Evaluating Investment Returns
No investment is worth making unless its return can be measured. Some farmers take a variable approach to calculating the ROI of different precision ag investments. That can help determine your most cost-efficient next investment.
By: Ben Potter, AgWeb.com Social Media and Innovation Editor
Precision ag has many benefits on the farm, but adoption is far from universal. According to the results of an October 2013 AgWeb survey, only about 20% of the 1,600 farmer respondents were using precision ag technology throughout their operation, and 25% said they weren’t using it at all.
Still, many farmers such as Brian Watkins are not only putting precision ag to the test; they are calculating the approximate value each technology brings to the farm.
Watkins, a sixth-generation Ohio farmer, uses several precision technologies in his operation and decided to see what value each component brought to the table. He wanted to make sure his six-figure component was a smart one. There were initial investments, such as an auto-steer setup, software, new clutches on his planters and variable-rate ready applicators, but he also factored in recurring costs such as consulting, soil testing, internal maintenance and more.
"We evaluated each area separately when we were deciding to invest in them," Watkins says. "We try to evaluate all of our investments in this manner. We are not done learning, which means we are not done making mistakes, but at least now we can justify the expense."
Watkins says farming smaller fields with odd shapes and numerous waterways amplified the benefits of reduced overlap. In total, the precision decisions tallied up a return of 145%.
Terry Kastens, a professor at Kansas State University, says the precision ag experience is highly personal.
"Everybody knows that some aspects of precision ag pay today, and so those aspects are adopted very quickly," he says. "The ROI [return on investment] in other aspects of precision ag is not nearly so clear."
Yield monitors versus yield mapping technology is a prime example, he says.
"Everybody has a yield monitor and gets the implicit benefits of observing yield in real time across their fields," he says. "But, hardly anyone is doing anything meaningful with the data. That takes some number crunching and understanding what you wish to change based on the data you collect."
Some technologies are slow to adopt because they are expensive, difficult to learn or completely different than current practices, Kastens adds.
Mike Gomes, director of strategic business development with Topcon Precision Agriculture, says education and training are ever-present challenges when adopting new technology.
Ultimately, precision ag technology needs to be as easy to use as a smartphone, Gomes says.
The return speed. So how quickly can a farmer reap the rewards of a new precision purchase? It highly depends on cost and objective.
Auto-steering tends to pay for itself the fastest because it is relatively inexpensive and farmers see the immediate impact on ease of use, lower operator fatigue and reductions in machine overlap. On the other end of the spectrum, some variable-rate mapping functions can take two or three years to pay off. That’s because year one is spent establishing a baseline. The ROI is realized after zone-management changes are made in the years that follow.
Don Van Houweling, principal at Van Wall Equipment in Perry, Iowa, says the benefit of any precision purchase hinges on how (and how much) you use it.
"The more holistically you use the data, the higher the payoff," he says. "We can collect data by the foot, but it only pays if you use it. You’re going to invest some money, but imagine if you could pick up $50 per acre in margin?"
For a holistic approach, Houweling looks at a suite of tools and services, including auto-steering, variable-rate planting, inputs and soil probes.
Measuring the intangibles. Other aspects of precision ag ROI are much harder to quantify in dollars and cents. One prime example Gomes asks is: What’s your time worth?
"You have to look at efficiency in productivity, not just dollars," he says. "Think about the value of farming more acres per day or getting more hours of operation out of your equipment. Those are big factors."
Gomes says that precision payback comes down to setting goals and meeting them with the technology.
"Understand the objectives of your new technology, measure your results and repeat them if they are successful," he says. "We need that culture of continuous improvement."