Coffee-Farming As A Business Manual Complete

COFFEE FARMING
AS A BUSINESS
EASTERN AFRICAN FINE COFFEES

ASSOCIATION
(EAFCA)
AUGUST, 2003
TABLE OF CONTENTS………………………………………………………………...1
ACKNOWLEDGEMENT. ………………………………………………………… ….2
INTRODUCTION ………………………………………………………………………………3
WHAT IS BUSINESS? .………………………………………………………………………….7
POTENTIAL PROFITS AND LOSSES WHEN LOOKING AT CURRENT

FARMING TECHNIQUES AS A BUSINESS. ……………………………………………….14
PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

TECHNIQUES AND IMPROVED SEEDLING………………………………………………….24
INTRODUCTION TO SAVING FOR INVESTMENT IN PRODUCTION ……………………..31
THE PROFIT IMPACT OF CHANGING PRICES ………………………………………………38
COMMON SENSE AND DIVERSIFICATION FOR RISK MANAGEMENT ………………….43
COST SAVING BENEFITS OF SMALL HOLDER ASSOCIATIONS ………………………...50
VALUE - ADDITION IN THE SCALE OF SMALL HOLDER ASSOCIATIONS………………57
REVIEW OF PROJECTED INCOME STATEMENT IMPROVEMENTS OVER

THE COURSE OF THE PREVIOUS CHAPTERS……………………………………….……… 66
MARKETING IN THE SCALE OF SMALL HOLDER ASSOCIATIONS ……………………...69
WORKPLANNING AND RECORD KEEPING …..…………………………………………….76
MONITORING AND EVALUATION ………..…………………………………………………84
WRAP UP. ……………………………………………………………………………………91
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ACKNOWLEDGEMENTS
Many talented people contributed to writing and designing this coffee farming as a
business-training manual. Without their advice, guidance and contributions, the
quality of the final product would have suffered.
Rich Pelrine and Dann Griffiths designed the format and authored the original content.
Eastern African Fine Coffees Association (EAFCA) and Uganda Coffee Farmers
association (UCFA) provided the literature where prices, costs and other critical data
employed in the manual was derived.
We most especially wish to recognize the NSBC research team and members who
dedicated their valuable time to collecting and reviewing the data from the grassroot
coffee farmers' associations, for their patience in reviewing the early drafts and
furnishing very constructive criticism that improved the effectiveness of the final
product. They are also thanked for contributing their vast experience in agri-business
to ensure that the trainers' guide remained targeted at the intended client groups -
extension agents and the farmers with whom they work.
Finally, this manual would not have been possible without the financial support of the
East African Fine Coffee Association (EAFCA).
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INTRODUCTION
Over 85% of Uganda’s population live in rural areas and are engaged in subsistence agriculture as their
principle livelihood. 45%– 50% of rural Ugandans live in absolute poverty. Coffee is still the most
important traditional cash crop, with households mostly operating small units of 100 to 2000 trees 0.25 –
5Acres). It is these small holders that produce the bulk of Ugandan coffee.
However, production is constrained due to low adaptation and adoption of improved technologies, volatile
markets, limited access to markets, disease (especially coffee wilt disease lately) and a lack of business
knowledge among farmers. Use of fertilizers, pesticides and improved seedlings and practices are only
recently gaining momentum. Most farm families are unable to meet their basic household needs. The
coffee and general situation is not much different in the rest of Eastern Africa.
The goal of this training product (Coffee Farming as a Business – CFaaB – ) is to address the lack of
business understanding among farmers, with the view that after analyzing the benefits of coffee growing
using different approaches, the farmer will become able to tackle the other problems, making choices
based on business understanding.
The overall aim of approaching farming as a business is to increase the incomes of the rural poor, or to put
more money in the farmers’ pockets and into the rural economy. This will enable them to improve their
standards of living in terms of housing, food security and basic household needs, while contributing to the
larger goal of making the transition from a subsistence to a cash economy, or the creation of wealth.
Agriculture in the Ugandan context is the only logical engine for rural economic growth. It generates
income, provides productive employment, and enhances food security.
To improve the livelihoods of rural people, there is a need to view agriculture as a business. Farm business
emphasizes a shift from farming for subsistence to farming for profit. Farmers must learn to critically
examine the costs related to production, and marketing, and the benefits that accrue through improved
efficiencies from making informed management decisions.
Before any venture is undertaken, the farmer must set a viable business goal. Business planning through
self-assessment and examining the operating environment is essential in understanding both the risks and
benefits of the business. In this manual, comparisons of farming and tailoring are used to demonstrate that
the framework necessary for any business analysis is similar.
The Trainers’ Guide is designed to arm extension workers with skills that will assist them in fully
understanding the commercial potentials of small-farm agricultural production. Throughout the training
manual, the potential for profits increase as the complexity of the management increases. A systematic
and slow-paced process is followed from the first chapter to the last chapter, with each chapter building
upon the lessons learned in previous sessions. Note: chapter eleven contains a summary table and chart
showing the full development of the lessons.
Using a progressive methodology, the manual helps to assess capacity, identify shortcomings and propose
strategies affecting the household’s business success. The extension workers and farmers are guided
through the following steps:
! Understanding business terms and concepts as they relate to farming and tailoring.
! Comparisons of the costs and benefits of differing approaches to farming and business management.
! The value of saving compared to credit costs as an input.
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! Investigating various value-adding strategies.
! Risk management strategies.
! Reviewing market access and market alternatives.
! Understanding the potential benefits of collective actions through associations with other farmers.
! Understanding simple and informative farm records
! Understanding farm accounts for good decision-making and business performance monitoring.
! Developing indicators to measure progress of the farm as an enterprise.
Training framework and the target clients:
The ultimate objective of the training program is to furnish farmers with appropriate-level analytical skills
and business management tools. The skills and tools will in turn guide them toward making decisions
based on business principles, thereby decreasing costs, decreasing risks and increasing profits.
Although the final client of the training process is the farmer, this manual is not designed for direct use by
most smallholder farmers. It is designed as an instrument to train extension workers working directly with
farmers. Any credible and effective trainer must possess a far greater depth of understanding of the
technical material than the final client. The design of this training manual is based on that irrevocable
fact.
The materials that will be used by the extension workers to train smallholder farmers will be adapted
directly from the content of this Trainers’ Manual, but they will be designed and presented at a level that is
appropriate for the farmer clients. Farmers should be trained throughout the country. The relative
sophistication of the client groups will vary from region to region; the approach to training each group will
vary accordingly, and it will be the responsibility of the extension workers to adapt the materials to the
specific needs of their farmer clients.
Most of the extension workers participating in the Training-of-Trainers program will conduct formal
training session for their farm clients. However, depending on the time of the year, a limited number of
farm families can afford to spend five to six continuous days at a training event. It is quite likely that
training will take place over shorter periods of time – a day at a time or a few hours at a time – over an
extended period. And, regardless of timing of the training, the reinforcement of the new business skills
will take place most effectively during repeated after-training visits to individuals and groups of farmers.
The extension workers must become farm business consultants, and not only trainers in a formal workshop
setting.
Extension workers will be trained during a two-week workshop. The first week will be dedicated to
transferring the technical content to the future trainers. During the second week of training, the extension
workers will co-facilitate the training with NSBC's Master Trainers. In this week, their grasp of the
technical material and their training methods will be evaluated.
The materials for the farmers will be drawn directly from the Trainers’ Manual, with the focus on practical
tools - largely fill-in-the-blank forms for planning, record keeping and analysis. The Farmers’ Workbook
will serve as an instructional manual during training session and as a reference manual in the field.
Training sequence and assumptions
The goal of this training product is to deliver the message that farmers will increase their profits when
farming is approached as a business. To demonstrate the results of improved practices (business and
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technical) and the value of planning, managing risks and greater efficiencies, coffee is used as the example
crop from the beginning to the end of the training process. The lessons learned are equally applicable to
beans, sunflower, simsim, apples or any other crop. Coffee is used as an example because it is familiar to
most farmers and it conveniently serves the purpose of demonstrating the benefits of various alternative
approaches to farming and business. The principles are equally applicable to any non-farm business
undertaking, where examples from a tailoring business could easily be applied to another retail business.
Two training sessions during the last days of the workshop are dedicated to the Farm Business Game. The
Game is competitively played between small groups, with the winning team being determined by the
amount of profits earned. It is designed to simulate situations encountered on the farm and to encourage
the clients to apply and test the new business skills they have learned. Clients are faced with a variety of
decisions that impact the profitability of their businesses.
From Chapter 2 though Chapter 9, one acre of coffee production is consistently the basis of comparison
(chapter 10 expands the production model to 2 acres). Assumptions concerning the costs of inputs, the
values of outputs and post-harvest losses are defined in the early chapters. The values used in the analyses
are average figures based on ranges of values gathered from multiple sources (FEWS, IDEA, NARO,
PHHS project, MAAIF, UCDA, EAFCA). Using averages can be misleading, as they more often than not
misrepresent the actual figures any given farmer will encounter in the marketplace. To overcome the
flaws inherent in the use of average values, chapter 6 is dedicated to discussing the impact of changes in
those values.
Throughout the manual, one day of farm labor is valued at 1,000 USH. The authors recognize that “return
to labor” or return on the time invested in farm labor, is an alternative approach to costing labor in farm
financial analysis. Depending on what is most appropriate for any given group of farmers, the labor-cost
issue can be addressed in either fashion. The key question is what is the most effective approach for
farmers to understand and apply the concept consistently?
Chapter 2 discusses the costs and benefits of growing one acre of coffee when not using improved inputs
and borrowing money. In subsequent chapters, only one change is made in the previously presented
model. This approach isolates the costs and benefits of each discrete step, and simplifies a potentially
complex analysis. By the end of the training process the clients will have gained an understanding of the
benefits of each individual step, and the cumulative benefits of all of the improved business farming
practices.
Also, in an effort to reduce the complexity of the material without sacrificing the “messages”, the authors
have omitted references to certain concepts that are commonly applied to the financial analysis of a
business. Simple tools (hoes and Pangas) are considered as consumables or variable costs. It is assumed
that they must be purchased each season, and are therefore not considered as fixed costs. In discussions of
capital assets (grain dryers, mud silos and charcoal heaters), depreciation is not calculated. Finally, in
discussions concerning relative merits of savings and credit, we do not calculate the opportunity costs
normally associated with saving. In spite of these intentional omissions, or in part because of them, the
central messages are clearly relayed to the clients.
This training manual will always be viewed as a work in progress. If it is to serve the farmer, it must be
dynamic and adaptable to changing conditions in the same way that any businessperson must be adaptable
to changing forces. All constructive criticism is welcomed and encouraged. The farmers will inform us
all concerning the effectiveness of the content and the methods by which the materials are presented.
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The Social Agenda and the Business Agenda:
The funding agreements that define and guide a development organizations’ activities are framed in terms
of stated outputs, or the achievement of goals and objectives (production and/or value targets). The
production and value targets (business oriented) are the central theme of this training program. However,
many development projects also address issues of broader social importance – better nutrition, improved
health, education and gender issues, as examples. All of the goals addressing improved general well-being
of the family and the community are valid and deserving of attention and investment. However, those
goals and the measurements of their attainment should not be confused with the assessment of successes in
business.
It is the intention of every development worker to contribute to the overall improvement of the social
condition, but inserting a social agenda into business activities may only serve to diminish the eventual
positive impact the business can have on the larger social good. Efficient and more productive businesses
create wealth and jobs in a competitive marketplace. The tax base is made deeper and broader, resulting
in increased revenues and the communities’ enhanced capacity to cater for their own social and
infrastructure needs.
If your organization is required to gather information concerning social well being, by all means gather the
required information; it is very important to have a broad understanding of changes in the community.
But, by so doing, do not be tempted to directly leverage business successes into social improvements with
the individual businessperson. Do not impose social or moral conditions, such as how the profits should
be spent outside of the framework of the business (If the farmer applies the business practices in this
training course to his farming establishment, he will reinvest in the growth of the business). If the farmer
wants to spend his increased profits on beer rather than for school fees or needed medicine, that is
unfortunate, but it is not the business of the extension agent (farm business trainer) to dictate how his hard-
earned money is spent. Succeeding in business is difficult enough without attaching extraneous conditions
governing how the business owner must spend his earnings.
Key Training Messages

The training objective simply stated, is to “put more money in farmers’ pockets”, or to create wealth
within the farm household. Approaching farming as a business will contribute to reduced costs, reduced
risks, and increasing profits. The key elements required to achieve this are all related to the production of
surpluses and increased efficiencies. The extension agents and the farmers will leave the training event
with a greater understanding of four critical lessons:
- Improved inputs and practices lead to surplus production and increased profits;
- Profits increase through better management and informed decision-making, or planning and record
keeping;
- Efficiencies and profits increase through association with other farmers in a business relationship;
- Saving is more a profitable input (cost of production) than credit.
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CHAPTER ONE
WHAT IS BUSINESS?
Objectives: To understand the term business using familiar examples.
To enable farmers to become familiar with business concepts and vocabulary, and to start
thinking about farming in business terms.
Introduction:
This chapter sets the stage for the remainder of the training content. It is intended to drive home the
central point that farming is indeed a business. What may appear as a foregone conclusion to many, is not
so clear to other development workers, and especially in the minds of many relief workers. Development
and relief organizations categorize their interventions into sectors – health, education, environment, etc.
In Uganda, some donor organizations actually recognize income generation as a sector that is distinct from
agriculture. In a society where over 85% of the population is involved in production agriculture,
agriculture must be viewed as THE primary generator of income and wealth. It must be approached as
any other business – with the goals of minimizing costs and risks and maximizing profits.
Farmers must come to this understanding if they are to produce marketable surpluses. To make the point
that farming is similar to other businesses, we compare it to tailoring. Tailors do not invest in their
training and their operational and capital costs only to clothe their families. They produce their products
for the market; a market that will pay a price that includes a fair profit. Farmers must approach their
businesses in the same way.
1.1 Process
Process Methodology Materials Time
! Introduce the topic (business), Brain storming, Flip charts 1 hour
purpose, and objectives by giving an Class
overview on farming as a business, discussion, and
and comparing it with other group work
businesses, and understanding risks
involved in business enterprises.
! Elaborate on business vocabulary,
and the farmers’ need to become
familiar with the terms.
! Discuss with clients their perceptions
of a business, comparing the
differences and similarities of
farming business with tailoring.
! Divide participants into groups. Ask 1 hour

them to compare and contrast
farming with tailoring.
! In plenary, discuss the results.
! Ask one member to summarize the
results.
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1.2 Training Steps
I. Participants’ Perception of Business
! Introduce the topic and objectives. Explain why the topic is relevant.
! Ask the participants to discuss their perceptions of what business means. Compare their definitions
with the Trainers’ Notes.
II. Demonstrate That Farming is Like Any Other Business
! Working in small groups, ask the participants to compare the differences and similarities between
farming and tailoring from a business perspective. They should consider inputs, outputs, costs and
risks. Emphasize that business characteristics are very similar regardless of the trade. Compare the
results with the Trainers’ Notes.
! Allow each group to present their thoughts and results. Compare the results with the Trainers’ Notes.
III. Business Vocabulary
! To facilitate their understanding of business, there is specialized vocabulary that the participants
should become familiar with. Ask them to list and discuss the terms that they know and to give
examples. Compare the results with the Trainers’ Notes.
1.3 Trainers’ Notes
Building on the responses of the participants, discuss and define business in fundamental terms. Stress the
difference between farming for subsistence and farming for profit (sometimes called “agribusiness”).
Summary
Business is an activity operated for the purpose of earning a profit by providing a service or product.
Entrepreneurs or associations of entrepreneurs put their money at risk. The risk is associated with an
activity or venture for the purpose of earning a profit. Regardless of the type of business, there is a need to
take into consideration the costs of production and marketing of the output commodity.
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Comparison of Agribusiness with a Tailoring Business
Tailoring Farming
Inputs: ! Fabric ! Seeds
! Sewing machine ! Land
! Scissors ! Hoes
! Measuring tape ! Ropes
! Thimbles ! Gum-boots
! Thread ! Fertilizers
! Pins ! Pangas
! Paper ! Paper
! Packaging materials ! Bagging materials
Operational ! Cutting the fabric ! Preparing land

Activities ! Make designs and ! Weeding
embroidery ! Sowing the seeds
! Put final touches like ! Apply fertilizers and
seams, buttons, designs pesticides
on product ! Harvest, sort, dry, and
! Package to suit clients grade
! Package to suit clients
Marketing ! Requires transport ! Transport
! Specification based on ! Specification based on
demand such as season, demand such as people’s
preference. preference, season, etc.
! Designing and packaging ! Sorting, grading, and
! Market information. packaging.
! Market information
Comparative Risks between Agribusiness and Tailoring
Risks Tailoring Agribusiness

