering the alternatives. Getting crops in the ground with a heavy disc/tine combination costs about 66/ha (27/acre), with shallow tillage practices averaging 50-90/ha (20-36/acre).
“With the changes brought about by the single farm payment and the continuing squeeze on prices, I think we may see a polarisation of cultivation techniques,” concludes Mr Bailey.
“Farmers on higher yielding land will look to more sophisticated forms of conventional tillage, while those on less fertile ground won”t be able to afford expensive establishment costs and will look to practices such as broadcasting to get crops going, even if it means being prepared to accept marginally lower yields.”