Farm planning and records
Farm management is making the best use of land, labour, capital and time to get the most profit. It includes planning (deciding what to do), organising resources, directing work, controlling and keeping records. Farm records show whether the farm is making a profit and are needed for taxes and loans.
| Record | Contains |
|---|---|
| Inventory | List of everything owned on a date, with values |
| Income and expenditure (cash book) | All money received and spent |
| Production records | Yields, milk, eggs, weights |
| Labour records | Days worked and wages paid |
| Livestock records | Births, breeding, health, feed |
| Field records | Crops, inputs, dates |
Costs and returns
| Term | Meaning | Example |
|---|---|---|
| Fixed costs | Do not change with the output | Rent, buildings, depreciation |
| Variable costs | Change with the output | Seeds, fertiliser, labour, feed |
| Total revenue | Price × quantity sold | TSh 2 400 000 |
| Gross margin | Revenue − variable costs | |
| Net profit | Revenue − all costs |
A farm has fixed costs of TSh 600 000. A bag of maize sells for TSh 80 000 and costs TSh 50 000 to grow (variable). How many bags must be sold to break even?
- Margin per bag.
- Divide the fixed costs.
Answer: 20 bags.
Budgets and farm planning
A farm budget estimates the income and costs of a season. A good farm manager chooses the enterprises with the highest gross margin per hectare, spreads risk by having more than one enterprise, and uses resources throughout the year.
Choose the output, the price and the costs.
Key terms
- Fixed cost
- A cost that does not change with output.
- Variable cost
- A cost that changes with output.
- Gross margin
- Revenue minus variable costs.
- Break-even
- The point where income equals costs.
Summary
- Farm management means planning, organising, directing and controlling.
- Keep records: inventory, cash book, production and labour.
- Gross margin = revenue − variable costs.
- Break-even output = fixed costs ÷ margin per unit.