Weather - !
Post Production Losses - !
Security ! !
Market Availability ! !
Competition ! -
Adding Value ! !
Pests and Diseases minimal !
Storage minimal !
Note: Stress how competition is different in farming than in many other businesses. The market price
fluctuates with supply and demand and is not necessarily predictable. The farmer must keep her costs low
to maximize profit, as she is a price taker.
At the end of the session, the farmers will appreciate that farming is like any other business requiring
inputs, operational activities, completion and marketing of the final product.
All businesses have risks differing in magnitude. Farming, seems to have more risks than tailoring,
however, when the right decisions are made at the right time through proper business planning and
management, risks can be minimized (Chapter 7).
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At the end of the exercise, one or two of the participants should summarize the major differences and
similarities of farming and tailoring businesses, and lessons learned.
1.4 Basic Business Vocabulary:
Production Costs. These are the financial and non-financial expenditures used in producing a commodity.
For example, the costs pertaining to a farming business include seeds, chemicals, transport, processing,
packaging and marketing. While costs pertaining to tailoring include a sewing machine, fabric, thread,
machine oil, scissors, needles, and labor, etc.
Labor costs. The total expenditure paid for family labor1 and for hired casual labor in the production of
specified commodity. Farms may have a casual labor cost for activities such as sowing, weeding and
harvesting. Tailor shops may have no need for outside labor.
Yield or Output. This is the total volume of the product produced in a given time period. In case of a
farm business, the yield would be in terms of quantity of crop produced (kilograms) per acre after a
season, while in tailoring it would be the number of dresses, shirts, skirts, trousers, bed-sheets made and
ready for sale, over a specified time period.
Producer Price (“farm gate price”): This is the price at which the farm-business sells the commodity to an
on-farm buyer. The price is usually lower than terminal markets prices. For example, clothing purchased
at a village tailor may be resold in Kampala at a higher price. Likewise, coffee and beans can be bought
from the farmers at lower prices and resold in town markets at higher prices.
Gross Income (Total Income). The sum of money an entrepreneur receives for selling his output
commodity before deducting the costs incurred for producing that commodity.
Net Profit The sum of money left when all costs of production are deducted from the gross income.
Return to Labor. Net profit divided by total number of person-days used to produce the commodity.
Person-day: a unit used to measure casual labor.
Operational Costs. The costs of actions or services needed to produce the output commodity. Note that
this does not include the costs of inputs. For example, in a farming business, such services paid for would
include labor for land preparation, fertilizers, etc. While in a tailoring business, this would include labor
for cutting fabric, sewing, lifting materials, etc.
Fixed Capital: Machinery, tools, etc. that are invested in and paid for by a business in an initial period,
that will last for some time into the future.
Savings: Money or goods set aside for future use or putting aside some of a business’ profits or earnings
for investing in the next production cycle (or season in the case of farming).
Credit. Borrowed money before production and paying it back with interest after production is finished
and the product sold.
1
This is determined by counting how many complete days that family members contribute to the income generating activity on
the farm multiplied by the daily rate of a casual labourer.
10
Break Even Yield. This is the crop yield that must be realized to pay all costs of production (both inputs
and operational costs).
Unit Costs and Unit Margins. The cost of production per kg; the profit margin is difference between cost
and sales price per unit of production. In this manual the unit of comparison is one kilogram (Kg).
Break Even Price. This is the minimum price the businessperson must receive to cover all costs of
production.
Value-Adding. Any activity performed by the business to capture more of the profit from the retail price
that the end consumer will eventually pay for the product.
Marketing. This is everything an entrepreneur does to identify customers and what goods or services they
are interested in buying. It also broadly covers research about customers and the competition, and how
they impact your business.
Market. The market is a place, physical location or broader spectrum, where buyers of goods meet sellers
of goods. A market also means the people who have the needs and wants that must be met by your
product. These people must have the effective demand that will be met by your product. They could be
individuals or institutions interested in buying your product.
Small Holder Association (SHA): a collaborating group of farmers who, for the purpose of earning
higher profits and paying lower costs collaborate.
Record Keeping. This is the organized recording of information about a business to be used to monitor
progress and improve efficiency.
Middlemen: Market participants that purchase from the producer or another middleman and sell to the
final consumer or another market intermediary.
Cash Flow: Any amount of money that flows into the business as income or out of the business as an
expenditure.
Projected Income Statement: A simple predictive and management tool that informs the businessperson
about the anticipated outcome of expenditures (investments) in terms of profits or losses (return on
investment).
Efficiency: A process of working well, quickly and without waste.
Appellations: A (commodity) growing geographic area that has unique characteristics such as altitude,
topographic features, soil characteristics and location, and produces products with a distinct quality rating
such cup taste (flavour), which can be differentiated and marketed by its own brand name.
Niche Market: A particular segment of consumers demanding and supplied with coffee of particular
special/unique characteristics, e.g. organic coffees, bird-friendly coffee or shade-grown coffee. Two main
factors that are necessary for a niche market are the coffee quality and its availability.
Cupping: The tasting and testing of different coffees and their brews to judge the ones with the best
consumer characteristics like aroma, colour and acidity in order to determine their quality, usefulness and
price. Cupping Competitions are held to judge and grade coffees from different sources. The higher-grade
coffees fetch higher prices.
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Specialty: Specialty coffee refers to coffees that either command a premium price over other coffees or
are perceived by consumers as being different from the widely available mainstream brands of coffee.
Specialty means a degree of exclusivity.
Wet Processing: A system of cleaning coffee where the (red) cherries are pulped and washed with water
to remove the mucilage and produce clean parchment coffee. It results in higher quality coffee.
Pulping: The process of removing the red outer skin of coffee cherries.
Dry processing: Where the coffee cherries are dried without removing the pulp. The dried cherries
(kiboko) are then hulled to produce clean beans (kase).
Hulling: The process of removing the husk (dehusking) from dry coffee cherries.
Kiboko: (Local Ugandan term to mean) Dried ripe coffee cherries.
Auctioning: A system of selling transparently to competitive buyers where the highest bidder takes the
goods.
Premium: An increment (top-up) in selling price paid by the buyer for a unique/additional quality in the
product offered by the seller.
Trainers’ Note:
Give a brief explanation covering projected income statement and its value as a predictive management
tool. Explain that it measures the anticipated results in terms of expenditure vs. expected gross income.
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CHAPTER ONE: NOTES PAGE
13
CHAPTER 2
POTENTIAL PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

TECHNIQUES IN BUSINESS TERMS
Objectives: Understand simple analysis of profit and loss on the basis of costs and benefits to a farm.
Introduce the costs and impact of production credit.
Introduction:
In the previous chapter we introduced and discussed with the participants the fact that farming is a
business similar to any other business. We further reviewed and internalized some vocabulary that is
relevant to the understanding of business concepts. In this chapter we begin to closely analyze farming as
a potentially profitable business venture.
Traditional farming methods in Uganda are based on a household unit of production. Normally, the
household uses inputs and produces outputs without costing the value of either. While farmers may have
an awareness of what the costs and benefits to their households are from farming, there is rarely any
systematic method for minimizing costs and maximizing benefits. Hence, in this chapter we will model
the projected income statements associated with a farming enterprise. For convenience, we will analyze
the costs and benefits of growing one acre of coffee. (One acre of coffee production will be the standard
unit of production used for comparison throughout almost the entire training process.) The issue of
producer credit and whether or not it is a benefit will also be explored here.
This chapter is the first step in analyzing the household farm as a business unit. After completing this
chapter the participants will be able to analyze closely the costs, profits and efficiency of their own
production. The content of this chapter constructs the foundation upon which the remainder of the training
content is to be built. It is therefore very important that the clients fully understand the projected income
statement tool and all of its components before continuing to chapter 3. The homework assignment at the
end of the first day will reinforce the use of the projected income tool and inform the trainers whether or
not the clients have understood its construction and application.
2.1 Process:

! Review the previous session’s Discussion Flip charts 10 minutes
work.
! Introduce the topic stating the
objectives using examples to
clarify the abstract.
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Facilitation, Flip Charts, 1 hour and 20
! Ask the participants to describe Group Illustrations minutes
their farming methods. Discussion,
! Discuss and agree with clients the Group
inputs necessary for production of Presentations
one acre of coffee.
! Ask them the operations costs
required for production of one acre
of coffee.
! Explain step by step the production
! and operations costs using the
figures in the text.
! When they have understood the
concept of farming, divide them
into three groups.
! Using the guidelines (figures), ask
each group to go through the
process of determining production
costs.
! Each group should select a
chairperson, reporter, and secretary
to take record of all discussions.
! Ask each group to present and Discussion Flip Charts 30 minutes
discuss their assignment.
! Ask one participant to wrap up.
! Discuss and agree on yields for an Group Flip Charts 30 minutes
acre of coffee grown using Discussion,
traditional methods. Work out the
! Discuss and agree on an average example on a
price per kilogram of coffee sold at flip chart
harvest.
! Work out potential profit and/or
losses on growing an acre of
coffee.
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COST AND IMPACT OF CREDIT Discussion Flip Charts 1 hour
! Ask the clients, their perceptions
of credit or loans. Have they
borrowed money from a bank or a
friend? Use the definition in
chapter 1.
! Building on what they know,
explain interest accrued from the
loan. This is an input that has to be
added on the input costs.
! Assume that the interest rate on a
loan is 35% per annum.
! Add the cost of borrowing money
to cover all production costs from
the previous example
! Discuss the impact of credit
comparing the results to the
previous example.
! Discuss costs saving and income
increasing strategies
! Explain the homework assignment
and the expectations
2.2 Training Steps
A Tool for Projecting Profits from a Business Undertaking
The following is a guide for modeling a farm’s projected income statements and using those statements for
calculating the anticipated profit or loss earned on growing one acre of coffee using traditional methods.
The trainer may opt to use all of the following figures and methods of calculation2. Throughout the
extension agent training, we will conduct analyses using the costs and price assumptions as defined on the
following pages. In the field, the actual values will vary depending on the crop, the season, the year and
location. But, keep in mind that the central goal of the training is to demonstrate the trend toward
increased efficiencies and profits when employing improved business practices.
I. Select, Quantify and Cost all Inputs
Key Assumptions Regarding Costs:
Inputs: Seedlings are assigned a cost of 50 USH per seedling with a sowing rate of 450 seedlings
per acre. These seedlings are normal, unimproved varieties.
Tools such as hand hoes are assigned a cost of 3,500 USH and Pangas 3,000 USH each. It
is estimated that 2 hoes and 2 Pangas will be necessary to farm one acre of coffee. Two
2
This training strategy has potential advantages and disadvantages. The advantages are: flip charts and other visual aids can be
prepared in advance, trainers will have ready made examples from this manual to facilitate their presentation, and, all of the
examples will build on the same figures and calculations progressively throughout all of the chapters. The possible
disadvantage is that the figures quoted may not reflect the participants’ local costs and potential income with 100% accuracy.
Therefore, if the trainer and the participants wish to use other figures, they should agree upon the costs and benefits of each of
the items mentioned in this and all similar sections of this guide and use those figures throughout the training. Using the figures
furnished in this manual may be most appropriate for TOTs, where using client-generated figures is likely to be more effective
for farmers.
16
Pruning saws will nee needed each at 5,000 USH. Three scateures, each at 6000 USH. One
wheelbarrow, at 60,000 USH. Two slashers and two spades will be required at 3,000 USH
and 5,000 USH respectively. Two pick-ups of mulch will be used in the first harvest and
one pick-up in the second harvest at 35,000 USH each.
Bagging materials for harvest are assigned a cost of 600 USH per 60-kilogram bag.
(Kiboko). Output during fist harvest is 900 kgs thus 15 bags and during second harvest is 1575
kgs hence 27 bags.
Labor: Field clearing or first plowing is estimated to cost 50 man-days at 1,000 USH per day.
Second plowing will also require 50 man-days at 1000 USH each.

Hole digging will need 45 man-days at 1000 USH each.
Planting will take 10 man-days at 1000 USH each.
Mulching will need 50 man-days for the first harvest and 25 man-days for the second
harvest at 1,000 USH each man-day.
Weeding will require 22 man-days in the first harvest and 10 man-days in the second
harvest, at 1,000 USH each day.
Pruning will require 20 man-days for the first harvest, and 5 man-days for the second
harvest at 1,000 USH each man-day.
Soil conservation will take 20 man-days for the first harvest and 5 man-days for the second
harvest, at 1,000 USH each day.
Harvesting requires 15 man-days of labor for fist harvesting and 20 man-days for second
harvesting costing 1,000 USH each.
Supervision will need 20 man-days at 3,000 USH each.
Drying, sorting, grading and bagging will require 25 man-days of labor during first
harvesting and 30 man-days at second harvesting costing 1,000 USH each. All these
activities will be called processing.
Using the above assumptions (which are based on recent field research) we can summarize our costs with
the participants as follows:
COSTS PER ACRE TRADITIONAL

Costs/acre
Input Costs 1st HARVEST 2nd HARVEST
Seedling (Traditional) 450 Seedlings X 50 USH/each -22,500
Tools (Hoes) 2 X 3,500 USH/hoe -7,000
Tools (Pangas) 2 X 3,000 USH/Panga -6,000
Tools (Pruning saw) 2 X 5,000 USH/Saw -10,000
Tools (Scateure) 3 X 6,000 USH/Scateure -18,000
Tools (Wheel barrow) 1 X 60,000 USH/Wheel barrow -60,000
Tools (Slasher) 2 X 3,000 USH/Slasher -6,000
Tools (spade) 2 X 5,000 USH/Spade -10,000
Mulch 2 X 35,000 USH/Unit -70,000
Mulch 1 X 35,000 USH/Unit -35,000
Labor Costs
Plowing (First) 50 days X 1000 USH/day -50,000
Plowing (Second) 50 days X 1000 USH/day -50,000
Hole digging 45 days X 1000 USH/day -45,000
Planting 10 days X 1000 USH/day -10,000
Mulching 50 days X 1000 USH/day -50,000
17
Weeding 22 days X 1000 USH/day -22,000
Pruning 20 days X 1000 USH/day -20,000
Soil conservation 20 days X 1000 USH/day -20,000
Harvesting 15 days X 1500 USH/day -22,500
Supervision 60 days X 1000 USH/day -60,000
Post Harvest Costs
Bags 15 bags X 600 USH/bag -9,000
Bags 27 bags X 600 USH/bag -16200
Processing 15 bags X 1750 USH/bag -26,250
Processing 27 bags X 1750 USH/bag -47250
Money needed -594,250 -185450
Credit cost
Total cost -594,250 -185,450
II. Estimate Expected Yield and Its Value
Key Assumptions Regarding Yield:
Output: It was noted that one acre will accommodate 450 plants. Output or yield per acre using
traditional strategies or low level inputs for growing robusta coffee can yield on average 2
kgs per tree. Therefore one acre is 450 X 2 kgs = 900 kgs. This is the figure we will use to
estimate our yield for production of robusta coffee. This figure will apply for an estimated
period of 5 years when all the first harvest will be made.
Post
Harvest
Losses: Losses due to insect damage, mildew, mishandling, etc. are estimated at 5% of the total
output.
Price: Coffee prices in Uganda are historically volatile (subject to wide variations depending on
time of year and location). In order to have a convention for this training, we will use the
following table:
Time of 3-4 months after Normal Harvest

Sale Normal Harvest Week
Price 600 USH/kg 450 USH/kg
Please remember that these prices may not reflect the actual observed prices at various rural markets.
Using the above assumptions we can summarize our gross income with the participants as follows:
18
Yield
Coffee Harvested 900 kg X 450 USH/kg 405,000
Post Harvest Losses
Damaged Coffee 5% or 45 kg X 450 SH/kg -20,250
Damaged Coffee 5% or 78.75 kg X 450 SH/kg -35,438
Total Expected Gross Income 384,750 673,312
III. Estimate Expected Profit or Loss
This is accomplished by adding the sum of the costs (which is a negative value) and the sum of the
expected gross income. This can be done as follows:
Net Income/acre Net Income/acre
Total Costs -594,250 -185,450
Total Expected Net Income or Profit -209,500 487,862
Unit cost and margins

