Penny Pinching in the Field

Published in the January 2012 Issue Published online: Jan 23, 2012 William H. Bohl and Paul E. Patterson
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I recently noticed a 15-cents-per-gallon difference in the price of gasoline at two locations 25 miles apart. How much would you save by driving 25 miles to buy the less expensive fuel? It all depends. Buy 20 gallons and you "save" $3. But, how much did you spend to save $3? If driving costs you more than 6 cents per mile, you lost money. Buying a lower priced item doesn't really "save" you money if you spend more than you saved to make the purchase. To paraphrase the English adage, you are "penny wise and dollar foolish."

Saving pennies on input purchases to raise potatoes may sound foolish with production costs ranging from $2,500 to $4,000 per acre. However, pennies add up, especially if you're talking about the cost per hundredweight, and that's what's important. You don't sell acres of potatoes, you sell hundredweight. A 3-cents savings per hundredweight may not sound like much, but that amount saved on 500 acres with a 400-cwt-per-acre yield results in $6,000 savings. The $6-per-acre cost of a commonly used insecticide that is often applied at the same time as a fungicide calculates to 1.5 cents per cwt with a 400-cwt-per-acre yield and 2 cents with a 300 cwt yield. You need to ask yourself: did I really need that insecticide even if I saved the application cost by combining it with a fungicide?

There are costs a producer cannot control-for example, taxes and insurance. Even if you can't control the price paid for an input, amount used can be. For example, compare the two production costs scenarios in the accompanying table. The fertilizer costs in Plan B are 5 percent less than those in Plan A, and the other two inputs are only 2 percent less. Even with these modest decreases in costs, overall savings in production expenses is $32 per acre or 8 cents per cwt with a 400 cwt yield. Multiply that by 500 acres and the total savings adds to $16,000 per year, or $80,000 over five years.

Individual potato producers can't influence the sale price of potatoes, but each producer can manage production costs to some degree. Controlling production expenses is not only about cutting costs, however. It's also about maximizing returns, not yield. Make sure every dollar you spend returns more than one dollar.

Accurately measuring production costs may seem like a daunting task, but University of Idaho has some online resources you can download to ease this task. You'll find a Crop Enterprise Budget software program at http://www.cals.uidaho.edu/aers/r_software.htm to help with this task. This free software allows you to develop detailed cost of production estimates for all your crops, including the allocation of machinery ownership costs both for potato-specific equipment and equipment used on multiple crops. It may take a while to set up the budgets the first time, but the process will be much simpler in subsequent years. In the end, you may find a lot of truth in what Ben Franklin was referring to when he said, "A penny saved is a penny earned."

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