Benchmarking group will compare costs at AHDB Dereham Monitor Farm
- Credit: Archant
Keeping a close eye on costs is the only way to fully understand the viability of a crop – and the importance of yield on profits. This is one of the key messages emerging from the first year of the Dereham Monitor Farm.
It may not be every business owner's first instinct to share their financial figures with their peers.
But this approach is being encouraged at a Norfolk farm, where benchmarking is being used to identify areas where costs can be improved, while exploring new cultivation and agronomic techniques which could bring more profitable yields.
Swanton Morley Farms, based at Hoe Hall, near Dereham, hosts the county's Monitor Farm, part of a knowledge-sharing network run by AHDB Cereals and Oilseeds, a branch of the Agriculture and Horticulture Development Board.
In the first year since its formation, it has hosted farmer-led meetings to discuss topics including crop establishment, maximising yield and marketing.
But farm manager Simon Brock said one of the most illuminating lessons came from calculating his exact cost of production per tonne.
After totalling the variable costs of seed, fertiliser and chemicals, he apportioned each crop with a share of his overall fixed costs such as machinery and labour, but excluding rent and finance.
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For his winter wheat, based on a harvest of 8.6 tonnes per hectare, that gave a total cost of production of £131 per tonne, – a sobering statistic, considering it was below the average selling price of the grain, at £129 per tonne. If the farm had reached its budgeted yield of 10 tonnes, the cost of production would have dropped to £111.90, meaning the crop would have made a profit.
However, the same analysis showed oilseed rape had made a profit of £24 per tonne, even though its yield was also below budget.
'Last harvest we didn't have a particularly good year, and the really sobering thing is how much the yield affects your production cost per tonne,' said Mr Brock.
'You will always have years where cost of production will be higher than what you get in sales, so you need to look back and take the average over three years, because farming is naturally variable.
'It is a big job, but until you sit down with your accountant and do the work you won't really know what is working and what is not.
'Not everyone is going to want to expose their figures like this, so it is not going to be everyone's cup of tea.
'But the real benefit comes when people come forward to talk about their costs. It is so valuable, because otherwise you are left on your own wondering if what you have done is any good.
'The idea of this is to cover your costs without subsidies, because one day BPS (the EU-funded Basic Payment Scheme) might be gone, and you need to be prepared for it. If it suddenly goes, and you are relying on that as a source of profit, then you will be in trouble.'
COST ANALYSIS: WINTER WHEAT
Dereham Monitor Farm's production cost for winter wheat, based on harvest 2016 yield of 8.6 tonnes per hectare:
• Variable costs (seeds, fertilisers and chemicals): £66 per tonne
• Total overheads: £65 per tonne
(Labour £26, machinery and power £31, others £8)
Total cost of production (at 8.6t/ha): £131 per tonne
The average sale price achieved for wheat was £129 per tonne – so the crop lost money, due to the lower yield.
However, if the farm had reached its usual budgeted yield of 10 tonnes per hectare:
• Variable costs: £56 per tonne
• Total overheads: £55.90 per tonne
Total cost of production (at 10t/ha): £111.90 per tonne
The Dereham Monitor Farm is looking for a small group of farmers who are prepared to submit their cost calculations for confidential group discussion.
Teresa Meadows, AHDB's knowledge exchange manager for East Anglia, said: 'There is a benchmarking programme you upload your figures to and then we produce a report and sit around a table to discuss it.
'The figures are anonymous, but the real value of benchmarking is in being able to discuss and see the benefits.
'You might have got your seed costs down, but someone else might be doing better on labour, so you can have that discussion to see where to improve.
'It is about being honest with yourself, and some of the figures might not be nice to look at. You're a farmer who loves doing what you do, but in some circumstances you might have to look at whether it is worth putting a crop in the ground.'
Anyone interested in benchmarking with the Dereham Arable Business Group can contact Teresa Meadows on 07387 015465 or firstname.lastname@example.org. The feedback meeting will be held on June 16 at 9am in Hoe Parish Hall, near Dereham.