Warning over high cost of investing in machinery
Although machinery manufacturers and dealers may dispute the message, farm business consultants Andersons have claimed that farmers are still spending too much money on equipment.
In their latest briefing, the company points out that while farm profits in 2017 look set to be relatively good in many sectors and – apart from some cost inflation – the prospects for the current year also look favourable, farmers should resist the temptation to use these better returns to re-equip.
“Investment in machinery and equipment is often not as well thoughtthrough as it needs to be,” Andersons said. “Purchase decisions are often driven by the desire to avoid tax or the health of the bank balance rather than the fundamental requirements of what the business needs.”
Such moves often result in an increase in costs of production rather than decreasing them and, Andersons warned: “The effects can be long-lasting.”
Backing their analysis up, they point out there has been a 23 per cent increase in the last decade in the UK in farm machinery depreciation. “Although prices of agricultural equipment have risen in that period,
0 Consultants say farmers spend too much on machinery the level of spending is too high.”
One of the options put forward by Andersons to reduce the cost of purchasing machinery is collaboration, which can range from the informal to a full joint-venture company.
“The savings from working together can be massive. Unfortunately, without the external pressure of low returns, the industry does not tend to embrace such arrangements.”
In another hard hitting comment, Andersons suggest that cost has been built into many businesses through acquiring additional land. They point out some very high rents, or rent-equivalents under contract farming arrangements, have been tendered over the last few years.
“The justification for some of the figures paid is often highly dubious, based on illusory economies of scale. We (Andersons) continue to urge prospective tenants and contractors to do their sums prudently. If this means walking away from opportunities, and letting others be ‘busy fools’, then so be it.”
Looking ahead, Andersons believe if sterling remains weak then there may be a period of a few years of reasonable returns. “Whilst this is good news in the short term, it may simply see many farms operate a ‘no change’ policy or even build more cost into their businesses. The shock of any Brexit fallout will then be even greater.”