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Calculating the true cost of buying new kit

Regular machinery replacement is integral to many arable businesses, but when and how should you replace it to maximise profits?


Abby   Kellett

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Abby   Kellett
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Experts at a recent monitor farm meeting held in Truro suggested farmers should start by calculating the full machinery cost per hectare and per hour before making any business decision on whether a new piece of kit is needed.

 

Wantage monitor farmer, Julian Gold said: “Until you calculate machinery costs per hectare and per hour you can’t have a machinery replacement strategy. You need to know how the elements add up to make up the full cost.”

 

Howard Emmett, the host of the Truro Monitor Farm, is considering whether he should keep or replace his current combine harvester, a 12-year-old Lexion 570 which has done 991 ha combining.

 

Mr Gold said: “Your farm machinery strategy may be one of high depreciation; buying new machines and changing them regularly; or low depreciation from buying second hand machines and keeping them longer, or somewhere between these extremes.

 

“There is no right or wrong answer, with both approaches having advantages and disadvantages. To some extent the strategy used will depend on the farmer’s management style. Are you someone who rides the rollercoaster, taking the highs and lows of the business as they come, or are you risk averse and try to iron out the peaks and the troughs?”

 

Protocols for recording systems to capture costs and fuel usage are important, Mr Gold said, and he shared his own combine harvester costs with the group to demonstrate. His breakdown of costs and figures which make up the total cost per hectare included:

  • Total area harvest
  • Total engine hours
  • Drum hours (78 per cent of engine hours)
  • Depreciation per hectare
  • Average interest per hectare
  • Insurance per hectare
  • Repairs and spares per hectare
  • Fuel per hectare
  • Labour per hectare.

Depreciation is the biggest cost with combines, although this can be alleviated by cutting larger areas. In Mr Emmett’s case the depreciation was around 42 per cent of his total combining costs per hectare.

 

By working out machinery ownership costs, the group heard how they could calculate whether it was more cost-effective to own machines, to hire them or to use a contractor. Ownership costs are the costs before labour, fuel, repairs and spares.

 

Labour is also an important consideration, both in terms of attracting staff and taking into account that labour may become more expensive after Brexit. With lower output, the labour cost per hectare of smaller machines becomes more significant, which may be more important in the future if labour gets short and expensive.

 

Philip Dolbear, AHDB knowledge exchange manager, said: “The important things are attention to detail and management time. We need to relentlessly drive lower costs of production as the key strategy to manage future commodity price volatility.”


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