30 June 2000

Lessons to be learned from different views

DIFFERENT approaches to operational cost control in the Unit Cost Challenge provide interesting lessons for other growers, says Simon Bennett, senior manager with Deloitte and Touche.

"All three finalists realised that to minimise costs you need to match your cost structure to your farming system. Sadly there is no magic formula."

Mr Jones, who had expanded from a small base, did not have the capacity for new equipment, since he could not put on sufficient hours. He owns all his equipment and consequently has high depreciation costs, amounting to 36% of operational costs, repairs 16% and interest 15% (see table).

But Mr Jones calculates what he can afford and then goes out to buy the right second-hand machine. Mr Robertson also operates a relatively small unit of 176ha (440 acres).

Like Mr Jones he is limited how many hours he can put on machines. He therefore spreads cost by adding roots to the rotation and making machines last. But he takes some risk out of the system by contracting out his combining, which represents 35% of his operational costs, notes Mr Bennett.

Christopher and David Moore grow roots as well as combinable crops on fertile north Lincolnshire soils, giving a high yield potential, a clear bonus. Tractors are bought with a three-year warranty, so repair bills are minimal.

Depreciation is held down to just 22% of operational costs through a combination of working machines hard and using dealer servicing to maintain resale values.

The contest also shows there is no substitute for good management information, he adds. "When you have detailed costs of production at your fingertips you can make the right decision about what system you should adopt.

"Mr Jones has detailed costings available on his computer, so he knows what machine he can afford to buy. Meanwhile, Mr Robertson proved that you do not need a computer to do this, keeping detailed written records of the costs for each of his machines."

"Chris and Dave Moore knew exactly what their machines would cost by taking a lot of the risk out of the system through frequent machine changes, use of warranties and contracting."

Heading for Unit Cost Challenge table

Moore Jones Robertson

£ % £ % £ %

Variable costs

Seed 40.50 (18) 30.18 (15) 60.40 (30)

Fertiliser 47.23 (21) 70.88 (35) 80.35 (41)

Herbicide 51.85 (23) 38.00 (19) 12.62 (6)

Fungicide 70.07 (31) 42.05 (21) 42.53 (21)

Insecticide 7.05 (3) 18.75 (9) 0 (0)

PGR 8.00 (4) 3.04 (1) 3.24 (2)

total 224.70 (100) 202.90 100 199.14 100

Operational costs

Labour 21.10 (18) 32.79 (23) 35.87 (22)

Depn 26.19 (22) 51.30 (36) 30.06 (18)

Repairs 4.75 (4) 22.35 (16) 19.72 (12)

Fuel 4.96 (4) 9.41 (7) 7.06 (4)

Insurance 0.97 (1) 4.33 (3) 1.96 (1)

Contract 50.00 (42) 0.00 (0) 56.83 (35)

Interest 10.93 (9) 21.30 (15) 12.54 (8)

total 118.90 100 141.47 100 164.06 100

Total costs 343.61 344.37 363.18

Yield (t/ha) 12.15 10.43 10.91

Unit cost (£/t) 28.28 33.02 33.29

Unit Cost Challenge 2000 results


MOORE JONES ROBERTSON

£ % £ % £ %

Variable costs (£/ha)

Seed 40.50 (18) 30.18 (15) 60.40 (30)

Fertiliser 47.23 (21) 70.88 (35) 80.35 (41)

Herbicide 51.85 (23) 38.00 (19) 12.62 (6)

Fungicide 70.07 (31) 42.05 (21) 42.53 (21)

Insecticide 7.05 (3) 18.75 (9) 0 (0)

PGR 8.00 (4) 3.04 (1) 3.24 (2)

total 224.70 (100) 202.90 (100) 199.14 (100)

Operational costs (£/ha)

Labour 21.10 (18) 32.79 (23) 35.87 (22)

Depn 26.19 (22) 51.30 (36) 30.06 (18)

Repairs 4.75 (4) 22.35 (16) 19.72 (12)

Fuel 4.96 (4) 9.41 (7) 7.06 (4)

Insurance 0.97 (1) 4.33 (3) 1.96 (1)

Contract 50.00 (42) 0.00 (0) 56.83 (35)

Interest 10.93 (9) 21.30 (15) 12.54 (8)

total 118.90 (100) 141.47 (100) 164.06 (100)

Total costs (£/ha) 343.61 344.37 363.18

Yield (t/ha) 12.15 10.43 10.91

Unit cost (£/t) 28.28 33.02 33.29