Buy or rent agricultural machinery?

Knowing the operating costs of agricultural machinery helps to make important decisions in controlling and planning usage.

The operating cost is obtained through the sum of all costs resulting from the acquisition and operation of the machine or equipment used. Their knowledge is extremely important in the decision-making process, controlling and planning the use of machines (Machado; Malinovski, 1988).

Through cost analysis, it is possible to determine the costs resulting from the project, making it possible to identify and verify which were the most costly activities in the composition of the total cost, and seek alternatives to reduce them (Santos, 2014).

Costs can be divided into fixed and variable. Fixed costs do not vary when the number of hours worked by the machine varies, they occur even if the machine is not in operation. While variable costs change according to the intensity of use of the machine.

FIXED COSTS

Fixed costs can be made up of depreciation costs, interest on invested capital, shelter, insurance and taxes.

Depreciation is associated with natural wear and tear and obsolescence of the machine, a result of its aging and the emergence of new machines with better performance on the market. There are several methodologies used to obtain the depreciation cost. The simplest is linear depreciation, where the same depreciation cost is considered for all years throughout the useful life of the machine (see box).

Interest on capital is that which the capital tied up in the acquisition of the machine can yield in a bank account. Shelter is those costs allocated to the maintenance and preservation of the shelter used to store and protect machinery and agricultural implements from the elements when they are not being used. It is recommended to use a percentage of 0,5% to 2% of the machine's purchase price per year.

Insurance costs refer to taking out insurance against theft, fires and accidents involving agricultural machinery and implements, which is not a common practice in Brazil. When carried out, this cost varies from 0,75% to 3% of the machine's purchase value per year. A shelter/insurance cost of ± 3% of the machine's purchase value is generally considered.

The other fixed cost that must be calculated is taxes. In Brazil, tax costs are generally not charged. Depending on the state, ICMS is not paid when purchasing agricultural machinery and implements.

VARIABLE COSTS

Variable costs can be made up of fuel, lubricants, maintenance and labor costs.

Fuel consumption may vary according to the power and type of tractor engine (Otto or Diesel cycle). Table 1 presents the equations used to determine the cost of fuel for diesel engines (Asae, 2001). To obtain this cost, a simplified method can also be used, which is widely used in practice.

Lubricant costs are all those resulting from the consumption of lubricating oils and greases.

Maintenance costs are those for preventive and corrective maintenance and the labor required to carry it out. In agricultural tractors, this cost is obtained considering a percentage of 100% of the initial value of the tractor throughout its useful life. Therefore, for example, ten years of useful life would result in an annual maintenance rate of 10% (100/10) on the initial investment. In agricultural implements, a percentage of 4% to 6% per year is considered on the initial investment.

Labor is a cost resulting from the sum of costs allocated to the remuneration paid to the operator (salary) and social charges (66% to 80% of the total salary).

To determine the hourly cost of labor, only working days during the month are considered. As agricultural tractors normally work 22 days a month in an eight-hour daily workday, a figure of 176 hours of operation per month is considered.

The total cost corresponds to the sum of all fixed and variable costs. In addition to the items mentioned above, depending on the interest and needs of the owner or company, other costs, such as administration fees, transportation, tires, conveyors, etc., can also be added to the composition of the costs of this machine/implement.

If the owner intends to rent the tractor, consider a profit margin of 30% to 50% on the total cost. To determine the number of effective annual working hours that the machine needs to perform, it is recommended to use the analysis called break-even point. If the evaluated tractor does not reach the value found in this analysis, it is recommended that it not be purchased, and outsourcing the activity is more viable.

Example of how to calculate the operating cost of a tractor

You want to know the hourly operating cost of working an agricultural tractor, considering: Acquisition value (Vi): R$ 90.000,00; Useful life (Vu): 15 years; Annual working hours (h): 1.000 h; Interest rate (i): 12% pa; Nominal power: 75 hp; PTO power: 65 hp; Salary (S) + social charges (E): R$ 1.500,00; Diesel oil price (Pr): R$ 2,25/L; Price of lubricating oil (Pro): R$ 15,00/L; Grease price (Prg): R$ 12,00/kg.

Formulas for calculating main costs

Depreciation

where: D = Depreciation Cost; V_i= Initial value (R$); V_s = Final or scrap value (R$) and V_u = Useful life in years (V_s can be considered as 10% of V_i).

Interest on capital 

where: J = Interest on capital (R$); V_i= Initial value (R$) and i = interest rate per year, decimal (in practice, between 6% and 8% per year).

Fuel cost 

Lubricants 

on what: C_o= costs with lubricating oils (L h^-1) to CG = grease costs (kg h^-1).

Break-even point

on what: H = hours worked per year (h year^-1);CF_a = annual fixed cost (R$ h^-1); Pu= Average price per hour worked (R$ h^-1) to CV = variable cost (R$ h^-1).

Haroldo Carlos Fernandes, Larissa Nunes dos Santos, Federal University of Viçosa

 Article published in issue 154 of Cultivar Máquinas.