Count the cost to make a profit

August 2021

JENNY MATHEWS, MANAGEMENT AND DEVELOPMENT SPECIALIST AND EDUCATOR

Every farmer needs to carefully calculate what the season’s inputs are, so you can ultimately compare your expenses to the ‘return’ on the crop and analyse whether the exercise was worthwhile and profitable in some way – whether it is in money in the bank or food in the storehouse.

Often farmers just go from one season to the next doing their best with what they know without carefully measuring their costs to find out if all the effort has been fruitful, or to find out if there is something that could have been done more efficiently to save costs.

Every farmer has his own unique set of circumstances and must look at the big picture to count the expenses that are incurred in running the different farming projects. Each different farming activity must be counted and then assessed as an overall farming operation. 

The Barberton farmers take delivery of their seed.

BUDGET PLANNING
Budgets are simply a formal means of organising relevant economic information to help you make business decisions. Enterprise budgets that list receipts of goods bought, costs and net returns for a single product are a fundamental planning and analysis tool that every business needs.

They say, ‘To measure is to know’. Maize production costs and returns per hectare planted must be measured. Every farming operation can be costed by analysing variable and fixed costs.

Fixed costs are expenses that stay the same regardless of what you produce. Examples include all land and other rental lease payments, buildings, permanent worker salaries, insurances, property taxes, interest expenses if you have active higher purchase agreements or loans, depreciation – because every vehicle you own will be valued less each year – repairs and maintenance and potentially some utilities like electricity and water.

Annual operating inputs are relatively straightforward. They are ‘annual’ inputs because unlike buying a tractor or a planter which lasts many years, these are all used up every year and must be bought again for a new season. For the grain producer these include costs like lime, fertiliser, herbicides and pesticides, seed, irrigation water, labour, fuel and even cost of contracting machinery, implements and repair and maintenance budgeting. The cost of these fluctuates depending on market prices from one season to the next. These inputs can be changed during the production process to bring about changes in output.

Budget supporting information
The budget planning must also include potential yield and income results that you expect to achieve according to past seasons averages.

• What is the average yield t/ha in your area?
• What is the current price for maize in R/kg?
• What is your anticipated yield next season?
• Can you find price projections for next season?

Practise drawing up a budget
Start at the beginning and draw up a potential budget for direct inputs based on one hectare. It could typically look something like this:

Other questions the farmer needs to ask and record for accurate budget planning:

• Access to land: Do I have to pay land rent or taxes?
• Contracting fees: Do I have all the machinery and implements I need to get the job done or will I need to hire contractors or other labour?
• Soil management: What does it cost me to have soil sampling done? How will I apply lime and fertilisers. What will this cost me? Will I use machinery or labour to clean the fields?
• Spraying costs: Knapsack or boom spray? What is my spray programme? How many times do I plan to spray my fields this season?
• Transport costs: What will it cost me to collect and deliver inputs (with labour) to my fields to get my crop off the lands?
• Harvesting costs: How will I harvest? Will I need extra labour? How will I store the grain? Will I have threshing costs, or will I contract a combine harvester? What fuel cost will be incurred?
• Labour costs: When will I need to pay for labour – permanent labour force versus seasonal labour costs? Do I need to buy food and clothing or safety gear?
• Repairs and maintenance: Where do I usually have to spend money on repairs and maintenance services to keep my vehicles and machinery in good operating condition?
• Electricity: Will I use electricity?
• Water: Will I pay for water at any stage?
• Marketing costs: How much will it cost me to get my produce to market? Will I need packaging for anything? Do I have storage costs? What transport costs might I incur to get my grain to my sheds or to the local silos or mill?

Even the children appreciate the gift.

These are just a few questions to ensure that the accurate information is collected. A budget plan begins with the planning for the new season. Remember it is critically important to accurately measure each cost along the way and keep the receipts and records of every cent you spend on producing the crop. It is important to know if you are growing your business. Accurate information empowers us to make better decisions for the future.

Publication: August 2021

Section: Pula/Imvula