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Fixed cost disparity: HAU placement student Rachel Croker investigates

Huge disparity remains between the best and worst performing farms. Effective fixed cost management can be the difference between profit and loss. Wilson Wraight recently conducted a comparative analysis exercise for harvest 2016 – comparing a range of arable fixed cost structures to examine the effect on profitability.

In the example below Business B has a pre-finance profit of over £370/ha, while the poorer performing Business A has a £20/ha pre-finance surplus. One of the main differences between the businesses is the level of manageable fixed costs particularly labour and power. There is approximately £130/ha difference between the total power and labour cost. Over 700 hectares this equates to £91,000.

Business Business
A B
Farmed Arable Hectares

 

706.00

 

697.70

 

Per Hectare Per Hectare
LABOUR
Regular 125.4 71.3
Casual   11.3 30.8
 Sub total

 

136.7

 

102.1

 

POWER
Machinery Depreciation 103.5 75.5
Leasing
Machinery Repairs  32.6 45.1
Fuel  49.6 43.0
Vehicle Tax   1.4
Contract & Hire  98.1 21.6
Haulage
Sub total

 

283.8

 

186.6

 

TOTAL POWER & LABOUR 420.5 288.7

 

 

Labour – Both businesses have no family labour. Business B has less full time staff but more temporary labour to cover peaks in requirement. As a consequence, business B farms a higher number of hectares per man unit.

Power – Both businesses own a combine and self-propelled sprayer. Business A owns a trailed sprayer in addition. Business A operates two tractors and supplements this with two hired machines. Business B also utilises two tractors but only hires in an additional one at peak periods. Business B with older kit has much less depreciation but only marginally higher repairs.

While both businesses are similar sized cereal based farms on similar soils, sizeable disparity exists in their cost structures. There is no one size fits all answer to fixed cost management but this exercise highlights the need for more focus on this often neglected but highly important area.

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Sentry Conference 2017: A Summary from Giles Cooper

A very interesting and thought-provoking day at the Sentry Conference.  Precision farming was the first topic, covered by Chris Wigger of John Deere.  The move towards more connectivity between the farmer, its staff and its support industries was viewed as the next phase in technological development to further drive down costs and improve efficiencies.  David Walston then gave his view on whether he would change his farming practices post-Brexit.  The answer was an emphatic “no” as he considered he had already made his business more resilient by adopting no-till crop establishment techniques.  David questioned current practises on pest control (cabbage stem flea beetle in particular) and the importance of organic matter, leading him to reintroduce livestock to the family farm.  Michael Aubrey of Mills & Reeve then had the unenviable task of covering the legal implications of leaving the EU.  Clearly repealing the current regulations is not going to be straightforward and the overriding advice is if you are considering doing something to change your business or business structure, do it sooner rather than later.

 

The following two speakers sparked the most debate.  Graeme Taylor is a lobbyist for the European Crop Protection Association.  He provided alarming statistics of 250 withdrawn substances in recent years compared to only four newly approved, with ever increasing cost of registration.  More worrying was the news that decisions are no longer purely science based but also political.  Anne Jones, a journalist and broadcaster by trade, then discussed managing the media which she is currently studying through the Nuffield Scholarship.  Being a farmer’s daughter gave her more credibility with the audience than perhaps other journalists would get, and she aptly demonstrated the challenges faced by both journalists and farmers in trying to get a fair share of coverage for the industry.  The need for constructive journalism was also recognised.  Anne is also part of the Countryfile production team with audiences in excess of 9 million.  Although there were/are cynical views of its relevance, no other programme is covering the same subject matter.  The most salient point, and one which most of us are already aware, is that farmers talk to farmers and non-farmers talk to non-farmers – the message being this needs to change.

 

Lastly was James Kerr who looked at the psychology behind the phenomenal success that is the All Blacks rugby team.  James has also worked with other sports teams as well as military units.  Key themes were humility, striving for excellence, values and vision.  Certainly something to think about for all bosses and managers when looking how to get the most out of a team, and just as importantly, themselves.

 

Overall a very informative and entertaining line-up of speakers and congratulations to Ian Piggott and the Sentry team for yet another successful conference.

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FieldCast: The Result

FieldCast, our opinion based survey made a return to the LAMMA show this year with a focus on tillage and establishment. Residual black grass issues, establishment costs, glyphosate’s future, soil health, to name a few issues have all been forcing the debate and causing businesses to revaluate the profitability of their arable enterprises.

We asked participants to tell us what their current crop establishment system is and how this might change in the future. Unsurprisingly, many businesses use an armoury of all three methods but we wanted to be clear that direct drilling meant only that e.g. zero till; non-inversion meant the plough was not used anywhere whilst continuous use of the furrow or in rotation was labelled plough.

The results in summary:

  • 53% of participants currently use the plough, but a quarter expect to move away from this in the future. Two percent already on non-plough systems expect to revert back to the plough.
  • Over 30% of participants see the future viability of their business through adopting direct drilling, i.e. all of the yellow bars.
  • Non-inversion and direct drilling methods represent the highest amount of businesses looking to change. Reasons for this discussed at the show were, the cautious process of changing to a less intensive system, e.g. strip tillage to zero tillage, or subsoiling to relieve compaction. On the other hand the high percentage of plough based establishment represents systems where soil inversion is required for root crops, intensive vegetables or outdoor pig units, thus extenuating the results.

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