I F A R MANAGEMENT FARMING MORE EFFICIENTLY Roland P. Freund Regional Farm Management Agent In an extension meeting, the speaker concluded his presentation with the observation that farmers we going to have to be more effi cient in order to survive into the next century. One person in the audience indi cated that he had heard the same pitch for the past 30 years, and he just didn’tknow what else he could possibly do to be any more efficient. We hear a lot about “efficien cy,” but in many cases there seems to be a lot of confusion as to what it is. Productivity We can see that the state average com yields have risen, and milk production per cow has also risen dramatically in the last 20 years. Some people will say: “Look how much more efficient our far mers have become!” Unfortunately, this statement could well be at best a half truth. Measures of productivity do indi cate some improvement in the effi ciency of the use of the acres, the cows, the sows, etc., but taken alone, they cannot be,relied upon to indicate much abouf the surviva bility of the business. Labor, Feed, Reproductive Efficiency Other measures can indicate strengths and weaknesses which • RTKFQ Atari ' ATTfIV'DC ► JWL Wrr Take 'em Down! -v We Will Assemble & Deliver Bins To Your Farm are important to consider as mea sures of efficiency. “Pounds of milk per person” and “income per person” can indicate something about labor productivity. “Pounds of feed per pound of pork (poultry, etc.)” and “livestock sales per $ 100 of feed fed” are very valuable feed efficiency measures. “Pigs farrowed per sow per'year" and “calving interval” are reliable indicators of reproductive efficien cy. However, none of these tell the whole story. Unfortunately, it is not how much income we have, but how much of that income we have left after we pay the expenses which determines the profitability of an enterprise. Measures like “income above feed cost” are a step in the right direction. “Cost of producing a hundredweight of milk” (provided that all the necessary adjustment factors can be identified) can be a very reliable guide to efficiency. A good enterprise analysis should measure financial efficien cy in at least three different ways: per unit of production, per unit of labor, and per dollar invested. Each One is important, and all are necessary. They should not be based on gross income, but on a margin-aftcr-cost figure. Let’s look,at a simplified exam ple of how ; wc can do this. If we take a crop income per acre of $3OO and subtract variable costs of $2OO, we have an enter- V ' '•4*4^ Northeast Agri Systems, Inc. Flyway Business Park 139 A West Airport Road Utitz, PA 17543 Ph: (717) 569-2702 Financial Efficiency Gross Margin Analysis Master Distributor STORE HOURS' Mon -Fri. 7.30 to 430 ES Sot. (00 to Noon 34 Hr. 7 Dry Ropdr Sarvleo 1-800-673-2580 H BBSS? prise gross profit margin of $lOO per acre. This figure can be calculated for all crop enterprises on the farm to compare their efficiency per acre. Per Unit Of Labor Suppose the above enterprise used five hours of labor per acre. Dividing the gross margin of $lOO per acre by the 5 hours of labor gives us a gross margin per person hour of $2O for die enterprise. Comparing all enterprises by this measure can give us a valid financial indicator of labor produc tivity for each of diem. Per Dollar Invested Capital efficiency is a vital mea sure to examine. If this crop enter prise requires a capital investment of $2OO per acre (for machinery. State HARRISBURG (Dauphin Co.) The Pennsylvania Agricultural Land Preservation Board has approved easement purchases for six farms in five counties, protect ing 936 acres of prime farmland from development At its meeting Thursday, the board also approved a motion to request a change in legislation to change the deadline for county farm purchase'recommendations to Dec. 31 of each year from the current Nov. 12. “Considering farms for ease ment purchase is a long process, and it takes a lot of work,” said State Agriculture Secretary and Board Chairman Boyd E. Wolff. “We’d like to give counties every opportunity to get farms into this important program.” Under the Farmland Protection Program, which began in 1989, the state and counties purchase development rights to guarantee that their farms will remain as Custom Applications efxai mmmmm ■A'rtM ATK o rVfl rnoß Eifw>*ATFitO CALL OOnTOtL-FfKE ' vw# I wMBn ' MUIflBEII: storage, etc.), then dividing the gross margin of $lOO by the $2OO investment gives us a gross margin per $1 invested of $0.50. Interpretation These gross margin figures give us measuring sticks by which we can compare the efficiency of one enterprise reladve to others. In this simplified form, they do not give us the “bottom line” of the business. But they do indicate the gross margin contribution. If we look at the example crop and assume that there are 100 acres of it, then there is an enterprise gross margin of $lO,OOO. Out of this, $4,000 might be required to cover enterprise-fixed costs of machinery replacement, etc. If $lO per hour is needed to cov er family living/labor, then that takes out another $5,000. This Board Protects Farms, Requests Change agricultural land. Individual land owners apply to county Agricul tural Land Preservation Boards. If approved for possible ease ment purchase, the county boards may request state funding partici pation. Counties participate in easement purchases and may purchase easements outright themselves. Board members voted to ask key legislators to amend existing law so that counties can submit easement purchases through the month of December. Current lan guage requires that funding be set aside only for easement purchases that actually have been finalized. That means that in a calendar year, counties could submit only those purchases that were complete in November so that they could be approved by the board at its December meeting. Changes in the law would per mit earmarking funds for applica tions received by the Department Lancaster Farming, Saturday, Octobtr 16. 1993-CO leaves $l,OOO as the enterprise contribution to farm overheads. Theoretically, the efficiency of this enterprise can be impoved in several different ways: • Increase the gross margin by reducing variable costs, or increase the income, or both. • Reduce labor required for the production process. • Reduce the investment over heads for the enterprise, or spread the same investment over more acres. These suggestions are not very helpful to a farm operation which is locked into a specific fanning system. I hope (hat next time we can look at some specific practices which could improve efficiency on your farm. of Agriculture and signed by the landowner and county affected. Such a change will provide fund ing to many counties unable to meet shorter deadlines. Following are the properties approved. listed by county, owner, township, acreage and purchase cost: • Adams Robert J. and Dar lene B. Dayhoff, Mount Joy Township, 125 acres, $187,920. • Centre R. Jay Summers, Ferguson Township, 188 acres, $159,973. • Lancaster —Dennis J.. James H., and Joyce E. Drager, East Donegal Township, 110 acres, $433,000. • Lebanon Guy T. and Carol E. Harnish, North Cornwall Township, 90 acres, $192,274. •Lebanon Dennis E. and .SHaron L. Wampler, South Annville Township, 140 acres, $294,000. • Westmoreland Gilbert Hutter and Family, Mt. Pleasant Township, 282 acres, $564,870. FRANK A. FILLIPPO, INC. - WANTED - DISABLED & CRIPPLED COWS, BULLS & STEERS Call: Frank Fillippo - Residence - 215-666-0725 Steven Fillippo 215-666-7976 KEN CLUGSTON (717) 665-6775 CRAFT-BILT CONSTRUCTION INC. FARM-HOME BUILDING 1242 Breneman Road MANHEIM, PA 17545 PH: (717) 665-4372 BUILDING & REMODELING FOR DAIRY RESIDENTIAL SWINE POLE BUILDINGS BEEF STORAGE Improve Efficiency
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