ABE 215: INTRODUCTION TO FARM POWER & MACHINERY MANAGEMENT 1

Farm power and machinery management is the general planning and programming to control, direct and
maintain farm power and machinery to ensure economic utilization, efficiency and most of all
profitability. It also includes selecting the appropriate number of employees (staffs)

IMPORTANCE OF FARM MACHINERY MANAGEMENT

The importance of farm machinery management has increased in modern farming operations because of
its direct relation to the success of management in combining land, labour and capital for a satisfactory
profit. The following are the importance of farm power and machinery management:
b) To know the size of equipment is required.
c) To know how often should the machinery be traded.
d) To know if a custom operator be hired or a machine be leased?
e) To know how the rapidly increasing fuel costs be kept to the minimum?

Following are some of the suggestions to help a farmer to prepare himself to satisfy the increasing
needs for machinery management:
(i) Learn how to use the machinery principles.
(ii) Keep complete records of fieldwork done by various machines and the number of working days
available for critical field operations. By knowing average capacity of machines and number of workdays
available, a more effective job of selecting machinery is possible.
(iii) Know how to accurately estimate costs for any machine and how to combine costs of machines to
estimate total cost for an entire system. Many important decisions are based on costs.
(iv) Know how to improve equipment reliability. Always work towards the elimination of unnecessary
down time.
(v) Improve field efficiencies with machines to cut costs and complete more work in the available time.
(vi) Develop a lone-range plan for your farming operations.
(vii) Keep thinking of ways to improve the efficient ownership and management of agricultural
machinery.
(viii) Review the problems encountered.

Measures of performance of farm equipment are the rate and quality with which the operations are
accomplished. This is generally expressed in terms of capacity as well as efficiency.

Capacity: Calculations of machine capacity involve measuring of area covered, weight of material and
time. The machine capacity is normally expressed in three ways:
a) Field capacity
b) Material capacity
c) Throughput capacity

FIELD CAPACITY: It is the rate of field coverage. It is also expressed in two ways:
a) Theoretical field capacity
b) Effective field capacity
Theoretical field capacity: It is the rate of field coverage if the machine is performing its functions
100% of the time at its rated speed while covering 100% of its rated width.
Theoretical field capacity (Ct) is expressed as

Where,
S = average speed of machine, mph
w = rated width of machine, ft
Or,

Where,
S = average speed of machine, km/h
w = rated width of machine, m

Thus, these values represent the best that a machine can do if there were no stoppages and the machine
was taking its full width all the time.

Effective field capacity: The farm equipment seldom covers its rated width and performs its function
100% of the time. Therefore, it never meets the theoretical field capacity. Effective field capacity is the
actual rate of field coverage. It is expressed as

Where,
Ce = effective field capacity, ha/h
Ef = field efficiency, fraction

Example1: A 4 row, 1m spacing planter operating at a speed of 7.2 km/hr. placing seeds and granular
fertilizer. What is the theoretical capacity and actual capacity?
Solution:
Data Given:
Speed= 7.2km/hr.
Ct=?
Row=4
Size-1

7.2 x 4 x 1
= =2.88ha/hr.
10
 S .W . E
C T=
10

7.2 X 4 xEx 1
= = 2.88x E ha/hr.
10

The value of E is found by looking at the tables of standard in Agricultural Engineering year book
published by (ASAE). This book contained standard terminology and standard efficiencies and working
rates of all different machines and their work and standards on machinery management. For planting, the
efficiency = 0.6 or 60%

7.2 x 4 x 0.6
Therefore, C T = = 1.728 ha/hr.
10

Example 2: 160 ha of farm row crop is to be planted within a period of 7 days, each with twelve hours’
possible field time and operating at 6.4km/hr and 0.7m spacing. Calculate capacity
Solution:
Data Given:
Area=160ha
Duration= 7 days
Field time=12 hours
Speed= 6.4km/hr.
Spacing=0.7m

Area of Operation 160 ha

C= = = 1.9ha/hr.
Time avvailable 8.4

Cx 10 1.9 x 10
Therefore, W= SpeedxE = 6.4 x 0.6
=4.95ha/hr.

Field Performance and Power Requirements

Improving field efficiency: The ability to improve field efficiency is the next important step in
developing machinery management skills. There are several important reasons why a machine may have
certain field efficiency. Some lost-time factors are built into operation. Good planning and management
can eliminate other lost-time factors. For example: Turning time and field operations:

Turning time is one loss factor built into every field operation but can be kept to minimum by planning
fields with longer rows. A normal turn at the end of a field is one that can be made with one continuous
motion.

Unclogging machine: One-time factor that can be nearly eliminated by good management is unclogging
machines. It is also a main reason for an unusually high percentage of lost field time. There are three
main reasons for clogging a machine.

1) Overloading the machine

2) Faulty working of the machine

3) Operating the machine when conditions are not right

By checking out machines ahead of the season there will be less clogging and field efficiency will
improve substantially.

Making adjustments: With most machines, it is necessary to make adjustments before going to the field.
Some machines, like combines or balers, have to be adjusted occasionally in the field as crop conditions
vary throughout the day.

Reducing breakdowns: It is impossible to predict when some parts of a machine will fail, but many
machine breakdowns in the field can be avoided by making thorough inspections before and during
operation. To help eliminate or reduce breakdowns the following points need to be considered:

1) Inspect and repair the machines well ahead of the use season.