Production cost per kg -695.0 -123.9
Selling price per kg 450 450
Profit /loss per kg -245.0 326.1
The Production Cost per Kg figure is calculated by dividing the total cost of production by the kilograms
of coffee sold (coffee harvested minus the post-harvest losses) i.e. 900 kgs - 45 kgs = 855 kgs.
= 594,250 = 695.0
855
Another name for this figure is the Break-Even Price, or the price required to recover all costs of
production. The Profit Margin per Kg is calculated by subtracting the Production Cost per Kg from the
Sale Price per Kg. These will serve as a basis of comparison throughout the training manual. These
figures are complimented by comparative profits per acre - the common unit of production in all but one
chapter.
The preceding example demonstrates the process of predicting the costs of production and comparing
those costs to the expected gross revenues. The result of the comparison is the profit or loss we expect to
earn if our assumptions about the costs of production and the market value of coffee were correct. We
will continue to build upon this simple model throughout the remainder of the training manual. The
concept and the procedure will not change, but we will add new items within the same general categories.
We should realize that this is a model. This result for one acre of coffee production will only happen if all
of the costs are accurate and the price of coffee is accurate.
The Costs and the Impact of Credit
After assuring that the clients understand the basic model for estimating costs, we will introduce the cost
of credit as another probable input cost in agricultural production. The first example was employed to
demonstrate the predictive tool in the simplest possible form. In the interest of simplicity, we have
assumed that there was no need for the farmer to borrow money to plant, harvest and market her crop. To
demonstrate the impact that credit has on the profits in the above example we will now assume that credit
was required to pay for all of the production costs.
19
Assumptions about the costs of credit:
Credit: We will assume that a loan will be taken for five years with a one- time repayment. The
interest rate will be 35 % per annum.
Remember that this number is only an indicator and that the real cost of credit may be
higher or lower depending on the credit provided.
Add the cost of credit to the previous example and discuss the results with the clients.
COSTS PER ACRE TRADITIONAL - ROBUSTA WITHOUT LOAN WITH LOAN

costs/acre
Input Costs 1st 2nd Ist Harvest 2nd
HARVEST HARVEST Harvest
Seedling (Traditional) 450 Seedlings X 50 USH/each -22,500 -22,500
Tools (Hoes) 2 X 3,500 USH/hoe -7,000 -7,000
Tools (Pangas) 2 X 3,000 USH/Panga -6,000 -6,000
Tools (Pruning saw) 2 X 5,000 USH/Saw -10,000 -10,000
Tools (Scateure) 3 X 6,000 USH/Scateure -18,000 -18,000
Tools (Wheel barrow) 1 X 60,000 USH/Wheel -60,000 -60,000
barrow
Tools (Slasher) 2 X 3,000 USH/Slasher -6,000 -6,000
Tools (spade) 2 X 5,000 USH/Spade -10,000 -10,000
Mulch 2 X 35,000 USH/Unit -70,000 -70,000
Mulch 1 X 35,000 USH/Unit -35,000 -35,000
Labor Costs
Plowing (First) 50 days X 1000 USH/day -50,000 -50,000
Plowing (Second) 50 days X 1000 USH/day -50,000 -50,000
Hole digging 45 days X 1000 USH/day -45,000 -45,000
Planting 10 days X 1000 USH/day -10,000 -10,000
Mulching 50 days X 1000 USH/day -50,000 -50,000
Weeding 22 days X 1000 USH/day -22,000 -22,000
Pruning 20 days X 1000 USH/day -20,000 -20,000
Soil conservation 20 days X 1000 USH/day -20,000 -20,000
Harvesting 15 days X 1500 USH/day -22,500 -22,500
Supervision 60 days X 1000 USH/day -60,000 -60,000
Post Harvest Costs
Bags 15 bags X 600 USH/bag -9,000 -9,000
Bags 27 bags X 600 USH/bag -16200 -16200
Processing 15 days X 1750 USH/day -26,250 -26,250
Processing 27 days X 1750 USH/day -47,250 -47,250
Money needed -594,250 -185450 -594,250 -185450
credit cost
interest on 50% on costs 35% per annum for five years -519,969
Total cost -594,250 -185,450 -1,114,219 -185,450
20
Income/acre Income/acre
Yield
Coffee Harvested 900 kg X 450 USH/kg 405,000 405,000
Post Harvest Losses
Damaged Coffee 5% or 45 kg X 450 SH/kg -20,250 -20,250
Damaged Coffee 5% or 78.7 kg X 450 SH/kg -35,438 -35,438
Total Expected Gross Income 384,750 673,312 384,750 673,312

Total Costs -594,250 -185,450 -1,114,219 -185,450
Total Expected Net Income or Profit -209,500 487,862 -729,469 487,862

Production cost per kg -695.0 -123.9 -1303.2 -123.9
Selling price per kg 450 450 450 450
Profit /loss per kg -245.0 326.1 -853.2 326.1
NOTES: Interest is 50% on costs
1st Harvest = 0.5 * 565,500 * 5 years * 35/100

1st Harvest = 2 kgs per tree
Optimum harvest during second harvest = 3.5 kg per tree
Compare the production costs in this example with the costs in the previous example. The only difference
is the cost of credit –623,438 USH. Our total production costs are now 1,217,188 USH.
Note below that the projected yield has not changed. We have spent much more money, but have not
realized a higher level of production!
Now look at the impact that borrowing all of the money needed to produce one acre of coffee has had on
our profits. Also note the differences in the unit costs and margins.
Total cost = 1,217,188 = 1423.6

Net yield 855
Unit Costs and
Margins
Production Cost Per Kg (1423.6)
Sale Price per Kg 450
Profit / loss Margin per Kg (973.6)
The only input we added to this example was the cost of interest when borrowing to finance all of the
production costs. The result is that our profit for one acre of coffee is now (832,438) USH compared to
(209,500) USH in the previous example, and profit/loss margin per Kg is now (973.6) USH rather than
(245.0) shillings. Is credit affordable if we are going to approach farming as a business?
21
IV. Discussion
The above result informs the farmer that using traditional techniques, given the prevailing costs and the
expected yields, she can expect to make a very small profit growing one acre of coffee. The profit is
anticipated to be (832,438) USH when borrowing money – still in losses. The smallest increase in input
costs, a small reduction in yields, or a drop in the value of coffee would turn this loss into a bigger one.
Immediately, we begin to see the power in planning the business before we execute it. This, at the most
fundamental level is “farming as a business”.
Increasing Profits – How?
With the participants, discuss ways that costs could be reduced and/or ways that income could be
increased. These ideas among others, will be the focus of the coming chapters.
Some Cost Saving-Strategies Might Include:
--Cooperating with neighbors to buy improved inputs and tools in bulk
--Saving up income from one season to the next to lower the need for credit
Some Income-Increasing Strategies Might Include:
--Harvesting early to maximize the market price received
--Drying and storing coffee until the price of coffee rises after harvest
--Investing in improved varieties of seedlings
--Investing in fertilizer
Homework Assignment: Projected Income Statement
22
CHAPTER TWO: NOTES PAGE
23
CHAPTER 3
PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

TECHNIQUES AND IMPROVED SEEDLING
Objectives: Understand the implications of investing in improved inputs in a simple agribusiness.
Introduction:
In chapter two we introduced and discussed with the participants the fact that farming is a business, and
we begin to model one acre of coffee production on the subsistence farm as an agribusiness to appreciate
the power of the Projected Income Statement. All inputs can be costed and potential profits or losses can
be forecast.
Knowing how to model the potential Projected Income Statement is the first step in improving the
performance of the farm. The process of modifying the choice of inputs and their associated costs begins
in this chapter and is the subject for the remainder of this manual. We will continue to use the Projected
Income Statement modeled in the second example from chapter two (using credit for production costs),
and each new example will make only a minor change from the previous example. In this way we can
appreciate most fully the value of Projected Income Statement analysis and the immediate impact of each
successive improvement in business practices. The real power of this technique is in the estimation of
costs and profits before any investment is made.
In this chapter we will examine the potential benefits of using improved seedling. We will calculate the
added cost of improved seedling as an investment and then we will observe the change in profit from
using improved seedling to increase our yield at harvest. As in the previous chapter, the interest on credit
is calculated as an input.
In chapter two we discussed the Projected Income Statement with the participants and walked them
through the process twice. In this chapter, we will encourage them to develop their own Projected Income
Statements in their small groups. We should allow the participants as much as possible to work through
the process on their own and present their results. Their capacity to complete the Projected Income
Statement will inform us about how well they understood the content of the first day’s lessons.
3.1 Process:

! Review the previous days work. Discussion Flip charts 20 minutes
Be sure that all clients understand
the use of the Projected Income
Statement.
objective using examples to
! Ask the participants to discuss Facilitation, Flip Charts, 1 hour and
their knowledge of improved Group Illustrations 10 minutes
seedling or “high yielding Discussion,
varieties”. Group
! Explain the increased costs of Presentations
using improved seedling and ask
24
! the participants whether or not
they would invest in such seeds.
! Share with the participants the
likely increase in yield in using
improved seedling.
! Break the participants up into
their same small groups and ask
them to recalculate the costs,
expected yields, expected losses
and expected profit (loss) using
high yielding varieties.
! Ask each group to present and Discussion Flip Charts 20 minutes
discuss their assignment.
! Ask one participant to wrap up.
! Compare the results of this Presentation Flip Charts 10 minutes
chapter’s Projected Income
Statement with the results of
chapter two’s Projected Income
Statement.
! Reiterate the power of the
Projected Income Statement for
forecasting potential profits on the
basis of chosen costs.
3.2 Training Steps
As in the previous chapter, the following is a guide for modeling a farm’s Projected Income Statement and
using that Statement to forecast a profit or a loss. In this chapter we replace the cost of traditional
seedlings with that of improved seedlings and observe the change in profit/loss.
Inputs: Improved seedlings are assigned a cost of 500 USH per seedling with a sowing rate of 450
seedlings per acre. We will replace the cost of normal seedlings from chapter two with this
figure.
Labor: Because improved seedlings will increase the yield, the labor costs for harvesting will rise
from 15 days to 20 days for the first harvest. In the second harvest, the yield will rise from
20 days to 25 days. The unit cost of labor continues to be 1500 USH per day
Post
Harvest: With the increased yield, the farmer will now require 23 bags in the first harvest and 38
bags in the second harvest at 600 USH each.
Processing: Labor for processing the coffee will be charged per bag at a cost of 1750 USH each.
NOTE: All other costs will remain the same.
Using this new cost for seedling, the participants can summarize their costs as follows:
25
II. Estimate Expected Yield and Its Value
Key Assumptions Regarding Yield:
Output: Output or yield using improved seedlings for growing clonal coffee is approximately
1350kgs and 2250kgs for the first and second yields respectively.
These are the figures we will use to estimate our yield.
NOTE: All other assumptions regarding losses and price will remain the same.
Using the above assumptions the participants can summarize their gross income as follows:
COSTS PER ACRE - CLONAL WITHOUT LOAN WITH LOAN

Costs/acre
Input Costs 1st Harvest 2nd Harvest Ist Harvest 2nd Harvest
Seedling (Clonal) 450 Seedlings X 500 -225,000 -225,000
USH/each
Tools (Wheel barrow) 1 X 60,000 USH/W/barrow -60,000 -60,000
Mulch 3 X 35,000 USH/Unit -105,000 -105,000
Mulch 1 X 35,000 USH/Unit -35,000 -35,000
Herbicide 2 X 13,000 USH/liter -26,000 -26,000 -26,000 -26,000
Labor Costs
Herbicide application 4 days X 1500 USH/day -6,000 -6,000 -6,000 -6,000
Post Harvest Costs
Bags 23- bags X 600 USH/bag -13,800 -13,800
Processing 23 bags X 1750 USH/bag -40,250 -40,250
Money needed -890,050 -248300 -890,550 -248300
credit cost
interest on 50% on 35% per annum for 3 years -467539
costs
Total cost -890,050 -248,300 -1,358,089 -248,300
! Discuss the impact of credit comparing the results to the previous example.
! Discuss costs saving and income increasing strategies
26
Explain the homework assignment and the expectations
Estimate Expected Profit or Loss
Yield
Coffee Harvested 2250 kg X 450 USH/kg 1,012,500 1,012,500
Post Harvest Losses
Damaged Coffee 5% or 112.5 kg X 450 SH/kg -50,625 50,625
Again, allow the participants to add the sum of the costs (a negative value) and the sum of the expected
gross income. This can be done as follows:
Net Income/acre Net Net Net

Income/acre Income/acre Income/acre
Total Costs -890,050 -248,300 -1,358,089 -248,300
Total Expected Net Income or Profit -312,925 713,575 -780,964 713,575

IV. Discussion
We note that by using improved seedlings (clonal) our losses go up from –209,500 USH to –313,425
USH, a difference of -103,925 USH without credit. This situation is explained by the massive investment
in the expensive improved seedlings but the situation drastically improves during the second harvesting
when little money is required for input purchase. In the second harvest we shall increase our profits to
713,575 USH from 487,863 USH, a difference of 225,712 USH.
This step toward improved profits costs 225,000 USH for improved seedlings, a little more labour, more
bags and credit cost. The investment paid for itself and increased our profits. It was a very good business
decision.
The following Projected Income Statement summarizes and compares costs and potential income using
traditional methods versus using improved seedlings:
TRADITIONAL ROBUSTA IMPOVRED (CLONAL)

COSTS PER ACRE CLONAL COFFEE WITH LOAN WITH LOAN
YR 4 YR 5 YR 3 YR 4
Seedling (Traditional) 450 Seedlings X 50 USH/each -22,500

Seedling (Clonal) 450 Seedlings X 500 USH/each -225,000
Tools (Wheel barrow) 1 X 60,000 USH/Wheel barrow -60,000 -60,000
27
Mulch 2 X 35,000 USH/Unit -70,000
Mulch 1 X 35,000 USH/Unit -35,000 -35,000
Mulch 3 X 35,000 USH/Unit -105,000
Herbicide 2 litres X 13,000 USH/Unit -26,000 -26,000
Weeding 3 days X 1500 USH/day -4500
Herbicide application 4 days X 1500 USH/day -6,000 -6,000

Processing 15 bags X 1750 USH/day -26,250
Processing 27 bags X 1750 USH/day -47250
Total -594,250 185,450 -890,550 -248,300
interest on 50% on 35% per annum for five -623963 -467,539

costs years
Total -1,218,213 -185,450 -1,358,089 -248,300
Income/acre Income/acre Income/acre
Coffee Harvested 2250 kg X 450 USH/kg 1,012,500
Post harvest losses
Damaged Coffee 5% or 45 kg X 450 SH/kg -20,250
Damaged Coffee 5% or 67.5 kg X 450 SH/kg 30,375
Damaged Coffee 5% or 112.5 kg X 450 SH/kg 50,625
Total Expected Gross income 384,750 673,313 577,125 961,875

Total costs -1,218,213 -185450 -1,358,089 -248,300
Total expected gross income 384,750 673,313 577,125 961,875
Total Expected Net profit or income -833,463,975 487,863 -780,964 713,575
Unit Costs and margins

28
The above Projected Income Statement comparison demonstrates a clear advantage to using high yielding
seedlings versus using local (traditional) seedlings. Again, these figures may not represent costs with
100% accuracy as prices and costs from time to time and place to place may vary. However, it is clear
that improved seedlings alone greatly contributes to improving the trend toward profitability.
We can once again see the power of the Projected Income Statement. Before we have invested a single
shilling, we are able to forecast what our profits are likely to be. Further, we can change the costs of
inputs and the likely yield changes using this technique to find the most profitable method for using the
cash at our disposal. Observe that our most expensive input cost above is interest on credit. What might
we do to reduce this cost?
29
CHAPTER THREE: NOTES PAGE
30
CHAPTER 4:
INTRODUCTION TO SAVING FOR INVESTMENT IN PRODUCTION
Objective: To understand the advantages of saving for investment as opposed to borrowing for
investment.
Introduction:
In chapter three we found that by using improved seedling, we begin to improve our profit picture. While
the initial investment cost was higher, the increase in yield was substantial.
This chapter will begin the process of showing the benefits of saving some of the farm’s profit from each
season to finance the planting costs of the following season. We will demonstrate that reserving some
money for reinvestment can greatly reduce the costs a farm incurs through credit. Lower costs at the start
of the season will lead to higher profits at harvest time.
4.1 Process:

work.
! Discuss with the participants their Group Flip Charts 1-hour and10
awareness of savings schemes Discussions, minutes.
! Have any of them participated in Lecture
these schemes, or routinely saved
in other ways?
! Ask if any of the participants save
money from one season’s harvest
to invest in the following season’s
planting.
! Explain the difference between
“saving up” and “saving down”
using the bar chart (to be
furnished in the training package).
! Ask how they have saved or how
they would save.
! Add one line item to the input
cost per acre table from earlier in
this chapter, and label it
“reinvestment”.
! Again, in-groups, ask the
participants to recalculate their
profit /loss on an acre of coffee
assuming that they used savings
of 667,913 USH.
! Be sure that the participants
31
correct the interest payment on Plenary
their loan to reflect the 667,913
USH reinvestment.
! Ask them to come together and
discuss their findings.
! Drive the point home that by Lecture, Flip Charts 10 minutes
saving 667,913 USH for Discussion
reinvestment, they avoid a cost of Summary
233,769 USH, which is otherwise
subtracted from their profits.
!
! Explain that by saving more of
the profit from each subsequent
season, eventually they will no
longer need credit and the most
costly input to their production
can be eliminated.
4.2 Training Steps:
We will remodel our Projected Income Statement using savings to replace some of the credit investment to
show that saving is a better strategy than borrowing for required costs in that the farm does not incur the
costs of loan interest.
Trainer’s Note: On a flip chart or blackboard, draw the credit-saving chart to demonstrate the similarities
in sequence and the differences is costs. The sample diagram is in your Trainer’s
Packet.
I. Re-Visit the Profits Earned by Using Improved seedling Varieties
Remind the participants of the increased profits from the use of high yielding varieties. Redisplay the
profit/(loss) statement from the previous chapter.

