Hidden Costs Of Custom Work

After a particularly challenging 2008, Dorset farm contractor Mike Simpson has now had the opportunity to draw breath and reflect on his business’s activities as a whole.

“Through the last 23 years of agricultural contracting, I can’t ever remember facing such a demanding and drawn-out season as that of 2008. Harvest was exceptionally late, field conditions were perhaps the worst in living memory and, at one point, corn harvesting looked set to run into Christmas.

“We even tedded straw three times, which had been down on the ground for five to six weeks, trying to dry it ahead of baling.

It was unbelievable.”

Fortunately, the last fields were cleared in late November, giving much needed respite for the crew. But in addition to placing a strain on staff, Simpson says the ’08 conditions took their toll on tractors, trailers and ancillary equipment.

“Everyone and all machines were pushed to the limit as we endeavoured to do our best for customers,” he explains. “It has been enough to convince less committed individuals to consider packing up.”

Yet it’s far from all doom and gloom within the Simpson camp. Casting his thoughts back to much earlier in the 2008 season, he reports having a good grass harvesting campaign, which saw 200 ha (500 acres) of third cut mixed in among the corn harvest.

“We’ve never before had to cut grass and corn on the same farm and at the same time. And this approach demanded our full attention, to ensure productivity didn’t take a bashing. It proved a bit of a hassle having to carry an extra header with us, but by the end of the grass season we’d got into a good routine that made the change between grass and corn crops relatively painless.”

However, this year’s harvesting performance has still encouraged him to revisit the self-propelled forager’s role on the fleet. After four seasons of largely reliable service and sensible running costs, his Jaguar 870 looks likely to be moved on, in favour of a newer model.

“We do depend upon our forager, which clocks up about 900 hours each season,” he says. “Through 2008 we’ve seen small elements of unreliability starting to creep in. It has always been minor things, but irritating, nonetheless.”

Simpson cites printed circuit boards on the Jag shear bar adjusters, along with spout rotator bearings, as a couple of examples that have pushed up his running costs this season and made him question future longevity.

Key requirements that form part of the Simpson forager purchasing decision include reliability, resale value and back-up — and, given that his nearest Claas dealer is just six miles away, he sees little point in jumping manufacturer ship just yet.

“We’ve never had to put the local dealer on the rack with any element of in-field back-up or crisis management. Other than a few wearing parts, they, like us, have had very little to worry about. And the cost to change — despite involving a lot of money — isn’t too wide at the moment.”

Given that the firm will use the change to find a little extra muscle, the planned upgrade from Jaguar 870 to a new Jaguar 960 represents a shift from straight six to V8 power. In addition, the introduction of a 40 km/h Speedstar transmission should reduce traveling times, too.

Simpson reports gaining a few new customers for this season, so being able to keep his equipment fresh and efficient remains very important to the business.

“Despite the challenges, we’ve enjoyed a workload of 5,000-6,000 acres of grass, 1,800 acres of corn and a few hundred acres of wholecrop silage,” he says.

“We’ve reached a point where that traditionally slack winter period has all but been eroded. It places more demands on labour and machinery, with the consequence that maintenance and reliability become thoroughly tested.”

COSTS AND CUSTOM RATES

Simpson says a contractor’s charges remain a contentious issue. They are much more complex than being a straightforward reflection of machinery costs, labour and a small percentage for profit.

“There are lots of hidden costs involved in running such a diverse business. The biggest problem is identifying them and then making an effort to stop those costs from spiraling out of control.”

He warns that some aspects of running a farm contracting business cannot be trimmed back, including yard rental and insurance costs.

“I need somewhere reasonably safe to keep my machines, along with workshop premises for servicing, and then I have to ensure it is all adequately protected. With public and employer’s liabilities, fire and theft, plus the yard rental, I have to spend over 20,000 ($40,000) per year before turning a machinery wheel.”

As the business continues to evolve, Simpson recognises that overheads will carry on rising. “I estimate that we have about 50,000 ($100,000) of overheads to absorb into the business each year.”

While the rapidly increasing price of fuel has been something of a difficult issue to manage over the past 12 months,

Simpson says it has been significantly trickier to increase contract charges when customers are also facing a difficult time.

“It is very important for any contractor to analyse just how their contract charges break down. Doing so makes it easier to justify to customers when they cough at rates, and this will also allow you to see what tasks are cost-effective to carry out — and what tasks need to be sidelined.”

Simpson does, however, believe the industry is a victim of new technology. “Emissions regulations might have made modern tractors much cleaner, but their common-rail engines now use more fuel along the way.”

After analysing productivity, Simpson believes that productive time amounts to about 66 per cent of total working time, making downtime — or the nonproductive part of a working day — around 34 per cent.

“Our tractors clock up around 1,500 hours a year, of which 500 hours will be unproductive. Most of those 500 hours can be accounted for by traveling time to jobs and machinery preparation.”

SUMMARY

Clearly, there are some aspects of any business that simply don’t add up. And nowhere is this more apparent for Dorset contractor Mike Simpson than in silage-making terms.

“Explain to me how we go onto a farm with a tractor and direct drill for 16/acre ($32), when for just three times that rate, I’m expected to provide a mower, a tedder, a rake, the self-propelled forager, a loading shovel for the clamp plus the tractors and trailers.

“I think that silage making is one of those tasks that’s not quite as cost-effective to carry out as some people believe.

“So perhaps the switch to a new forage harvester might just give us the extra productivity we need, to absorb a few more of those hidden costs.”

Geoff Ashcroft writes for Profi. For more on the European farm equipment magazine, visit the website at www.profi.com.

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