5 December 1997

WISE UP, THEN SPLASH OUT

Apply a bit of science to

your choice of machinery

and replacement intervals.

It could do your business a

power of good, ADAS

adviser John Bailey

explained to Mike Bird

THE better you know your business, the lower will be the risk of making poor, costly or ill-judged machinery investment decisions.

According to ADAS mechanisation adviser John Bailey anyone buying new machinery needs to analyse their business carefully.

"By examining the size and seasonality of the different enterprises, one can establish the annual workload peaks and troughs, and the times of the year when machinery will be utilised most," he pointed out.

"There is little point in buying a brand new tractor if it will be used principally for just a few weeks in the spring or autumn. There are some very good pre-owned tractors available which have plenty of life in them and will depreciate at a much slower rate than a new machine."

Hiring in a tractor for the required period is another cost-effective answer. Alternatively, consider employing a contractor, joining a machinery ring or sharing a machine with a neighbour.

Other factors which need to be looked at are the number, the quality, the age and the ability of the staff. Question whether all are gainfully employed throughout the year. Could staff turn their hand to other profitable work as an extension or sideline to the main business?

With a little encouragement and training, many tractor drivers are willing and able to carry out on-farm servicing, maintenance and reconditioning work which will promote better machinery performance and a longer trouble-free life, while producing greater job satisfaction.

It will help also if staff are competent in the use of machines and treat them with care and respect. "A sympathetic approach will bring benefits in performance, running costs and end value," commented John Bailey. "Giving people sole responsibility for individual items will pay handsome dividends over the life of the machine."

Overall running costs

Costings will need to be worked out for the principal machines on the farm. According to John Bailey, all farmers need to know in detail the fixed and variable figures which come together to produce the overall running cost of each machine.

Fixed costs include depreciation, interest and insurance. The variable figures encompass repairs and maintenance, fuel and labour. Adding the costs together and dividing them by the area of the farm will produce a cost per acre or per hectare which can be compared with local contractor rates. Do not forget to include the realistic cost of support tractors in the figures calculated for harvesting machinery.

It will also be worthwhile to look at the hours worked by each of the main machines on the farm.

John Bailey uses a set of guideline hours when advising clients on machinery planning. Tractors on a 500ha cereal farm should be clocking up 750 hours a year while the principal tractors on similar size root crop enterprises ought to be working 1000 hours a year.

Tractor hours on grass farms can be highly variable depending on the size of the farm and the number and the age of the tractors. Nevertheless, such farms should be aiming to do at least 500 hours a year with a valuable main tractor. To be fully cost effective, combine harvesters of less than five years old should be averaging between 250 and 300 hours a season.

"To do the job thoroughly, farmers should make a note of the hours of all principal machines on Jan 1 each year," advises Mr Bailey. "Note the figures 12 months later and it will be obvious which are being utilised to the full and which are being carried by the business."

By examining the annual acreage to be covered, the current usage of each machine and the staff that are available to do the job, one should be able to establish a core number of machines that are required on the farm. In certain areas, for example, cultivations equipment, John Bailey says that a compromise will be needed to cater for wet and dry years and changes within the rotation.

Simply too big

"However, too many people buy too many machines which are simply too big for their acreage," he said. "Unless one plans to go contracting or share farming, this is simply a waste of money which can have knock-on cost effects when matching implements to tractors and to field systems."

Mr Bailey pointed out that by moving to one-pass operations it is possible to reduce the number of tractors and people involved and the size of certain implements. For example, a 4m cultivator-drill combination could replace a 6m drill, improving overall workrates, boosting field efficiency and reducing costs.

By establishing the importance of every machine on the farm and the amount of work that each one carries out, farmers can determine whether they should be buying new or second-hand, pointed out Mr Bailey. "Whatever the final decision, for maximum financial security it is important to select equipment which is well-known, has a proven pedigree and holds its value," he stressed.

"The best machines will give a trouble-free working life of five to six years and depreciate at a level of around 10% a year," he commented. "The not-so-good may depreciate at closer to 20% a year. On a £40,000 machine over five years, this can produce a difference in final value of more than £10,000 which will impact considerably on the cost of replacement."

Having decided which machines are totally necessary for the enterprise and whether they should be new or pre-owned, farmers will need to establish a replacement policy.

Five-year plan

When advising clients, John Bailey suggests that they draw up a five-year plan and base their replacement policy on each machines annual usage, how it is used and how well it is serviced and maintained.

The goal is to achieve similar expenditure each year to prevent placing undue pressure on cash flow. Many finance companies are willing to tailor repayments to match income peaks and troughs.

"I recommend that farmers annual outlay on machinery replacement, less any interest charges, be similar to the annual depreciation of the principal machines on their farm," commented Mr Bailey.

Using Cambridge University costings as a guide, John Bailey says that a 500ha mainly cereal farm should be aiming to achieve annual machinery costs of £200/ha. "About 40% of that figure, or £80/ha, will be depreciation. It is likely that the principal machinery items within our replacement plan account for around 80% of the total depreciation figure, or £64/ha," he explained. "This means that a 500ha cereal farm could reasonably spend £32,000 a year on machinery replacements."n

Using a contractor (like FW Contractor Comment correspondent David Carnegie, above) is one way of cutting machinery costs.