Total Costs -1,358,089 -248,300
II. Add the Reinvestment of 667,913 USH to the Input Cost Analysis
Key Assumption for Re-Investment
Investment: Agree with the participants that they should set aside 667,913 USH for investing in the
coffee growing. Assuming they do set aside 667,913 USH, analyze the potential benefit.
The new input cost section of the Projected Income Statement diagram might appear as follows (see
following page):
32
COSTS PER ACRE - CLONAL
Input Costs Ist Harvest 2nd Harvest
Seedling (Clonal) 450 Seedlings X 500 USH/each -225,000
Tools (Scateure) 3 X 6,000 USH/Scateure -18,000
Tools (Wheel barrow) 1 X 60,000 USH/Wheel barrow -60,000
Tools (spade) 2 X 5,000 USH/Spade -10,000
Mulch 3 X 35,000 USH/Unit -105,000
Mulch 1 X 35,000 USH/Unit -35,000
Herbicide 2 X 13,000 USH/liter -26,000 -26,000
Labor Costs
Plowing (First) 20 days X 2500 USH/day -50,000
Plowing (Second) 20 days X 2500 USH/day -50,000
Post Harvest Costs
Bags 23- bags X 600 USH/bag -13,800
Money needed -890,550 -248300
credit cost
Interest on 25% on costs, 35% per annum for five years -233769
Total cost -1,124,319 -248,300
Note here with the participants that investment is a positive value. All other values are current costs.
These are costs, which are incurred during the business cycle (crop cycle). The Re-Investment is using
money the farmer has; he does not have to pay for it. In fact, it is not really a cost in the same sense as the
other items listed above. It is included in this part of the Projected Income Statement because it is the
most logical place for it.
Note: In the interest of simplicity we are not calculating the costs of savings. We acknowledge that there
is a cost in terms of lost opportunity to profit from the dormant funds. However, if the funds were
33
placed in an interest-bearing account, small profits could be realized to offset the cost of lost
opportunities.
III. Estimate the Yield and Its Value
Yield Income/acre Income/acre

Post Harvest Losses
This will not change from the previous chapter and all previous assumptions are binding.
IV. Estimate the Expected Profit or Loss

Total Costs -1,124,319 -248,300

V. Discussion
We note that by re-investing 667,913 USH from savings, we can reduce our need for credit. Look at the
following comparison (similar to the one in the previous chapter) and observe how by investing 667,913
USH in savings the farmer earns an additional 233,769 USH in profit at the end of the season.
34
COMPARISON OF CHAPTER THREE AND FOUR
Input Costs CHAPTER 3 CHAPTER 4
Seedling (Clonal) 450 Seedlings X 500 USH/each -225,000 -225,000
Tools (Scateur) 3 X 6,000 USH/Scateure -18,000 -18,000
Tools (Wheel barrow) 1 X 60,000 USH/Wheel barrow -60,000 -60,000
Mulch 3 X 35,000 USH/Unit -105,000 -105,000
Mulch 1 X 35,000 USH/Unit
Herbicide application 2 X 13,000 USH/liter -26,000 -26,000
Labor Costs
Mulching 25 days X 1000 USH/day
Weeding 3 days X 1500 USH/day
Pruning 5 days X 1000 USH/day
Soil conservation 5 days X 1000 USH/day
Harvesting 25 days X 1500 USH/day
Supervision 5 days X 3000 USH/day
Post Harvest Costs
Bags 38 bags X 600 USH/bag
Processing 23 bags X 1750 USH/bag 40,250 40,250
Processing 38 bags X 1750 USH/bag
Money needed -890,550 -890,550
Re-investment
Saving 445,275 667,913
Loan needed
credit cost
interest on 50% on costs 35% per annum for five years 467,539
interest on 25% on costs 35% per annum for five years -233,769
Total cost -1,358,089 -1,124,319
Income/acre
Yield
Coffee Harvested 2250 kg X 450 USH/kg
Post Harvest Losses
35
Damaged Coffee 5% or 112.5 kg X 450 SH/kg
Net Income/acre
Total Costs -1,358,089 -1,124,319
Total Expected Net Income or Profit 780,964 -547,194
Profit /loss per kg -608.9 -426.7
36
CHAPTER FOUR: NOTES PAGE
37
CHAPTER 5
THE PROFIT IMPACT OF CHANGING PRICES
WHAT IF THE FARMING COSTS AND COMMODITY PRICES ARE NOT AS WE ASSUMED?
WE ASSURE YOU THEY WILL BE DIFFERENT.
Objective: Understand the impact on profits if production costs and commodity prices vary from the
original assumptions.
Introduction:
Throughout four of the previous chapters we have estimated the changes in potential profits as the result of
differing approaches to a farm business. As outlined earlier, the costs of inputs and operations and the
values of commodities have been based on representative averages. The use of average costs and prices
are the only sensible choices, but averages can be deceiving; they represent the common mid-point
between two extremes, and therefore portray a picture that intentionally does not depict either extreme
case.
In this brief chapter, we want to investigate what happens when we move away from the average or
expected case, and toward either of the extremes – the best case or the worse case. This discussion is
important in understanding and managing risks - the topic of the next chapter.
It is important for the clients to understand that the examples used in the training manual are employed
primarily as a means of teaching the analytical process. The examples are not to be viewed as quantitative
recipes or formulae for success.
5.1 Process:

work.
38
! Review the input/output values Group Flip Charts 30 minutes
used in the previous chapter and Discussion,
throughout the manual. Lecture
! Ask clients again to agree on the
values or at least the reasons why
we have adopted them.
! Ask them which values are most
likely to (at risk to) change from
those in the example.
! Discuss why they might change
and the possible impact on profits.
! Explain the “What if” tables
pointing out the “expected case”
in each table.
! Point out how improved farming
methods and aggressive savings
serve as risk management tools.
! Summarize the chapter and tie it
to the following chapter on risk
management.
5.2 Training Steps
I. Review input/output values in terms of the “expected case”
For the expected case we will use the figures from the second example in chapter five. Let’s review the
assumptions upon which that example is based:
Value of one KG of coffee 450/=

Yield per acre 2250 KG
Post-harvest losses 5%
Savings 100%
Input and operations costs Consistent throughout previous chapters
Net profit based on assumptions 713,575/=
If all of our assumptions were, in fact, correct, then the projected profit would also be correct. However,
in the real world, and especially in farming, market and environmental forces frequently come into play;
commodity prices and/or yields may be lower, input costs may be higher, post-harvest losses may be
higher or storage may be more expensive than anticipated. It is also possible that our assumptions were
too conservative and that profits may be higher due to a good production year and favorable markets.
Ask the clients to list the key variables and what impact changes in those variables would have on profits.
5.3 “What-if” or Sensitivity Analysis
Sensitivity analysis looks at how sensitive the outcome (profits) of a mathematical problem (Projected
Income) is to changes in selected variables within the problem. Or “what if” I change this assumed value
or that one? What will happen?
39
The following four tables were compiled using the input/output values from the last example in chapter
four as the base line, or starting point. In each table, the impact of altering the values of two variables is
investigated. Note that the projected profit figures in bold are always 713,575/=, the same profit that was
projected in chapter four, second season. Other projected profit figures in the tables show the results of
changing one or both of the variables.
The following table illustrates the effect of varying yields and market prices. The discussion in chapter
four assumes that the yield is 2250 KGs, and the sale price per KG is 450/=. Note the differences in
profits as the yields and market prices change.
YIELD VS PRICE
PRICE PER KG
YIELDS PHL % 300 450 500 600 700
900 45 8,200 136,450 179,200 264,700 350,200
1500 75 179,200 392,950 464,200 606,700 749,200
2250 112.5 392,950 713,575 820,450 1,034,200 1,247,950
2300 115 407,200 734,950 844,200 1,062,700 1,281,200
The second table shows the effect of altering post-harvest losses and yields. The familiar profit figure of
713575/= again appears in the table at the intersection of the variables used in chapter four – 5% post-
harvest loss and 2250 KGs of coffee. Changing either value alters the projected net income. Note that
when lowering the post-harvest losses, the farmer is able to make a profit even at the lower yields.
POST HARVEST LOSSES VS YIELDS

YIELDS IN KG
PHL 900 1500 2250 2300
3% 144,550 406,450 733,825 755,650
4% 140,500 399,700 723,700 745,300
5% 136,450 392,950 713,575 734,950
6% 132,400 386,200 703,450 724,600
The comparative table below depicts the potential benefits from saving increasing
amounts of money for investments in future planting seasons. Saving is most
definitely cheaper than paying interest on loans.
SAVING RATE VS PRICE
PRICE PER KG
SAVING RATE 300 450 500 600 700
0% 132,235 452,860 559,735 773,485 987,235
25% 197,414 518,039 624,914 838,664 1,052,414
50% 262,593 583,218 690,093 903,843 1,117,593
75% 327,771 648,396 755,271 969,024 1,182,771
100% 392,950 713,575 820,450 1,034,200 1,247,950
The final example bellow shows the impact of changes in the post harvest losses and
market prices. As in the previous table, the positive effect of proper post-harvest
techniques is dramatically demonstrated.
40
POST HARVEST LOSSES VS PRICES
PRICE PER KG
P-H LOSS 300 450 500 600 700
3% 406,450 733,825 842,950 1,061,200 1,279,450
4% 399,700 723,700 831,700 1,047,700 1,263,700
5% 392,950 713,575 820,450 1,034,200 1,247,200
6% 386,200 703,450 809,200 1,020,700 1,232,200
Discussion:
This chapter should serve three distinct purposes:
1. Farmers understand the impact of changing the values of inputs/outputs, whether they are from natural
causes or due to farming practices or market forces.
2. The values used in this manual are only examples to demonstrate the planning process. They are not
to be viewed as “THE only values”.
3. An introduction to risk management.
Understanding the effects of changes in our assumptions is a valuable tool in understanding the potential
risks. By using the comparative tables, a farmer and/or extension agent can make decisions concerning
high-risk and low-risk activities and to weigh the relative advantages and disadvantages of investments of
capital and other resources.
The next chapter discusses risk management in greater depth. The predictive tools employed to this point
in the training are keys to managing risks in a risky business sector.
41
CHAPTER FIVE: NOTES PAGE
42
CHAPTER 6
COMMON SENSE AND DIVERSIFICATION FOR RISK MANAGEMENT
Objectives: Understand the benefits of building on existing capacity of a farmer in terms of lowering
risk.
Internalize the fact that planning is a risk management strategy.
Understand some broad strategies for lowering Crop Failure Risk and Market Price Risk.
Introduction:
In chapter five we looked at the benefits of aggressive savings as a tool for cutting credit costs and
enhancing profits. From that point forward, we would like to explore the cost-saving and profit-enhancing
benefits of farmers working together. However, before we leave behind the lessons of farming as a
business for individual farmers, we would be wise to discuss risk management.
In chapter one, we compared farming as a business to tailoring. We showed that like tailoring,
agribusiness uses inputs and labor to produce outputs for a market. We further pointed out that tailoring
could be considered less risky than agribusiness.
In this chapter we will depart from the numeric methods we have relied on for the last several chapters to
discuss formally and informally methods of lowering risk. When we speak of risk in agribusiness, we
normally refer to two types of risk (though there may be others). These are risk of crop failure (due to
erratic weather or attack by disease and/or pests) and market price failure (when the price you are planning
on turns out to be lower than expected). When a farm is in debt to a bank or a moneylender, lowering
these risks is essential.
The strategy we will look at in this chapter is common sense and diversification. That is first and
foremost, “grow what you know” - encourage participants to work with crops and products with which
they are familiar. Experience is a valuable risk-management tool. Diversification, the second strategy to
be stressed is simply undertaking different business activities and different types of business activities
(again with which they are familiar). This is to ensure that if there are minor or major failures in any
single activity there is likely to be a success to offset that failure. It might be important to note here that
the common sense approach of “grow what you know” is not meant to preclude innovation. For example,
with good access to both extension services and a market for improved seedling and manure, a farmer
should not be discouraged from improving her performance on a crop (like coffee) with which she is
familiar.
6.1 Process:

work.
! Review the lesson from chapter one Group Flip Charts 30 minutes.
comparing a tailoring business with Discussion,
43
an agribusiness. Lecture
! Reiterate the point made in that
chapter that while both are
businesses, agribusiness is subject to
more risk.
! Ask the participants what are the
different types of risks an
agribusiness is exposed to. List their
responses on flip charts.
! Categorize their responses as either
“Crop Failure Risk” or “Market Price
Risk”.
! Discuss the consequences of these
risks, should they be realized, with
the participants.
! In small groups, ask the participants Group Flip Charts 15 minutes
to discuss and list strategies for Discussion
minimizing or coping with crop
failure risks listed.
! Again, in small groups, ask the Group Flip Charts 15 minutes
participants to discuss and list Discussion
strategies for minimizing or coping
with market price risks listed.
! Based on the participants responses Lecture, Flip Charts 20 minutes
and the steps listed below, reiterate Discussion
the following points for managing
risk:
1. Plan your business using Projected
Income Statements.
2. Grow what you know.
3. Use extension services and the best
agricultural techniques possible.
4. Plant several types of crops (coffee,
beans, sunflowers, etc.).
5. Set aside profits from each season as
savings.
6. Keep records of costs, prices, profits,
planting times, harvesting times, etc.
to maximize business efficiency.
7. Store some of your harvest to
speculate on price changes.
8. If possible, undertake some non-
agricultural profit generating activity.
6.2 Training Steps:
I. Review the Comparison of Agribusiness to Tailoring from Chapter 1
44
Review the two tables below that we compiled (and placed on flip charts) comparing tailoring and
agribusiness.
Comparison of Agribusiness with a Tailoring Business
Tailoring Farming
Inputs: ! Fabric ! Seeds
! Sewing machine ! Land
! Scissors ! Hoes
! Measuring tape ! Ropes
! Thimbles ! Gum-boots
! Thread ! Fertilizers
! Pins ! Pangas
! Paper ! Paper
! Packaging materials ! Bagging materials
Operational ! Cutting the fabric ! Land Preparation

Activities ! Make designs and ! Weeding
embroidery ! Sewing the seeds
! Put final touches like ! Apply fertilizers and
seams, buttons, designs pesticides
on product ! Harvest, sort, dry, and
! Package to suit clients grade
! Package to suit clients
Marketing ! Requires transport ! Transport
! Specification based on ! Specification based on
demand such as season, demand such as people’s
preference. preference, season, etc.
! Designing and packaging ! Sorting, grading, and
! Market information. packaging.
! Market information
Comparative Risks between Agribusiness and Tailoring
Risks Tailoring Agribusiness

