Harvest machinery: how much should we invest?
Harvest machinery is an essential part of any grain-growing business and requires significant investment of capital. Understanding the total cost of ownership, developing policy around decision-making and ultimately how to leverage the investment is a crucial part of machinery ownership. This is also a key driver of farm performance.
Machinery can be a contentious subject. Too little or too old can lead to higher repairs and maintenance bills and cause timeliness issues. Too much machinery can see finance costs and overhead structures quickly become disproportionate. A rule of thumb for grain growers is an average machinery investment to income ratio of 1:1 or $1 of machinery assets to every $1 of farm income. Many farm businesses have a machinery investment ratio of 1.2:1 or higher.
Matching machinery assets to requirements involves developing business policy, understanding the true total cost of ownership and being able to leverage the investment.
Machine investment policy
Effective investment in harvest machinery comes from well developed policy. The machinery decision-making process should start with a discussion about policy. Many growers will intuitively have some sort of policy on machinery investment, although it may not be communicated or written down.
When talking about farm machinery, growers all have a very different approach or 'policy'. For example:
Grower 1 - Buys new harvesters and changes over every 1200 hours
Grower 2 - Looks for good second-hand harvesters and may take them from 1200 hours out to 2500 hours
Grower 3 - Buys second-hand harvesters and runs them until they drop
There is no right or wrong approach and each policy will be different. The decision-making should reflect each businesses approach to risk, the capacity to undertake repairs and maintenance, and the appetite or financial capacity for different levels of initial investment.
Despite this intuitive thinking, a documented policy that is openly communicated within the business allows for greater feedback, depth of thinking and commitment to the overall business strategy when it comes to investing in machinery. Some points to consider when developing machinery policy include:
upgrade frequency (number of hours, hectares or kilometres)
functionality
strategic business need
proactive management of risk
occupational health and safety
personal productivity
employee productivity
capacity to manage breakdowns
efficiency objectives
ease of use and employee understanding
brand of machinery (preference, serviceability etc.)
budget, level of initial investment or capital changeover cost
personal goals
Understanding the total cost of ownership
Being able to identify the total cost of ownership involves a rigorous analysis of the costs associated with a piece of farm machinery. It also involves being able to quantify risks such as harvest timeliness, grain quality and/or yield penalties.
Determining the total cost of ownership of any given machine involves calculating the following:
annual depreciation costs
interest costs
insurance & registration costs
labour costs
If you would like to know more about calculating the total cost of ownership of your existing machinery & equipment, or forecast the total cost of a potential new purchase, please give us a call (08) 8224 0044 or email info@capequity.com.au
How can I increase my harvesting efficiency?
There is internal capacity in most farm businesses to better leverage their investment in machinery with management. Those that have a systemised focus on increasing field efficiency can generally manage a larger farm area with the same size plant. Some effective strategies include:
undertaking preventative maintenance of machinery
ensuring all machines are ready well in advance
using chaser bins taking grain from the harvester to a central point
using mother bins rather than field bins, to reduce time spent shifting between paddocks
proactively managing freight (ensuring freight capacity out is adequate to avoid harvest delays due to freight bottlenecks)
growing commodities in large 'blocks' where possible to reduce movements and travel
increasing paddock size
utilising laneways
ensuring staff training is adequate
using GPS and other associated technology
This article is an excerpt of the Grains Research & Development Corporation’s fact sheet Determining the optimum level of investment in harvest machinery
