Machinery ownership alternatives for small farmers

Farm machinery, especially tractors, can be expensive to purchase and a questionable use of capital, particularly if only used occasionally during the year – as is the case on many small farms. The cost factor is one of the most compelling reasons to look at alternatives to outright ownership. This article will explore some of these alternatives and compare them to ownership.

Machinery ownership alternatives for small farmers
Owning
Owning all of your own farm machinery does have some advantages, provided it is in good, reliable working condition. Most advantages are associated with timeliness: having the machinery on hand to do the job when it is required. Owning poorly maintained, old, undersized or unreliable machinery may hold no advantage at all.

Alternatives to owning your own:
1.    Contracting
Using contractors is very common on farms, with numerous professional contractors available for a wide range of small farming tasks. Advantages of using a contractor include:
•    Machinery is owned, operated and maintained by the contractor (while in most cases the farmer supplies the fuel).
•    Contractors usually have better quality and larger machinery, which gets the job done faster.
•    Contract rates for normal farming jobs are standardised.
•    Contracting is a tax deduction for business purposes.

The main criticism for hiring contractors is the failure to get to the job done on time. A reasonable negotiation with your contractor well in advance is a good idea. When you find a reliable, quality contractor, stick with them and build a relationship. Paying their bill promptly will certainly assist here. 
Small farming jobs will usually be less attractive to contractors, particularly if travel is involved, so it can be useful to pool work with your neighbours to make the job larger and more enticing.

2.    Hiring
Compared to using a contractor, hiring farm machinery can save the cost of wages as your own time will be spent on the machine. Remember that it will take you longer to do the job than a contractor, as they are skilled operators doing that job every day. Most regional towns have machinery hire companies, with transport to and from being the hirer’s responsibility. Make sure prior to hiring that there is an agreement or contract in place detailing the cost of hire, replacement of parts, insurance and breakdown responsibility.

3.    Hire purchase
Under a hire purchase agreement, ownership of the equipment is transferred to the farmer at the completion of payments. Similarly to leasing, the maintenance of the machine is also the responsibility of the farmer.

4.    Leasing
When leasing farm machinery, ownership is retained by the finance lender. Periodic payments are made in the form of lease rentals, which are generally tax deductable. Lease terms vary, but 3-4 years is a common timeframe with a residual value at the end of the term usually 30-50 percent of the purchase price. Responsibility for the sale of machinery at the end of the lease will depend on the lease agreement. There are three types of lease agreements: operating and finance lease and contract hire.

5.    Share Farming
For absentee or small farmers who do not have the time or expertise to farm, share farming can be an option. Share farming usually involves the owner providing the land while the share farmer provides the inputs, labour and marketing.  In share farming the land owner does not need to own any machinery as it is all supplied by the share farmer.

6.    Syndication
A number of small farmers can form a syndicate and buy one piece of machinery, sharing it between many farms. The fixed cost of the farm equipment is spread over a number of farms, usually allowing a larger, better quality machine to be purchased. Disadvantages of a syndicate include:
•    Members can all require the machine at the same time.
•    Maintenance responsibilities can pose problems.
•    Use and care between members can vary. 
•    Legal issues of ownership, taxation and problems related to selling the machine.  

Syndicates can work well for small farmers if a legal agreement is negotiated in advance and if members are charged contract rates for variations in usage.  

7.    Reciprocal Borrowing
This arrangement is similar to a syndicate, however under this arrangement each farmer agrees to purchase and maintain a separate piece of machinery. Haymaking equipment is a good example where one farmer buys the mower, another buys the rake and a third the baler. Work on each farm can be done using a contract payment system so no one machinery owner is disadvantaged. This arrangement removes some of the ownership problems associated with a syndicate and may work well in small farming situations.

Where to from here?
As outlined above, there are both advantages and disadvantages in owning farm machinery. For a small farmer to have a large amount of money tied up in machinery that gets little use, makes no financial sense. The use of contractors, hiring, syndication and reciprocal borrowing are all alternatives to ownership that may offer better financial outcomes.