Weather - !
Post Production Losses - !
Security ! !
Market Availability ! !
Competition ! -
Adding Value ! !
Pests and Diseases Minimal !
Storage Minimal !
Reiterate with the participants that agribusiness has more and larger risks than tailoring. However, there
are ways of minimizing risks to agribusiness ventures. Note well that agribusiness is the best option for
rural households in Uganda for increasing their wealth. Therefore, while it may be riskier than many
would like, rural Ugandans have the necessary skills, adequate land, existing inputs, access to purchased
inputs and markets for successfully running a farm-based business.
45
II. Discuss with the Participants the Different Risks to Agribusiness:
There are essentially two categories of risk that agricultural businesses try to minimize. These are Crop
Failure Risk and Market Price Risk. In guided discussion with the entire group of participants, ask them
to brainstorm on the different types of risk that a farming venture is exposed to. List these on flip charts.
Half way through the session, introduce the categories of Crop Failure Risk and Market Price Risk.
Define these and their consequences as follows:
Crop Failure Risk: The possibility that due to weather, ineffective crop management, insects, birds,
rodents, disease, etc. the expected yield at harvest will be lower than anticipated. It
may fail altogether.
Consequences: Possible consequences of crop failure are: the inability to repay credit, the inability
to save, food shortage, cash shortage, etc.
Market Price Risk: The possibility that due to too much output (for example coffee) arriving in the
market at the same time, the demand for that output is low and the price for that
output is lower than expected. The profit is therefore lower than expected.
Consequences: Possible consequences of market price failure are: the inability to repay credit, the
inability to save, short-term to long-term cash shortage, etc.
Note: Of the two types of risks the Market Price Risk is more of a serious financial (business only) risk.
Crop Failure Risk poses both a financial risk, and depending on the level of crop failure, a life threatening
risk to the household.
Separate the participants’ responses regarding risk into these two categories.
III. In Small Groups Participants Devise Risk-Minimizing Strategies:
For 45 minutes allow the participants to meet together, discuss and list ways to minimize Crop Failure
Risk. Bring the groups together for 15 minutes to present their findings. List them on flip charts.
Again, for 45 minutes allow the participants to meet together, discuss and list ways to minimize Market
Price Risk. Bring the groups together for 15 minutes to present their findings. List them on flip charts.
IV. Reiterate, Reinforce and Discuss Risk Minimizing Strategies:
In the full group, discuss with the participants their responses for minimizing the risks they identified. Be
sure that the following key points are either reported by the participants themselves or, through the
intervention of the trainer, motivated out of the participants.
1. Plan your business using Projected Income Statement.
! In exactly the way that we have been modeling the agribusiness Projected Income Statement from
chapters one through six, always plan your business in advance. Before spending one shilling, try to
identify everything you will need for your production and what it will cost. If you are not sure of the
cost of an item, over-estimate its cost.
! When planning Expected Income use an average price or even a lower than average price for the
market value of the output. This limits the possible negative effects of Market Price Risk.
46
2. Grow what you know.
! Grow crops that you are familiar with and access technical assistance (i.e. extension services – private
or public) to help you to improve what you already know how to do.
! Do not rely on a crop with which you have no experience to provide the majority of your agribusiness’
income.
! Trying new crops with potentially good profits should be encouraged, but should be done first on a
small scale (with limited investment), then on a larger scale when you have confidence in anticipating
costs, market price and possible problems.
3. Use extension services and the best agricultural techniques possible.
! As was discussed above, use extension services to enhance the skills you already have. Extension
agents should be aware of the best techniques, types of fertilizers, seeds and pesticides to use and how
and where to get inputs. Learn from your neighbors who are successful farmers.
! Using good techniques on a small plot of land is often better than using traditional methods on a large
plot of land. If your cash is limited, it may be better to grow a quarter acre of coffee using improved
seedling and fertilizer than growing an acre of coffee using traditional techniques. Draw a projected
income statement of each option and compare the results.
4. Plant several types of crops (coffee, beans, sunflowers, etc.).
! The business planning, Projected Income Statement model can be used for any crop. Use the same
planning technique to decide the best profit options.
! Instead of choosing only the most profitable option, plant several types of crops. The advantage is if
one crop fails, another is still likely to succeed. If you plant a crop that requires high rainfall, offset
the potential risk by planting a drought-resistant variety.
! Similarly by diversifying your choice of crops you also minimize the Market Price Risk. If the price
for one crop is too low, others may be unusually high.
5. Set aside profits from each season as savings.
! Chapters three through five showed how saving can lower costs and enhance profits. Saving can also
minimize risk in two ways.
! Investing savings instead of borrowing means that your obligation is only to yourself. If,
unfortunately, your crop fails, no bank or moneylender can chase after you for repayment. None of
your hard-earned possessions can be confiscated.
! Saving beyond the needs of the farm and for the needs of the household also provides the benefit of
cash for buying food, medicines, etc. if crops or market prices fail.
6. Keep records of costs, prices, profits, planting times, harvesting times, etc. to maximize business
efficiency.
! One key strategy for managing risk, and the topic of a later chapter, is quality record keeping.
! By recording key information, farmers can follow trends in costs of inputs (Farmers can also follow
trends in output prices (is it better to sell my coffee at harvest, a week before, three months after
harvest?).
! With record keeping, many of the unknown elements of business planning can be more accurately
estimated.
47
7. Store some of your harvest to speculate on price changes.
! On the basis of record keeping and drawing projected income statement, you may be able to predict an
upward price trend after harvest. By planning before planting to have more output than you need to
cover costs and by saving and not incurring large debts, storing becomes an interesting Market Price
Risk management strategy.
! Storage is a “value adding” activity and the topic of a coming chapter.
8. If possible, undertake some non-agricultural profit generating activity.
! While this may not always be an option, having a business income outside of agriculture is a sound
risk management strategy at the level of the household.
! Alternative income sources that are not sensitive to the weather, like brewing, bicycle repair, brick
making, etc., provide low profit but consistent cash flows in the household.
9. Work with other farmers to reduce costs and increase profits.
! Buy inputs in bulk

! Add value to your crops with jointly purchased capital assets
! Increase operational efficiencies
! Access alternative markets
The following chapters will address the potential benefits of working with farmer groups.
IV. Commodity Risk Management
From the foregoing it can be seen that coffee farmers face many risks. These risks could lower the
anticipated income of the farmer and have negative effects on his standard of living. The fall of prices over
the course of a season can be minimized by a minimum price guarantee.
Most often farmers watch the rise and fall of coffee prices. There is a lot of uncertainty regarding the price
the farmers would get for their produce. This makes difficult for farmers to plan for the inputs and other
related investment decisions. The farmers can not plan their crops, allocate their resources, obtain credit for
inputs and even simply recover costs under such situation.
Commodity Price Risk Management is therefore intended to give the farmers a greater understanding of
the concept of price risks in order to allow the farmers to evaluate whether a Guarantee system is an
appropriate investment at any one given time.
Minimum Price Guarantee

A minimum price guarantee gives the farmer the minimum price he/she will receive for his/her coffee no
matter how low the price of coffee falls. It sets a minimum, it does not fix a price. In other words if the
farmer purchases a minimum price guarantee and the price of coffee rises, the farmer will receive the local
price. But once the farmer decides to purchase a minimum price guarantee, he can not get the cost of the
guarantee (the premium) back, whether the price of coffee rises or falls.
48
CHAPTER SIX: NOTES PAGE
49
CHAPTER 7
COST SAVING BENEFITS OF SMALL HOLDER ASSOCIATIONS (SHAs)
Objectives: Understand the advantages and disadvantages of SHAs.
Understand the capacity of SHAs to reduce costs on inputs through collective purchasing.
Introduction:
In the previous chapter we introduced the idea of risk management. Agribusiness is practically the only
profitable and viable activity that is available to Uganda’s many rural farmers. It is also an activity that
has some potentially high risks. Through identifying the risks and planning methods to cope with them,
the risks can be greatly reduced.
While all of the chapters in the manual to this point are strategies for enhancing profits and minimizing
costs, it should be clear from the last chapter that they are also strategies for minimizing risk. This chapter
is no different.
This chapter begins a change in focus that is applied to the remainder of the manual. The first seven
chapters have concentrated on the individual household as the unit of production. In fact, we have never
allowed the discussion even to stray outside the limits of one acre of coffee production (though we have
mentioned diversifying crops as a strategy).
From this point forward we will begin to consider the benefits of farmers forming associations. We will
call these “Small Holder Associations”(SHAs3). Associations can help to lower costs through greater
purchasing power (it is normally cheaper to buy a lot of things at once than to buy just a few things or a lot
of things over a long period of time). This is the topic of this chapter.
The following chapters will look at other benefits of SHAs in terms of increasing profits and increasing
investment capacity so that farmers can invest in “value-adding” technologies, which would be too costly
to a single farmer.
7.1 Process:

work.
! Describe the change in training
focus from individual farmers to
SHAs.
! Discuss with the participants the Group Flip Charts 10 minutes
3
We will use the term Smallholder Association (SHA) throughout the remainder of this manual to describe a group of farmers
working together to benefit from reduced costs, value-addition, operational efficiencies and greater market access. Any name
can be used to describe a group that is working co-operatively for the benefit of each individual – farm club, farm action
committee, or even Cooperative. The important fact is that the organisational entity is owned and controlled by farmers and
managed as a business.
50
potential cost savings in bulk or Discussion,
wholesale purchasing. Use Lecture
simple examples such as
purchasing one soda versus
purchasing a case of soda.
! Ask them if they have ever
participated in a group where
money was pooled to purchase a
large item which all of the many
individuals would share. An
example might be an animal
slaughtered for a wedding.
! Explain that there are examples
from rural Uganda where farmers
have come together to purchase
seeds and fertilizer collectively in
order to enjoy a cost saving.
! Brainstorm with the participants Brainstorming, Flip Charts 30 minutes
some problems that might occur Discussion
with forming groups. Such things
might include mistrust in handling
money, mistrust in handling
purchased goods, etc.
! Brainstorm with the participants
what they might do in the
beginning to develop strong
groups. Such things might
include having by-laws, only
pooling money on the day when a
purchase is to be made,
distributing what has been
purchased the same day it is
purchased, only including hard-
working and honest members, etc.
! Finally point out that by forming
groups to perform small tasks in
the beginning, trust and
experience can be developed so
that groups can take on
progressively more responsibility
as time goes on.
! Put up a flip chart that shows the Brainstorming, Flip Charts 20 minutes
retail and wholesale prices of Discussion
improved seedling, tools, and
fertilizer.
! Show both the quantity price and
the per unit price.
! Discuss with the participants how
large the quantities purchased
must be to purchase these items
51
for the wholesale price.
! Determine with the participants
how many farmers would have to
form a group to enjoy those lower
prices.
! What qualities might they look
for, outside of character, for their
group members? Some things
might include farmers who are
close to each other (to save
transport costs), farmers who save
money after each harvest (so they
are sure to have the cash for the
purchase when they need it), etc.
! In their small groups, ask the Discussion Flip Charts 10 minutes
participants to recalculate their
profit (loss) on an acre of coffee
assuming that they could purchase
their inputs using the wholesale
(SHA) price.
! Again, allow the participants to
work on their own and only aid
them when absolutely necessary.
! Bring the groups back together to Lecture, Flip Charts 10 minutes
share their results. Compare the Discussion
input costs, yields and expected
income on flip charts for one
farmer versus a SHA.
! Discuss the results with the whole
group.
! Reiterate the issues of problems,
concerns and benefits in SHA
formation.
! Reiterate the potential cost
savings in collective purchasing
of inputs.
! Finally review that collective
purchasing is a risk management
strategy because it lower costs
and the need to use loans or
household savings to meet
business obligations.
7.2 Training Steps:
I. Observe the Input Cost for Improved seedling, Hoes, Pangas, Fertilizer and bags when
wholesale purchasing is possible.
Costs and quantities are summarized in the following table.
52
Input Retail Price Wholesale Price Wholesale Quantity
Improved seedling 500/seedling 400/seedling Above 1,000 seedlings
Hoes 3,500/piece 3,000/piece 25 pieces
Pangas 3,000/piece 2,500/piece 25 pieces
Slashers 3,000/piece 2,500/piece 25 pieces
Spades 5,000/piece 4,500/piece 12 pieces
Pruning saws 5,000/piece 4,500/piece 12 pieces
Wheelbarrows 60,000/piece 5,500/piece 12 pieces
Scateur 6,000/piece 5,500/piece 12 pieces
Bags 600/piece 500/piece 100 pieces
On the basis of the above table we can determine how many acres we must farm to allow us to buy inputs
at a wholesale price. Review the required inputs for an acre of coffee. We know what our inputs per acre
are and our wholesale quantity. We can construct a table as follows to figure out our minimum number of
acres.
Input Quantity Per Wholesale Quantity Number of Acres

Acre (1) (2) = (2) / (1)
Improved seedling 450/acre 9,000 seedlings 20 acres
Hoes 2/acre 25 pieces 12.5 acres
Pangas 2/acre 25 pieces 12.5 acres
Slashers 2/acre 25/pieces 12.5 acres
Spades 2/acre 12/pieces 6 acres
Pruning saws 2/acre 12/pieces 6 acres
Wheelbarrows 1/acre 12/pieces 12 acres
Scateur 3/acre 12/pieces 4 acres
Bags 38/acre 100/pieces 2.6 acres
From this table we see that in order to purchase our clonal seedlings at a wholesale price we must farm a
minimum of twenty acres. This means our group size can be up to twenty farmers if each farms one acre
only. It is likely that it will be less than twenty farmers, as some will farm more than one acre. We also
have the option in the short term of paying retail prices for clonal seedlings but getting all of the other
inputs as wholesale. This would reduce the group size from a maximum of twenty to a maximum of ten.
II. Modify the Input Cost for Wholesale Inputs:
Key Assumption:
Assume that the group size is large enough to purchase all of the inputs listed above at wholesale prices.
While we might assume that some group members would farm more than one acre of coffee, we will
continue to use a single acre as our unit of analysis.
Using the wholesale costs for inputs, the participants can summarize their costs as follows:

Costs/acre Costs/acre Costs/acre Costs/acre
Input costs 1st HARVEST 2nd HARVEST Ist Harvest 2nd Harvest
Seedling (Clonal) 450 Seedlings X 400 -180,000 -180,000
USH/each
53
Tools (Pruning 2 X 4,500 USH/Saw -9,000 -9,000
saw)
Tools (Wheel 1 X 55,000 USH/Wheel -55,000 -55,000
barrow) barrow
Tools (Slasher) 2 X 2500 USH/Slasher -5,000 -5,000
Mulch 3 X 30,000 USH/Unit -90,000 -90,000
Mulch 1 X 30,000 USH/Unit -30,000 -30,000
Herbicide 2 X 12500 USH/liter -25,000 -25,000 -25,000 -25,000
Labor costs
Plowing (First) 1 day X 45000 USH/day -45,000 -45,000
Plowing (Second) 1 day X 45000 USH/day -45,000 -45,000
Herbicide 4 days X 1500 USH/day -6,000 -6,000 -6,000 -6,000
application
Post harvest
costs
Money needed -806,250 -238500 -806,250 -238500
Interest on 25% 35% per annum for three -211,641

on costs years
Total costs -806,250 -238,500 -1,017,891 -238,500
Estimate Expected Yield and Its Value
The yield will remain the same as we have only altered input costs. The participants can summarize their
gross income as follows:
Yield Income/acre Income/acre Income/acre

54
Total Expected Income 583,200 972,000 583,200 972,000
Gross
IV. Estimate Expected Profit or Loss
Total Expected Net Income or Profit/loss Net Net

Total costs -806,250 -238,500 -1,017,891 -238,500
Total Expected Net Income or profit -223,050 733,500 -434,691 733,500
V. Discussion:
Once again, we can see the power of the Projected Income Statement as a planning tool. View the
comparison of costs and expected income from purchasing inputs as a single household versus purchasing
inputs as a SHA on the following page.
Discuss with the participants whether these new benefits might tempt them into collaborating in a
purchasing group. Revisit the idea that working as a SHA requires careful planning to select the most
reputable people in the community, those people who are geographically closest to our own operations and
those people who are aggressive savers and likely to have the cash when they need it for collective
purchasing.
Discuss further how collective purchasing functions as a risk management tool in that it lowers input costs.
Lower input costs mean less of a need for outside credit. If crops fail, the SHA members will not be
beholding to a moneylender or a bank. Further, wholesale inputs lower the cash requirements for the
household which means that by being less “cash strapped” the household is more resistant to adversity.
That is, with extra cash on hand, the household can hold out its harvest if farm gate prices are too low, pay
for food if the crop fails, or, purchase emergency needs such as medicines.
Buying inputs as a SHA not only saved us money on the cost of the inputs, but we also saved the cost of
interest we might have had to pay for the loan for the amount we saved.
Profit margin per Kg:

