Machinery Ownership Alternatives for Small FarmsJuan Aldaz
Owning farm machinery for small farms can be expensive and many small farmers struggle with justifying the investment. This is particularly true with specialized tractors and implements that are used on a limited basis over the course of the year. I thought we could explore this a little further in this article to see if there are solutions to be found.
Let’s look at the primary forms of owning or acquiring the benefits of machinery on your farm:
- Owning your own: owning all of your farm machinery carries with it advantages and disadvantages. Having the machinery available for use when you need it can increase your return on being more timely with operations. However, if you are forced to own old, undersized, or unreliable machinery, the timeliness return can become a liability if you’re constantly spending time fixing a piece of equipment you need to use ‘right now’. The best way to analyse this is to be honest with yourself when considering a purchase, and when buying used equipment, have a good resource or friend who can assist you with knowing whether it’s a good move based on more than just ‘price’. The cost of ownership should be analysed by viewing how many days of the year will you be able to use it. If you can utilize a tractor every day suitable for work over the course of a year, it is generally a wise decision to buy. If you only use a certain piece of equipment a few days a year, but it’s very useful to your production, you might consider some other options.
- Contracting: Using contractors or ‘custom operators’ on farms is common in many areas. Things like custom plowing, cultivating, seeding, and harvesting operations are good examples of where paying someone for their labour and the cost of their equipment plus a small margin of profit for their investment for selected times of the year could be a viable option in areas where several small farms are operating. It might even be worth it for you or someone in your area to consider as a business, if enough cooperation can be fostered among your neighbours. Things to look for or consider in a custom operator, or if you’re considering it as a business of your own include:
- Ensure the quality of the machinery is good. If using used equipment, be skilled at keeping it in good repair and kept up well. Make sure the size of the equipment is large enough so that the jobs to be done don’t fall behind due to timeliness in the field. The biggest reason for having or being a custom operator is to get the job done on time.
- Look for, or look to have, a standardised system of charging for the service that is fair across all the customers the contractor might work with. If sharing crops, have the quantity match the price you agree upon before doing the work. It avoids confusion later.
- Some agreements may involve the farmer providing certain parts of the task..say, labor support, fuel, etc. Make credits or deductions available to you or the client.
- Compare your savings against your labour savings, depreciation expense savings, and other direct costs; along with not having the asset of the equipment that it provides when you own it outright.
- Consider how far away the contractor might be (or how far you might have to travel if you’re looking to be one). Pooling acreage with your neighbours will help justifying a custom operator into coming to your area.
- Share Farming – this can be a reasonable option among small farm owners in a given area. It can come in many forms, such as agreeing on crops that will be grown as a group and sharing the yield of the fields once harvested…another option would be for different farmers to own different pieces of equipment that the group can use as needed. A good relationship must be in place among the sharers so that there aren’t misunderstandings, and flexibility is important as well.
- Syndication – this is a term used for what is essentially, ‘group ownership’. Farmers all pay into a fund or cooperative structure, which then purchases and ‘owns’ the equipment. The various partners in the agreement pay shares, either equally, or by their relative needs for the specific piece of equipment. A fair and equitable system is then developed for when the members use the equipment, and a mutual agreement is reached regarding upkeep and repairs. Many different arrangement types exist for this method; but the key is that it is done fairly to all of the participants.
- Reciprocal borrowing – among a few neighbour friends or relatives with small farms, this can sometimes be the easiest way to acquire new equipment. One farmer might own the larger plowing tractor; another owns the transplanter; another owns the mower; etc. When someone needs to use the equipment, they pay a fair price per machine hour or day to the owner with terms built in for each so that no one owner is disadvantaged over another.
These are just a few ideas to consider if you’re a small farmer, surrounded by other small farmers, all needing to improve your efficiency and yields. Even large farms are doing this more in some areas of the world with highly specialized equipment like combines, large equipment, trucks, and other specialized equipment. It can really add up after a while and can keep that capital investment busy so as to earn its ‘keep’.
By: John Deibel, Agronomist and Contributing Author to Tractor Export
Here are some related articles and information on this topic for your review:
Machinery Ownership Alternatives for Small Farmers – “FarmStyle – Specialised Small Farm Advice – Australia
Leasing vs Buying Machinery – Successful Farming
Estimating Farm Machinery Costs – Iowa State University Extension