With ever-increasing input prices, fixed costs are coming under increased scrutiny on many arable units. One way to make a significant impact on reducing costs is to collaborate with neighbours. Here, two cereal growers share their experiences.
‘Total labour and machinery costs fell from £240/ha to £190/ha’
Joining forces with a family farm in the Cotswolds has allowed one Buckinghamshire grower to slash both costs and management time.
What started with a shared combine harvester in 2004 became a limited liability partnership in 2007 and all field operations have been undertaken with shared machines ever since.
Now farming more than 1,000ha with just one tractor, one sprayer, one drill and one combine harvester, Antony Pearce and Richard Hartley have had some big decisions to make about machinery along the way.
But they have been rewarded by a reduced capital investment of £217,000, representing a saving of £134/ha.
They also saw their total labour and machinery costs fall from £240/ha to £190/ha in the first full year of working together.
“Lower costs are an important advantage of our joint venture,” says Mr Pearce. “Better use of our skills is another.”
Pay attention to costs, urges report
The best performing cereal producers have both higher output and lower costs, according to a report prepared for this year’s Oxford Farming Conference.
Variation in fixed costs accounted for 60% of the difference in profit achieved by the top and bottom performers, with the costs associated with machinery, labour and land occupation highlighted as the area where many cereal farmers should focus their time and attention.
“There’s no doubt that every business can do something to improve its performance,” notes Graham Redman of consultant Andersons, the author of the report.
“Whether that’s joining forces with a neighbour or others, or doing something else, will depend on individual situations.”
Either way, lower grain prices are concentrating minds, he acknowledges.
“Yield chasing strategies are being reviewed, the viability of low-cost systems is being assessed and monitoring business performance is finally being recognised for its essential role in decision-making.”
Both men have clear areas of responsibility, with Mr Pearce taking on more of the office and accounting tasks, while Mr Hartley does most of the field work at Manor Farm, near Chipping Norton.
Their philosophy and outlook is very similar, however. “For a joint venture business to be successful, the fit has to be right. We are of a similar age and mindset, as well as having a comparable financial base.”
Ten years ago, when both men were looking to replace their combines, Mr Pearce was also facing the retirement of his farm manager. That created an opportunity to review his position, discuss collaborating and compare costs of production with his neighbour.
“Although we had different machinery strategies – with one using older machinery and having a high repair bill and the other buying newer kit with a high depreciation – our costs were very close.”
The successful combine share prompted further discussions about other opportunities. “We sat down and decided which bits of kit would be retained, and which ones would go,” recalls Mr Pearce. “We had an independent valuation done, and then went shopping.”
Initially, two drills were purchased. “That meant we were operating a 6m Vaderstad disced drill and a 4m Horsch tined drill.”
However, Mr Pearce’s involvement with the Joint Venture Farming Group, which involves regular benchmarking of business performance, showed that this was costing too much.
“Compared with the others in the group, we were lagging behind. There wasn’t enough work for both drills.”
After a couple of tricky wet drilling seasons, when the Vaderstad struggled to drill wheat into bean hulm and had difficulties with winter beans, a decision was made in favour of a new 6m Horsch drill. “It has been a success. So now it does everything.”
A 24m self-propelled sprayer was retained, but soon proved to be overstretched. As a result, a bigger 36m self-propelled sprayer was purchased – but again the benchmarking results showed that this was an expensive move.
Get expert advice
Find out more about cutting fixed costs at this year’s Cereals event on 10 and 11 June at Boothby Graffoe, near Lincoln.
Advice will be on hand on business alley from agribusiness specialists such as Andersons, Bidwells, Brown & Co, Duncan & Toplis, Savills, Smiths Gore and Strutt & Parker.
“We were overkitted,” he admits. “So we looked at ways of making it work harder and decided to move to liquid fertilisers. It allowed us to move to wider tramlines and has sorted out any striping issues. It also brought our costs down.”
Other changes saw them selling the second tractor which, as it was no longer needed for fertiliser spreading, had become uncompetitive. The business now hires a tractor to cover peak workload times.
Most impressive is that the stubble-to-stubble costs have been maintained since 2008, despite machinery being replaced and costs increasing by 10% every year. After harvest 2013, that figure was £280.71/ha, while in 2009 it was £280.20/ha.
Fuel costs have also been pegged at 68p/litre. “We’re using 57,000 litres of fuel every year, so we were able to make some significant savings.”
Looking ahead, Mr Pearce points out that they are always aiming for continuous improvement.
“We know that our establishment costs are about as low as they can be with our existing machinery, but our combining figures could be better. So that will be a focus, despite the fact that we grow all milling wheats.
“Being a member of the Joint Venture Farming Group means that we are always being reminded of best practice and where others have been able to improve efficiency.
“It’s very useful – decision-making can be lonely, and the discussions that we have show that most of us are struggling with similar problems.”
‘Sharing has saved us as much as 20%’
Shared machinery and labour is helping to reduce costs on two neighbouring Suffolk farms, while still allowing both businesses to remain independent.
Grower Andrew Read explains that the situation has evolved over time, to the benefit of both, so that the two businesses now cover 600ha across four blocks of land, near Bury St Edmunds.
“We started off by just borrowing bits of kit from each other,” he recalls. “Seven or eight years ago we realised that we could make further savings and become more efficient, by working together throughout the year.”
As a result, his neighbour Andrew King now carries out all the fertiliser spreading with his own spreader, while Mr Read does all the spraying and combining with his self-propelled sprayer and combine.
“We’ve kept our own machines for these field operations, but we’ve also purchased some kit between us. So we now jointly own Simba and Sumo cultivators, a large set of rolls and a Simba Cultipress.”
Having similar cropping and soil types makes it straightforward, adds Mr Read. “We’ve agreed a set fee for our labour rate and invoice each other at the end of the year for contract services. We also hire tractors to each other at cost.”
Their rule of thumb when considering joint machinery requirements is to view all the land as one farm, so that they can come to an easy decision about what is needed.
“It works very well,” he says. “You do have to be like minded and have the same goals in such a situation as there’s always an element of compromise when you’re sharing kit.”
He estimates that their savings have been 10-20%.
“Machinery prices have risen enormously in the time that we’ve been working together and most arable businesses are looking at ways to bring their fixed costs down. Collaborating on labour and machinery is a good place to start and needn’t be complicated.”
Their agreement is all based on a handshake, points out Mr Read. “You don’t have to get into contract farming and involve a land agent, or give up your independence.
“We still buy our inputs independently and keep separate sets of accounts, making sure that we square everything up at the end of the year.”
He sees no reason why they would not continue with their arrangement and look for further savings. “We’ve known each other for a long time and have made it work well. The costs are split between us.”
A further advantage is that they have been able to bounce ideas off each other and can benefit from impartial advice.
“We can also cover for each other, should the need arise. So if either one of us is ill for a while, or goes away, we have the security of knowing that the other one can step into our shoes and keep things on track.”