AgriSuccess
Outsource or do it yourself?
Lorne McClinton
Canadian producers are famous for their self-sufficient attitude. The sector’s unofficial motto could easily be: “If you want something done right, do it yourself.”
However, as anyone who’s struggled with a home improvement project knows, just because you can perform a task yourself doesn’t mean you should. Sometimes it makes business sense to outsource.
The hard part is calculating the right choice for the circumstances.
New equipment cost is one of the major considerations when deciding to do a job in-house or hiring it out. Some farms have enough economy of scale to justify buying a big-ticket piece of machinery; others don’t. Find out by calculating your break-even acreage or production.
“Let’s say you are planning to buy a $400,000 combine,” says Bill Brown, an agricultural economics professor at the University of Saskatchewan. “The combine will cost you around $60,000 a year in interest and depreciation. The custom combining rate is $24 an acre and it costs about $9 an acre to run a combine for fuel and repairs and oil.”
Mathematically, it looks like this:
$60,000 ÷ ($24 - $9 an acre) = 4,000 acres.
“This calculation shows that if you’ve got a farm smaller than 4,000 acres, you can’t afford to buy a $400,000 combine,” Brown says. “You’d be better off to pay the $24 an acre of custom operating rate. If you’ve got a 5,000-acre farm, you may be better off to buy the combine.”
(The figures for this calculation can be found in the Saskatchewan Ministry of Agriculture’s Farm Machinery Custom Rate and Rental Guide. Search Saskatchewan Custom Guide in Google.)
Timeliness is another very important point to consider. Can a custom operator perform the job as quickly as you could do it yourself, or can they do it faster and better? Last year, many producers in the northern and eastern prairies had 25 per cent or more of their crop still in the field on Remembrance Day. They had no difficulty justifying the expense of hiring any custom combiner they could find to help finish the harvest before winter set in.
If you’ve got a farm smaller than 4,000 acres, you can’t afford to buy a $400,000 combine.
“We don’t have the luxury of time at harvest like they do in Iowa, Oklahoma or Texas,” Brown says. “That encourages people to buy their own combine. Down there it doesn’t matter if a custom combiner is a week or two late, the crop will still be standing there waiting for them. Here if they’re two weeks late, the crop could be under six inches of snow.”
The other major cost that many people ignore is their opportunity cost. As the farm manager, you have to calculate if you’re more valuable sitting in a tractor or managing your farm. The same considerations apply to your employees. If they’re already run off their feet, consider outsourcing. Custom operators bring their labour with them.
“The biggest thing I look at when I’m trying to decide whether I should do a job myself or hire a custom operator is what it will cost to have my human resources doing something new and different,” says Warren Kaeding. Warren and his wife Carla own and operate a 6,500-acre grain farm and seed-growing operation near Churchbridge, Sask.
“I look at what it’s going to cost to train my staff to do that job. Is it more cost-effective to haul grain ourselves or should we hire a custom grain hauler to do it? We have our own semi so there is little difference in cost. Still, we often hire someone to come in and custom haul it because we don’t want to divert our staff away from higher priority tasks.”
The same analysis applies to service-sector jobs. For example, while Kaeding has the necessary knowledge and skills to scout his own fields, he often hires crop consultants. He reasons that if they’re on the job, he doesn’t have to spend all summer in the field assessing crops. This gives him more time to devote to his other management duties.
It often makes more sense to outsource rare-occasion, specialized jobs than it does to do them yourself. On-farm construction projects are a good example. Kaeding could have put his employees to work renovating his seed plant last fall, but decided to hire a crew of trained professionals.
“I’d like to think that the contractors were doing the work quicker, better and more efficiently than our regular workers could,” Kaeding says. “More importantly, I was able to keep our guys out working in the field so we got a number of other jobs done that we wouldn’t have if they had been working on the seed plant.”
Training costs are starting to play a bigger role too. New equipment typically comes with a whole array of on-board computers, and not all the software is user-friendly. It can take a fair amount of training for an employee to get comfortable operating the new machinery.
“I know we’re going to be getting into variable rate applications and mapping,” Kaeding explains. “And holy cow when my teenagers leave the farm, I don’t know what we’re going to do. I’m going to have to spend a lot of time retraining my employees.”
Decide the most effective way to allocate your limited financial, management and human resources. Getting your hands dirty and doing a job yourself might give you more personal satisfaction, but it might not be the best use of your time and money.
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