Making the decision
New grain harvesters can cost in excess of $500 000 and are just one of the many important capital expenditure decisions that farm businesses will make.
Should a grower always own their own gear? What are the alternatives? What factors should growers consider when deciding their investment in harvesting, seeding and spraying machinery and the capacity that they require?
The factors to consider when deciding about investment in machinery capacity include (but are not limited to):
- cost, availability and reliability of contractors
- cost and availability of leasing or renting equipment
- cost of complementary investment to reduce logistic delays such as additional on-farm storage, another chaser bin and/or increased use of haulage contractors
- costs and problems with sharing a machine or implement with a neighbour
- financial costs of delays to harvest or seeding, for example; fire risk, weather damage, yield penalties and grain quality downgrades
- skills you have in maintaining and repairing machinery, or availability of mechanical expertise should it be required
- cost of new versus second-hand equipment and expected lifespan of that equipment
- size of both your current and future cropping programs and seasonal conditions
- opportunity cost of using capital that could be allocated elsewhere.
Decisions on investment in machinery should be based around what the business can afford (profitability), how much additional revenue/cost savings the new or upgraded machinery can generate and does this additional value justify the additional cost (that is, addition income or cost savings generated versus additional cost of machinery).
An upgrade or new equipment may have some benefits (for example, time) but may not create sufficient new income or cost savings to justify the higher machinery cost.
In some cases, it may be appropriate to place a risk weighted value on benefits that are difficult to quantify (for example, cost of failure x probability of failure occurring = potential cost savings of upgrading).