Should You Consider Purchasing a Flue-cured Tobacco Harvester

Farm Business Management Update, December 2001

By Eric Eberly

Hired labor costs are generally in the top three expenses for hand-primed flue-cured tobacco in Virginia. According to the 2001 Virginia Flue-cured Tobacco Budget, hired labor accounts for 34% of the variable costs incurred to produce the crop. This amount includes labor overhead expenses directly allocated to the tobacco crop. Approximately half the labor hours budgeted are used to hand prime and fill the bulk barns. To reduce total labor costs and management requirements, many tobacco farmers are considering purchasing flue-cured tobacco harvesters.

Efficient tobacco farmers who are currently using mechanical harvesters have reduced labor hours used to prime and fill bulk barns by one-half to two-thirds. For the investment in a mechanical harvester to be financially beneficial, the savings in labor costs and management time must offset the additional operating and fixed costs for this equipment.

In September of 2001, the manufacturers of flue-cured tobacco harvesters were surveyed to determine an average list price of purchasing a 2-row self-propelled tobacco harvester. The average cost was proximally $75,000 varying 10% above and below the average price, depending on brand and options.

The assumptions used in this analysis were

1. $75,000 purchase price/cost
2. 100 horsepower motor
3. 2000 hours of useful life
4. 2.2 mph average operating speed
5. 60% field efficiency
6. Repair cost equal to 33% of new harvester cost over useful life
7. Harvester sold for $26,438 (salvage value) at the end of the 5 years.

Total operating cost for the tobacco harvester include costs for fuel, oil, lubricants, and repairs. Operator labor is included at $10 per hour. Fixed costs include depreciation, interest, housing, and insurance. Table 1 shows the range of estimated variable and fixed costs for the harvester over typical acreage for Southside Virginia. As expected, variable costs increase with usage while total annual fixed cost remain constant. Thus, total annual cost per acre declines as more acres are harvested.

Total labor and management cost savings must cover the fixed ownership and operating costs for the harvester. Labor costs are a combination of hours worked times the wage rate plus any additional benefits not included in the paycheck. To make an accurate decision, farmers should have labor records indicating how many hours are spent on the various tasks involved in the production process. Labor savings from use of a mechanical harvester can be expected to vary greatly between farms. Table 2 explores these differences by illustrating how much money is being saved with various combinations of labor savings and hourly wages paid by Southside farmers.

Table 1. Estimated Cost Per Acre

Item	Two-row Flue-cured Tobacco Harvester Acres Harvested
Tobacco Acreage	50	60	75	100	150
Annual Usage (Hours)	156	188	234	313	469
Operating Costs $ 1
- Annual fuel cost	574	689	861	1,148	1,723
- Annual lube cost	86	103	129	172	258
- Annual repair cost	912	1,266	1,891	3,174	6,586
- Annual operator labor	1,560	1,880	2,340	3,130	4,690
Total Operating Cost	3,132	3,938	5,222	7,625	13,257
Total Operating Cost per Acre	63	66	70	76	88
Fixed Costs $
- Depreciation	9,530	9,530	9,530	9,530	9,530
- Interest	6,141	6,141	6,141	6,141	6,141
- Insurance	307	307	307	307	307
Total Fixed Cost	15,978	15,978	15,978	15,978	15,978
Total Fixed Cost per Acre	320	266	213	160	107
Total Costs $	19,110	19,916	21,200	23,603	29,235
Total Cost per Acre $	382	332	283	236	195
1 Fuel cost is calculated by multiplying the engine horsepower times fuel price times .044 times hours of use per year. Oil and lubricants usually equal 15% of fuel costs. Repair costs increase exponentially based on the number of hours the equipment is used compared to its useful life. The harvester is expected to incur repair bills of 33% of its purchase price over its useful life of 2000 hours.

Table 2. Wages Saved Per Acre

Wage $	Hours saved per acre
	30	35	40	45	50
7.25	$217.50	$253.75	$290.00	$326.25	$362.50
7.50	$225.00	$262.50	$300.00	$337.50	$375.00
7.75	$232.50	$271.25	$310.00	$348.75	$387.50
8.00	$240.00	$280.00	$320.00	$360.00	$400.00
8.25	$247.50	$288.75	$330.00	$371.25	$412.50

The decision to invest in a mechanical harvester based on the typical results presented in Tables 1 and 2 indicates a farmer needs to harvest 50 to 60 acres annually to cover operating and fixed costs. Farmers that must hire skilled operators would need to harvest 60 and 75 acres to cover the additional costs for an operator. Furthermore, farmers that are currently doing an above average job of managing their farm labor costs may require even larger acreage to cover total costs.

The following are other factors to consider prior to making this equipment investment:

1. Uniformity in plant growth in each field. Multiple soil types within the same field could cause uneven maturity of tobacco.
2. Tobacco fields need to be clean with no weeds or suckers.
3. Eliminating harvest labor could reduce availability of labor to move irrigation pipe, etc., resulting in the potential for additional investment to change irrigation system.
4. An additional investment in barns may be needed. Plan on curing 2,500 pounds of tobacco per cure in each barn.
5. Look closely at the distance from the field to the barn. Additional trucks and/or trailers may be needed to handle the volume of tobacco from the harvester.
6. You could loose 1% to 5% of the curable leaf in the field by mechanical harvesting. In addition, you may not be able to mechanically harvest storm damaged tobacco or find harvest labor on short notice.
7. Skilled labor is required to operate the harvester.
8. If borrowed capital is needed, evaluate your financial position before and after the purchase. Plan to monitor the financial conditions of the farm and future capital needs.
9. Remember, machinery purchases are no substitute for poor labor management.

Contact the author at eeberly@vt.edu

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