The year might be new, but the problems are not. And it’s likely that one persistent challenge is how to keep the farm running on a stretched budget.
While the world is still gradually easing into 2022, farmers would do well to use this quiet time to reflect on their operations, says Jaco Minnaar, president of Agri SA. Moreover, they should do this with one question in mind: “Am I farming as cost-effectively as possible?”
Indeed, it may be a good idea for farmers to sit down with their partners and thrash out a ‘battle plan’ for 2022.“Commodity prices will be very volatile,” says Minnaar. “It’s important that farmers don’t incur unnecessary expenses, no matter how promising the harvest looks.”
Debt repayments are one of the first factors to consider when trying to optimise savings. Dawie Maree, head of agricultural information and marketing at FNB, stresses that not all debts are equal.
“Does it really make sense to keep paying high prices for your lavish lifestyle?” he asks. “There are two types of debt: debt on productive assets, and debt on dead weight. An active asset would be something such as a fuel-efficient tractor, while a holiday home is dead weight if it’s only used annually as a vacation home. If the property is let as a vacation property, it’s a different scenario.”
Farmers should invest in productive assets and get rid of all dead weight, he advises.
FIXED AND VARIABLE COSTS
A farming operation’s costs can be divided into essentially two categories: fixed costs and variable costs. As a result, savings can also be divided into the same categories.
• Savings on fixed costs
These refer to overhead costs that stay constant regardless of the size of the harvest.
Andries Wiese, national business development manager at Hollard Insurance, says the biggest savings opportunity currently lies in mechanisation.
“Farmers have probably done their planting and harvesting by now. If their implements are not due to be used for a while, now could be the best time to insure them only against fire.” Farmers who want to pursue this option should take care, however. “Park the vehicles that are not comprehensively insured and don’t drive them at all!” Wiese explains that 40% to 50% of the insurance premium for a vehicle covers the risks associated with driving. Farmers could therefore save significantly by decreasing their insurance on stationary vehicles.
Farmers should also bear in mind that all their vehicles are now a year older. By lowering their book value year by year, they could end up saving a good deal of money, says Wiese.
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