What are the things you should consider when computing the long-term expenses of farm machinery?
- Loan interest rate
- Depreciation
- Insurance
- Fuel and lubricants
- Repairs and maintenance
- Labor
- Additional accessories
From tractors, planters, harvesters, to trucks and pickups — with the benefits they bring, these pieces of agricultural machinery are essential in farming. For this reason, plenty of farm businesses are now implementing mechanization in their fields. If you’re in the business of crop production, you might be curious about how much money you should allocate on operating and maintaining farm equipment. To help you, here are the things you should consider when computing the long-term expenses of farm machinery. Keep on reading!
Loan Interest Rate
A loan from a bank or a lending institution can help you purchase a piece of agricultural machinery. This way, you can budget your expenses instead of paying the full price of the equipment up front.
When you’re purchasing farm machinery with a loan, one of the ownership costs you need to pay for is the interest. This is the amount that a lending institution charges as a percentage of the amount you borrowed. That’s why when computing your long-term farm machinery expenses, you need to include the interest.
Depreciation
Depreciation refers to the cost caused by the wear and age of an object. Many things depreciate in value over time — may it be cell phones, clothes, bags, cars, or agricultural machinery. When calculating long-term expenses of your machinery, you also need to factor in depreciation — which is another ownership cost.
Depreciation is affected by the degree of mechanical wear on your equipment. Depending on this, you might be able to trade or sell your asset above or below its average value in the future.
Insurance
The Philippine Crop Insurance Corporation (PCIC) is the agency that handles the government’s agricultural insurance program. Aside from crop, livestock, and fisheries, they also offer non-crop insurance for agricultural assets. Insurance can help you reduce your expenses when your equipment is damaged by certain causes.
To get covered by insurance, you might need to pay a specific premium amount. Consider this when calculating the long-term costs of your farm machinery.
Fuel and Lubricants
Just like owning a car, you also need to use fuel and lubricants in your agricultural machinery to operate them and keep the moving parts in good condition. These are just some of the operating costs you need to calculate when owning farm equipment.
The fuel costs will depend on the engine size, design of your machinery, its current condition, state of the environment, and how you use the equipment. To calculate this, you can divide the total fuel cost by the total time you used the machinery. This way, you will get the hourly fuel cost of your equipment.
Lubricants are engine oil, transmission oil, and grease used to maximize the level of performance of your farming machinery. Other than that, these protect against wear and tear. When calculating the costs of lubricants, you can also include the price of filter changes. The oil change interval will depend on the recommendation of your manufacturer.
Repairs and Maintenance
When owning farm machinery, you need to allot a budget for routine maintenance, wear and tear, and accidents. Repair expenses will vary according to several factors — such as the climate, terrain, and operator skill. This will also depend on how often the equipment is used. To estimate the costs, you can refer to a record of your past repair expenses.
Aside from that, you can also consult the operator’s manual on the manufacturer’s recommendations about maintenance. This will give you an idea of how often must your machinery be serviced. Factor in the price of the spare parts and labor of the technician too.
Labor
To calculate labor expenses, you need to keep a record of the hourly wage of your hired operators. If you’re an owner and operator, then you can compute your labor charge as the opportunity cost — or the cost of doing the task yourself instead of other activities on your farm.
Depending on the size of the machine, the quantity of labor to accomplish the task might vary.
Additional Accessories
When you own a tractor, you can take advantage of the numerous implements and attachments that can make farm work easier. Because these accessories need to be taken care of, you need to include the expenses in your computation. The costs for attachments can be estimated the same way you would calculate expenses for agricultural machinery minus the fuel, lubrication, and labor costs.
Key Takeaway
Computing long-term expenses of farm machinery can be tricky, especially if you don’t know where to start! Hopefully, this short guide will help you get started, so you can manage and control your finances when it comes to your farm.
To make it easier for you to lower your maintenance expenses, we stock affordable spare parts that you might need for repairing your agricultural machinery. Other than that, you can also rely on us when it comes to after-sales service because we have 7 company-owned service centers with more than 70-in house mechanics to help keep your equipment in top shape. If you’re interested, you can contact us here!
