Presentation Outline. Enterprise Budget Mixed-Vegetable Farm. Types of Farm Budgets. ISFS s Enterprise Budgets. Enterprise Budget: Definition Item

Transcription

1 Enterprise Budget Mixed-Vegetable Farm Ermias Afeworki Institute For Sustainable Food Systems (ISFS) Presentation Outline Introduce ISFS enterprise budgets Types of farm budgets Enterprise budget Definition Purpose: How to use an enterprise budget Components Fixed Cost Allocation Interpreting Results ISFS s Enterprise Budgets Vegetables Livestock Specialty 1 Bell pepper 12 Bok Choy 1 Lamb 1 Hop 2 Beets 13 Onion (yellow) 2 Goat meat 2 Rhubarb 3 Broccoli 14 Potato 3 Pork 4 Brussel Sprout 15 Radish 4 Honeybee 5 Bean (fresh market) 16 Spinach 6 Cabbage 17 Tomato 7 Carrot 18 Turnip 8 Cucumber 19 Winter Squash 9 Garlic 20 Zucchini 10 Kale 11 Lettuce Types of Farm Budgets Basic economic tools project costs and returns analyze business decisions farming operation Four types of budgets Whole-farm budget Enterprise budget Partial budget Capital budget Enterprise Budget: Definition Projects costs and returns vegetable or livestock during a period of time Income and expenses Physical and financial plan particular crop or livestock enterprise Enterprise Budget: Definition Quant. Unit $ per unit $ per 1 Acre $ per 100' Bed 1 Acre ANNUAL VARIABLE COST Fertility and nutrients yards Land preparation 4.5 hours Planting - regular and operator labour 4 hours Pest management - regular labour 21 hours Irrigating - regular labour 8 hours Topping - regular labour 8 hours Harvesting - regular and operator labour 11 hours Repair and maintenance 1, Fuel Interest on working capital Marketing 1, ANNUAL FIXED COST Machinery Equipment and tools Irrigation Building Overhead charges 2, Enterprise Budgets 1

2 Enterprise Budget Approach Enterprise Budget Approach Analogous to economic and accounting concept cost Two approaches: Cash enterprise budget Vs. economic enterprise budget Cash budget: explicit cost Economic budget: explicit and implicit costs Explicit cost directly paid in money monetary cost cost of seeds, compost, labour etc Implicit cost monetary units, not paid for directly in money lost income opportunity, use of own resources wages forgone, interest rate income forgone ISFS enterprise budgets are economic Using Enterprise Budget! What is an enterprise budget used for? Financing a farm business part of business plan financing to implement business plans Pricing a product costs needs to be determined for each product ensure products are sold at a profit Using enterprise budgets! Changing product mix compare profitability and labour use allocate more resources to profitable crops Changing production practice track expenses and revenues determine where key costs occur calculate break-even prices and breakeven yield compare average costs with other farmers Concept simple Revenue Costs = Returns Four sections Revenue Variable Cost Fixed Cost and Net Return 1. Revenue Easy to estimate Per unit price of product times total marketable product for whole season (year) 2. Variable Cost inputs that change with the level of production Example: Cost of seed, labour etc Easy to estimate Per unit cost of an input times total quantity of input used for whole season Enterprise Budgets 2

3 3. Fixed Cost inputs that do not change with the level of production (fixed assets) building, land, tractors etc Estimating Annual Fixed Cost useful life of more than a year lump-sum cost amortized into annual cost Straight-line depreciation method 4. Net Return = Total Revenue Total Cost REVENUE Potato Enterprise Budget: template Potato Enterprise Budget, 1 Acre, Southwest British Columbia, Canada Quantity per 1 Acre Unit $ per Unit $ per 1 Acre $ per 100' Bed Potato 10, pounds $2.00 $20, $ ANNUAL VARIABLE COST Quantity per 1 Acre Unit $ per unit $ per 1 Acre $ per 100' Bed Seeds 1450 seeds , Fertility and nutrients 13 yards Land preparation operator labour 4.5 hours Planting - regular and operator labour 4 hours Pest management regular labour 21 hours Irrigating regular labour 8 hours Topping regular labour 8 hours Harvesting regular & operator labour 11 hours Repair and maintenance 1, Fuel Interest on working capital Marketing 1, TOTAL LABOUR COST TOTAL MATERIAL COST 3, TOTAL MISCELLANEOUS COST 2, TOTAL VARIABLE COST 7, Potato Enterprise Budget: template ANNUAL FIXED COST $ per 1 Acre $ per 100' Bed Machinery 2, Equipment and tools Irrigation Building Overhead Charges 2, TOTAL ANNUAL FIXED COST 7, TOTAL FIXED AND VARIABLE COSTS 15, NET RETURNS $ per 1 Acre $ per 100' Bed RETURN OVER VARIABLE COST 12, RETURN OVER FIXED COST 12, RETURN OVER TOTAL ANNUAL AND VARIABLE COST 4, Annual Fixed Cost (Joint Cost) Allocation Mixed- Vegetable farm Fixed assets shared between crops Annual fixed cost shared between crops??? How should annual fixed cost be allocated between crops that share an asset? Annual Cost Allocation Interpreting ISFS Enterprise Budgets Results Best Method know what percent of the total use time of an asset in a season is used for each crop Alternate Method crop s percentage share farmland proportion crop s percent share annual cost tractor annual fixed cost = $1000; total farmland = 5 acres; carrot= 0.5 acres; Carrot percent share of farmland = 0.5acre/5 acre = 10% Tractor annual fixed cost carrot = 10% X $1000 = $100 NET RETURNS ( Potato Enterprise Budget) $ per 1 Acre $ per 100' Bed RETURN OVER VARIABLE COST 12, RETURN OVER FIXED COST 12, RETURN OVER VARIABLE AND FIXED COSTS 5, NET RETURNS (Lamb Enterprise Budget) $/20 ewes $/ewe RETURN OVER VARIABLE COST -9, RETURN OVER FIXED COST 8, RETURN OVER VARIABLE AND FIXED COSTS -16, Enterprise Budgets 3

4 Interpreting ISFS Enterprise Budget Results Economic enterprise budget Stress on economic costs (implicit +explicit) Reflect long-run costs Negative economic return in the short-run does not imply the farm business is losing Long-run positive economic return! Comparing Net Returns: $ per 100 bed Potato (1 acre) Carrot (0.5 acre) Beet (0.5 acre) Turnip (0.125 acre) NET RETURNS $ per 100' Bed $ per 100' Bed $ per 100' Bed $ per 100' Bed RETURN OVER VARIABLE COST RETURN OVER FIXED COST RETURN OVER VARIABLE AND FIXED COSTS Profitability four crops ($ per 100 bed) Highest return carrot, beet and turnip Decision Making? Based cost and revenue consideration Increase carrot production Price/Yield $2.40 $2.70 $3.00 $3.30 $3.60 Price/Yield $2.40 $2.70 $3.00 $3.30 $3.60 $2.40 $2.70 $3.00 $3.30 $3.60 $2.40 $2.70 $3.00 $3.30 $3.60 Enterprise Budgets 4

5 What is the foundation for robust enterprise budget? GOOD RECORD KEEPING! THANK YOU!! Check ISFS enterprise budgets: Contact: Enterprise Budgets 5