Farmers are pushing up costs by spending too much money on buying new machinery, an AHDB survey has revealed.
The survey, carried out in partnership with Strutt & Parker, looked at machinery costs across the levy board’s 21 monitor farms and revealed a huge variation in machinery costs a hectare.
Total machinery costs varied from £113/ha to £290/ha across the farms which ranged in size from 97ha to 1,278ha.
Economies of scale
Despite this size difference there was no benefit from economies of scale, according to the AHDB’s knowledge exchange manager in the East Midlands, Harry Henderson.
“We expected to see the larger farms able to spread machinery investments across their wider hectareage and realise their economies of scale,” Mr Henderson said.
“But this wasn’t the case. Some of the largest farms had the highest costs and so are simply spending too much on buying new machinery,” he said.
The variation was also not linked directly to different soil types.
“Because the farms stretch from Cornwall to Moray and have all types of soil, we also expected to see units with heavier land having the highest cost.
“Again we were able to rule that out with farms on so-called boys’ land having some of the higher costs while some of the smallest farm businesses on heavier land were running at the lowest cost,” Mr Henderson said.
He noted some farms justified purchasing larger machinery because the ability to carry out operations more quickly could offset any risks of bad weather.
“While wet springs and catchy harvests mean many farmers are keen to have increased drilling or harvesting capacity, farmers need to look at this policy in terms of cost to the business.”
Heavier, larger machines can also lead to deep compaction which can take years to correct,” Mr Henderson pointed out.
Mr Henderson suggested farms with higher costs should review their buying policy.
It is important farmers don’t succumb to machinery envy and compete with the neighbours for having the biggest kit, he said.
“Farms with the biggest newest and shiniest machinery are not necessarily the best run farm businesses,” Mr Henderson stressed.
The AHDB recommended the first step in cutting costs was to review their tractor usage and to keep what they already had in the shed for longer.
“Trade-in values will be lower but keeping the machine and riding out the steep depreciation curve until it has flattened out is still cheaper than early replacement.
“Depreciation is a real cost and even having to spend more on repairs, new tyres or a gearbox can be cheaper than buying a brand new machine,” Mr Henderson said.
In the longer term, a planned replacement policy, a review of the whole system and appropriate machinery purchase according to the operation were all important factors.
“Farmers should also use AHDB’s Farmbench to help assess their machinery and business costs,” Mr Henderson said.
Farmbench is one of the tools for farmers to help manage resilience to risks and to cope with volatility. It is a free to levy payer service for farmers to analyse their own cost structure and then compare costs with other local growers.
“It’s a very powerful tool to see where your business might be poorly performing in comparison to others and need some attention.”
He added joining a benchmarking group was even more valuable.
“Figures for each farmer in the group are still anonymous but meetings can discuss how to tackle them and share knowledge and tips on how to get the most from machinery,” he added.
Machinery costs range (£/ha)