Machinery investment decisions are complex. They involve large capital outlays and are sometimes made under pressure in response to unforeseen circumstances such as seasonal conditions and breakdowns. By improving strategic decision making around machinery purchases, operational efficiencies can be created. Simon Craig, Farm 360 consultant, explained how to approach machinery replacement at the BCG Future Farmers Expo held at the Birchip P-12 School in July.
“By knowing your farms strategic direction and having a business plan, you then know when investments in machinery make the best business sense,” said Mr Craig.
“You can argue that anytime is a good time to invest in or replace machinery – there are always breakdowns – but the trick is to put a value on reliability and good maintenance.”
When identifying machinery investments or upgrades, Mr Craig advises that an investment and repayment plan be written.
“List each item of plant, the year of investment, suggested year of replacement and how much you need to invest against each item,” he recommends.
“Then, against each item and year, schedule repayments. This way you can easily see how much capital is being invested each year and the repayments required, and you can smooth out the peaks of expenditure.”
With this approach, you can avoid needing to make several purchases at once which can make servicing loans difficult.
When considering purchasing machinery, Mr Craig suggests you consider the following:
- Identify what you need – the type of equipment, how much land will it cover, the application timing window and will it arrive well before you’ll need it?
- Don’t get caught up on fuel use, speed and efficiency. If you’re not using it enough you may not realise any of those benefits.
- As scale increases, so does use.
- Consider depreciation, replacement of parts and seasonal returns on the investment.
In addition to ownership, Mr Craig outlined the advantages and disadvantages of machinery co-ownership, hire and contracting, outlining the types of machinery best suited each of these options.
Farmers Alistair Murdoch from Kooloonong and David Matthews from Rupanyup participated in the panel discussion and shared their own farm machinery investment decisions.
Mr Murdoch prefers to own machinery, but considers each implement and its use. He owns his air-seeder as timely sowing is essential. But, for his self-propelled sprayer and header, he has contemplated shared ownership, though both items would need to be logistically close by and any business arrangement would need to consider maintenance, depreciation and repayments.
Mr Matthews has developed a different machinery ownership model, initiated by farm succession. His brother and family farm a neighbouring property, run as separate businesses to Mr Matthews farm.
Together, these two farm businesses have created a new business entity to share major investments. While both businesses have their own headers, the new entity owns an additional header, shared by both farms to provide additional harvest support. The entity has also purchased an unused grain storage site.
“Each farm business is invoiced at a commercial rate, allowing the entity to build a surplus of funds for maintenance and an eventual replacement plan,” says Mr Matthews.
“By managing these assets as a business, it removes personalities and lets formal business structures guide decisions.”
To balance business growth across businesses when sharing machinery, the panel recommends:
- Ensuring personalities match and businesses share similar visions.
- Considering potential issues, like the process for when rain is forecast and you both need to use the equipment, or an agreement for repayments if it’s a dry season and the equipment is not required.
- Ensuring the exit strategy is formalised from the start, so if one partner leaves they’re able to evaluate the value of their share and negotiate a payout.
- Thinking of this type of approach as a potential succession planning tool. Business and families build up, then reach a point where you might break businesses down again. Sharing enables generational transfer without huge capital investment.
As an example of machinery investment, Mr Craig quantified the costs and benefits of buying a stripper front, using Mr Murdoch’s property as a case study.
“A stripper front harvests crops higher than other fronts, leaving longer straw, and enabling a faster harvest with reduced fuel use. However, the stripper front is not suited to all crop types, preferring wheat, barley and low-yielding lentil crops, but having difficulty with canola, chickpeas and lupins,” said Mr Craig.
“Additionally, residue management is required post-harvest and the stripper front is best suited to disc-seeder systems where you can interrow sow between long straw.”
Mr Craig’s case study analysis accounted for what crops and land area could be harvested by the stripper front in a season, considering the likelihood of good, average and poor seasons, subsequent grain yields, and the impact on harvest speeds and costs. From this he calculated the machinery efficiencies over several years.
“Over a seven-year period, switching to a stripper front suggests a capital value improvement of $61,000, 16 per cent less labour, 24 per cent less fuel, and harvest would be completed two to three days earlier,” he said.
This case study analysis will be written into a Guideline for growers, and made available on The Stubble project: Victoria and Tasmania website. This panel discussion was funded by the GRDC’s ‘Maintaining profitability in retained stubble systems’ project.