2) Carry out preventive maintenance.

3) Avoid rocks, holes and obstructions.

4) Drive cautiously in rough fields.

5) Avoid overloading the equipment.

6) Check out strange sounds, vibrations or smells.

7) Make small repairs when needed.

8) Use periodic checking to locate potential trouble.

9) Keep all power transmitting members adjusted, aligned and lubricated.

Rest stops: Short but frequent breaks or rest stops are desirable and necessary from both the standpoint
of safety and improved performance. When the operator has to continually concentrate on a job, a short
break every hour or so will increase alertness, reduce accidents and improve the quality of work.

Unmatched machine capacity: One major cause of an inefficient operation is a system of unmatched
machines. It is always important to use the matching equipment with the power source.
 Power Requirements

The power is the rate of doing work. It can be written as

1 hp = 33000 ft-lb/min

= 550 ft-lb/s

= 75 m-kgf/s

= 4500 m-kgf/min

i.e.

Where,

hp = horse power

D = distance travelled in ft

F = force exerted in lb

T = time taken in min

It can also be written as

Where,

hp = horse power

D = distance travelled in m

F = force exerted in kgf

T = time taken in min

It can be further written as

Example 3 : An implement requires 300 kg force to pull it through a distance of 100 m in 5 min. Find the
power required to pull the implement.

Solution:

Given F = 300 kgf

D = 100 m

T = 5 min

So

Example 4 : A tractor pulls a draught load of 1000 kg while travelling at a speed of 60 m/min. Find the
horse power (hp) developed by the tractor.

Solution:
Drawbar Power: Power requirement of a tractor at its drawbar can also be estimated by the following
formulae:

Where,

P = drawbar power, kW

F = draught, kN

S = speed, km/h

Or,

Where,

P = drawbar power, hp

F = draught, kgf

S = speed, km/h

Power requirement for some of the implements is given in Table 1 The drawbar power output is always
less than Power-Take-Off (PTO) power output because of drive wheel slippage, tractor rolling resistance
and friction losses in the drive train between the engine and the wheels. The sum of these losses may be
represented by a tractive & transmission (T&T) coefficient. The tractive & transmission coefficient is
defined as

T&T coefficients for four-wheel drive tractors are somewhat higher than those for two wheels drive
tractors. Track type tractors seldom have more than 5% slips even on soft soil. The value of tractive and
transmission coefficient for track type tractors varies between 0.80 and 0.85 on firm soil and 0.70 and
0.75 on soft soil. The PTO power corresponding to drawbar power is determined by applying an
appropriate T&T coefficient.

Rotary power: It is defined as

Example: If a belt produces a tangential force of 1000 N on a pulley having radius of 0.30 m at a speed
of 200 rpm, the power it will be

Given F = 1000 N

D = distance covered = 2 π x radius x rpm

= 2π x 0.30 x 200 m/min

T = 1 min

1W = 1 N-m/s

P = 6283.18 W = 6.28 kW

Fluid power: It is defined as the product of a weight rate of flow and the resistance to that flow called the
head of the flow. Head describes the height of a column of fluid whose mass creates at the bottom a
pressure equivalent to that in the flowing system. Thus,

Example: If 100 kg of water is to be pumped to the height of 30 m in 100 s, the power required would be

Given F = 100 kg = 100 x 9.8 N = 980 N

D = 30 m

T = 100 s

So

The pressure of the fluid and not its head is used in most calculations and expressed in Pascal (Pa).
1 Pa = 1 N/m2

1 kPa = 1000 Pa = 0.145 psi

1 MPa = 1000 kPa

1 bar = 100 kPa = 1 atm

Hydraulic power (Ph): It is expressed as

Where,

p = gauge pressure, k Pa

Q = flow rate, l/s

C = constant, 1000

It can also be expressed as

Ph = 0.01667 Q Dp, kW

Where,

Q = fluid flow rate, l/min

Dp = pressure change, M Pa

Power-Take-Off (PTO) power: It is expressed as

Where,

P = PTO power, kW

F = tangential force, kN

R = radius of force rotation, m

N = revolutions per minute, rpm

T = torque, N-m = F R

FARM MACHINERY SELECTION

Putting together an ideal machinery system is not easy. Equipment that works best one year may not
work well the next because of changes in weather conditions or crop production practices. Improvements
in design may make older equipment obsolete. And the number of acres being farmed or the amount of
labor available may change.
Because many of these variables are unpredictable, the goal of the good machinery manager should be to
have a system that is flexible enough to adapt to a broad range of weather and crop conditions while
minimizing long-run costs and production risks. To meet these goals several fundamental questions must
be answered.
Machine Performance
First, each piece of machinery must perform reliably under a variety of field conditions or it is a poor
investment regardless of its cost.
Tillage implements should prepare a satisfactory seedbed while conserving moisture, destroying early
weed growth, and minimizing erosion potential. Planters and seeders should provide consistent seed
placement and population as well as properly apply pesticides and fertilizers. Harvesting equipment must
harvest clean, undamaged grain while minimizing field losses.

The performance of a machine often depends on the skill of the operator or on weather and soil
conditions. Nevertheless, differences among machines can be evaluated through field trials, research
reports, and personal experience.

Factors That Affect the Size of Machinery Needed

Machinery recommendations must be based on the characteristics of each individual farm. The following
factors influence machinery selection, and are discussed in order of importance.