55
CHAPTER SEVEN: NOTES PAGE
56
CHAPTER 8
VALUE-ADDITION IN THE SCALE OF SMALL HOLDER ASSOCIATIONS
Objective: Understand the capacity of an established SHA to enable members to add value to their
commodities and to increase profits.
Introduction:
In the previous chapter we introduced the concept of doing business as a Small Holder Association (SHA).
We began with a discussion of difficulties of forming a SHA and further discussed some strategies to
overcome these weaknesses. In the beginning it was recommended that SHAs develop the trust among the
members slowly. The SHA can, for example, perform collective purchasing for inputs in the beginning.
In this way members need only pool their finances for one day to enjoy the benefit of wholesale pricing
for inputs. The level of trust must be low in the initial phases of a SHA so those members who are sincere
do not take too many risks with those who are not. Chapter seven concluded by illustrating the cost
savings and expected profit benefits of wholesale purchasing of inputs. Again, for small farmers, the best,
and possibly the only, way to enjoy wholesale prices on inputs is through a SHA.
In this chapter, we will assume that the associations we formed in chapter seven have been operating for a
long enough time period that the members are comfortable with each other. The SHAs will be no larger
than they must be. The members will come from a close proximity and within a homogeneous
community. The members will be made up of people who are serious about agribusiness and have proved
it with aggressive savings and high output. Finally, members will be only those individuals who have
proven their exemplary character. It may take months or years for an SHA to achieve this level of trust.
Assuming that the trust is there, now we will consider what a SHA can do for its owners in terms of both
adding value to their crop output and marketing their crop output. These activities will require long-term
commitments and, if possible, investments by the SHAs’ members.
8.1 Process:

work.
! Review specifically with the Group Flip Charts 1 hour.
participants some of the key Discussion,
qualities of a strong SHA. Lecture
1. An established history of trust
among the members.
2. Explicit and enforceable by-laws.
3. Strong savings and business
habits among members.
4. Group size no larger than it must
be.
5. Members’ households are not far
from each other.
57
6. Members’ performing similar
activities.
7. SHAs share profits/losses with
owners.
! Ask the participants what other
qualities for the SHA and among
the members they might seek out
in order to have a strong group.
! On a flip chart, divide SHA
activities between “Low Trust”
activities and “High Trust”
activities. Give a few examples
of each (see the Training Steps)
and ask the participants to
brainstorm and provide some
more examples.
! Ask the participants how long
they feel a group must do
“Low Trust” activities together
before they can develop strong
enough relationships to perform
“High Trust” activities.
! Define the term “value-adding”. Lecture, Flip Charts 30 minutes
! Give examples of value-adding Discussion
activities such as coffee drying,
hulling, pulping/washing,
grading, packaging, storing, etc.
! Ask the participants what other
activities could be added to this
list.
! Explain that many value-adding
activities require large investment
and that this investment is often
unavailable to solitary farmers.
! Reiterate that strong SHAs are a
good way to invest in value
adding.
! In their small groups, ask the Group Flip Charts 30 minutes
participants to recalculate their Discussion
profit (loss) on an acre of coffee
assuming that they were members
of a strong SHA, taking
advantage of reduced costs in
terms of transporting, processing
and marketing their coffee beans.
! Again, as much as possible, allow
the participants to work on their
own and only aid them when
absolutely necessary.
! Bring the groups back together to Discussion Flip Charts 15 minutes
58
share their results. Compare the
input costs, yields and expected
income on flip charts for one
farmer versus a SHA.
! Briefly discuss the results with
the whole group.
! Ask the participants to go back to
their small groups and recalculate
the input costs, yields and
expected income for a second
season.
! Bring the groups back together to Discussion Flip Charts 30 minutes
again share their results.
! Note with the participants how
the profits will soar after adding
value to their coffee.
! Reinforce the costs and benefits
of value adding.
! Review the other types of value
adding activities.
! Reiterate the necessity of strong
SHA formation.
8.2 Training Steps:
I. Review the Qualities of a Strong SHA.
In chapter seven, we discussed some qualities of a “strong SHA”. These included
1. An established history of trust among the members.

2. Explicit and enforceable by-laws.
3. Strong savings and business habits among members.
4. Group size no larger than it must be.
5. Members’ households are not far from each other.
6. Members’ performing similar activities.
7. Proper Record Keeping.
Ask the participants to add to this list. Explicitly, reiterate the absolute need for trust in an SHA before
any larger scale activity can be undertaken. Ask the participants to list some Low-Trust activities and
some High-Trust activities. Use the list below to facilitate this discussion if necessary.
Ask the participants to consider and comment on how long a SHA should take to develop “High-Trust
Relationships” among the membership. Ask them to consider what steps they might take to facilitate the
process of forming strong SHAs.
Low-Trust Activities High-Trust Activities

! A collective purchase of inputs where ! A collective savings scheme where
members pool their money and make members pay into a common fund
the purchase on a single day. over a long period of time which is
59
! A meeting of members to discuss a managed by a committee.
possible future project. ! Members collectively investing their
! Purchasing and sharing a few tools money into a planned project.
between neighboring farms. ! Purchasing tools and storing them for
! Inviting a buyer to come to a central use among twenty farms.
location to which all farmers will ! Entrusting a member with the full
transport their coffee. coffee harvest and the money needed
to rent a truck to bring the coffee to
an urban market.
II. Discussion of Value-Adding
Value Adding is conventionally defined as any activity that enables the producer to capture a greater
portion of the profit earned on the production, processing, transport and marketing of an output good.
For a quick example, think again of the tailor. Perhaps the tailor produces shirts and sells them to retailers
whom, in turn, package them and sell them to consumers. One, of the many value-adding activities
available to this tailor might be to package the shirts himself and sell them at a higher price to the retailer.
The tailor could buy the packaging at wholesale and earn an extra profit on the packaging when selling the
shirts to a retailer.
There are many value-adding activities, which are available to commercial coffee growers. These include,
but are not limited to:
! Hulling the coffee,

! Pulping the coffee
! Grading coffee
! Sorting
! Drying the coffee,
! Storing the coffee to sell later at higher off-season prices,
! Transporting the coffee from the farm-gate to an urban market,
! Packaging the coffee for wholesalers,
! Growing a particular type and quality of coffee for an international buyer,
! Etc.
If we quickly review the above list, we learn that many of these activities require a large cash investment.
Some of the equipment that might be required for the above operations include: vehicles, Hulling
equipment, pulping equipment, dryers, packing equipment, etc. Many of these items are simply beyond
the ability of a solitary or smallholder farmer association, no matter how talented, to buy. We will
therefore assume that, farmers transport their coffee to a processing plant as an association to take
advantage of the reduced transportation and processing costs per unit, as well as having a strong
bargaining voice for a better price of their coffee beans.
III Key Assumption Regarding the SHA—20 members farming one acre each
To make this example a bit more simple to work with (it is complicated enough), we will assume that our
SHA is an organization of 20 farmers. We will further assume that each farmer is growing only one acre
of coffee (which may be unrealistic once the members have achieved this scale of operation). In this way
we can simply take our collective costs such as transport, processing and marketing.
60
Processing:
Quite a number of activities are expected to be performed in order to have good quality coffee beans
ready for marketing. The processing one kilo of ready-to-market coffee right from harvesting to
packaging will be assumed to cost 80 USH.
Transport:
Because farmers are organized in an SHA, they have one collecting center/village for their coffee, and as
such it becomes easy and cheap to jointly hire a truck to take their coffee from point A to point B as may
be necessary. The cost of transporting one kilogram of coffee will therefore be assumed at 20 USH.
Inputs: As in the previous chapter.
The participants might summarize their pis as follows:
Ist Harvest 2nd Harvest

Seedling (Clonal) 450 Seedlings X400 USH/each -180,000
Tools (scateur) 3 X 5,500 USH/Scateure -16,500
Tools (Wheelbarrow 1 X 55,000 USH/Wheel barrow -55,000
Tools (Spade) 2 X 4,500 USH/Spade -90,00
Mulch 1 X 30,000 USH/Unit -30,000
Herbicide 2 X 12,500 USH/liter -25,000 -25,000
Labor costs
Plowing (First) 1 day X 45000 USH/day -45,000
Plowing (Second) 1 day X 45000USH/day -45,000
Post Harvest costs
61
Processing 810kgs X 100USH/kg -81,000
Processing 1350kgs X 100 USH/kg -135,000
Money needed -839,500 -295000
Re-investment
Saving 629,625
Loan needed -209,875
Credit cost
Interest on 25% on costs 35% per annum for three years -
Total cost -1,059,869 -295,000
IV. Estimate Expected Yield and Its Value
Key Assumptions Regarding Output/Yield:
As earlier assumed, one acre of Clonal coffee will yield 1350 Kgs and 2250 Kgs of dry
coffee for the first and second season respectively. It is further assumed that for every five
kilograms of dry Kiboko, you get three Kgs of dry parchment coffee, locally known as
Kase.
Post
Harvest
Losses: It is assumed that farmers pay more attention and care to parchment coffee as opposed to
Kiboko. This therefore, results into reduced losses through mishandling and spillage,
rendering the post harvest losses as low as 1% of the total output.
Price: Coffee prices in Uganda are historically volatile (subject to wide variations depending on
time of year and location). In order to have a convention for this training, we will assume
the price Kase to be 1200 USH per kilogram.
Yield
Post Harvest Losses
Damaged Coffee 1% -9,720
Damaged Coffee 1% -16,200
Total expected gross 962,280 1,603,800
income
V. Estimate Expected Profit or Loss
Again, the participants can accomplish this by adding the sum of the costs (which is a negative value) and
the sum of the expected gross income. This can be done as follows:

Total costs -1,059,869 -295,000
Total Expected gross Income 962,280 1,603,800
Total Expected Net Income / profit -97,589 1,308,800
62
Unit costs and margins
VI. Brief Discussion
It now quite evident that, as long as the farmer has to borrow for investment in the coffee growing
business, the net income for the first harvest is negative. This is attributed by the expensive loan, which
the farmer had to pay within the given period. However, the situation drastically improves in the second
and subsequent seasons.
Bellow is a projected income statement showing the potential profits/losses when a farmer chooses to
borrow and not to borrow for investment:

Costs/acre
Input Costs 1st Harvest 2nd Harvest Ist Harvest 2nd Harvest
Seedling (Clonal) 450 Seedlings X400 USH/each -180,000 -180,000
Tools (Wheel barrow) 1 X 55,000 USH/Wh. barrow -55,000 -55,000
Tools (Slasher) 2 X 2.500 USH/Slasher -5,000 -5,000
Mulch 3 X 30,000 USH/Unit -90,000 -90,000
Mulch 1 X 30,000 USH/Unit -30,000 -30,000
Herbicide 2 X 12,500 USH/liter -25,000 -25,000 -25,000 -25,000
Labor Costs
Plowing (First) 1 days X 45,000 USH/day -45,000 -45,000
Plowing (Second) 1 day X 45,000USH/day -45,000 -45,000
Herbicide application 4 days X 1500 USH/day -6,000 -6,000 -6,000 -6,000
Post Harvest Costs
Bags 9 bags X 500 USH/bag -4,500 -4,500
63
Processing 810kgs X 100 USH/kg -81,000 -81,000
Processing 1350kgs X 100 USH/kg -135,000 -135,000
Money needed -839,500 -295000 -839,500 -295000
Credit cost
Interest on 25% on costs 35% per annum for five years -220,369
Total cost -839,500 -295,000 -1,059,869 -295,000
Yield
Post Harvest Losses
Total Expected Gross 962,280 1,603,800 962,280 1,603,800
Income
Net Net
Total Costs -839,500 -295,000 -1,059,869 -295,000
Total Expected Gross Income 962,280 1,603,800 962,280 1,603,800
Total Expected Net Income or 122,780 1,308,800 -97,589 1,308,800
Profit
Profit /loss per kg 153.1 979.3 -121.7 979.3
64
CHAPTER EIGHT: NOTES PAGE
65
CHAPTER 9
REVIEW OF PROJECTED INCOME STATEMENTS OVER THE COURSE OF THE PREVIOUS

CHAPTERS
Throughout the course of training we have discussed farming and business practices that assist the farmer
in reducing costs and increasing profits. The content of each chapter has built upon the lessons learned in
earlier discussions and has increasingly demonstrated that approaching farming as a business pays
dividends in higher profit margins. Early in the training we acknowledged that the actual cost, production
and commodity price figures may vary from location to location and from season to season. The figures
must be adapted to reflect the actual costs and prices in any given location. However, regardless of the
actual figures applied, the trend will clearly be toward increased returns on investments.
Point out to farmers that, although we have consistently used one acre of coffee through out this manual,
the costs and benefits for any crop and any acreage could be analyzed in the same fashion.
The chart and the table bellow summarize the Projected Income Statements found throughout the previous
chapters. The table and chart will serve extension agents in demonstrating the very positive changes in
profits when farming is approached as a business.
C O F F E E F A R M IN G A S A B U S IN E S S M E A N S IN C R E A S E D P R O F IT S
1400000
1200000
W it h o u t c r e d it
W it h c r e d it
1000000
Shillings
800000
600000
400000
200000
0
T r a d it io n a l Im p ro v e d I n p u t s a v in g a s V a lu e a d d it io n
s e e d lin g s SHA
F a r m in g m e th o d s
The following table sequentially displays the same information contained in the chart. At the top of each
column, the chapter where the analysis was discussed is noted.
Total cost Income Profit

Farming Methods
185,450 487,862 326.1
Traditional method without credit
347,719 325,593 216.8
Traditional method with credit
248,300 713,575 333.8
Improved seedlings (clonal) with own savings
378,658 583,217 273
Improved seedlings with credit
238,500 723,375 280
Input saving as SHA without credit
66
363,713 598,162 338.4
Input saving as SHA with credit
295,000 1,308,800 979.3
Value addition without credit
449,875 1,170,125 863.4
Value addition with credit
Key messages:
• Minimize cost
• Reduce risk
• Increase profit
! Making informed decisions leads you to achieve the above
COST AND INCOME ANALYSIS
LIN E G R A P H S H O W IN G TO TA L C O S T A N D N E T IN C O M E
1400000
1200000 Total cost

1000000 N et
Shillings
800000
600000
400000
200000
0
Traditional Traditional C lonal w ith C lonal w ith Input saving Input saving V alue value
w ith no w ith credit ow n savings credit w /out credit w /credit addition addition
credit w /out credit w /credit
Fram ing m eth od
1,400,000
1,200,000
Total cost
1,000,000
Net Income
800,000
Shillings
600,000
400,000
200,000
0
Traditional Traditional with Clonal with own Clonal with Input saving as Input saving as Value addition Value addition
without credit credit savings credit SHA without SHA with cerdit without credit with credit
cerdit
Farming Methods
67
CHAPTER NINE: NOTES PAGE
68
CHAPTER 10
MARKETING IN THE SCALE OF SMALL HOLDER ASSOCIATIONS
Objective: Understand how the individual owners of a Small Holder Association can increase
profits through efficient marketing.
Introduction:
In earlier chapters we have learned that profits can be enhanced through improved practices, cost
reductions and value addition. We have also learned that a farm-business person can benefit from
operational and cost efficiencies by purchasing inputs as an owner of a SHA, and that some value-adding
capital investments are also more practical when sharing those costs with other SHA member-owners.
Throughout the previous chapters we have based our Projected Income Statement on a number of agreed
upon assumptions; one of which has been the different market prices of coffee. The prices used in our
analyses assume that we are receiving fair prices for our commodities, or that we are effectively marketing
our coffee.
In this chapter we will discuss marketing strategies targeted at increasing market access, reducing risks
and growing profits. Earlier discussions concerning risk management, storage and adding value will all
contribute to the successes of our marketing efforts. We are still maintaining the assumption from the
previous chapter that the farmers are working as owners of an established SHA. This assumption is the
key to realizing the maximum benefits in the marketplace.
Unlike previous chapters, this discussion will not result in a Projected Income Statement. The content will
focus on strategies for accessing alternative markets, attracting market players, increasing profits and
capturing a greater share of terminal market prices. Also note that this chapter is not intended to be a
comprehensive guide to small holder commodity marketing; it is designed to introduce clients to the
benefits of effective marketing.
10.1 Process:

