# Method

Mechanisation expenses are currently a major component of the cost price of agricultural products for both Walloon and European agriculture.

## Operating costs need to be rationalised.

To improve the competitiveness of Belgium 's agriculture, operating costs need to be rationalised and that therefore necessitates the greatest rigour when selecting agricultural equipment.

If the choice is based on technical criteria, it is essential to conduct **a return on investment analysis **. To assist with this the Walloon Agricultural Research Centre has for many years published the “Agricultural Machinery Performance and Cost Indicator”. This reference manual shows the cost price of various items of standard agricultural equipment according to the intensity of use.

The basic data have to be updated more and more frequently to take account of technical developments and changing economic parameters (price of steel, price of fuel, etc.). **This service is now therefore provided online via the Internet**.

This online service enables the average cost of use of an item of equipment to be evaluated before purchasing it and its cost-effectiveness thus assessed. Please note that this is not an accounts software product.

## The running cost is made up of

**Fixed costs**: depreciation of the machine, interest on the capital and tax and insurance**Variable costs**: maintenance expenses, repair expenses and fuel and consumables- The cost of labour may be added to these factors.

The default user parameters are based on data collected from the industry and from farmers for the Belgian market. These are therefore **average values ** that apply **when purchasing new equipment **. However, the user can alter them to adapt the calculation to his own particular situation.

However, the user can alter them to adapt the calculation to his own particular situation

## Fixed costs

**Depreciation ** is the time taken for the cost of the machine to be written off. Financial amortisation is the amount that has to be saved in order to build up the invested capital again by the end of the technical life of the equipment. The depreciation calculated here is **straight-line ** and takes into account the acquisition cost and resale value of the machine, the rate of discount and the depreciable life, which depends on the annual use of the machine.

### Acquisition cost * (without taxes and discount)*

The purchase price quoted is an average of the various suppliers' market prices. However, the acquisition cost can be altered by the user to take account of such things as more favourable or less favourable terms

## The rate of discount

combines two effects: the fall in the value of money, and technical progress which causes machines to depreciate. This rate is used to discount the resale value as a function of the depreciable life and the rising cost of spare parts etc. for maintenance

## Depreciation period

This is calculated from the annual use of the machine, its technical life and obsolescence. It will be greater than the financial amortisation period applied by the user

## Resale value

This varies greatly from one machine to another – some brands or machines are more in demand than others – and it also varies according to the condition of the machines. The resale value used is a percentage of the discounted purchase price and is generally between 10 and 20% of that price. The percentage of the purchase price used for the resale value is indicated (based on surveys and analysis of the used machinery market) according to the selected machine.

## Annual interest expenses

This figure represents the loss of income if the purchase is financed from own funds which cannot then be invested, or the interest actually paid to the bank if the purchase is financed by a loan. The interest rate is based on current official bank rates.

## Taxes and insurance

The costs of insurance include fire and third party liability insurance. The default values are based on surveys of insurance companies

## Variable costs

### Consumption costs (tractor and self-propelled equipment).

**The consumption** figure is obtained by multiplying the engine power by the rate of use and by the specific consumption adjusted for the rate of use. The rate of use of the engine power, in the case of a solo tractor, is the average of the entire use of the tractor throughout the year. For a combination, the rate of use of the engine power is adapted according to the machine used. This gives the consumption in litres per hour.

Finally, the consumption cost is calculated by integrating the fuel price.

**Maintenance costs**. All foreseeable expenses of maintaining the machine come under this heading. These expenses are calculated on the basis of standard servicing recommended by manufacturers and the expenses of actual maintenance incurred by users. They represent a percentage of the discounted purchase price. Maintenance expenses are discounted.

**Repair expenses**. All unforeseeable expenses of repairing the machine come under this heading. They are calculated on the basis of user surveys and they represent a percentage of the discounted purchase price. The repair expenses are discounted.

It is thus possible to see at a glance the estimated costs of use of this 330 HP combine harvester with six vibrators, and also how those costs break down

Consumption | Rentretien et réparation | Insurance and taxes | Interests | Depreciation | |
---|---|---|---|---|---|

11 Euros/ha | 32 Euros/ha | 4 Euros/ha | 33 Euros/ha | 61.80 Euros/ha |

## Total running cost

Finally, the **estimated annual running cost of a machine ** comprises all the fixed and variable costs. The same sum is divided by the annual use of the machine expressed in that unit to give the unit cost (per hour, hectare, load, etc.)

To obtain the **total cost of a combination of one tractor and one or two machines **, the cost(s) of use of the machine(s) in €/unit and the cost of labour, if applicable, converted into €/unit to operate it/them must be added to the cost of use of the tractor converted into €/unit.

The method is not designed to establish the cost of use of used equipment. For such calculations we advise you to contact the Agricultural Engineering Department directly and ask them to do a calculation for you

The results cannot be used for accounting purposes.

- By altering the default parameters you can adapt the calculation to your particular situation. You can also see how altering one parameter impacts upon the costs.
- The possibility of performing the calculation for a complete combination opens up other options, such as comparing different forage harvesting procedures or different working methods with one another.