Using machines and additional sources of power usually makes human labour more productive. People can do more work at a faster rate. So machinery can help farmers to increase the area they cultivate, thus producing more crops or livestock to sell. It can help them transport products to more distant markets and potentially sell things for a better price. Machinery, however, is often expensive and it depreciates and needs replacing after some time.
This booklet explains how farmers can calculate the costs associated with the ownership and use of draught animal power, tractors and other tools and machines. It shows how they can assess the pros and cons of investing in new machinery using partial budgets and cash flows and introduces the ideas of opportunity cost and break-even point. The fact that the cost per hectare of owning machinery and draught animals reduces as the area cultivated increases means that offering hire services is one way a farmer can improve his chances of covering his costs and repaying loans used to buy machinery.
The final chapter provides guidance on how to develop and operate a contract hire service and explores the concept of joint ownership as an alternative means of spreading the costs of machinery ownership.
- Author/editor:Jennifer Heney / FAO
- Type Training guide
- Year of publication2012
- Keywords Cost Calculation, Financial Analysis
- File book 3 explaining the finances of machinery ownership