session 3: farm business profitability
DESCRIPTION
Session 3: Farm Business Profitability. Objectives:. At the end of this session the participants shall have : 1. Explained some of the important aspects of farm business in preparation for writing a farm business plan; - PowerPoint PPT PresentationTRANSCRIPT
Objectives:
At the end of this session the participants shall have:
1. Explained some of the important aspects of farm business in preparation for writing a farm business plan;
2. Appreciated the concept of profit as related to a farm business;
3. Differentiated farm business and farm enterprise;
Objectives:
4. Compared variable costs from fixed costs and its application to farm profitability; and
5. Identified the factors that affect the profitability of a farm business.
Activity 1: Key Aspects of a Farm
BusinessMaterials: Metacards Pentel Pen TapeQuestion: What are the most important things
that you believe you need to know and be able to do to make your farm business a success?
Important Aspects of a Farm Business
What to produce? How to produce it? Is it possible to produce it in
your land? What resources or inputs are
needed and where to get them? What labor do you need?
Important Aspects of a Farm Business
What is the best market for the product?
What price can the product get in the market?
Is it profitable? Do you need have enough cash? What are the risks and what to do
about them?
Key Points
Inputs Production Markets
• The aspects that affect the business viability are linked to:
• A business is meant to be viable and successful
General Commercial Environment
• These aspects or key success factors should be favorable and the farmer should always be able to cope with issues of risks in the farm business
Key Points
It is important to separate farm income and profit from household income; the farm business is separate from the household.
Household income relies on income from farm and other sources while the profitability of the farm is based on the income and costs related to the farm only, and not the household
Key Points
Farm income is calculated by multiplying the quantity of the product sold, eaten, used or given away with the price of the produce in the market.
If income is < than costs then it is a loss If income is > than costs then it is making
profit The larger the resulting total, the greater
the profit
Farm Business and Farm Enterprise
Describe your own farm. Do you produce only one product?
More than one product? Do you produce crops and animals? How many type of animals do you
produce?
Farm Business and Farm Enterprise
Farm Business
• FARM BUSINESS• Farm business refers
to the whole farm as a business. Together all enterprises make up the farm business as a whole
Farm Enterprise
• FARM ENTERPRISE• Farm enterprises
refers to the individual enterprises of the farm. Each crop or kind of livestock produced is an enterprise. A farmer may produce corn, beans, and eggs. Each of these products is an enterprise. Corn is an enterprise. Beans is an enterprise. Egg is an enterprise.
Farm Business and Farm Enterprise
Each enterprise on a farm makes a unique contribution to the profitability of the whole farm.
Will identify which enterprise are profitable or not. Then, he will be able to decide what to do about the unprofitable enterprise; he can take steps to make it profitable or he can stop producing that enterprise.
Farm Business and Farm Enterprise
To maximize profit, the farmer needs to know exactly how each enterprise is performing.
Must study the enterprise individually by looking at the costs associated with inputs and production of each enterprise and with the income generated by marketing that enterprise.
Activity 2Fixed Costs and Variable Costs
Materials Needed: Metacards Pentel pen
TapeQuestion:1. Ideas regarding variable and fixed
costs.2. List down examples of farm costs.
Understanding CostsA. Variable Costs The cost of actual production. They apply to specific enterprises on
the farm. These costs vary as output changes. The costs occur only if something is
produced. They do not occur if nothing is produced.
Variable costs can be allocated to specific enterprise.
Understanding Costs
B. Fixed Costs It apply to the farm as a whole. Costs that do not vary with changes in
production output of a specific product. It remains the same regardless of the
output. Even if there is no output, there will be fixed costs.
Example of Fixed Costs
Farm equipment (e.g. tractor)
Implements and tools
Packing shed Farm infrastructure (e.g. fencing)
What can affect farm business profit?
Farm Profit
Home Consump
tionMarket Demand
Market Price
Competitor
Technology
Credit
Input Supplier
Cost of Inputs
What can affect farm business profit?
Inputs- the right ones being available when needed
Input Costs Input Supplier- reliability and
trustworthiness Market – location, distance,
accessibility Market Demand – what, when and how
much buyers want