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How to cut spending on the farm without unduly affecting production

A recent study was conducted at Lincoln College on their dairy farms. This study showed that by attacking big items of expenditure first, before trying to cut back on items of minor significance, they could rapidly increase the bottom line on those farms. This is also applicable to sheep, beef and all other forms of farming.

The following are some of the lessons they have learned from the study, and also from my own experiences as a dairy farmer. (not necessarily in any order, but certainly of significance):

Feed

The highest cost the on farm is feeding. This particularly applies to high input farmers. By under sowing pastures, thereby producing more kilograms per hectare, and cutting back on bought in feed can be a big start to cutting feed costs.

Grazing off. Is there an opportunity to again under sow the pastures in the autumn, which will provide more feed, allowing you to graze on, rather than graze off.

Also, ensure that full utilization is made of the existing available feed, before feeding supplements. That is, feed your grass first, and your supplements second. Grass is not supplementary to supplements.

Fertilizer

Most farms have been well fertilized for the last 5-6 years, and cutting back the level of applications could be a saving.

A very cheap source of fertilizer is lime. When soils become more acid, nutrients get locked up in the soil. Applications of lime, can effectively release these nutrients, thereby making them more available to the plant.

Some farmers could cut back on nitrogen applications, and go closer to a normal growth cycle. This would be dependent on circumstances

Stocking Rates

Stocking rates should be stabilized and eased back a bit, rather than continually pushing for increased stocking rates. You get into a marginal rate of return, where the last dollar in, or the last cow/sheep on the farm is actually making no money because the costs are so high.

If you cut back a little bit, you can do your stock better, and often improve your returns. You often hear of farmers cutting back the number of cows, and still producing the same amount, if not more kilograms.

You could try selling stock fatter, rather than stores, and take the next step in your business.

Vehicles

Vehicles are essential for the business, but with the affluent times we seem to have a lot of vehicles on our farms, and are they really essential?

There could be better use of trailers to carry items down the farm. An example of this is, if you are going down the farm to do some fencing, take a trailer full of posts, battens and wires, and include your lunch. Stay down the farm and complete the job, only coming back when it is finished. Tearing up and down the farm is expensive.

Minimum tillage. This is the latest advent in saving farmers costs. It is normally quite expensive per hectare to pay the contractor, but effectively, you spray out the pasture, sow your crop when you grass straight into the tilth, and hey presto you have got another crop.

You need to think about what you are doing on the farm, do you need to be making all those passes? Are all the vehicle movements that you are making really necessary? It may be an opportunity to complete a time and motion study on what is actually happening on your farm.

Hire Purchases

Hire purchases cause fiscal drag on the property. It is easy to go and buy a new vehicle, pay the hire purchase for the first 3 – 4 months, and then find the fiscal drag very substantial on your business.

Maybe instead of hire purchasing our new tractors and cars, you could actually hire a tractor for the peak period that you require, or hire one from the neighbours. Maybe this would work out cheaper than owning the tractor in the long run; can you do some of the cultivation work yourself? i.e. mowing, cultivation and rolling. Some farmers have become lazy and expect the contractors to do everything, whereas any tractor can tow harrows and a roller.

Farm Cars

Fonterra has recently opened up a number of railway lines in the Waikato, and cut down their truck transport movement by 150 per day. Can you as a farmer cut down the number of movements on your farm as well?

Some farmers are saving costs by buying a farm car. This is an old car, maybe a Subaru 4wd at a cost of say $500. It may also be rusty, unwarranted and unregistered. They use these cars on the farm to get the cows in, particularly over summer, thereby minimizing pasture and track damage. More importantly, they are much cheaper to run and maintain, rather than an expensive 4wd bike or tractor.

Debt Costs

Debt cost is one of the big items on a farm, and can be up to one third of the gross income. If you are paying principal and interest, maybe it is time to go to interest only.

Can you combine your overdraft into your term debt? Can you combine your hire purchases into your term debt? Can you get a cheaper rate elsewhere? Can you negotiate with the bank to reduce bank fees? Can you sell the spare cottage and land to reduce your debt? These are areas that Fraser Farm Finance are expert in, and are happy to help.

Staffing

Staffing is your best resource, there is no question of that, and they need to be looked after. Maybe you need to have a meeting with them to discuss what is going on, Explain that you are facing tough times, and that you need to cut back on running around and unnecessary expenditure.

Maybe you could complete a time and motion study to see whether the staff are working efficiently. Can you use more mechanisation, ie. automatic gate openers etc.? Are you able to have part-time milkers, rather than full-time people who are not working to their full potential. Can you involve family in helping with part of the work, and remunerating them as members of your farm staff?

Staffing is a big cost, particularly on the bigger farms, and needs a lot of focus.

Personal Expenditure

Personal expenditure during these six good years has risen substantially. It is hard to get out of the habit of spending a lot of money, and going back to spending the minimum. It requires a meeting with the family, particularly the partners in the business, to discuss how you are going to cut back on the drawings.

One of the ways, is to transfer a certain amount from the farm on a monthly basis to a separate personal drawings account. Once that account is empty, there is no more money available. You need to avoid charging things up to the farm, presuming the farm is a bottomless pit, because it is not.

Can you keep the old car going? Repairs and maintenance are tax deductible, whereas principal repayments on a hire purchase are not. Or is it cheaper to lease a vehicle?

It would also be a good idea to have a meeting with the kids, and talk to them about things too. They have their expectations of how much money is coming their way. If times are tough and the money stopped, then they need to be included in the discussions.

Finally, money is the lifeblood of a farming economy. The debt structure and how everything runs is crucial to your business. It is also a major cause of relationship break ups, and must be treated with caution, and there must be meetings to disclose when things are changing. If you feel that no one is taking any notice of the changing situation, then maybe it is time to call a meeting to discuss the issues with everyone.

Summary

New Zealand currently appears to be defying gravity, with reducing commodity prices coupled with a very strong dollar. We all need to look at our businesses, look at where we can cut back and reduce expenditure. It is not hard to do, it just requires focus and thought, and perhaps the assistance of a professional person.

The on-going viability of your farm not only affects you, but affects your future generations, and particularly affects your relationships.
Failure to address the issues early on can result in a disaster at a later date.


 

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