30 October 1998

Why farm labour keeps on falling

Farmers need to get the right balance between full-time

employees, casual and contract workers and machinery

investment levels. Not an easy task by any means

LABOUR costs are coming down on arable units as employers tackle this area with greater determination. The latest information from Grant Thorntons annual client data survey shows paid labour at an average cost of £81/ha (£33/acre) for the 1997 harvest, compared with £84/ha (£34/acre) the previous year and £106/ha (£43/acre) five years ago. Investment in machinery, retirement of older workers and redundancy all contribute to lowering costs, as well as the trend for farm size to increase.

Farm size in this survey of East Anglian units has risen from an average of 267ha (657 acres) in 1992 to 296ha (731 acres) in 1997. Farm Business Tenancies and contract farming agreements account for much of this increase.

Of all the fixed costs, labour shows the biggest gap between the best and worst farms in terms of financial performance (see table).

The top 25% operate on labour costs equivalent to just over a third of those in the bottom 25%. However, the figures show only paid labour costs. The farmers own time and any other unpaid family labour is not accounted for.

Getting the right balance between full time employees, casual and contract workers and the level of machinery on the farm is crucial. Top performers tend to have taken advantage of opportunities to update machinery so that fewer passes are needed, cutting labour and machinery costs.

This increases their efficiency in terms of hours spent per acre on crop establishment. They also tend to be proactive in running their business, rather than simply carrying on as before.

While redundancy features as a contributory factor in reducing labour costs, there is still a great reluctance to take this route. There is a high degree of loyalty to staff on most farms, particularly when they have worked for many years on the unit and would have little chance of alternative employment.

Balance required

"That loyalty is often at the expense of the business," says farm business advisor Tom Chapman of Grant Thorntons Bedford office. "While it is probably a good thing from the human point of view, it is not necessarily so for the efficiency of the business. Ideally, a balance of both is required.

"People should review labour costs and in particular should take stock of how the farmer or managers time is best spent."

As the paid labour force has reduced in the past few years, farmers are increasingly busy carrying out physical farm work but should question whether this is the best use of their time, recommends Mr Chapman. Farm secretarial services, students and casual labour should be considered in some circumstances.

Farmers should also review the way they pay employees. Moving to a salary basis would require careful handling, but has advantages for both parties, says Mr Chapman. For example, it enables employees to even out their earnings through the year, avoiding lean months, and helps with mortgage applications.

Involving staff

Paying a salary direct into the bank can cut office time and costs, and the move to salaries can go hand in hand with a bonus system, giving an incentive and greater motivation. Employers who adopt this approach have to be prepared, however, for greater involvement of the staff in the planning and financial performance of the business.

Stepping up the capacity and technology of machinery and equipment can bring labour savings, but many have fallen into the trap of spending on such improvements and then failing to realise the labour cost savings which they should bring, warns Mr Chapman – new parlours on dairy units often provide a good example of this.

Farm income (£/acre)

Top 25% Average Bottom 25%

Total farm gross margin 272 226 198

Fixed costs

Labour 19 33 53

Machinery

– depreciation 38 37 46

– repairs & spares 15 17 20

– other 17 21 24

Property 16 21 36

Administration 27 25 23

Total fixed costs 132 154 202

Management profit 140 72 (4)

Sundry receipts 35 32 39

Business management profit 175 104 35

Average rent* 24 24 27

Finance 29 22 17

Net farm income

after rent & finance 122 58 (9)

*average rent represents rent actually paid – survey includes some owner-occupied units and no rent equivalent has been attributed to these

Source: Grant Thornton client data survey – harvest 1997.