A careful approach to matching implements and tractors can increase efficiency and cut costs for farmers. Implement matching involves an attempt to balance the characteristics of a load application unit such as a chisel plough and a power unit which is usually a tractor. The matching process is something farmers often do sub-consciously but this method can be improved on. Any improvements that can be made will substantially affect farm performance. Correct matching of machinery should result in increased efficiency of operations, less operation costs and optimum use of capital on fixed costs.

Planning a cost effective machinery system for a farm

One of the more difficult problems in farm management is proper machinery selection. This process is complicated not only by the wide range of types and sizes available, but also by the availability of capital, labor requirements, the particular crop and livestock enterprises in the farm plan, tillage practices and climate factors. The object in planning a cost effective machinery system is to purchase the machines which will perform the required task within the time available at the lowest possible cost. This does not necessarily result in purchasing the smallest machine because labor and timeliness costs must also be considered.

Cost components and the calculation of the cost of agricultural machinery activities

Machinery is costly to purchase, own and operate. A farmer must be able to calculate the cost of owning and operating a machine and understand how they are related to machinery use. The cost to own the machine is usually fixed, whether the machine is used or not and include costs like depreciation, interest, insurance and housing. On the other hand, operating cost only occur when the machine is used and will include fuel, lubrication, maintenance, repairs and labor. The cost of every field operation can be calculated using these respective cost items and can then be reported as a cost per hour or a cost per area.

The Correlation of Repair and Maintenance Costs of Agricultural Machinery with Operating Hours, Management Policy and Operator Skills for South Africa.

The general norm is to estimate the annual cost of maintenance and repairs as 10% of the list price of the machine. This estimation comes from the expected lifetime of 10 years of machinery. These costs is however not constant over life time because it is very low when the machine is still new and increase as the machine becomes older. In a survey done by the Institute for Agricultural Engineering, the conclusion was that the average cost of maintenance and repairs increased from 1.5% of the list price during the first 1000 hours to 10.45% for the last 1000 hours between 11000 and 12000. Other differences in cost were mainly due to operator skills, managerial abilities of the farmer, overloading of tractors and in some cases, poor models.

An economical replacement policy for agricultural machinery

In addition to investments to expand the existing farming enterprises, farmers are faced with yet another decision. That is to determine the best time to replace their existing assets during the asset's useful lifetime. The basic idea is to find the replacement policy that has the lowest present value of the replacement cost. If you replace it to soon or wait too long, you will limit the growth of your farm as well as your potential financial position. It is necessary to evaluate the replacement decision annually as it will be influenced by changing factors such as interest rates, expected repair & maintenance costs, tax rates, prices and resale value.

Financing machinery replacement

The decision on how best to finance agricultural machinery is as important to the farm business as the machine itself. The main choice however for farmers is to decide between an outright purchase with cash, a term loan from a bank or a lease or hire purchase contract with a finance or leasing company. The right choice of financing is important, as it will determine the moment of ownership, taxation and financial charges. Owning the machine will give the farmer full control but can be more costly. On the other hand, hire purchasing or leasing goes with less control but can be more beneficial to cash flow or cost.

The management approach towards agricultural machinery

Many farmers seem to make machinery investments without making detailed calculations of the costs first. This might explain why farmers underestimate future machinery investments as well as the machinery cost per year. Interviews with Danish farmers show that the fear of breakdowns and the development in maintenance costs, over the lifetime of the machine, is very important in deciding when to buy another machine. The decision is seldom discussed with an advisor before it is made and what farmers learn from their machinery investments is more concentrated on technical issues, than the economic side of the investment.

Conclusion

I hope that the huge effort the participants have put into their papers will help you to better understand the complexity of agricultural machinery management. I thank them for spending the time to prepare the documents and, in some cases, staying up late or getting up early to be available to answer your questions. May their knowledge help you to manage your machinery the economic way.

Please enjoy this seminar as much as I will.

To God the glory!
Philip Theunissen