Wednesday, 23 November 2011

Taking machinery to task to oil the wheels of efficiency

It’s been said that efficiency is to do better what is already being done, which is of course obvious to anyone in any industry looking to improve their margins.

And while we’re currently enjoying higher prices for beef cattle, it isn’t always translating into significantly greater returns for producers. Inefficient practices are often the root cause of the problem.

With that in mind EBLEX’s 2011 Business Pointers costs of production survey tells an important story, with fixed costs emerging as one of the key differentiators in improving financial margins for beef suckler herd producers.

Latest figures have highlighted a £250 per head difference in fixed costs between top third and bottom third lowland suckler herd producers in England, with £95 difference in variable costs. Similarly, for suckler herds in Less Favoured Ares (LFAs), there is a notable difference on fixed costs of £176 per head between the top third and the bottom third. Variable costs are also £93 per head higher for those in the bottom third.

The result? A significant difference in margins, with bottom third lowland suckler producers making a loss of £397 per head compared to a £4.60 positive margin for top third producers after cash costs – a modest positive margin but a positive margin nonetheless. It’s worth bearing in mind though that these costs relate to the 12 months to March 31st, 2011 - before prices really strengthened. In LFAs, top third suckler herds are seeing returns £261 better than those in the bottom third.

If anything, the Business Pointers data has pinpointed the huge spread in terms of inputs which ultimately has a huge impact on the bottom line. Scratch beneath the statistical surface of fixed costs for lowland suckler herds and you soon discover power and machinery as the biggest villains of the piece. Less efficient producers are contributing £110.70 per head towards machinery upkeep and running costs, plus £78.29 in depreciation on machinery and fixings. For the top third the tale is altogether different with machinery upkeep and running costs coming in at £37.63. With less machinery, of course, comes less depreciation, at £27.36.

The upshot is the suggestion that some producers, at worst, may have too much machinery or, at best, more machinery than they need to effectively manage a beef herd. One potential solution could of course be looking into the possibility of reducing vehicle numbers. Interestingly, contract costs also appear significantly higher for the lower performers, suggesting again that they may have too much machinery. If contractors are doing more of the work, less machinery should be needed.

Labour costs, administration charges and contract fees are other contributing factors to fixed costs that could be reduced, as could variable costs like feed prices, vet bills and bedding. Too much machinery, however, certainly appears to be the key challenge. And with any challenges we face, quick and decisive action is almost always the best way to oil the wheels of improving efficiency.

  • To view the full Business Pointers report and to see a break down on individual enterprise types click here.