Agriculture Form 3 – FARMING BUSINESS ECONOMICS AND AGRICULTURAL EXTENSION

FARMING BUSINESS ECONOMICS AND AGRICULTURAL EXTENSION

FARM RECORDS: These are systematic facts and figures of the farm showing transaction and other events which happen either in the farm or in connection with the farm.

 
 

IMPORTANCE

i. As farm records enable a farmer to calculate at any particular time the profit losses that have been made over a certain period so as to known whether the farm is operating at a profit or loss.

ii. A farmer with good farm records is able to get a loan from lending institution (e.g. CRDB, NBC, NMB etc) as he can continue the bank that his business is profitable enough to enable him repay the loan.

iii. A farmer with good records can get a fair estimate of income tax by the income tax department.

iv. A farmer is able to find out whether he is making progress or not by comparing records of different periods.

v. A farmer is able to identify the projects which bring more profit on the farm than others by calculating the value of inputs and output for each project.

vi. Records provide facts and figures (data) for planting of future production and for checking whether production on the farm is being done according to the present production plan.

 
 

TYPES OF FARM RECORDS

i. Financial records (farm accounts): These are types of records showing the quantity and value of what the farmer sells for buys i.e receipts, payments, loans, etc. The purpose is to know the profitability of the farm business over certain period.

ii. Physical records: Records showing quantity of inputs used and or output obtained on each project or enterprise the farm or events which happen on the farm. The type of record kept in the farm depend on the enterprise that are present in the farm e.g. farm map, farm diary, livestock and crop production records.

 
 

Examples:

A.      PHYSICAL RECORDS

i. A farm map: In the office of every farm these should be the whole farm drawn to scale drawn

         Different fields and their uses.

         Buildings and other structures.

ii. A farm diary: This is a record of important event that happen on the farm from day to day e.g. calving, weeding, fertilizer application, disease out breaks etc.

 
 

SAS FARM DIARY

 
 

iii. Livestock and crop records: Different types of records need to be kept for different types of livestock

o   Poultry: Rearing records, egg production and broiler record.

o   Cattle: Herd record, calving record, milk production record, breeding record etc

o   Pigs: breeding record, food consumption record etc

o   Sheep and goats: Breeding records

o   Crop: rotation records, fertilizer application, date of planting, variety, weeding date, spraying date, harvesting date, yield etc.

 
 

B.      FINANCIAL RECORD: Record the same from the same text.

METHODS OF ACCOUNTING: Real accounting and Nominal accounting

a)      Real accounting:

This involves financial transactions which include:

         All purchases of farm inputs

         Expenditures e.g. salary wages, rent, bills

         All sales including receipt for services rendered e.g. machinery hire.

         All debts owing to the farm and owing by the farm.

Real accounting: Is the basis of production for calculation of some important performance measure such as profit.

b)      Nominal accounting: This involve inventory transactions i.e. inventory of all assets with full description and value of each item. It includes – Fixed assets e.g. buildings and movable assets like machines, equipment, livestock etc.

Books used in keeping accounts Inventory-show farms assets and their value.

i. Cash books: It is the major record for a farm finance accounted

ii. Cash journal: Is a chronological record of accounted transaction should show: Date of account to be credited, name of account to be debited, A reference page of folio where details of account are provided.

 
 

Balance sheet- contain liabilities and assets

Ledger: This is a group of accounts showing information to which has been reclassified and summarized account which was initially recorded in the journal.

 
 

 
 

Accounting Documents

a)      Purchase order: Is a document in which a list of description and quantities of goods ordered from the supplier is shown

b)      Delivery Note: Is a list and description of goods from the supplier to the purchaser according to the purchasing order usually accompanies the good delivered.

c)       Invoice: This contains the quantities and description of goods supplied and their prices, where by the purchaser walks the invoice and the delivery note to ensure that charges and rose against goods supplied only.

d)      Receipts: This is document showing the list of description of goods purchased and the total value, submitted to the purchases from the supplier upon cash payment.

e)      Statement: Is a document issued by the supplier to the purchases showing a list of all goods supplied during a given period, usually a month, indicating, the prices of the goods and total charges as well as amount and discount is applicable.

 
 

RISK AND UNCERTAINTY

Agriculture production of any type has three important characteristics:

         Risk, Uncertainty and Time.

RISK: This is a situation where by there is sufficient knowledge or information for planning to be done, but the outcome of implementer the plan is not exactly known the outcome may be good or bad.

 
 

Examples of Risk

i. Health status of the farmer and other people on the farm: The health is not predictable; hence anyone may fall sick at anytime disrupting the smooth running of the farm.

Control: To buy a life or health insurance policy.

ii. Pest and diseases outbreaks: Crops and livestock may be infected by pest and diseases causing poor yield.

Control: To buy an insurance against crop/ animal loses through pest and diseases.

iii. Weather hovered: Adverse environmental conditions e.g. floods, drought etc may cause destruction to assets and crops/ livestock respectively.

iv. Fire hazards: May cause serious damage.

Control: Insure against fire hazards.

v. Theft: May steal farm assets, crops, livestock, machinery or other assets.

 
 

UNCERTAINTY: Is a situation where by there is imperfect knowledge on the outcome of implementing production plan on the farm e.g. the farmer cannot tell exactly the quantity of produce when he uses a certain quantity of inputs.

         Uncertainty cannot be insured like risks.

 
 

Examples:

i. agriculture good in expense of others change of land tenure rights etc.

ii. Changes in demand: This determines the prices of agriculture which will likely affect such products.

iii. Price fluctuation: Causes uncertainty in forming as planning of the farm is influenced by the prices changes in technology.

iv. Supply and availability of Agriculture inputs: Timely availability and sufficient amount of agriculture inputs is always very essential otherwise production will be affected.

 
 

METHODS OF REDUCING RISK AND UNCERTAINITY

         Insurance: The farmer may insure his crops, livestock, building machinery etc against hazard which may occur on the farm and cannot be predicted.

o   Only risks are insured.

         Diversification: Having more than once enterprise. This is a situation where by a farmer produce more than one product at the same time e.g. intercropping (if one crop fails the other may give yield) or mixed farming.

         Flexibility in production: This is the practice of making the farm easy to modify so as to make easier to change from on enterprise to another when consumer preference change e.g. building dual purpose poultry houses a farmer could easier change from broilers to layers.

         Maintaining liquidity: Is a situation where a farmer keeps cash which can be used to implement change in production plans quickly when there occurs a sudden change in market condition.

         Production of contact basis: To safe guard against uncertainty against market condition e.g. tenders for supply of goods product to school or hospital.

         To know marketing information: Provision of market information collection of market information by Bureau can help the farmer to adjust his production plans so as to reduce risk and uncertainty.