Farming businesses are facing many challenges in the current climate in order to maintain margins. Trying to determine which area of business on which to focus cost control on is always difficult, however, with labour and machinery accounting for as much as 40% of the cost of production for a tonne of winter wheat, this is one area that should not be ignored.
Being appropriately equipped and staffed for the work required on the holding can be tricky. Keeping that cultivator because “it may just come in handy”, changing tractors every 4 – 5 years regardless of hours and having that extra pair of hands just to make things easier, are all decisions with financial consequences.
The starting point is knowing and understanding the costs and implications of labour and machinery-orientated decisions made within the business. Frequent replacement, owning more machinery than what is required or being “overpowered” are the most common factors relating to high labour and machinery costs. Further to this, as depreciation is not a cash item, it is a cost that can easily get ignored and become unknowingly high. A prime example of this is big ticket items such as the main cultivations tractor, which within some farming business may do as few as 500 hours. As it is only used in short windows during the autumn and spring, hiring a high horsepowered tractor during the required periods could be more financially beneficial.
Of course, every farm and every year is different and operations, work rates and fuel use can vary significantly depending on crops, weather and soil conditions. However, knowing the true cost of production, or the true cost of operations is something that not all farm businesses know. This information is crucial to help make informed decisions on machinery replacement, potential system changes, tendering for that FBT, CFA or for contract work or looking at taking on new staff.
Based on our initial work undertaken to date, potential savings of up to 25% are more than [TC1] possible where labour and machinery is wrongly set up on holdings. Brown & Co has developed a bespoke labour, machinery and overhead costing service which addresses the areas above, and helps businesses understand and pinpoint problems within their composition of costs. The data is built up from farm details, cropping, soil types, operations, storage etc. along with machinery data including the realistic market values, insurance and repair costs. All this information is then used to draw up a detailed and comprehensive set of results which can be formatted to the requirements of what the business is looking to investigate. With net farm incomes likely to come under pressure with the reduction of direct support, it makes this an area that should not be ignored.
If you are interested in finding out more about these services, please contact your local Brown&Co office to speak to one of our Agricultural Business Consultants.