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Maintaining Margins in the Current Climate

Farming businesses face many challenges in order to maintain margins in the current climate. Trying to determine which area of the business to focus cost control on is always difficult. Given that labour and machinery account for as much as 40% of winter wheat production costs, this is one area that often needs attention.

Being appropriately equipped and staffed for the work required on the holding can be tricky. Keeping that cultivator because “it might just come in handy”, changing tractors every four to five years regardless of hours, or having that extra pair of hands “just to make things easier” are all decisions that have financial consequences. 

The starting point is knowing and understanding costs. Every farm, every year is different and operations, work rates and fuel use can vary significantly.  Brown & Co has developed a bespoke labour, machinery and overhead costing service. This is based on key farm details, such as cropping, soil types, storage etc, as well as machinery data including realistic market values, insurance costs and repairs plus service/care packages.

Each item is then given a work rate and fuel use according to the operations in which it was used and the crop area covered (for example a 230hp tractor plus cultivator at 6ha/hr and 35ltrs/ha used on 100% of winter wheat). Labour is then allocated to the operation in the month the work was done. Labour and machinery shortfalls and excesses are also shown as is the cost of each operation, useful where contract work is undertaken. The data collected will also assess if a machine particularly tractors would be better hired as opposed to owned.

All this data is built up for all crop operations. Other overheads, minor items such as GPS units and the cost of unused items are then spread across each crop. From this, the true costs of production can be determined. This in turn can help clients make informed decisions on machinery replacement, potential system changes, tendering for FBTs or CFAs and taking on new staff.   

Based on initial work undertaken potential savings in the region of 25% are more than possible making this something difficult to ignore.