Resource provides guidance on machinery investment
Author: Natalie Lee | Date: 15 Nov 2016
Grains Research and Development Corporation (GRDC) Western Regional Grower Services manager Roger States said the average WA farming business had a 0.7:1 ‘machinery to income efficiency ratio’.
“This means that for every $100,000 of farm income (averaged over the past six years) they have $70,000 invested in machinery assets, at current market value,” he said.
“The higher capital cost of machinery is offset by the efficiency gains of new technology and the reduced need for additional labour.
“However, higher machinery investment costs have the potential to erode farm profits.”
Mr States said some of the factors to consider when deciding on the appropriate level of machinery investment included:
- Future changes to farming practices
- Farm scale expansion
- Labour skills and availability
- Family and lifestyle needs
- Competing investment and personal demands for capital
He said information to guide WA growers on how much they could afford to invest in machinery was available in a new GRDC fact sheet Cost-effective investment in machinery.
“The fact sheet outlines how the most profitable farms tend to run, on average, a machinery to income efficiency ratio of about 0.7 to 0.8,” Mr States said.
“Those with the highest total debt levels tend to be >1:1.
“Outsourcing some operations to contractors will generally move a farm business towards the lower end of the range.
“It should be noted that some farms and landscapes are less efficient for cropping operations yet can still be very profitable.
“An example is in highly undulating and broken country frequently found in higher rainfall zones.”
Cost-effective investment in machinery is one of four WA-specific GRDC Farm Business fact sheets that have been recently released.
Growers and advisers keen to further enhance their knowledge and understanding of farm business issues can attend GRDC Farm Business Updates in WA in February, 2017.
These annual events provide a unique forum to learn from and network with leading industry professionals and will be held in Borden on February 6, Corrigin on February 7 and Mingenew on February 9. More information is available on the GRDC Events page.
Roger States, GRDC
0427 565 780
Natalie Lee, Cox Inall Communications
0427 189 827
GRDC Project Code ORM00017