Cutting the cost out of harvest operations

Filling up the diesel tank is an expensive business these days. The price of red diesel has risen almost 20p/litre in the past year to nudge 70p/litre and shows little sign of falling any time soon.

The pressure this puts on farm costs is no more evident than during the busy harvest and autumn cultivations period.

But the Pelham Farming Company joint venture, which offers a combining, cultivations and contracting service for the two parent businesses and other local farms over 2,100ha (5,200 acres), has limited the impact of cost hikes with a determined focus on efficiency. Now in its 12th season, the company (see box), has consistently reduced most costs on a per hectare basis, despite rising prices for key inputs, such as fuel and machinery.

Combining costs, for example, fell from £55/ha in 2008 to around £42/ha last year, although they are predicted to climb slightly to nearer £45/ha this harvest, mainly due to the hike in fuel prices.

“The impact of rising fuel prices on this business is significant, but we’re trying to reduce the effect by maintaining as efficient an operation as possible,” says consultant Jamie Gwatkin, who is also one of the PFC directors.

This year, for example, they plan to bale more straw to reduce the fuel costs of running the combine choppers – possibly saving up to a third on fuel – as well as a number of other tweaks to the system (see panel).

“Our performance has been very consistent over the past five years despite a number of very challenging seasons and significant cost inflation, so we want to try to maintain this,” says Mr Gwatkin.

Cost savings

Maximising productivity of individual machines and staff is the key to improving performance and this means detailed data recording is required.

Every operation at Pelham Farming is costed-out and benchmarked by recording information such as work rates, fuel use and machines used. “If it moves, we measure it,” says Mr Gwatkin.

Prior to the start of each harvesting “campaign”, the whole team is brought together for a briefing to discuss everything from harvest organisation and logistics, to communications and health and safety. During this meeting, all staff are given a copy of the PFC “Bible” which includes copies of maps of all farms, cropping schedules, contact numbers and timesheets. The timesheets allow every worker to record individual operations, tractors and implements used, field names, crops, fuel used, tractor hours and man hours. These are collected weekly through the season, with all information feeding into the company’s benchmarking analysis.

“Combining costs have been the most telling over recent years, as previously we haven’t been the most competitive [among other members of the Joint Venture Farming Group],” says director Edward Hitchcock. “Benchmarking showed how far adrift we were and after several stabs at reducing costs, we were top last year.”

Taking on more land has helped reduce costs per hectare, but so has a change to the combine ownership policy, he says. “We’ve always hired combines in the past, as we’ve enjoyed the simplicity of it and in cash terms, it’s best to hire. But in longer-term cost terms, we realised it would be best for us to own them outright, so last year we bought one and hired the other and this year we now own both.” A reduction in the Annual Investment Allowance after 5 April 2012 hastened the decision to buy the machine this year.

Three new 16t grain trailers with hydraulic tailgates, commercial axles and air brakes have been hired this year and the company has also just bought a new 7m Vaderstad TopDown, which will be pulled behind the tracked 475hp John Deere 9530T. “The cultivation system’s essentially the same as what we were doing 12 years ago, but the kit has just got a lot bigger to spread costs,” Mr Hitchcock says.

“We have a fixed machinery replacement policy and tend to go for new kit with the right warranty package so we can manage costs and avoid any nasty surprises through the season. Getting a good maintenance package means maintenance costs are negligible.”

Mr Hitchcock says all machinery has been replaced out of the joint venture’s own profits and so once the initial directors’ loans of £80,000 (£40,000 from each parent business) were repaid in 2003, no additional loan capital has been required from the parent businesses. “This has meant that although there has been little repatriation of profits, the net assets on the balance sheet have gone from nothing in 2000 to £349,000 at the end of March 2010.”

Labour costs

Maximising worker output is another key priority for Pelham Farming, which is unlike many “normal” farm or contracting businesses in terms of its labour structure.

The company has five directors, but employs another 10 part-time staff during the peak period between July and October, with workers going back to other jobs for the remainder of the year.

“If we were offering spraying and fertiliser services it would mean we’d need more full-time staff all year, which increases labour costs,” explains Mr Gwatkin. “As it is, 94% of the time on the time sheet is down to staff doing an actual production operation, whereas on a ‘normal farm’ there may be up to 40% non-productive time.”

The pre-harvest briefing is an ideal time to bring everyone up to speed with the coming season and set work rate targets, while another de-briefing is held in November, where staff can go through what worked and any areas for improvement.

During the July briefing all staff are also given a “goody bag” containing basic equipment, such as dust masks, a high-visibility vest, first aid kit, window wipes and WD40.

Everyone is also reminded of the need to uphold the professional image of the company and given a briefing on health and safety requirements. All directors carry an accident form and any incident should be reported to one of the directors straight away. A risk assessment is also carried out on all the farms before harvest starts.

The future

In the immediate future, the directors of PFC are keen to take on more contracting work to further spread the cost of the existing machinery.

“Combine capacity probably dictates our maximum output and, if that’s the case, we probably need to be farming nearer 6,000 acres,” Mr Hitchcock says.

“But we’re always looking to push the boundaries and, over the next five or six years, I can see that we will probably start talking to other joint ventures about sharing machinery.”

Promoting a professional image for the company will, therefore, be crucial, adds Mr Gwatkin. All owned tractors and combines have been sign written with the company’s name and staff have been issued with branded shirts, fleeces and caps. A website is also being set up.

“Interaction between farming and the public is increasingly coming to the fore, so we need to show a polite and professional manner. It’s about providing a service to the customer, so the image has to be right.”