Investment balance warning

27 Feb, 2002 10:00 PM
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FARMERS need to look for the balance in crop machinery investment, according to Farmanco Management Consultants principal consultant Ken Sevenson.

The prime ratio for crop machinery value to crop income was less than one to one, and more toward 0.8 or 0.9.

Mr Sevenson discussed the economics of no-till farming at the CSBP futurefarm WANTFA conference last week, where he warned farmers against over or under capitalising in machinery because of its effect on farm business health.

For far too long had return on assets been missing out of agriculture.

"Machinery investment should be guided by production, not art or taxation, or excuses for zealots in no-till farm systems," he said.

"Top operators do not substitute good management for capital investment."

However, in some scenarios Mr Sevenson said it could pay to have more, rather than less, machinery investment.

Farms with too low machinery investment might actually deprive the business of profitability.

For an average farm business among his clients, with a $2.7m turnover, just under $0.5m investment was held in plant machinery, which was 18pc of assets of the farm business tied up in plant, according to Mr Sevenson.

About $660,000 was held up in liabilities, with 15pc of liabilities tied up in machinery finance, which Mr Sevenson said was ever escalating.

Despite crop farming being hailed as the most productive of WA's farming systems, against a 3.5 per cent annual decline in terms of trade, Mr Sevenson said croppers needed to exceed that in productivity to keep up.

Plant machinery investment played a significant part in that success, which could also lead to longer term productivity.

However, this included better performance of outputs and more economical use of inputs.

Mr Sevenson put a 60pc target on farm operating costs, or $160-170 per cropped hectare to grow the crop.

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