LOW COSTS FOR TOP PROFITS
Yield has driven profit for
years. But plunging crop
prices are changing that
relationship. Peter Hill
reports the latest cost-
"UNTIL now it has been widely accepted that there is a strong correlation between yield and profit in arable farming businesses," says Gary Markham, farm business adviser with accountant Grant Thornton.
"That was supported by our annual survey on around 32,300ha (80,000 acres) of combinable crops in eastern England over the past five years. The top performers in terms of profit also achieved the highest yields."
But, with wheat down £25/t last year, and most other crops faring little better, arable farmers now face a new challenge.
Good yields remain important. But the correlation with profit is weaker now prices have fallen, he notes. Instead, the focus has shifted more firmly to costs.
"This change has been seen in our survey results. Businesses with only average yields, but low fixed costs, started to appear in the top 10% profit earners as crop prices fell," notes Mr Markham.
Many of the growers now moving up the profit tables used past profits to acquire imaginative new cultivations and drilling equipment to streamline the stubble-to-crop process in their drive to cut costs.
They were right to focus on crop establishment operations, says Mr Markham. "According to our annual survey, farms averaging 280ha (700 acres) that use a traditional ploughing approach to pre-drilling cultivations, are spending 40% or more of their total machinery costs on the processes involved up to and including drilling," he points out.
What might be described as crop maintenance – putting on fertiliser and crop protection sprays – accounts for less than a quarter, while harvesting operations typically make up a little over a third.
"There is very little scope for changing spray and fertiliser application costs significantly, and the same goes for harvesting, certainly for those businesses that have already switched to using fewer, bigger combines," says Mr Markham.
"The multiple operations involved in conventional tillage offer much more scope for change."
The survey shows labour costs (including an allowance for the manual work of principals) average £99/ha (£40/acre) and total machinery costs (including depreciation, repairs, fuel, insurance etc) were £188/ha (£76/acre).
With 10% of those costs spent on property maintenance, the balance is £257/ha (£104/acre). That can be allocated to individual operations within the stubble-to-store process (table 1).
The establishment phase, from initial cultivation to rolling the sown seed-bed, typically cost £111/ha (£45/acre), maintenance operations including spray and fertiliser application £57/ha (£23/acre) and harvesting, including grain haulage and handling, £89/ha (£36/acre).
"It surprised me that the process of getting the crop established absorbed almost half the total machinery and labour input," says Mr Markham. "This has to be the area to tackle to reduce overall costs."
In doing so, he argues a case for treating labour and machinery as variable rather than fixed costs.
"In one sense they are fixed costs – employing someone and running a tractor will broadly cost the same however much work they do," Mr Markham accepts. "But treating them as variable costs helps focus on opportunities to make savings against individual crops."
Options he suggest include:
• Replacing ploughing – the costliest operation in the establishment phase – with cheaper discing.
• Cutting out one or two cultivations passes by using combination equipment.
• Using a piggy-back seed drill and power harrow or tine cultivator to complete seed-bed working and sowing in one pass.
Such measures reduce hours and machine use, he notes. That can be a benefit even if there is not enough change to cut staff numbers, significantly reduce overtime or casual labour payments, or trim the tractor fleet.
If it is not possible to make structural changes in labour and machinery resources, the trick is to make productive use of the time saved, Mr Markham advises.
Farming more land is the most beguiling option and, potentially, the most rewarding.
But preventive maintenance to reduce repairs and down-time, more thorough ditch and drainage maintenance, or extra subsoiling to improve yields, might all make useful contributions to crop performance and/or overall profitability.
Timeliness key factor
Indeed, timeliness is a key factor in the equation, and a major contributor to yield potential. Any shortening of the preparations that leads to more of the crop hitting early drilling dates may be worth considering on that basis alone, Mr Markham notes.
Opportunities for changing to new, cheaper, crop establishment programmes have never been better, he says. They include:
• A better understanding of minimum tillage practices using herbicides, sterile seed-beds and heavy disc cultivators;
• Drills that cope with high levels of trash or which will work on ploughed ground with no intermediary tillage;
• Combination seed-bed cultivators
• Tandem or piggy-back cultivator-drills.
All have their place and a contribution to make, as long as they can be introduced in a system that wins timeliness and other advantages without comprising good agronomy, Mr Markham concludes. *
Focus on cultivation equipment and techniques to cut costs, urges Grant Thorntons Gary Markham. Establishment offers more scope for protecting profits than any other aspect of crop production, he says.
Crop costs – labour and machinery
£/ha (£/acre) % of total
Plough and press 42 (17)
Power harrow 25 (10)
Spring tine 12 (5)
Drill 15 (6)
Roll 10 (4)
Subsoiling (25%) 7 (3)
Total 111 (45) 43%
Fertiliser spreading (x2) 17 (7)
Crop spraying (x6) 40 (16)
Total 57 (23) 22%
Combine 65 (26)
Grain cart 12 (5)
Grain handling 12 (5)
Total 89 (36) 35%
Grand totals 257 (104) 100%
Time saving opportunities
Ploughing mins/ha (mins/acre)
5F plough and press 100 (40)
4m power harrow 50 (20)
Spring tine 15 (6)
Total 165 (66)
3m heavy disc + press 40 (16)
Cambridge roll 32 (13)
Herbicide spray 13 (5)
Second disc 40 (16)
Total 125 (50)
Time saving 40 (16)
On a typical 280ha (690-acre) farm, a saving of 40 min/ha during peak workload amounts to 186 hours in total, equivalent to three weeks at 60 hours a week.