The value of your time

Is the work you do on your farm really paying you a fair wage? Kerry Dwyer checks out the sums.

As a farmer, what value do you put on your time?

I was recently discussing with a client a lease proposal that had some relevant figures. This client has an agricultural contracting business that charges out at $40/hour for labour – and if that sounds high, then compare it with what your plumber or electrician charges an hour.

The farm up for lease was about 300ha, which according to Beef + Lamb New Zealand statistics would be generating a gross income of $450,000 to give a taxable profit of maybe $100,000 after all deductible costs. It was being run by an owner-operator with minimal additional labour input.

If that owner-operator farmer worked 40 hours a week for 52 weeks of the year, the net profit per hour worked would be $48. While it is obligatory to keep time sheets for employees, how many owner-operators keep a good record of time worked, or ensure they have the statutory four weeks annual leave that employees are entitled to?

After paying a lease, my client wants to be achieving a similar return for hours worked to what their contracting business is achieving. If the return is less than that, the client would be better spending more time contracting. From the figures talked by the real estate agents, it appeared that return for hours worked would be very difficult to achieve as a lessee. Their rental figure indicated that the farm owner wanted to up his taxable profit from the current, which would leave a likely tenant doing it for less than the minimum wage return. Note that the current minimum wage of $21.60/hour equates to just under $45,000/year and just over $38,000/year after income tax.

Current salary levels for sheep and beef farm managers appear to start at $80,000 a year and move upwards, depending on property scale and responsibility involved. Housing rental can be added to that in most cases, and maybe some other perquisites. Taking a total package of $100,000, it’s the same as the farmer above, at $48/ hour. But if the manager works, say, 50 hours a week for 50 weeks a year, the hourly rate slips to $39, and that scenario is not uncommon.

Note that the figures for the farmer above allow all profit to go to cost of labour and management, with effectively no return on capital for the property itself. If the 300ha property had a value of $6m, requiring a return of 2%, then the farmer is working for nothing, because the taxable profit all goes to return on capital. The reality is that land-owning farmers often don’t look to a return on capital beyond the capital gain that has been the general trend in New Zealand.

Time management

Looking at the figures above raises the question of time management relative to output. For my contracting client, time spent at each job is recorded and charged for, but for farmers there is a range of management and labour tasks that have varying levels of output.

There is an old saying that the best fertiliser is the soles of the farmer’s boots, meaning that being in the field observing (and maybe planning) is critical to the business, but it doesn’t have any direct measurable output. The labour tasks of handling stock, maintaining infrastructure, seedbed preparation, supplement conservation, etc, all have a measurable output and time involved, but need the soles of the farmer’s boots to get the planning and timing right.

Many farmers will say they multitask, combining planning tasks with labour tasks. My experience says that women multitask a lot better than men. And driving past roadworkers, I am mostly struck by their appearance of doing bugger all, but maybe they are busy planning.

I have had some farmers record their activities for short periods, to get a handle on time on the job. Interestingly, the results in terms of time and tasks seldom correlated with their perceptions before they recorded hard data on themselves. Similarly, the data in vehicle logbooks often showed differences between fact and perception.

Other activities

As owner-operator farmers, we mostly live on the property and mix business with personal time in a manner that isn’t possible for those who travel to a workplace for set hours each day for a set number of tasks.

The intermingling of the two has pluses and minuses, but ponder what effect that has on output.

Involvement in community activities is an integral part of many rural lives, with many benefits. We all put different value on it and it helps keep our society ticking over, and the benefits are not all economic. How many sausage sizzles raise less profit than would pay the support crew the minimum wage?

And maybe the calibre of politicians we get reflects the pay rate per effective hour, or their skill levels.

Summary

I heard recently that a third of government employees are paid $100,000/year or more, which rates at the $48/hour level. I think that few owner-operator farmers would be achieving that level of income if they factor in a return on capital from the business profit. To get a handle on your return for effort, best to record what you do and for how long. And as an Australian mate of mine told me, “don’t give up your day job”.

• Kerry Dwyer is a North Otago farm consultant and farmer.