1. Number of Crop Acres

As more crop acres are farmed, larger-scale machinery is needed to ensure that planting and harvesting
can be completed in a timely fashion. An alternative is to acquire a second unit of some machines, if an
additional tractor and operator are available.
2. Labor Supply
The number of acres that can be completed each day is the most critical measure of machinery capacity;
more than machine width or acres completed per hour. Increasing the labor supply by hiring extra
operators or by working longer hours during critical periods may be a relatively inexpensive way of
stretching machinery capacity. In addition, the cost of additional labor only needs to be incurred in those
years in which it is actually used, while the cost of investing in larger machinery becomes “locked in” as
soon as the investment is made. On the other hand, extra labor may not always be available when needed,
and working long hours over several days can present a safety hazard.
3. Tillage Practices
The number of field days needed before planting is completed depends partly on the number of separate
operations completed on each acre. Reducing the number of tillage practices performed or performing
more than one practice in the same trip effectively decreases the amount of machinery capacity needed to
complete field operations on time. Of course, machinery cost savings from reduced tillage must be
compared to possible increased chemical costs and effects on yields.
4. Crop Mix
Diversification of crops tends to spread out the periods when timely completion of field operations is
critical. For example, yield reductions due to late planting begin later for soybeans than for corn.
Harvesting can also be completed over a longer time period. Thus, growing more than one or two crops
reduces the machinery capacity needed for a given number of crop acres. However, it may also require
purchasing additional types of machinery, especially for harvesting.

TRANSFERRING OWNERSHIP OF FARM MACHINERY

Farm machinery is an important com- ponent of transferring ownership (In- formation File Business
Ownership Transfer Process) from the older party to the younger party. The use and ownership of farm
machinery can be transferred from the older party (seller or giver) to the younger party (buyer or
recipient) immediately or over several years.
Five basic transfer methods are available:
• outright sale,
• installment sale,
• gradual sale over a period of years,
• lease agreement followed by a sale, and
• gift.
Each method has different financial and income tax consequences.
In all cases, a value must be placed on each piece of equipment at the time it will be transferred. A
machinery dealer or auctioneer may be willing to make an appraisal for a fee. List each item as it appears
on the seller’s depreciation schedule and the value that is agreed upon.

1. Outright Sale
An outright sale occurs when the seller of machinery transfers ownership to the buyer immediately and
he has paid the full purchase price by the buyer.
An outright sale gives the buyer complete freedom to use, sell, trade, or lease the machinery, or use it as
collateral for securing a loan. The seller has no further claim to the machinery and can spend or invest the
funds received as desired.
Financial considerations
For an outright sale, the buyer’s payment is equal to the full agreed-on value of the machinery. A
beginning farmer may find it difficult to generate this much cash from savings and equity. A third party
lender may be willing to provide a loan if the machinery can serve as collateral or if the buyer has other
assets to pledge. Beginning farmers with a small net worth may need a co-signer for a loan. In family
situations, the co-signer may be the seller of the machinery.
When the younger party doesn’t want to use all savings for purchasing machinery, or doesn’t want to go
into debt, other methods that reduce the initial financial obligation can be used.

2. Installment Sale
An installment sale gives the buyer immediate possession and use of the machinery, just as in an outright
sale. However, the seller finances the sale for the purchaser, and periodic payments are made.

3. Gradual Sale
A line of machinery also can be transferred by selling one or two items outright each year. Such a gradual
sale can spread out tax payments as well as the cash flow requirements. The assets transferred each year
must be clearly specified. The buyer becomes responsible for repairs, insurance, and other ownership
costs when each piece of machinery changes hands.
A plan should be developed identifying which items of machinery will be transferred each year and how
many years will be required to complete the transfer. A gradual sale can continue until all the machinery
is sold.
If the parties farm together, the gradual transfer may change how farm income is divided each year. The
younger party will own more of the business assets each year so should receive a larger share of the
income. If the older party has already left the business, the younger party will need to lease items that
have not yet been purchased.

4. Leasing
A lease can be used in situations where the owner (older party) already has left the business. For
example, if the older party leaves the business before the machinery ownership is transferred, the
machinery can be leased until it is purchased.
The lease payments should be reasonable and should cover the owner’s fixed costs of depreciation, return
on investment, and insurance. Tax depreciation is usually a poor estimate of actual economic
depreciation. Economic depreciation can be estimated by multiplying the current market value of the
machinery by 8 to 10 percent. Return on investment can be computed by multiplying the current market
value by a return of 6 to 8 percent. The actual cost of insurance can be used. Alternatively, the lease
payment can be computed by multiplying the current market value by 15 to 20 percent.
The renter (younger party) is usually responsible for all costs related to use, such as fuel, lubrication,
repairs, and maintenance. The owner (older party) is usually responsible for paying for capital
improvements, such as major overhauls or the replacement of an engine. These improvements increase
the value of the machine, the rental rate, and the eventual sale value. Rental payments should decrease as
the machinery line ages, unless older machines are replaced.
 Lease with Option to Buy
Leasing machinery with an option to buy allows the younger party to use the equipment for a period of
years and then buy it at the end of the lease period.
 Lease with Gradual Sale
A lease can be combined with a gradual sale in situations where the owner (older party) leaves the
business before the sale is completed. Each year, the buyer (younger party) purchases one or more items
of machinery and leases the machinery that has not yet been purchased. As items are purchased, they are
dropped from the lease arrangement and the lease payments are reduced accordingly.

