Determining mechanisation and labour costs

Part 1: Interview on AgriTV (28/8/2006)

Labour costs and mechanisation has become the largest expense in farming. Mechanisation costs, including diesel and maintenance on implements and equipment, make up about 40% of a farm's income, and labour costs make up 10 to 15% of the income.

If we're working with a maize price of R1 000 per ton, these two expenses make up 50 to 55% of all farming income.

If we take a look at improvement in diesel usage technology, it seems as if the improvement over the past 10 years was about 12%, and over the past 20 years it was about 17%. You’ll see that the improvement over the past 10 years was much better than the previous 20 years. This causes farmers who still have old tractors, to have a major disadvantage in terms of production costs.

Nell and Napier in Strategic approach to farming success, give four methods that farmers can use to be competitive. Two of these are dealt with in this insert, for example: to be a low-cost producer or to produce a better product or higher production for the same input costs. In the case of better production: if you have new mechanical equipment – timeliness and quality of tilling is very important. It’s important to limit obstacles in critical times, such as planting or harvesting time. This will lead to either a better product or higher production, when compared to farmers who have to work with older tractors and weaker technology and tilling.

Part 2: Interview on AgriTV (2006-09-04)

How does one develop a competitive advantage? That is a question that farmers often ask. Let’s use the example of a 1 000 ha farm and assume that the farmer pays 13% interest on his/her production scale.

Farmer A works with a new tractor, Farmer B with a 10-year-old tractor and Farmer C with a 20-year-old tractor. The diesel usage on a dry-land crop farm will be as follows:

If we assume that Farmer A, with his new tractor, uses 80 litre/ha, then Farmer B will use 90 litre/ha, and Farmer C 94 litre/ha. If we compare Farmer A & B and Farmer A & C, the difference in diesel usage per hectare is 10 litre/ha for Farmers A and B. If we calculate 10 litre/ha over 10 years, with an interest rate of 13% and a diesel price of R7 per litre, we get a difference of R1,3 m over this period. If we compare Farmers A and C, the difference is 14 litre/ha, which is R1,8 m over 10 years.

If we work on an expected price of R10/litre – because three years ago the diesel price was about R3,50/litre and now it is about R7/litre – then the difference between Farmer A and B will be R1,8 m and between Farmer A and C it will be R2,4 m.

Some farmers brag about their average tractor being 20 years old, but the competitive disadvantage of farmers using old tractors is clear in this example.

The following guidelines will help the farmer to do mechanisation and labour planning for his farming business.



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