! Review the previous sessions’ Discussion Flip charts 30 hour.
work and the results. Concentrate
on reinforcing the reasons for the
steadily increasing profits as an
owner of a SHA.
! Define marketing and markets,
and introduce the topic stating the
! On a flip chart, define the 4 Ps Group Flip Charts 1 hour
and 2 Cs of marketing in tailoring Discussion,
terms. Lecture
1. Discuss the six points in terms of
farming, and rank them according
to their relevance to the farmer.
Stick to wholesale markets only.
2. On a flip chart list, by category,
69
the marketing constraints facing
the individual coffee farmer.
3. On another chart list the
advantages offered by a SHA.
From previous chapters, recall
other SHA advantages that
contribute to successful
marketing.
! Review: Summarize the lessons Group Flip Charts 30 minutes

learned in this chapter, Discussion,
concentrating on the 4 P’s and the Lecture
2 C’s of marketing. Point out that
all of the 6 points are better
served when processing and
marketing coffee in larger
quantities and of reliable quality.
10.2 Training Steps:
I. Review the Trend of Increasing Benefits Derived from Bulk Input Purchases and Value
Addition.
In chapters eight we demonstrated how profits are enhanced through the bulk purchase of inputs and by
adding value to coffee. Review the results from chapter eight as a reminder of the benefits of SHAs. Use
the Projected Income Statement.
II. Define Markets and Marketing and their Relationship to Production.
Define markets and marketing and relate what was learned in the previous chapters to the current topic.
◊ What cannot be sold should never be produced. When a business ignores the needs and preferences
of consumers, it ends up with products that are not sellable and it drowns in debt.
◊ The market is comprised of all the people and companies supplying a product or service, coupled to all
the people and companies demanding the product or service.
◊ Marketing is the study of consumers and their purchasing tendencies and those of the competitors.
The purpose of the “study” is to understand the markets.
As earlier noted in the opening remarks, above eighty percent of Uganda's population depend on
agriculture. The exports of the country are predominantly agricultural with coffee contributing about 50%
of the export earnings. Thirty five percent of all Ugandans live below the poverty line and the majority of
these are small-scale farmers. This reveals a serious problem in the agricultural sector, more specifically in
marketing. Marketing problems identical with Uganda coffee farmers include price fluctuation, inadequate
market information, crafty intermediaries, competition with other products and same products on local and
international market, low quality and semi-processed products, poor infrastructure to mention but a few.
In understanding the marketing situation and the impending challenges, it is pertinent that the coffee
farmers closely analyze the marketing concepts.
70
III. The Four P’s and two C’s of Marketing
Marketing professional often cite the four P’s and two C’s of marketing:
Four P’s: Product, Price, Place and Promotion, and
Two C’s: Consumer and Competition.
Discuss each point and their importance in terms of tailoring:
" There must be a demand for the product. If there is no demand, there is no market.
" The price must be affordable and in line with other producers.
" The place (location) must be convenient – easily accessible.
" Promotion must come from word of mouth (reputation) or advertising.
" The consumers’ needs, desires and finances must be considered.
" The competition must be known and understood.
After using tailoring to illustrate the above-listed points, ask the participants to relate the same points to
their farming businesses and rank them according to their relative importance. Limit the discussion to
wholesale markets and list the ranking on a flip chart.
Some of the P’s and C’s have different importance for a farm business than they would have for a retail or
manufacturing business. For example, the market largely dictates the sale prices of farm commodities. A
tailor may design a new piece of clothing that is very popular and in short supply. He may therefore be
able to assign a higher price as long as the demand is high and the supply is low. In farming, the sale price
may be improved by adding value or by accessing markets where prices are more favorable. In a sense,
the farmer is competing with costs, not the other market players.
The place, in terms of a SHA, can be a very important factor. When farmers are able to consolidate their
coffee at a central and easily accessible location, the buyers are able to reduce their transaction costs
compared to buying small quantities from many small farmers. This fact makes the SHA more
competitive than individual farmers, allowing them to charge a premium price. Place also may refer to
transporting the coffee to the buyer.
Naturally, we must grow the coffee varieties that are high yielding and are on demand, but product refers
not only to the coffee grown; it also refers to the quality and quantity of that coffee. If the buyers
(consumers) have confidence in the quality and quantity of the coffee, they will become regular customers.
Dependability results in repeat business; that’s self-promotion by establishing a positive reputation.
Promotion of farm products can also refer to making contacts with market players in Kampala or other
market centers. Bringing them a sample and offering them options concerning transport, time of delivery
and prices is a direct approach to promoting the farm business.
III. Marketing as Individual Households vs. Small Holder Association Owners:
Using a flip chart, list the advantages and disadvantages of marketing commodities at the household level.
Ask the clients to construct the list. Don’t assist unless they have omitted key points. Examples may
include:
71
Advantages Disadvantages
◊ Coffee stored at home ◊ High storage losses
◊ No transport costs ◊ Low farm-gate prices
◊ Market choices limited
◊ Lower profits
Once we are sure that all comments have been included in the above chart, entitle a second flip chart,
Small Holder Associations using the same two categories.
Advantages Disadvantages
◊ Low storage losses in modern ◊ Must trust the SHA manager and
storage facilities members
◊ Higher prices for commodities ◊ No immediate access to commodities
◊ Value addition options to respond ◊ Slow decision making
to market demands ◊ Members bear the risks and losses of
◊ Lower transportation costs the Association
◊ Market access ◊ Members have to volunteer their time
◊ Market information and efforts to work for the Association
◊ Elimination of some middle market
players
◊ Higher profits
◊ Allow small holder farmers to
control their livelihoods
◊ Advocacy for the farmer
IV. Discussion of Marketing
The objective of effective marketing is the same as the overall objective of any business – to decrease cost
and increase profits. To get our lower-cost, higher-quality coffee to the market and to reap the greatest
reward, we must be “easy to buy from”. That simple statement is a summary of the four P’s and two C’s
of marketing. We must make it less costly and more convenient for our customers to purchase our coffee;
we must be able to reliably deliver coffee on time and at the specified quality and quantity.
The Middleman
Commodity buyers are often seen as taking advantage of the smallholder farmer because the farm-gate
prices are so low. But, we must keep in mind that the coffee buyer is also a businessperson who must
cover costs and make a profit. When a buyer must go from farm to farm to purchase small quantities of
coffee, his operating cost are very high. He incurs elevated costs of labor, fuel and maintenance of his
truck. He must pay those costs if he is to make a profit. He pays those costs by offering a lower price at
the farm.
Commodity Consolidation
A very important function of a SHA is that coffee can be consolidated at central and easily accessible
locations. If a buyer is able to reduce costs by filling his truck at one location, the SHA is in a position to
negotiate a more favorable price for its owners. A well-established and organized SHA essentially
replaces one or often more middlemen, thereby capturing the added profits for the owners.
72
Alternative Markets
Another marketing advantage of a SHA is its ability to access distant markets. SHA management can
approach the terminal buyers (exporters, etc..) and negotiate deals that are attractive to both the buyer and
the seller. Again, the SHA becomes the middleman and reaps the additional profits for the owners.
Transportation
Access to affordable transportation is another important marketing tool. If a seller (the SHA) is able to
reach the terminal markets in Uganda or in neighboring countries, or even export their own coffee to
Europe, they can benefit from geographical price differences.
Presentation
Buyers of coffee may require coffee delivered in different grades and quantities. They may need coffee
beans graded according to bean color, bean size, etc.. Knowing the customers’ requirements and
conforming to those requirements makes us easier to buy from and that makes us a preferable choice as a
supplier.
Information
In order to take advantage of constantly changing markets, farmers must have access to current and
historical information. A marketing plan is based on past experience while being flexible enough to
quickly adapt to changing market conditions. Information on trends in seasonal price fluctuations is
available and should be systematically accessed by SHAs. Among other decisions, the choice of whether
or not to store coffee until prices improve, is an important function of the management of an SHA.
Contact with buyers and other sellers will inform the SHA management about the current prices.
Newspapers, radio programs, private sector like Uganda Commodity Exchange, Private Sector
Foundation, UCDA, selected NGOs and even the Ministry can also furnish important information.
Timing
With reliable historical information concerning price fluctuations from season to season, we can determine
when the markets are likely to be more or less favorable. There is a cost for storage. The important
question is whether or not the cost is justified by the price advantage anticipated during a period of relative
scarcity. Projected income statement will help the farmer determine if it is more beneficial to sell or to
hold her coffee.
Commodity Exchange
A commodity exchange is a central place for buyers and sellers to transact business in commodities,
including coffee among other agricultural commodities. A commodity exchange operates like a stock
exchange only that it does not trade in financial instruments but agricultural commodities. This type of
marketing is just taking root in Uganda with the formation of the Uganda Commodity Exchange, located
on Uganda Cooperative Alliance Building, Nkrurumah Rd in Kampala.
The exchange has been formed to:

• Ensure that the private sector accesses a level of exportable quality stocks of agricultural commodities,
quickly and at prices quoted by the farmer, not the middlemen and in so doing guarantee the buyers of
a reliable and sustainable volumes of standardized/graded quality products.
• Provide market information on the existence of trade opportunities in agro-communities and hence
help stakeholders discover market prices.
• Provide a market mechanism through which trades in agro-commodities can be conducted efficiently,
timely and transparently, thereby shortening the marketing chains between farm-gate and markets.
73
• Manage market price risks through futures contracts and options according to dictates of market
development. Coffee farmers have to take opportunity of existence of this facility in order to meet and
overcome some of the challenges in marketing.
V. Discussion
Understanding markets and marketing is a cornerstone in the foundation of any business. What to grow,
when to plant, when to harvest, what value addition measures to employ and whether to store coffee are all
based on an understanding of the markets. Marketing is not something that a businessperson considers
only at the end of the production cycle. It must be among the first considerations when planning a farm
business or any other business.
Farmers (SHAs) must cultivate relationships with buyers over many seasons. Mutual trust between
trading partners is as important as it is among SHA owners. When a buyer learns that an agribusiness will
deliver reliable quality commodities of the specified volumes, an ongoing business relationship based on
trust is strengthened over time.
We have learned how to reduce costs and to increase the production of higher quality crops, but without
close attention to marketing, we will be unable to maximize the benefits of our new business approach to
farming.
The future belongs to the organized. The individual household produces small quantities of poor quality
products, and they have very limited access to alternative markets. Only through collective action with
other farmers will they begin to realize a greater share of the terminal market prices.
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CHAPTER TEN NOTES PAGE:
75
CHAPTER 11
WORKPLANNING AND RECORD KEEPING
Objectives: Based on the projected income statement employed throughout the manual, to establish
simple tools for planning the work program of a farm business.
Using the same template, enable participants to know how to keep record of costs and
outputs of their farm businesses.
In five of the previous chapters we employed a simple Projected Income Statement tool to project the
results of applying various farming methods and business practices. The power of that tool is now well
established as a planning instrument and is now very familiar to all training clients. We will take
advantage of that familiarity and use the Projected Income Statement format as the starting point from
which we will develop a simple workplan format and equally simple record forms. The combination of
the Projected Income Statement, workplan and record form gives the farmer the ability to analyze past
performance and future options:
Projected Income Statement: Where do we want to go – options
Workplan: How to get there

Records: Where have we been (a record of activities and profits or losses)?
The form on the following page is a blank version of the Projected Income Statement used throughout this
manual. In its more generic form it serves the farmer and extension worker as a fill-in-the-blank tool for
projecting the comparative advantages and disadvantages between different crops and different farming
and business methods. Extension workers and farmers can refer to the numerous examples throughout the
text for assistance in filling out the cash-flow forms,
11.1 Process:

! Review the previous sessions’ work and Discussion Flip charts 30 minutes
reinforce the power of the Projected Lecture
Income Statement
! Ask clients how the Projected Income
Statement might be similar to workplans
and record keeping, but with different
functions.
! Discuss “Where we want to go”, “How to
get there” and “Where we have been and
the importance of each step.
! On a flip chart, list responses to “What Group Flip Charts 1 hour
items do we need on a workplan”. Repeat Discussion,
the exercise on record keeping. Lecture
! Reinforce that workplanning and record
keeping addresses the same points.
! Discuss the forms and how to use them.
! Relate workplans and records to M&E
obligations.
76
PROJECTED INCOME STATEMENT
OPTION OPTION OPTION OPTION
Input costs UNITS 1 2 3 4
CHEMICALS
OTHER
Labor Costs (Operations)

PREPARATION
PLANTING
WEEDING
HARVESTING
OTHER
Post Harvest Costs

BAGS
DRYING
TRANSPORT
Re-Investment
Savings (Saving Up)
Credit Costs
Credit (Saving Down)
Total Costs
Income Income Income Income

Projected Yield
Post-Harvest Losses
Total Expected Gross Income
Net Income Net Income Net Income Net Income
Total Costs
Total Expected Gross Income
Total Expected Net Income or Profit
77
Farmers and extension workers can use the fill-in-the-blank Projected Income Statement form to make
projections concerning the cost/benefit differences between different crops and farm- business
approaches. With this template, agribusiness people will not actually require this form –they can copy
it by hand into their exercise books.
11.2 Work plans
The line items found in the Projected Income Statement form define the cost of farm inputs and
operations. A work plan defines the activities and the sequence of those activities over time. The
following work plan sheet is very similar to the Projected Income Statement form. The differences are
that the yield and profit and loss sections are omitted and the column headings refer to time periods
rather than production and management options. The farmer can assign the most appropriate column
headings – days, weeks, months – and add as many columns as necessary.
78
WORK PLAN FORM
Period I Period II Period III Period IV
Input purchases Specifications

SEEDLINGS
when?
how much?
TOOLS
when?
how much?
MANURE
when?
how much?
CHEMICALS
when?
how much?
OTHER
when?
how much?
Field Operations
PREPARATION
when?
how much time?
PLANTING
when?
how much time?
MANURE APPLICATION
when?
how much time?
WEEDING
when?
how much time?
HARVESTING
when?
how much time?
OTHER
when?
how much time?
Post Harvest Operations
DRYING
when?
how much time?
HULLING
when?
how much time?
SORTING/GRADING
when?
how much time?
BAGGING
when?
how much time?
MARKETING
where?
how much time?
who?
79
Record Keeping
Any businessperson must keep records in order to know what his outflows (payments) and inflows
(receipts) are. The difference between the two figures will inform the farmer if he has made a profit or
incurred a loss. Farmers must learn from past successes and mistakes if they are to grow coffee as a
business. They can not learn what has worked well and what has not if they do not keep accurate
records. The form below can be copied into a simple exercise book. With this simple form a farmer
can track his cash inflows and outflows. Every expense and income figure discussed in the repeated
Projected Income Statement must be entered. Now is the time to learn if our projections were accurate.
Keeping these simple records will inform the farmer about how to adapt his planning process in the
future.
Income and Expense Record
PAYMENTS (for purchases)
Date Particulars Amount Date Particulars Amount
A record of activities should compliment the record form above - a record that shows when a task was
performed and how much time it took.
Activity Record
Start Date Activity/Task Completion Comments

Date
The information compiled in the two simple forms above will inform the farmer about the performance
of his business during the period for which the records are kept. At the end of a production-marketing
cycle the farmer can combine the information recorded in the exercise book on a single form – a
modified profit and loss statement that is very similar in appearance to the Projected Income Statement.
The primary difference in the two forms is found in the column headings.
80
ACTIVITIES AND EARNINGS RECORD
WHEN HOW MUCH HOW MUCH COMMENTS
INPUTS UNITS TIME MONEY
SEEDLINGS
TOOLS
MANURE
CHEMICALS
OTHER
Field Operations
PREPARATION
PLANTING
WEEDING
MANURING
HARVESTING
OTHER
Post Harvest Operations

Bags
Drying
Hulling
Grading
Packing
Transport
Re-Investment
Savings (Saving Up)
Credit (Saving Down)
Total Costs of Inputs and Operations
Income
Actual Yield Price
Commodity per KG Volume in Kgs
Post Harvest Losses Price

Commodity Per KG Volume in Kgs
Total Actual Gross Income
Net Income
Total Costs of Inputs and Operations
Total Actual Gross Income
Total Net Income (Total costs minus gross income|)
81
Where the column headings on the Projected Income Statement define options relating to crop choices
or farm business practices, the Activities and Earnings Record uses column heading that correspond to
the information gathered in the preceding two simple record forms.
Discussion:
Projected Income Statement, work plans and record keeping help any businessperson to better
understand the performance of his business. The heightened understanding empowers the
businessperson with information that assists him analyzing his business, and in making adjustments that
will reduce costs, increase production and improve profits. How? The Projected Income Statement
show the business farmer his choices and sets targets of performance. The workplan defines the
systematic sequence to reach the targets. Keeping records tells him if he is reaching the targets and
eventually if he has attained them.
In the arena of economic development we call this process Project Design and Monitoring and
Evaluation.
" We define the objectives (projected targets or Projected Income Statement) we want to achieve by
the end of a given period and how we are going to achieve them (work planning).
" We schedule periodic monitoring exercises (record keeping), which inform us if we are on track to
our target,
" We evaluate the results at the end of a project cycle (profit and loss analysis) to document our
successes and failures, and
" Based on what we have learned, we make adjustments in how we design future programs. The
businessperson refines his Projected Income Statement and his approach to managing his enterprise.
The ultimate indicator of success in business is profit, or return on investment. Is the business
producing more each business cycle? Are costs being reduced? Are markets expanding? These are the
indicators of success for any business. These are the points we monitor to measure our progress toward
the target or the goal. The key question in the final evaluation of any business is - ARE PROFITS
INCREASING? As they say in business, “the bottom line is the only evaluation of success or failure”.
Accurate records are essential management tools:
• Improved management results in higher profits.

