Spiralling machinery costs and hidden labour bills are threatening the profitability of many arable farms and must be controlled if businesses are to remain competitive.
This was the message from Philip Dunn, Brown & Co’s head of agricultural business consultancy speaking at Cereals 2014.
The firm launched its Labour and Machinery Costings Service, designed to help farmers keep much tighter control of these major overheads at the event.
Labour and machinery accounted for the biggest expenditure on most farms, typically accounting for a third of wheat production costs, for example, said Mr Dunn.
Actual figures could vary by 50%, making it difficult to manage expenditure or to know when to sell grain at a profit.
“Unlike variable costs, which can be tracked by a few receipts, machinery costs consist of many different bills and parts of bills such as fuel and spares and repairs, as well as depreciation.
“Labour is also very hard to allocate neatly – staff may undertake several different jobs and there is a surprising amount of downtime to account for. Labour productivity is very often overestimated.”
The Labour and Machinery Costings Service is based on a detailed spreadsheet that captures information needed to pin down and manage these costs.
Basic data required includes farmed area, crop type, soil type and area, as well as all machinery.
Depreciation rates and repairs, interest, insurance and hours worked are logged.
Labour (including family labour) and machinery costs not allocated to specific operations are added back in, producing an accurate cost for each of the above parameters and for individual machines.
Operations are recorded, and include work rate an hour and fuel use and cost, as well as machinery/implement operation, labour and downtime costs. “While this sounds like a lot of record keeping, it is not difficult to do,” said Mr Dunn. “And, once the detail is recorded, the system only needs tweaking annually to take account of changes to machinery, to operations carried out and cropped area.”
“What is difficult is to know what to do with the information, and that’s where our service comes in.”
Costs are generated for crop type and expressed in total costs an acre or a tonne. The tool can also use budgeted figures to predict the effect of taking on more land or changing machinery or cultivation systems.
Results are expressed in dashboard formats, which highlight key data as simple graphics. This allows rapid assessment to define performance and benchmark with other businesses.
“Machinery costs in particular are spiralling on some farms due to increases in annual investment allowance and the steep, above-inflation rises in machinery costs,” said Mr Dunn.
“For a few pounds per acre, this service allows farmers to look very hard at their cost structures, helping them to remain competitive, both nationally and, more importantly, on a global scale.”