5. Gifting
Machinery also can be transferred from the older party to the younger party as an outright gift.
Financial considerations
With a gift, the giver (older party) receives no payment from the recipient (younger party) in exchange
for the machinery. Although a gift program is financially advantageous for the recipient (younger party),
it may be a burden to the giver (older party) if money is needed for living expenses and other
commitments. Also, in a parent and child situation, other family members may feel that they have not
been treated fairly unless gifts of an equal value are made to them as well.

6. Combination Sale and Gift

Machinery gifts can be combined with an outright sale. The difference between the fair market value of
the machinery and the amount of cash paid for the machine is considered a gift. These values should be
documented carefully. If the size of the gift is equal to or less than the annual exclusion, no gift tax filing
is due.
Financial considerations
The combination sale and gift method reduces the buyer’s (younger party’s) cash flow requirements.
However, the seller (older party) receives less money to spend or invest, which could reduce financial
security during retirement.

7. Gradual Gift and Sale

Combining a gradual sale with a gifting program is similar to a gradual sale except that the sale price of
each item is below fair market value. The difference is considered a gift. An advantage of this method is
that the annual gift tax exclusion can be used every year.
Financial considerations
In addition to spreading the purchase cost over several years, it also reduces the size of the payment each
year. However, the seller (older party) receives less cash, which may negatively impact his/her financial
position during retirement.
Some gradual sale and gift agreements specify that when a machinery item is replaced, the item to be
traded is gifted to the younger party who then supplies the cash difference needed to complete the trade.

FARM MACHINERY ACQUISITION

In developed agricultural economics, the methods of farm machinery acquisition are:
i. Direct purchase. i.e sinking self-capital and outright buying from seller.
ii. Through hire purchase
iii. Through leasing
iv. Through bank borrowing
But in Nigeria, the common methods used are:
i. Through direct purchase
ii. Through bank borrowing
iii. Loans from government

JUSTIFICATION FOR ACQUIRING MORE POWER

This will depend upon the following:
i. The financial worthiness of mechanization
ii. Opportunity cost in mechanization
iii. Types of crops grown.

COST OF OPERATION OF FARM EQUIPMENT

One of the most important items influencing the profitability of farming operations is the cost of owning
and operating the farm machines. Accurate cost estimates play an important role in every machinery
management decision, namely, when to trade, which size to buy, how much to buy, etc. There are two
main types of machinery costs:

Fixed Costs: These costs depend on how long a machine is owned rather than how much it is used. Fixed
costs include the following:

1) Depreciation

2) Interest

3) Taxes

4) Shelter

5) Insurance

Operating Costs: It is also called as the variable costs. It varies in proportion to the amount of machine
used. The operating costs consist of the following:

1) Repair and maintenance costs

2) Fuel costs

3) Oil or lubrication costs

4) Labour costs

Fixed Costs

Depreciation: Depreciation means a loss in the value of a machine due to time and use. Often, it is the
largest of all costs. Machine depreciate, or have a loss of value, for several reasons, such as, age of
machine, wear and tear of machine and obsolescence. There are several different methods to calculate the
depreciation. These include the following:

1) Estimated value method

2) Straight-line method

3) Declining-balance method

4) Sum-of-the years digits method

5) Sinking-fund method

Estimated Value Method: It is the most realistic determination of depreciation. At the end of each year
the value is compared with the value of machine possessed at the start of the year. The difference is the
amount of depreciation. Table 3.2 gives the estimated values as the percentage of the purchase price for
most of the expensive farm machineries.

Table 3.2: Estimated values of depreciation at the end of year.

Machine % of purchase price

1 2 3 4 5 6 7 8 9 10

Tractor 36 6 5 5 5 4 4 3 3 3

Self-propelled combine 41 7 6 6 5 5 4 4 3 3

Tractor-drawn combine 46 7 6 5 5 4 4 3 3 2

Corn picker 49 6 5 5 4 4 3 3 2 2

Baler 49 6 5 5 4 4 3 3 2 2

Forage harvester 53 6 5 4 4 4 3 3 3 3

Cotton picker 43 6 6 5 4 4 4 3 3 1

Straight-line Method: In the straight-line depreciation method, an equal reduction of value is used for
each year the machine is owned (Fig. 1). This method can always be used to estimate costs on a specific
period of time, provided the proper salvage value is used for the age of the machine. The annual
depreciation value can be calculated from the following expression

Where,
D = average annual depreciation, Rs/h

P = purchase price, Rs.

S = salvage value, taken as 10% the purchase price

L = life of machine, years

H = annual use of machine, hours

The straight-line depreciation method is not quite accurate for giving the value of a machine at same age.
In actual practice machine depreciates much faster in the first few years than in the later years.

Fig. 1: Straight line depreciation.

Example: Suppose a new tractor is purchased for NGN. 3,00,000.00 and its life is assumed to be 15
years. Assume salvage value as 10% of purchase price; then average annual depreciation would be

Declining-balance depreciation method: It reflects the actual value of a machine at any age rather than
the value found from the straight-line method or sum of the digits method. With the declining balance
method, a machine depreciates a different amount for each year, but the annual percentage of
depreciation is the same (Fig. 2). Depreciation can be calculated by using the following expression

Dn+1 = Vn - Vn+1

Vn = P (1- X/L)n

Vn+1 = P (1 - X/L)n+1

Dn+1 = P(1 - X/L)n (X/L)

Where.

