Understanding the costs, both fixed and variable, of producing a tonne of any crop is the first step in finding ways to maintain profitability in a period of low prices.

This performance indicator is useful, both as an absolute measure (£/t) and relative to crop price (percentage of crop price).

Anthony Pole
Independent consultant

The graph below from the latest Savills Spotlight report shows variable and fixed costs, as a percentage of crop prices for conventional tillage.

The figures highlight that the fall in crop prices (table 2), in most cases, further squeezed net margins per tonne of crop produced.

See also: Many UK growers missing out on the benefits of zero tillage

Only winter oilseed rape, winter barley, spring barley and spring beans show their noses beyond the cost of production breakeven point (excluding subsidy), but can only realise profits of less than 20%.

Therefore, reducing costs of production and/or improving crop yields is necessary for enterprises to remain profitable without relying on subsidies in the coming season and beyond.

One way to cut costs is by reducing cultivations or better still, eliminating cultivations altogether by following conservation tillage.

Variable costs

Harper Adams University professor Dick Godwin, recently looked at the reduction in variable costs as experienced by five farmers in their conversion from conventional farming to conservation agriculture (tables 3 and 4).

These were outlined in his report Potential of No-Till Systems for Arable Farming, which he prepared for the Worshipful Company of farmers.

They found that costs of herbicides (glyphosate) and pesticides (against slugs and snails) may be slightly higher with conservation agriculture.

Interestingly, there is a great similarity in the positive responses despite the range of farms. They were located from Kent to Yorkshire, with soils ranging from gault clay to fen peats, with mean annual rainfalls from 600mm to 800mm and cropped areas from 400 to 1,250ha.

Variable costs are a crucial benchmark and these can reasonably be reduced by 40% compared with conventional systems, in line with the findings in tables 3 and 4.

This would produce a lower cost of production breakeven line, above which most crops would now be making a worthwhile profit before subsidy. Some making nearly 40%.

Yield reductions can have a big influence on crop gross margins and, therefore, they need to be maintained to maximise returns.

However, yields can in some cases be reduced by 15% (table 5) during an initial transition phase of two to three years when moving to conservation agriculture. After this period, yields are comparable with conventional systems.

Fixed costs

Looking at fixed costs, changes attributable to no-till farming are more difficult to quantify.

Fixed costs are a significant production cost and represent 40% to 60% of crop price. Savills research shows that average fixed costs (as a proportion of total gross farm output) were broadly similar in harvest years 2013 and 2014.

With conservation agriculture, machinery needs and costs are very greatly reduced, as is the cost of labour. All the case study farmers reported a reduced investment in machinery (see table 4).

In summary, the figures show an opportunity to improve business performance, even bringing crops back into the black, by switching to no-till conservation agriculture.

Farmers adopting this approach have some big advantages over conventional farmers, valuable in periods of low prices.

Anthony Pope has spent more than 40 years in farming, working in many countries, seeing first-hand the benefits of conservation agriculture