Should You Consider Purchasing a Flue-cured Tobacco Harvester
Farm Business Management Update, December 2001
By Eric Eberly
Hired labor costs are generally in the top three expenses for hand-primed flue-cured tobacco in Virginia. According to the 2001 Virginia Flue-cured Tobacco Budget, hired labor accounts for 34% of the variable costs incurred to produce the crop. This amount includes labor overhead expenses directly allocated to the tobacco crop. Approximately half the labor hours budgeted are used to hand prime and fill the bulk barns. To reduce total labor costs and management requirements, many tobacco farmers are considering purchasing flue-cured tobacco harvesters.
Efficient tobacco farmers who are currently using mechanical harvesters have reduced labor hours used to prime and fill bulk barns by one-half to two-thirds. For the investment in a mechanical harvester to be financially beneficial, the savings in labor costs and management time must offset the additional operating and fixed costs for this equipment.
In September of 2001, the manufacturers of flue-cured tobacco harvesters were surveyed to determine an average list price of purchasing a 2-row self-propelled tobacco harvester. The average cost was proximally $75,000 varying 10% above and below the average price, depending on brand and options.
The assumptions used in this analysis were
Total operating cost for the tobacco harvester include costs for fuel, oil, lubricants, and repairs. Operator labor is included at $10 per hour. Fixed costs include depreciation, interest, housing, and insurance. Table 1 shows the range of estimated variable and fixed costs for the harvester over typical acreage for Southside Virginia. As expected, variable costs increase with usage while total annual fixed cost remain constant. Thus, total annual cost per acre declines as more acres are harvested.
Total labor and management cost savings must cover the fixed ownership and operating costs for the harvester. Labor costs are a combination of hours worked times the wage rate plus any additional benefits not included in the paycheck. To make an accurate decision, farmers should have labor records indicating how many hours are spent on the various tasks involved in the production process. Labor savings from use of a mechanical harvester can be expected to vary greatly between farms. Table 2 explores these differences by illustrating how much money is being saved with various combinations of labor savings and hourly wages paid by Southside farmers.
Table 1. Estimated Cost Per Acre
|Item||Two-row Flue-cured Tobacco Harvester Acres Harvested|
|Annual Usage (Hours)||156||188||234||313||469|
|Operating Costs $ 1|
|- Annual fuel cost||574||689||861||1,148||1,723|
|- Annual lube cost||86||103||129||172||258|
|- Annual repair cost||912||1,266||1,891||3,174||6,586|
|- Annual operator labor||1,560||1,880||2,340||3,130||4,690|
|Total Operating Cost||3,132||3,938||5,222||7,625||13,257|
|Total Operating Cost per Acre||63||66||70||76||88|
|Fixed Costs $|
|Total Fixed Cost||15,978||15,978||15,978||15,978||15,978|
|Total Fixed Cost per Acre||320||266||213||160||107|
|Total Costs $||19,110||19,916||21,200||23,603||29,235|
|Total Cost per Acre $||382||332||283||236||195|
|1 Fuel cost is calculated by multiplying the engine horsepower times fuel price times .044 times hours of use per year. Oil and lubricants usually equal 15% of fuel costs. Repair costs increase exponentially based on the number of hours the equipment is used compared to its useful life. The harvester is expected to incur repair bills of 33% of its purchase price over its useful life of 2000 hours.|
Table 2. Wages Saved Per Acre
|Wage $||Hours saved per acre|
The decision to invest in a mechanical harvester based on the typical results presented in Tables 1 and 2 indicates a farmer needs to harvest 50 to 60 acres annually to cover operating and fixed costs. Farmers that must hire skilled operators would need to harvest 60 and 75 acres to cover the additional costs for an operator. Furthermore, farmers that are currently doing an above average job of managing their farm labor costs may require even larger acreage to cover total costs.
The following are other factors to consider prior to making this equipment investment:
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