Dn+1 = amount of depreciation charged for year n+1, N/year

V = remaining value at any time

P = purchase price, N.

n = number representing age of machine in years at the beginning of year in question

L = life of machine, years

X = ratio of depreciation rate. It may be any number between 1 and 2. If X = 2 the method is
called double-declining-balance method.

For used machine X is taken as 1.5.

Example: Suppose a new tractor is purchased for NGN 3,00,000.00 and its life is assumed to be 15
years. Assume salvage value as 10% of purchase price; then find the depreciation in 6th year.
Dn+1 = Vn - Vn+1

Vn = P (1- X/L)n

Vn+1 = P (1 - X/L)n+1

Given n = 5; X = 2 for new machine and L = 15

Vn = 300000 (1- 2/15)5

= 146683.65

Vn+1 = 300000 (1- 2/15)6

= 127125.83

Dn+1 = Vn - Vn+1

= 146683.65 – 127125.83 = 19557.82 in 6th year

Example: A machine costing NGN 3,00,000.00 has a total life of 15 years. If the rate of inflation is taken
as 5% constant through out its life period, find the future price of machine, total depreciation, remaining
value and annual depreciation charge at the end of 12th year. Take salvage value as 10% of inflated price.

Solution:

Using equation (1) future price at the end of 12th year will be

F = P (1 + I)n

= 300000 (1 + 0.1)12

= 941528.51

Total depreciation after elapse of 12 years will be

Remaining value of the machine at the end of 12th year will be

= 941528.51 - 677900.53 = 263627.98

Annual depreciation charge in the 12th year using equation (6) will be

= 0.06 P [n (1 + I)n - (n-1) ( 1 + I)n-1 ]

= 0.06 x 300000 [12 (1 + 0.1)12 - (12-1) ( 1 + 0.1)12-1 ]

= 0.06 x 300000 [37.66 – 31.38]

= 113040.00

Thus, it can be seen that at the higher inflation rates the financial burden on the farming enterprise will be
very high. The above technique can be applied to other depreciation methods with constant/variable
inflation rated in the life span of a farm machines.

Sum-of-the Years Digits Method

It is a much more accurate method of estimating the true value of a machine at any age because the
annual depreciation rate decreases as the machine gets older (Fig. 3). The amount of depreciation can be
determine by

Where,

Yd = Sum of the years digits = L(L + 1)/2

n = age of the machine in years at the beginning of the year in question

L = life of machine, year

P = purchase price, NGN

S = salvage value, NGN

The following steps determine the amount of depreciation by the sum-of-the years digits method:

1) Add up the numbers representing the years covered by the depreciation method.

2) Divide the total depreciation by sum of the digits of the years for the depreciation period.

3) Proportion the depreciation in reverse of the years over which the depreciation occurs.
Example: Suppose a new tractor is purchased for NGN. 3,00,000.00 and its life is 15 years. Assume
salvage value as 10% of the purchase price. Find the depreciation.

Solution:

Step 1: The sum-of-the-digits for 15 years is

15+14+13+12+11+10+9+8+7+6+5+4+3+2+1 = 120

Step II: Total depreciation = 300000.00 – 10% x 300000.00 = 270000.00

Step III: Each year depreciation would be calculated as follows:

First years’ depreciation = (L – n) x 2250.00

For first year n = 0

First years’ depreciation = (15 – 0) x 2250.00 = 33750.00

Second years’ depreciation = (15 – 1) x 2250.00 = 31500.00

Third years’ depreciation = (15 – 2) x 2250.00 = 29250.00

Fourth years’ depreciation = (15 – 3) x 2250.00 = 27000.00

And so on
Comparison of depreciation cost by different methods taking life of machine 15 years, price of machine P
and salvage value 10% of P is given in Table 1.

Table 1: Comparison of depreciation cost by different methods.

(Life of machine = 15 years; Price of machine = P; Salvage value = 10% of P)

End of year Straight-line method Declining-balance method Sum-of-the-years digits method

1 0.06 P 0.1153 P 0.1125 P

2 0.06 P 0.1000 P 0.1050 P

3 0.06 P 0.0867 P 0.0975 P

4 0.06 P 0.0751 P 0.0900 P

5 0.06 P 0.0651 P 0.0825 P

6 0.06 P 0.0565 P 0.0750 P

7 0.06 P 0.0490 P 0.0675 P

8 0.06 P 0.0425 P 0.0600 P

9 0.06 P 0.0368 P 0.0525 P

10 0.06 P 0.0319 P 0.0450 P

11 0.06 P 0.0277 P 0.0375 P

12 0.06 P 0.0240 P 0.0300 P

13 0.06 P 0.0208 P 0.0225 P

14 0.06 P 0.0180 P 0.0150 P

15 0.06 P 0.0156 P 0.0075 P

Sinking-Fund Method

Sinking fund depreciation method is primarily advantageous for use with a planned replacement internal
policy. By formula the values for the sinking fund annual payment (SFP) and the value at the end of the
year n are:

Where,

Dn+1 = amount of depreciation charged for year n+1, Rs./year

Vn = remaining value at the end of the year n, Rs.

