The Rural Voice, 1982-04, Page 32THE YOUNG FARMER
What do they mean
by an "efficient farm?"
There is an obvious tendency to talk
about "efficient" farms without ever
being clear about what is meant.
Most people would agree that
efficiency relates to the amount of output
or product that results from a unit of
input. For example, if a farmer produces
a tonne of corn from an hour of time put
into the production of the crop then he
would have high labo r efficiency. But
his capital efficiency, or his energy
efficiency might be very poor. It seems to
me that "efficient" farmers do not go
broke. But I can see where farmers who
are very "labo r efficient" could go
broke if they happened to also be very
capital inefficient. 1 wish people who
want to say something about efficiency
would be specific. I would like to know
what they mean.
Because the cost of money has gone up
so drastically in the past year and a half I
that capital efficiency is now of
prime importance in managing a tarm.
Many other things are important too. But
on balance I am afraid that during the last
decade the emphasis on output per hour
of work, and the output per machine
hour has caused us to forget about the
efficient use of capital. Now it is
absolutely necessary for a farmer to make
efficient use of capital.
One farmer recently told a group
visiting his farm that he was only
interested now in making investments
with a 2 or 2 year payback. That meant he
wanted to put new investment money into
only those things that would pay for
themselves quickly. He was in the midst
of constructing a heat exchanger for his
Dorn dryer which his engineering
consultant estimated would recover its
capital cost in 2 years from reduced
expenditures for propane.
Last year's Ontario Farm Management
Analysis Project provides return on
investment figures on different types of
farms.
TYPE OF FARM
RETURN ON
INVESTMENT
Cash Crop Production 6.4%
Swine: Farrow to Finish 5.810
Beef Feedlot 3.9°10
Dairy Farms 5.6%
Capital turnover, and return on invest
ment are two measures of capital
efficiency. For your farm you can find the
capital turnover by dividing your gross
farm income into the total of your farm
assets. For a farm this will be a matter of
years. For a grocery store it could be just
a few weeks.
The return on investment is more
complicated to calculate, but in these
situations $10,000. per year was sub-
tracted from the net the operator, and the
amount left over was essentially regarded
as a return to capital.
Perhaps in the future. when we hear
someone talking about "efficient" farms
we could politely ask them just what they
mean. We might help the speaker to
clarify his thinking and also to help us
understand what he is trying to say.
By R.F. Heard
Look to the Future
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Write or Phone now - for brochures or applications
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Huron Park, Ontario NOM 1Y0 (519)228-6691
PG. 30 THE RURAL VOICE/APRIL 1982