18 August 2000 Keying in to profitability – yes or no?

Does the use of a computer as a management tool increase farm profitability? That's a question investigated by Lincoln University researcher Dr Peter Nuthall as part of his survey work on the use of computers in the primary production sector.

"Farmers are continuing to take up and use computers in increasing numbers," he says. "Recent surveys suggest that around 60 percent of farmers now have computers. But there is little information on whether or not their use is adding to the profitability of farming operations."

To provide some evidence, Dr Nuthall of Lincoln University's Management Systems Research Unit, collected and analysed details from 23 Canterbury farms.

All the study farms had been using computers for a varying number of years. Financial data from both before and after computer purchase was collected. For some farms this involved records spanning 10 years.

Past survey data indicated that the majority of farmers believed that investing in a computer was economic, but has this belief turned into fact?

While only 23 farms were studied, the answer on profitability seems to be a ‘maybe’. In some cases the investment in time and equipment paid off, but not so in others.

Dr Nuthall calculated the annual cost of a computer to be around $6100. This is made up of $4300 for the time input (the average use of New Zealand farms is 21 hours per month). The rest is for depreciation and materials.

Included in the sample were sheep, beef and cropping farms – but there wasn't a farm type pattern. On average, after adjusting for seasonal affects, computer use was associated with a profit increase of $11.29/ha per annum. This varied between farms from a loss of $353/ha to a gain of $287/ha per annum. One third had a decrease in profit after buying a computer. Thus, two-thirds made profitable use of their computer.

On an individual year-to-year basis, the profit difference between owning and not owning a computer was a loss in some years. There was considerable variability. However on average computer farms had a return on capital of 1.33% greater than non-computer farms. In one particular year computer farms had a lower return on capital. In 1988-89 their return was 1.65% less than non-­computer farms.

"Clearly the figures are variable," says Dr Nuthall. "Perhaps what is more important is how computers are used. It could be that some farm managers will get a response from careful management whether or not they have a computer.

"What the data does suggest is that buying a computer system won't in itself help. It is how it is used that matters. And if properly used there are real and profitable benefits. But proper training and planning for efficient use are essential."