By Brighton Gweshe
Profitability of an enterprise or the whole farm is primarily determined by input prices, management costs and commodity market prices.
Input prices refers to the costs of variable items of production such as livestock feed, disinfectants, fertilisers, day old chicks and breeding stock among others. These items do vary with the scale of production for instance 100 broiler day old chicks need 100kg of starter mash while 50 birds need 50kg of the same type of feed. If the size of the enterprises is increased, the quantities required will also increase. However, a big enterprise size is always lucrative as it has the capacity to enjoy the economies of scale where inputs are bought in bulk and suppliers may offer discounts and transport to the farmer such that at the end of the day the input prices are minimized.
Management costs emanate from working the factors of production of an enterprise, which are basically land, labour and entrepreneurial skills. Expenses derived from land management are incurred through the manipulation of the land that is either done by deep ploughing, harrowing, rolling, furrows opening or ridging. It should be made clear whether the operation was done using tractor-drawn implements or ox-drawn implements. This is because the two differ in efficiency and timeliness of the operation hence attracts varying costs. Tractors are faster, efficient but more expensive as compared to ox drawn operations. Also, it is ideal to highlight if the implement was hired or is owned by the farmer. The implementation of any farm operation attracts labour costs and these are accounted for in labour days for activities such as planting, weeding, pests and disease control as well as harvesting among others. Lastly are the management skill costs that are mainly directed to the managers of the enterprise or the whole farm. Under this category, other factors include livestock breeds, crop varieties and control of diseases among others.
The other broader category of the factors affecting enterprise profitability is market prices. This refers to the market prices of the output produced by the farmer, e.g. beef per kg or for maize per tonne. However, some prices are gazzetted by the government while some are determined by the market forces of supply and demand. For instance, producer prices for most livestock commodities are determined by the market forces while for strategic grain crops like maize and wheat, prices are determined by the government through the Agricultural Marketing Authority.
Input prices and commodity market prices are largely beyond the farmers control while the management of the factors of production is within the farmer’s control. Thus, the farmer should put maximum effort in the monitoring and management of all the available factors of production so that the potential performance of the enterprise or whole farm is fully optimised. In addition to that, the choice of management practices for any given enterprise should incorporate various ways of curbing input prices.
In the next article on enterprise profitability,we outline some factors affecting specific enterprises and the tools that are used in assessing the profitability of any given farm enterprise.
Happy, profitable farming. Till next time, give us some feed back!