Vn+1 = remaining value at the end of the year n+1, Rs.

P = purchase price, Rs.

S = salvage value, Rs.

i = interest rate, fraction

L = life of machine, years

Interest on Investment

A large expensive item after depreciation for agricultural machinery is the interest. It is a direct expense
item on borrowed capital. Even if cash is paid for purchased machinery, money is tied up that might be
available for use elsewhere in the business. Interest rates vary considerably but usually are between 12
and 16 percent. Annual interest is calculated on an average investment by using the prevailing interest
rate by the following formula:

Where,

I = annual interest charge, NGN./year

P = purchase price, NGN

S = salvage value, NGN

i = interest rate, per cent

Insurance and Shelter

Insurance and shelter charges together are taken @ 2% of the purchase price per year.

Consideration of Inflation in Depreciation Analysis of Farm Equipment

Any consideration of cash flows in today’s economy must include an effect of inflation. Inflation can be
defined in terms of an annual percentage that represents the rate at which current years prices have
increased over the previous year’s prices. It has a compounding effect. Because of inflation, the cost of
farm equipment or any other product continues to rise. Hence, inflation affects adversely the purchasing
power of money. The future prices of farm equipment in the n th year at constant inflation rate can be
represented by

F = P (1 + I)n ---------------- (1)

Where.

F = Future price in the nth year, Rs.

P = Purchase price, Rs.

I = Inflation rate, fraction

If the inflation changes in each year, then the future price of the farm equipment would be

F = P (1 + I1) (1 + I2) ---------- (1 + In) --------------- (2)

If constant inflation rate is taken as 10%, then the future price of the product after 10 years would be
(using equation 1)

F = P (1 + 0.1)10 = 2.59 P

i.e. the future price of the product will inflate to 2.59 times the purchase price in 10 years.

The effect of inflation can be included in the depreciation analysis. The depreciation of a machine under
constant inflationary condition using straight-line method can be written as

Where,

CDn = Cumulative depreciation charges up to nth year, Rs.

n = Number of years elapsed after the purchase of the machine

L = Life of machine, years

P = Purchase price, Rs.

S = Salvage value of the machine

Annual depreciation charge (Dn) in the nth year will be

Dn = CDn - CDn-1

and future value of machine at the end of nth year (Vn)

Vn = Future price at the end of nth year - CDn

= P (1 + I)n n - n/L [ P (1 + I)n - S ]

Taking life of the machine as 15 years and salvage value as 10% of the inflated price of the machine,
equation (3) reduces to

Similarly, cumulative depreciation charge up to (n-1)th year may be written as

CDn-1 = 0.06 (n-1) P ( 1 + I)n-1 --------------- (5 )

Annual depreciation charge (Dn) in the nth year will be

Dn = CDn - CDn-1

= 0.06 n P (1 + I)n - 0.06 (n-1) P ( 1 + I)n-1

= 0.06 P [ n (1 + I)n - (n-1) ( 1 + I)n-1 ] ------------- (6)

The remaining value of the machine after nth year (Vn ) may be obtained as

Vn = Future price at the end of nth year - cumulative depreciation value up to nth year

= P (1 + I)n - Dn

= P (1 + I)n - 0.06 n P (1 + I)n

= P (1 + I)n [ 1 - 0.06 n ] -------------- (7)

Variation in future price, total depreciation cost and remaining value of a machine as a function of
purchase price P at constant 10% annual inflation rate under straight-line method for total life of machine
15 years are given in Table 2.

Table 2: Comparison of future price, depreciation cost and remaining value of machine as a function of
purchase price.

End of year Future price Total depreciation Remaining value

1 1.100 P 0.0660 P 1.0340 P

2 1.210 P 0.1452 P 1.0648 P

3 1.331 P 0.2396 P 1.0914 P

4 1.464 P 0.3514 P 1.1126 P

5 1.611 P 0.4833 P 1.1277 P

6 1.772 P 0.6379 P 1.1341 P

7 1.949 P 0.8186 P 1.1304 P

8 2.144 P 1.0291 P 1.1149 P

9 2.358 P 1.2733 P 1.0847 P

10 2.594 P 1.5564 P 1.0376 P

11 2.853 P 1.8830 P 0.9700 P

12 3.138 P 2.2594 P 0.8786 P

13 3.452 P 2.6926 P 0.7594 P

14 3.797 P 3.1895 P 0.6075 P

15 4.177 P 3.7593 P 0.4177 P

 Variable Costs

Variable costs includes the following items:

 Repair and maintenance costs

 Fuel costs
 Lubrication (oil) costs
 Labour costs

i) Repair and Maintenance Costs

Repair and maintenance costs are considered as an essential and significant part of machinery ownership.
Occasional repairs and periodic maintenance are required to maintain a machine in good working order
and ensure a high degree of reliability. The more a machine is used, the greater is its need for repair.
The following factors necessitate the repairs in a machine:

 Routine wear
 Accidental breakage or damage
 Operator’s negligence, and
 Periodic overhauls

Repair costs consists of the expenditures incurred for the spare parts and the labour for repairs made in a
shop or on the farm. Repair costs vary from one geographical region to another because of the
differences in machinery use, labour wages and prices of spares. Repair costs increases with the age of a
machine but tend to level off as a machine becomes older. The accumulated repair and maintenance
costs (TAR) at any point in a machine’s life can be estimated by using the following formulae (IS:9164 -
1979).

