The escalation in fuel prices has thrown the whole topic of cost management into perspective for everyone – and contractors are no exception.
In farm offices across the land sharp intakes of breath are heard when the fuel merchant quotes the latest price for diesel – up from 18p a litre last year to 38p.
A moment of panic – it’s all going pear-shaped.
You grab a scrap of paper but the quick figures do nothing to calm you.
Then come the long hours of agonising over account books, revisions of budgets and reviews of policies.
Do you conveniently kid yourself all is well for another year?
Or, in the name of survival, do you resolve to be hard-nosed on every cost.
To make the sums add up, more and more land managers are considering calling in the contractors.
Their equipment and operators replace yours in your budgets and survival plans.
The prices they have quoted will, perhaps, help you save an enterprise or start a new one.
Their staff hold certificates that allow you to apply for assurance schemes or avoid long training programmes.
But good budgeting means putting in realistic figures and forecasts.
The emphasis here is on the word “realistic” because, like farmers, contractors are currently doing their sums for 2006.
They may have to bite some bullets and price adjustment may be the only route.
Take sugar beet harvesting as an example.
You may have seen the headline in Farmers Weekly in September “Who needs a contractor?” in which a Lincolnshire grower took issue with the NAAC’s guide price of 79 an acre and reckoned the job could be done for 60.
This prompted an NAAC member, a long-time specialist in sugar beet operations, to get out his calculator and get to grips with all the costs involved.
|Beet Lifting costs|
|Work rate||0.4ha / hour (1 acre / hour)|
|3 x tractor and driver||£148 – £185 / ha (£60 – £75 / acre)|
|Harvester cost||£5930 / year or £122 / ha (£49.20 / acre) over 49ha 120 acres|
|Total cost||Approx £284 / ha (£115 / acre)|
|Total cost||£195 (£79 / acre)|
The grower bought a new four-row harvester which cost him 32,200 and which he pulls with one of his tractors.
He supports it in the field with two tractors and trailers, making a three-man team in total.
Charging the tractors, fuel and drivers at 20 to 25 an hour and working at one acre an hour, the job already costs from 60 to 75 an acre without including the harvester.
Written off over 10 years, it comes to 3,220 a year plus 7.5% interest on half its value of 1,210 a year.
Add 1,500 a year for maintenance and you have an annual cost of 5,930 a year or 49.42 an acre spread over 120 acres.
The harvester cost plus the tractor and labour costs add up to about 115 an acre.
By contrast, the 79 an acre contractor charge has been carefully worked out, is realistic and represents good value.
All too often it is tractor and labour costs which seem to escape hard appraisal in budgets.
The labour part of the equation is based on a 60-hour week at craftsman’s rate.
Importantly it includes holiday allowance, National Insurance, employers’ liability insurance and business rates on premises – a grand total of £569 a week.
|Contractor 2005 Event|
The future for land-based contracting – managing change
1st December 2005, Stoneleigh park Warwickshire Sponsored by RASE, Bayer CropScience, Farmers Weekly
Free to NAAC Members, £25 to non-Members
Contact: 01733 362 920 or email firstname.lastname@example.org
The machine costs are based on a 130hp tractor costing 36,000 and doing an average of 1,200 hours a year.
It includes depreciation, interest at 7.5%, plus routine maintenance and insurance.
Including a driver, it added up to an operating cost without fuel of 18.10 to 21.60 an hour.
At pto speed and working at two-thirds of engine power, the average fuel usage was 19.5 litres an hour and the fuel cost 5.85 an hour.
The final tractor-plus-labour figure worked out at 23.95 to 27.45 an hour.
It does not include any profit element nor does it take into account Professor John Nix’s statement that fewer than two-thirds of the days in the year are productive field-workable days.
And that was when fuel was at 30p a litre and before the recent 3.3% pay rise for workers.
These are harsh figures for farmer and contractor alike and are sure to be the talking point at the NAAC’s National Conference, Contractor 2005, at Stoneleigh on 1 December.
What with new legislation on waste and other regulations, the figures can only go higher.