GRDC guide provides benchmark for machinery investment

Grain Central, September 21, 2022

Dowerin grower Andrew Todd and Kondinin Group’s Ben White with the new guide. Photo: GRDC

THE Grains Research and Development Corporation (GRDC) has released a guide for growers in Australia’s cropping regions to support informed decision making around machinery purchases .

The guide is based on findings from a two-year project which had input from farm business consultants Farmanco, Pinion Advisory and AgriPath working together with Primary Business, CussonsMedia and Kondinin Group.

The result is a comprehensive guide to machinery investment, featuring 30 case studies with grain growers from across Australia and a benchmarking tool to support machinery investment decision-making.

Dowerin grain grower Andrew Todd, whose machine investments are matched to meet Dowerin’s low rainfall and sandy-soils constraints, said depreciation was a big issue in a market where new machinery values were rising rapidly.

“The traditional measure has been machinery investment per croppable hectare or perhaps per tonne of grain produced, where this guide or this ratio is taking into consideration maintenance, labour and also the use of contracting,” Mr Todd said.

“It’s highly relevant and something that the previous measures haven’t taken into consideration.”

Kondinin Group research manager Ben White said the guide provided a snapshot of the machinery ownership levels of more than 450 growers nationally, and was helping growers compare their position when it came to industry averages for similar farming operations.

“Growers are typically presented with conflicting opinions when it comes to machinery purchases and the decisions around big-ticket investments can be stressful,” Mr White said.

“This guide provides a range of tools to help growers make more informed purchasing decisions.”

Formula included

Among the tools is a new benchmarking formula, which allows growers to calculate their machinery investment levels relative to their overall farm profit.

The Machinery Investment Ratio formula requires growers to calculate their total plant, labour, maintenance and contracting costs relative to their total gross farm income.

This ratio indicates the efficiency of owning and operating machinery.

Using this formula, GRDC research found on average, the level of national machinery investment was 34 cents in every dollar of farm income generated, or a machinery investment ratio of 0.34.

Mr White said while this ratio can vary regionally, businesses that had a ratio of less than 0.34 were typically more efficient with their machinery investments.

“The benchmarking data provides growers with a critical starting point to compare their own machinery investment strategies and could help determine whether they are over or underspending in comparison to industry averages.

“Growers can then analyse their own machinery utilisation, fleet-management practices, repair and maintenance costs, and labour levels to better manage their investment in machinery.”

Mr White said it was important to note there was “no one-size-fits-all strategy”, and growers needed to determine the levels of machinery investment or a contracting approach suitable to their farm business.

The guide also encourages growers to maintain an up-to-date machinery value inventory.

“The cost of machinery, including used equipment, is escalating rapidly, so keeping tabs on current inventory values as machinery supply tightens will be important in the context of machinery investment ratios.”

The guide contains a decision support tool from Farmanco which provides a framework for grain growers to use when making machinery and technology investments on farm.

It allows growers to identify the relative long-term cost of owning machinery so comparisons between machinery investment options can be made.

As part of the project, grain growers from across Australia were interviewed for in-depth case studies that investigated machinery inventories, likely impetus for change or trade and individual grower’s philosophy and approach to machinery investment.

The Machinery investment and replacement for Australian grain growers guide is available on the GRDC website.

Source: GRDC


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