About the author

Charlie Roberts - small farm consultant.
Charlie has a Bachelor of Farm Management and a Masters of Business Administration. He has worked for a number of agricultural companies in both New Zealand and Australia. He has a wealth of experience working with farmers in a range of environments.

 

News Category

New Forum Topics

Topic Replies Last post Forum
5952 United-Arab-Emirates Phone Number List
by Mominul2241 on Tue, 02/18/2020 - 16:03
0
by Mominul2241
Tue, 02/18/2020 - 16:03
Farm water
5951 Ukraine Phone Number List
by Mominul2241 on Tue, 02/18/2020 - 16:01
0
by Mominul2241
Tue, 02/18/2020 - 16:02
Bees
5933 Pasture management for newbie
by Oneeyedman on Sat, 01/25/2020 - 16:47
3
by admin
Tue, 02/11/2020 - 12:59
Farming Help
5948 Looking for a lely tined weeder
by mcilett on Sun, 02/09/2020 - 18:14
1
by admin
Tue, 02/11/2020 - 12:35
Machinery & products
5937 Looking for Giant Bermuda Grass Seed
by CQGems on Wed, 01/29/2020 - 07:13
2
by CQGems
Sat, 02/01/2020 - 06:41
Pastures & Crops
5932 Black headed cockchafers
by Megz on Fri, 01/24/2020 - 13:06
1
by admin
Fri, 01/31/2020 - 16:28
Farming Help
5930 bobby calves
by Allison68 on Sat, 01/18/2020 - 22:58
2
by admin
Wed, 01/22/2020 - 17:28
Farming Help
5673 Goat Worming
by Brettgarland on Sat, 05/11/2019 - 17:06
9
by rocket
Sun, 01/12/2020 - 10:57
Farming Help
3822 goats
by matthew10goats on Thu, 08/09/2018 - 21:05
4
by admin
Fri, 01/03/2020 - 14:32
Farming Help
5918 Hello from a new member and slashing grass
by HarmonFarmin on Wed, 12/18/2019 - 15:58
1
by admin
Thu, 12/19/2019 - 12:37
Farming Help
5909 New to all of this. Improving my posture for Alpacas.
by Gingerbread Man on Sun, 12/08/2019 - 11:17
4
by Gingerbread Man
Fri, 12/13/2019 - 19:19
Pastures & Crops
5908 Adding cameras to tracotrs
by IHeartRobots on Fri, 12/06/2019 - 08:20
1
by admin
Fri, 12/13/2019 - 11:55
Farm software
5914 Oil Level in A NH Roller Bar Hay Rake
by Clydie on Tue, 12/10/2019 - 19:19
1
by admin
Thu, 12/12/2019 - 10:44
Machinery & products
5757 Nigerian Dwarf Goats
by gem7680 on Wed, 07/03/2019 - 17:28
3
by First Fleet
Wed, 12/04/2019 - 11:39
Goats
5905 GST on agistment lease
by Louise2507 on Mon, 12/02/2019 - 09:59
2
by Louise2507
Mon, 12/02/2019 - 12:49
General Forum
5466 How to Become Classified as A Primary Producer/Alpacas
by Char on Fri, 02/01/2019 - 11:04
3
by thomen
Mon, 12/02/2019 - 10:40
Farm planning
5453 Pasture Improvement Costs
by @Nick on Mon, 01/14/2019 - 19:44
4
by admin
Fri, 11/29/2019 - 17:28
Farming Help
5903 Setting up Cattle scales load bars
by bigdave06 on Wed, 11/27/2019 - 13:43
0
by bigdave06
Wed, 11/27/2019 - 13:43
General Forum
5894 Soil aeration
by Albertgotdonkey on Fri, 11/08/2019 - 08:16
4
by Albertgotdonkey
Tue, 11/19/2019 - 17:33
General Forum
3032 Selling meat off farm that is slaughtered by a registered abattoir
by Dominiquet on Sun, 08/14/2016 - 17:38
5
by admin
Mon, 11/18/2019 - 11:13
Farming Help

Our Sponsors

Our Partners