Benchmarking arable costs could make the difference between being profitable and making a loss, particularly this season as farmers face the double whammy of low prices and rising costs.
However, getting the most out of benchmarking involves joining a grower group, sharing ideas and learning from each other on the best way to minimise costs. Here two farmers share why they started benchmarking and what they have got out of it.
See also: How to benchmark your arable business
Alan Grant, Aberdeenshire
The need to know his exact costs of production prompted Aberdeenshire farmer Alan Grant to start benchmarking.
Now with over four years worth of experience and a wealth of information, he is convinced that it brings efficiency and discipline to the business, while helping him to make important decisions.
Mr Grant got involved with the practice in 2011 through HGCA and the Monitor Farm programme, using the CropBench management tool to do the necessary calculations and compare his business performance to others, securely and confidentially.
“For benchmarking to work well, there can be no estimates or guesses,” he says. “We all have to input our true figures.”
It’s not just variable costs that are scrutinised, he adds. “We include other expenditure, such as fuel, insurance, heat and light, as well as consultant/assurance fees, so that we can get a meaningful comparison. The only things that are excluded are personal drawings, rent and interest.”
Mr Grant, who farms near Fraserburgh, is part of an arable business group of 12 members, who meet up to four times a year. “The right mindset is very important,” he stresses. “Honesty and accuracy are essential, or you don’t get the benefit.”
“For benchmarking to work well, there can be no estimates or guesses.”
For this reason, he believes it would be wrong to force farmers into benchmarking. “It wouldn’t work if the participants were reluctant.
“For a group to operate well, everyone must be willing and want the same outcome.”
While the information remains confidential, the group members are identified when the results are made available. “We know where everyone sits in the ranking,” he admits.
“It can be very helpful, as we all learn from each other. Someone who has much lower costs than others in a certain part of their business can explain how they have achieved that.”
Mr Grant acknowledges that it does take time to collate all the information and check the figures. “You have to have the discipline to do it. The date of the next meeting is always a good deadline, as we all have to have completed the paperwork by the time it comes along.”
As a result, he is now aware of his ploughing, drilling and spraying costs on a per hectare basis, as well as fuel use. That’s been very useful, as part of his business operation is contract farming and spraying.
“As a group, we do differentiate between tractor fuel and drier fuel,” he continues.
Efficiencies of scale
At their next meeting, the group will be investigating the efficiencies of scale, he reveals. “We have members who are farming 250 acres and others who farm up to 3,300 acres. That makes for a huge difference in the power and machinery costs per hectare.”
Not surprisingly, given those disparities, opportunities for joint ventures are likely to be discussed, he predicts. “It has to be the way forward for some units. It doesn’t make financial sense for everyone to be running their own combines and drills, for example, when the new machines have far greater capacity and can cover larger areas.”
While the larger farms are able to spread their machinery costs over a greater area, there are also downsides with bigger units, he adds.
“They may be efficient, but their yields aren’t the best. There can be so much to do, that the attention to detail is missing. With crop production especially, timing is everything.”
On his own farm, Mr Grant has been able to reduce P and K fertiliser use by using GPS soil analysis and making good use of poultry manure. Lime is also applied to exactly where it is needed.
Also of interest to him is that some group members have started to go down the min-till route. “It will be interesting to see what that does for their costs and their yields, as well as any agronomic considerations.”
He remains committed to benchmarking. “We will continue with it. There is still plenty to gain.”
Rob Addicott, Somerset
Benchmarking was a natural progression for Somerset arable farmer Rob Addicott and the members of his discussion group.
Once they started to consider what other activities the group members could benefit from, they soon realised that setting up three benchmarking groups – cereals, potatoes and livestock – would allow them to start comparing costs and business performance.
“We are all part of the Somerset Centre for Management in Agriculture,” he says. “The cereals benchmarking group was one of the first in the UK, and we’ve been up and running for nearly nine years now.”
They were fortunate that HGCA funded a facilitator from Andersons to come and run their sessions, he adds. “There was quite a bit of initial work involved in getting us all to input the same type of data, especially as this is a mixed farming area, and to assign things correctly.”
Without that, getting meaningful comparisons wouldn’t have been possible, he notes. And that is essential for his business, Addicott Partners, which produces wheat, barley, oilseed rape and beans in a six-year rotation, on a mixture of rented, contracted and share famed land.
“As other opportunities come up, we need to know what our costs of production are.”
In benchmarking, all of the costs are included, continues Mr Addicott. “There are some things that we’ve agreed a standard figure for, such as the value of straw and the level of proprietor’s income, to make sure we end up with a fair comparison.”
While the participants can agree what figures go in, they must be happy with others seeing their performance data, he adds. “There has to be an element of trust. We are totally open with our information, so that we can drill right down into the detail.”
This allows them to understand why certain businesses are either doing better or worse in key areas than others.
“Many of the farms in this part of the country used to be livestock units,” he points out. “So they tend to be smaller, with smaller field sizes and varying soil types. That can have a bearing.”
It wasn’t a disadvantage, however, when benchmarking against groups from other parts of the country was done. “Despite the fact that we were compared to businesses in Essex and East Anglia, the differences were very marginal. It was a pleasant surprise.”
The group’s initial focus was on variable costs, he recalls.
“Nine years ago, there were significant discrepancies in purchase prices and buying arrangements. They don’t really exist anymore.”
So the focus has changed and fixed costs have been under scrutiny. For Mr Addicott, this has been useful in confirming his joint venture machinery sharing arrangement with his neighbour, Jeremy Padfield, which was established 15 years ago.
He stresses that benchmarking isn’t just about having the lowest costs.
“There are individual situations where costs are higher, but they are justifiable. The questions that arise from these situations can be more important than the figures – interrogation of the results means that we have some very good discussions.”
The group meets two to three times each year, with a budgeting meeting conducted in May and a post-harvest session run once the actual figures are known.
More recently, Mr Addicott’s role as an HGCA Monitor Farm means that he is now in the process of setting up another benchmarking group, which will tie in with the regular meetings that are being held on his farm for the next three years.
“There will be more mixed farms in this group, which will be interesting.”
His experience will be invaluable as he found the process of benchmarking very useful in the early stages. “That’s when you discover and address things. The big challenges seem to come early on in the process.”
But the second stage, which is mainly monitoring, can be just as valid. “The impact of some decisions can take a time to filter through to the results,” he points out.
Collecting and inputting all the information seems laborious at first, he admits. “You get used to it quickly – I can get it all completed in under half a day.”
And in the Monitor Farm group, there is the option to have someone come and help with that part of the process if required, he says.