For four - wheeled and crawler tractors TAR = 0.100 X1.5

For stationary power units and two-wheeled tractor TAR = 0.120 X1.5

For agricultural trailer TAR = 0.127 X1.4

For PTO-driven combine, seed drill and Sprayer TAR = 0.159 X1.4

For plough, planter, harrow, ridger and cultivator TAR = 0.301 X1.3

For seed cleaner TAR = 0.191 X1.4

For self-propelled combine, dozer and scraper TAR = 0.096 X1.4

Where,

TAR = Total Cumulative repair and maintenance costs per year divided by the purchase price of the
machine expressed as percentage

X = 100 times the ratio of accumulated hours of use to wear out life

ii) Fuel and Oil Cost

With tractors and other powered farm equipment, the cost of fuel and oil must be included in the total
machine charge. Power required may be estimated as follows:

DS

dbp = --------

270

Where,

dbp = drawbar horse power, hp

D = draught, kgf

S = speed, km/h

or

DS
 dbp = -------

3.6

Where,

dbp = drawbar power, kW

D = draught, kN

Fuel consumption depends on the size of the power unit, load factor and operating conditions. The actual
consumption can be measured in the field or can be estimated by using the following equation (IS:9164 -
1979):

F = 0.15 P

Where,

F = average diesel consumption, l/h

P = rated power, kW

or

F = 0.25 P

Where,

F = average petrol consumption, l/h

P = rated power, kW

Fuel consumption can also be estimated by the following equation:

F = LCF RHP SFC/1000

Where,

F = fuel consumption, l/h

LCF = load coefficient factor for the operation

RHP = rated horsepower of the power source, hp (kW)

SFC = specific fuel consumption, ml/hp/h (ml/kW/h)

The values of LCF and SFC for different operations and power sources are given in Table 3.

Labour Charge: The cost of operator and labour is calculated from the actual operator and labour
charges paid in Naira per day at the prevailing rates in that region.

Example: A test was conducted to find out the cost per hour operation of a 25 hp tractor operated wheat
thresher. Also find the cost of operation of the thresher per tonne.
Given:

Price of tractor = N 2,50,000.00

Price of thresher = N. 25,000.00

Life of tractor = 15 years

Life of thresher = 10 years

Salvage value = 10%

Interest rate = 15%

Shelter & Insurance = 2% of purchase price

Price of diesel = N. 11/litre

Number of labour employed with thresher =4

Labour charge = N. 8.00/h

Driver’s charge = N. 20.00/h

Annual use of tractor = 1000 h

Annual use of thresher = 200 h

Output of thresher = 800 kg/h

Depreciation = Straight line method

Solution: a) Tractor

Total fixed cost = 15.00 + 20.63 + 5.00 = N. 40.62/h

Repair & maintenance cost

For Tractor TAR = 0.12 (X)1.5

Fuel Consumption = LCF x RHP x SFC/1000 = 0.6 x 25 x 210/1000 = 3.15 l/h

Fuel cost = 3.15 x 11 = N. 34.65/h

Oil cost = 0.20 x 34.65 = N. 6.93/h

Driver’s charge = N 20.00/h

Total variable cost = 2.83 + 34.65 + 6.93 + 20.00 = N 64.41/h

Total cost of operating the tractor = 40.62 + 64.41 = N. 105.03/h

(b) Thresher

Repair & maintenance cost

For thresher TAR = 0.159 (X)1.4

200 x 100

X = ------------- = 10%

10 x 200

TAR = 0.159 (10)1.4 = 25.12% of average purchase price

= N. 17.27/h

Labour charge = 4 x 8 = N. 32.00/h

Total cost of operating the thresher = 105.03 + 11.25 + 10.31 + 2.50 + 17.27 + 32.00

= N. 178.36/h

178.36 x 1000

Cost of operation/tonne = --------------------- = N 222.95

800

Example: A farmer purchased a 45 hp tractor at a price of N. 350,000.00 and a 3-bottom mould board
plough with 30 cm bottom width at N 15000.00. The draught requirement is 18000 kgf at 3.0 km/h in a
clay-loam soil. Calculate:

i) Area covered per day of 8 hours

ii) Cost of ploughing per hectare and per hour

Make necessary assumptions.

Given:

Price of tractor (P) = N 350000.00

Price of plough = N. 15000.00

Width of plough (w) = 3 x 0.3 = 0.9 m

Speed of tractor (S) = 3.0 km/h

Assumptions:

Life of tractor (L) = 15 years

Life of plough = 15 years

Annual use of tractor = 1000 h

Annual use of plough = 200 h

Field efficiency of plough = 60%

 Interest rate (i) = 12%

Salvage value (S) = 10% of purchase price

Cost calculations:

