Watch costs of switching over to lo-till system
By Charles Abel
KEEN to join the lo-till club? Then be sure to check the economics first. For many the savings may not be as great as expected after investment costs have been taken into consideration, particularly if the extra efficiencies of the approach are not fully exploited.
That was the message from Tom Chapman of accountant Grant Thornton at Lo-Till 2000 last week, the minimum tillage event organised by Crops, farmers weekly and Fusion Events at Twyford, Banbury, Oxon.
Investing in lo-till equipment can help cut establishment costs, boost workrates by over 50% and lift yield, soil structure and even weed control, he explains. But after all the costs have been allocated savings may not be huge, averaging as little as £12/ha (£5/acre) over the first six years.
Only in year six do savings rise to £42/ha (£17/acre) where the system is adopted in one year and £32/ha (£13/acre) after a phased switch over.
Growers who fail to exploit all the opportunities lo-till offers could even miss out on those savings. "Costs can fall, but only if the old equipment is sold and faster workrates are exploited through better timeliness and a reduction in labour and overtime costs or by working more acres. Growers also tend to agree that better management is needed.
"If I were farming I would look very carefully at lo-till. Even though the economics are not hugely favourable and there are risks, it has the potential to boost workrates and improve yields and soil structure and is likely to fit some of the publics demands for greater environmental awareness which could soon be enshrined in legislation. But growers do need to check through the figures for themselves," says Mr Chapman.
His comments are based upon costings prepared by Grant Thornton for a typical 485ha (1200 acre) combinable crop farm on medium heavy land. They clearly show the value of a one-year transition, cash-flow permitting.
Typical cost of the original system, based on plough and press, 25% sub-soiling, tines, power harrow, roll, power harrow/drill and roll is £106/ha (£43/acre). "Other systems may be cheaper, but this provides a base for our calculations," says Mr Chapman.
Selling all the plough-based equipment at typical resale values releases £74,500 in year one. The replacement line-up costs £148,000 – £30,000 cultivator drill, £45,000 200hp tractor, £35,000 170hp tractor, £18,000 double-press with tines and £20,000 heavy discs. That means £73,500 of new borrowings to finance through hire purchase, unless there is already scope to reduce overall tractor numbers.
The result is an initial £12/ha (£5/acre) dip in net farm income as the hefty finance costs and initial depreciation are borne. "You would need to be in a strong position to approach lo-till this way," admits Mr Chapman.
But by year three the cost of establishment drops and the boost to net farm income improves year on year to a high of £42/ha (£17/acre) by year six.
By contrast making a gradual switch to lo-till reduces the initial impact, but never releases the full savings achieved by a one year switch, peaking at £32/ha (£13/acre), he explains.
Furthermore, any failure to match new machine investments with the sale of supposedly redundant plough-based equipment would jeopardise even those savings. "This is the biggest risk – falling between the two systems and bearing the costs of both. In our gradual transition we have made changes in clear steps, so the grower does not end up paying for two systems."
The calculations exclude any yield effects. In the first year the 120hp tractor, power harrow/drill and rolls are sold and replaced with a cultivator drill and 170hp tractor. In year two the tined cultivator and power harrow go, and a double press with tines arrives. In year three heavy discs and a 200hp tractor replace the plough, press and 140hp tractor.
The calculations also assume every hour of labour saved is a real cash saving. In reality that is unlikely, unless regular staffing is reduced, or casuals and overtime cut. "The departure of an employee, possibly through retirement, may prove the ideal opportunity to change."
Alternatively, the time saved may be used to expand the business, either through contracting, contract farming or an FBT, or forming a machinery syndicate or other machinery sharing venture.
"Whatever the circumstances for the move to lo-till, the changeover will require additional cash funding for several years. How that is to be managed needs careful consideration before taking the plunge," Mr Chapman concludes. *
Careful attention to cost implications is vital to optimise lo-till techniques, says Tom Chapman of Grant Thornton.
Effect of lo-till switch on net farm income (£/ha)
Base yr Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Ave Max
Gradual change 86 79 94 86 99 109 119 +12 +33
One-year change 86 74 89 99 109 119 128 +17 +42
Source: Grant Thornton. 485ha combinable medium heavy land farm switching from plough-based system to lo-till.