Tractor

Tax, Shelter & Insurance = (2% of purchase price)/1000 = 0.02 x 350000/1000

=N. 7.00/h

Total fixed cost = 21.00 + 23.10 + 7.00 = N. 51.10/h

Variable Cost
Repair & maintenance TAR = 0.12 (X)1.5

Yearly use x 100 1000 x 100

X = ----------------------- = ---------------- = 6.67%

Total life 15 x 1000

TAR = 0.12 (X)1.5

= 0.12 (6.67)1.5 = 2.067% of average purchase price

= (2.067)/100 x (350000 + 35000)/2 = N 3979/year

= 3979/1000 = N. 3.98/h

Fuel consumption = LCF x RHP x SFC/1000

= 0.6 x 45 x 210/1000 = 5.67 l/h

Prevailing diesel rate = N 16.50/l

Fuel cost = 5.67 x 16.50 = N. 93.56/h

Oil cost = 0.20 x 93.56 = N. 18.71/h

Labour cost = Prevailing operator’s charge = N. 20.00/h

Total variable cost = 3.98 + 93.56 + 18.71 + 20.00 = N. 136.25/h

Total cost of operation of tractor = 51.10 + 136.25 = N. 187.35

Mouldboard plough

Fixed Cost
Depreciation = (15000 – 1500)/(15 x 200) = N. 4.50/h

Interest = (15000 + 1500)/2 x 0.12/200 = N. 4.95/h

Tax, shelter etc. = 2% of purchase price = 0.02 x 15000/200 = N. 1.50/h

Total fixed cost = 4.50 + 4.95 + 1.50 = N. 10.95/h

Variable cost
Repair & maintenance cost TAR = 0.301 (X)1.3

X = (200 x 100)/(15 x 200) = 6.67%

TAR = 0.301 (6.67)1.3 = 0.301 x 11.78

= 3.55% of average purchase price

= 0.0355 x (15000 + 1500)/2

= Rs. 292.88/year

= Rs. 1.46/h

Fuel cost = 0 (Taken with tractor)

Oil cost = 0 (Taken with tractor)

Labour cost = 0 (Labour cost is considered here only if extra labour other than tractor operator is
employed)

Total cost = 10.95 + 1.46 = N. 12.41/h

Cost of ploughing = 187.35 + 12.41 = N. 199.76/h

Field capacity of plough = 0.162 ha/h

Cost of ploughing/ha = 199.76/0.162 = N 1233.08 = N 1233/- per ha

 Replacement of farm machinery

Good guidelines are available for making management decisions on when to replace the farm equipment.
Important reasons for replacing a machine are:

i) Accidents have damaged the implement beyond repair

ii) Field capacity of the machine is inadequate

iii) A new machine or farm practice has made the old machine obsolete

iv) Performance of a new machine is significantly superior

v) Anticipated costs for operating the old machine exceed those for a replacement machine, and

vi) The machine is worn out.

The time of replacement decisions depends on the accumulated costs over a period of years. The annual
cost curve as well as the accumulated average cost curve for a machine is shown in Fig. 1. Both the
curves intersect at a point. Theoretically, the time to replace a machine is when the annual cost starts to
exceed the average accumulated cost. However, machine repair rate really determines the time of
replacement. One method of establishing the time of replacement is to determine that the cost per unit of
use has reached its lowest value.
 OWN, HIRE OR CONTRACT
Ownership
Most crop producers prefer to own their own harvesting or spraying equipment. They provide labor to
operate the machine, assume responsibility for repairs and maintenance, and assume all the risk of
obsolescence. The owner also gains complete control over machine scheduling and timeliness, as well as
the quality of the work performed. The large initial investment can be a barrier to ownership, however.
Even though ownership may be profitable over the long run, the owner may have to pay for the machine
in only a few years. Some owners look for acres to custom harvest or spray in addition to their own, to
help pay the machinery ownership costs. Joint ownership allows responsibility for investment, repairs,
and labor to be shared with someone else. Joint ownership may generate enough use to make owning a
machine profitable when it would not be profitable for one owner alone. However, cooperation is
absolutely essential. The parties must approve of each other's use and care of the machine. The process
for scheduling between farms should be worked out ahead of time, and all owners need to agree on who
has responsibility for operating the machines and making repairs.

Leasing
Leasing also has become popular for large investment items such as combines, as an alternative to
ownership. However, the lessee still has full responsibility for operating and maintaining the machine.
Leasing may require smaller annual payments than financing the same machine on a purchase plan, but
the operator does not have any ownership or equity value at the end of the lease period.

Custom Hiring
Custom hiring allows a farmer to gain shortterm control of a harvester or sprayer without investing a
large amount of capital. It has several advantages compared with owning.
Advantages
1. The machine comes with an operator. That means that the hiring farmer has no responsibility for
operating or maintaining the machine. Also, the farmer can perform other tasks such as hauling
and unloading grain while the combine is operating, without having to hire extra help. This is an
important advantage for farmers with a limited labor supply.
2. There is no long-term capital investment in the machine. The cost of custom hiring can be paid
from operating capital.
3. The hiring farmer has no responsibility or repair costs.
4. There is no responsibility for liquidation of the machine if production practices or farm size
change and it is no longer needed.
5. The farmer pays only for the number of acres actually harvested or sprayed, which may vary from
year to year.
6. The custom operator's machine is more likely to be a recent model and in good mechanical
condition.
7. Some custom operators provide grain trucks, carts, or wagons as well as the combine.

Custom hiring also may have some disadvantages, but their severity will depend on the local situation.
Disadvantages
1. There may not be a competent operator and machine available nearby.
2. The hiring farmer will not be operating the machine and will not have complete control over the
quality of the job performed.
3. The custom operator may not be able to harvest or spray the crop when it is convenient for the
owner nor during the optimum time period. Problems could arise if the weather is bad and the
custom operator has several other farmers waiting.