• Higher profits contribute to the accumulation of capital.
• Accumulated capital equals the creation of wealth.
• Wealth is the key in making the transition from a subsistence to a cash economy, and that path leads
to sustainable development.
82
CHAPTER ELEVEN NOTES PAGE:
83
CHAPTER 12
MONITORING AND EVALUATION
Objectives: To equip extension workers with tools that will enable them to assist farmers in
keeping meaningful records that will enhance their capacities to improve their
businesses.
To assist extension workers in capturing relevant qualitative and quantitative data

that will increase the veracity of the data while reducing the time (costs) of gathering
the information.
Introduction:
At the end of the last chapter we discussed how work planning and record keeping were the business
equivalent of Monitoring and Evaluation – that for the farmer, increased profits were the only
meaningful quantitative indicator of success. Social indicators, or quality-of-life indicators (children in
school, diet and health as examples), do not assess the primary goal of business. However, as incomes
increase, the quality of life is also likely to improve within the household and the larger community.
Although the primary agenda of a successful business is increased income, that agenda serves the
broader goals of the development community and the government.
This chapter will build upon the previous chapter by reinforcing the importance of work planning and
record keeping. This discussion will focus on the needs of the farmer as a decision-maker and a
business manager. If we agree that the goal of a successful business is to reduce costs and risks while
increasing profits, then we must also agree that a business has no social agenda (which is very different
from “no social impact”). Given agreement on those points, we will restrict our discussions to
quantitative business indicators of success and how to document changes.
For the extension agents we make distinctions between different categories of indicators - process
indicators vs. impact indicators, and qualitative vs. quantitative indicators.
12.1 Process:

! Review the previous session’s work Discussion Flip charts 30 – 45
making a clear connection between Lecture minutes
planning/record keeping and M&E.
! Define monitoring and evaluation and
discuss their significance for businesses
and development projects alike.
! Discuss M&E indicators of change and
ask for examples of quantifiable
(measurable) indicators.
! Define the differences between Group Flip Charts 1 hour to
process and impact indicators and ask Discussion, 90 `minutes
for examples to be listed a chart. Lecture
! Baseline data: Explain the
importance of gathering reliable
baseline information. Request input on
84
what constitutes reliable information.
Only collect baseline information on the
indicators to be tracked.
! M&E Checklist: Use these lists to
reinforce the qualities of meaningful
M&E.
! Diagnosis and Revision: Discuss the
importance of revisiting M&E plans to
assure that they retain their connection
to the objectives. They are dynamic
plans.
! Discuss the differences between
business and social agendas and the
need for separation of the two. Discuss
the contribution that business can make
to the social agenda.
! NGOs’ need and the Farmers’
needs:
Discuss the possible conflicts and stress
the fact that a farmer that keeps quality
business records will make the
extension agents’ M&E tasks easier and
less costly.
12.2 Training Steps:
Open the discussion on M&E and ask for comments about the importance of tracking progress against
stated objective. List responses and fill in any gaps.
Monitoring is a systematic recording and continuous or periodic reviewing and surveillance of the
business, allowing farmers to determine whether the business activities are keeping them on track
toward the attainment of their goals, i.e. input deliveries, work schedules, targeted outputs and other
required actions are proceeding according to plan.
Evaluation is a process of determining systematically and objectively the relevance, efficiency,

effectiveness and impact of activities in light of the goals. The evaluation process provides an
opportunity for farmers and other interested parties to stop and reflect on the past in order to make
decisions about the future.
Advantages of Monitoring and Evaluation

" Performance: Helps farmers assess the performance by asking, “Am I on track toward the
achievement of my goal?”
" Mid-course corrections: Early identification of problems or mistakes allows the farmer or
extension worker to make corrections before irreparable damage is done.
" Accountability and Transparency: Reliable documentation of processes and impact.
" Communication: Sharing of results, lesson learned and experiences about business farming with
other stakeholders.
" Learning from documented experiences: Farmers learn from their achievements and mistakes,
and develop enhanced capacities.
85
I. Developing Monitoring and Evaluation Indicators
What is an indicator? – A measuring rod, or measure of change.
QUALITIES OF GOOD INDICATORS
1. Easily observable, verifiable and accurate: Select an indicator for which

information is not difficult to obtain and is accurate. For example, properly kept
farm records are easily available and can provide indications of improved business
or areas requiring improvement.
2. Relevant: Must be relevant to the activities of the objectives. For example,

number of bags of coffee harvested and sold, time required for a task, costs of
inputs and operations.
3. Reliable and up to date: Information should be collected frequently and

routinely. For example, daily labor requirements, crop growth and pest
infestation.
4. Sensitive: An indicator must reflect change
5. Simple: Simple to record and simple for the farmer to analyze or interpret.
All of the indicators that measure change should be recorded in the farmers’ record books and they
should all be useful in decision-making and management. Almost all critical business performance
indicators are listed in the Projected Income Statement. The indicators should be tracked by keeping
records and evaluating the attainment of the goals in the profit and loss or earnings statement.
II. Process Indicators and Impact Indicators:
Monitoring of activities or tasks is monitoring processes. Examples on the farm would be purchasing
improved inputs, planting, weeding, harvesting and drying. The performance of these tasks tells the
farmer and the extension worker that activities are being completed. However, the completion of the
activities does not necessarily imply that there will be positive impact as a result of the actions. If the
process is performed correctly, the assumption is that there will be positive impact. The associated
impact indicators to measure results would be improved germination rates, faster growth, higher
production, higher prices and increased profits.
For the extension worker, process indicators may be the number of farmers visited or the number of
training sessions conducted. If the farmer visits or training were ineffective the change in performance
or the desired impact may not be realized. The impact indicators that measure the effectiveness of the
visits and training are the same as the indicators of success for the farmer – increased production,
higher prices and higher profits
III. Baseline definitions:
In order to measure changes one must first know where the starting point is. Profits are the ultimate
measure of a successful business, so that is the indicator of foremost importance. We must therefore
know the profit history of our business. How much money or how much production has been generated
86
in the past? What was the level of performance before we changed our approach? Determine
historical production and profit histories with the farmers as accurately as possible.
Other indicators of change must also be measured against baseline definitions. What was the level of
pest infestation before the application of pesticides? What was the growth rate and yield of crops with
and without fertilizer? What were the markets in previous years? How much time was spent on
specific operational tasks?
IV. Monitoring Check list

# What are the measurable objectives of the business?
# What type of measurement will be used to determine that objectives have been
reached?
# Who will be responsible for monitoring the activities?
# What are the critical success factors for the business?
# What data and information will you need at the start and throughout the business
to gauge its success (baseline starting information, on going information, etc?)
# Does the farmer have a calendar (workplan) with enough detail to use as a
monitoring tool?
# Does the farmer have periodic (weekly, bimonthly, quarterly) monitoring updates?
What information will be needed in the updates?
V. Evaluation Check List

# Have your business objectives been met? How were the objectives measured?
# What do you need to know to evaluate your success, and to assess the
effectiveness of your approach and your business management?
# What was the greatest impact on the business? What have been the changes
because of your business?
# What was learned in performing the business and related activities?
# How will the information you have learned during this evaluation be used for
future businesses?
# When will evaluations be conducted to make maximum use of lessons learned?
# Have you and your family or business benefited or changed through this business?
VI. Diagnosis and Regular Revisions
Monitoring and evaluation are intended to inform us about the validity of assumptions made during the
planning stage of our business (or project). Without fail, some of those assumptions will prove to be
faulty due to changing conditions (markets, pest infestations, weather, etc.). A businessperson must
87
revise a business plan in the same way that the manager of a development project must alter his/her
project plan to adapt to changing conditions.
The information collected needs to be analyzed by the farmers, necessary conclusions drawn and
appropriate courses of action taken.
Extension workers may wish to help them initially, but the farmers should come to this point through
practice. Avoid imposing your own ideas. The farmers should come to their own conclusions if they are
going to make their own decisions.
As the business progresses, and as discussions proceed over time, new activities, objectives, and new
indicators may emerge. M & E system should be adapted accordingly.
VII. Discussion:
The farmers’ needs and the extension workers’ (NGO/donors’) needs. For extension workers
employed by development organizations and funded by donors, this distinction is important. The
agreements that outline the terms of your funding define quantitative targets in terms of the volume and
value of production. You have “promised” to reach or surpass your stated targets, and you are therefore
obligated to monitor the progress toward the attainment of the targets and evaluate the final outcome.
Your tasks, in this regard, conform perfectly to the similar tasks that the farm businessperson must
perform. If, as an extension worker, you are able to instill in your clients the importance of planning
and record keeping, your monitoring and evaluation obligations will be far less time consuming, more
meaningful and less costly. Increasing production and profits through the application of business
practices is the goal of this training package, but without recording the results, the full benefits of our
efforts will go undocumented. It is the extension workers’ job to assure that the results are well
documented. If your farmer clients do not keep accurate records, your monitoring activities will be less
meaningful and the evaluations of your actions may not reflect the true case. Helping the farmer to
better monitor and evaluate his business enterprise helps you and your organization to better meet your
obligations and to increasingly contribute to rural economic development.
Monitoring and evaluations are as indispensable in the management of a successful business as they are
in the effective implementation of a successful development project. In both cases we must learn from
our mistakes and successes. We endeavor to reduce mistakes and maximize successes. As in all other
elements of business there are costs associated with monitoring and evaluation. It takes time to make
cash-flow projections, and it requires time to keep records and to learn how to effectively interpret
them.
There are also costs associated with M&E activities within your agricultural development programs. If
you are teaching farmers how to function as businessmen, you are obligated to approach your job in a
business minded fashion as well. Among other things this includes gathering your monitoring and
evaluation data in the most efficient way possible, and in a way that does not impose undue hardship on
your clients.
You should be able to collect almost all of your data in the course of your daily routine, precluding the
need to make expensive trips where the only purpose is to collect M&E data. And, if you properly
teach and re-enforce the importance of planning and record keeping, you will find that the farmer has
already collected all of the pertinent information for you. You will simply have to copy it from his/her
records.
88
Take up the challenge to approach your job as a business. You will be more efficient and you will have
more time to work directly with your clients in transferring skills in farming and farming as a business.
Homework Assignment during the one-week break:
Monitoring and Evaluation Plan Design
- Baseline information: Who, when, where and what.

- Data collection frequency, and how that will be incorporated into your existing routine.
- Indicators of change.
- Data forms.
- How your needs will compliment and reinforce the farmers’ needs in planning and record keeping.
89
CHAPTER TWELVE NOTES PAGE:
90
WRAP UP: What are the key lessons?
Throughout the training process we have demonstrated that when approaching farming as a business we
are able to dramatically increase our profits. The examples employed in chapters 2 through 8 clearly
showed us what is possible and how each individual step adds profits to our business. In chapter 2 our
profit was almost 487,862 USH in the second season for one acre of coffee; by the time we started
adding value to our coffee (Kase), from one acre of coffee we were earning 1,308,800 USH in the
second season. If we had planted two acres our income would double to 2,617,600 USH!
How did we achieve this dramatic improvement in our profits?
Improved Inputs:
By purchasing improved seedlings and manure, we increased the productivity and the profits. The
often-heard statement that small farmers are too poor to purchase improved seedlings and manure
has been proven false. The fact is that they will remain poor if they do not devise ways of assuring
that they are routinely able to make those purchases. Promoting traditional methods of agriculture is
promoting sustainable poverty!
The importance of saving a portion of the increased profits:
Credit for production agriculture, if available, is not affordable for the smallholder farmer. We
have demonstrated that the high interest charges are not an affordable input. If improved seedlings
and manure did not pay for themselves and return a substantial profit, the investment would not be
justified. The same reasoning should hold true for any other input or investment in our business –
including unaffordable interest costs on crop production credit.
The transition from credit to saving is not one we should expect to take place from one season to
the next. Farmers must first begin to realize increased profits before they will have enough cash to
save, and increasing the amount they are able to save, in most cases, will require multiple cropping
cycles. However, we have seen the impact of saving even small amounts of money.
Farmers can and do save money is many ways:
! Portions of their crops in safe and secure storage

! In livestock
! In their homes
! With family and friends
! In the banks
! In savings and credit associations
If farmers are successfully working together, as we have discussed in this business-training course,
it strongly indicates that they have established collaborative relationships based on experience, trust
and on systematic controls. It also means that they are earning enough money to routinely save
money. In that environment they also have the organizational capacities to integrate their routine
savings into a savings and credit function within their established business association. The
Savings and Credit Association becomes another element of value-addition within the SHA while it
also contributes to cost savings and operational efficiencies. That translates into higher profits as
we have demonstrated in this manual.
91
Accumulating Savings and Credit Associations (ASCAs) are owner capitalized (by owner savings)
and independent of outside capital support. If properly managed they are more efficient in terms of
the cost of credit, or the interest rates they must charge. Their transaction costs are lower than for
banks and MFIs and every owner has a vested interest in the successful management of the funds.
They are, in essence, all “loan officers” because default by any member has a negative impact on all
other members.
Savings and credit functions (ASCAs) require that the owners develop new skills in transparent and
effective management. They must understand simple interest rate calculations, loan management,
book keeping, by-law formulation, financing and more - or in other words - “Banking as a
Business”. Without these skills, the self-reliance of the SHA and its owners, in terms of credit
requirements, would be very questionable.
SHA owners (or others) who wish to establish affordable and viable savings and credit functions
must seek training from a qualified organization in efficient and transparent management of the
owner-controlled system. One must not assume that semi-formal savings and credit schemes will
be successful without training in the establishment and management of those schemes.
Planning and record keeping:
We have learned about the power of projecting the outcome of a business approach before risking
resources (time and money). It has been the common thread throughout the fabric of this training
manual. All participants should have a very strong grasp on how to use the cash-flow tool to the
greatest advantage.
The work plan and the earnings and activity records are indispensable companions to the Projected
Income Statement. They inform us about which assumptions were correct in our Projected Income
Statement and which ones were not. With this valuable information we are able to make
adjustments in our business operations from season to season and from year to year.
Planning and record keeping are indispensable in any successful business.
Increased profits through collective action:
The most notable increases in profits were realized when we benefited from working together with
other farmers to purchase cheaper inputs, add value to our crops, increase productivity and
operational efficiencies and to access alternative markets. The individual farmer or household has
very limited options for increasing production and profits when they operate their business alone.
They become victims of the market rather than a force in the market.
The history of cooperatives in Uganda, to put it very mildly, has not been encouraging. For that
reason, until now, we have not used the term cooperative in this manual. The term and the
memories it evokes are very negative, and for very good reasons. The farmers know cooperatives
as institutions that did not serve the needs of the members. One reason for that – the members were
not the OWNERS – they were used by the cooperative system to furnish cheap commodities to the
inefficient and corrupt marketing boards. Farmers had to wait for months or even years to receive
payment for their crops, they never received a share of the profits (dividends) and they had no voice
in the decision making or the management of the government-controlled entity. Cooperatives were
used to control and regulate farmers’ production, and not as true cooperatives where the mission
and vision should be economic empowerment of the farmer/owner.
92
In Uganda, cooperatives never should have been called cooperatives. They never earned the name.
They should have used a name that more accurately defined their role – perhaps Marketing Board
Inoperatives or Market Control Inoperatives would have given a much clearer picture of their
functions in the production-marketing chain.
The SHAs we speak of in this training manual must be true cooperatives that are farmer-owned and
controlled. The name we use is unimportant. We can use any name we wish as long as the business
functions as a true cooperative. The cooperative business model is in many ways similar to other
business models – the sole proprietorship (one owner), the partnership or the corporation. And,
they all have similar objectives; to reduce costs, to manage risks, to be competitive and to increase
profits. All businesses must produce goods (or services) that are marketable. All businesses must
finance their operations. All businesses must manage their operations. Cooperatives are no
different; they too must successfully perform all the same functions. However, SHAs (true
cooperatives) have a unique organizational structure from other business models. That structure is
designed to increase efficiencies of individual owners through well-organized collective actions.
If farmer-owned SHAs are going to be successful in putting more money in the pockets of farmers,
they must be managed as a business. The owners and the management must be trained in the
following critical functions that are common to all businesses and in some areas that are unique to
the cooperative business model:
! Management
! Roles, Rights, Responsibilities and Organization (By-Laws)
! Finance
! Accounting and Book Keeping
! Business Planning
! Marketing
Without adequate skills in the above-listed elements of basic business and cooperative operations,
the farmer-owned SHA will have minimal chances of success. If we promote SHAs and ignore the
critical needs for training in these areas, we risk repeating the failures of the past, or being a
contributor to counter development and a supporter of sustainable poverty.
All four of the key messages of this training product are essential in the ultimate economic
empowerment of the rural farm family and in the transition from a subsistence economy to a cash
economy. However, the required changes and the transition they will promote cannot be viewed as
events, but as processes that require patience and on-going support. Farmers cannot move from an
over-dependence on credit to aggressive saving in one season. They cannot change from traditional,
low-profit farming methods over night. They can’t be expected to immediately establish multi-service
SHAs. All these complimentary and interdependent steps can be taken concurrently, but the initial
steps must be measured, with a focus on managing the inherent risks of new and innovative approaches
to farming. Development workers and donors must assume the burden of calculated risks, while
minimizing the risks imposed on farmers. If we listen to the farmers and respond to their needs and
build upon their assets, the pace of change will be dictated by the farmers and informed by their
tolerances for risk.
As the new skills are adopted and the benefits of the initial steps are recognized, the farmers’ eagerness
for subsequent changes should rapidly accelerate.
93

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COFFEE FARMING

EASTERN AFRICAN FINE COFFEES

ACKNOWLEDGEMENT. ………………………………………………………… ….2

WHAT IS BUSINESS? .………………………………………………………………………….7

POTENTIAL PROFITS AND LOSSES WHEN LOOKING AT CURRENT

PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

INTRODUCTION TO SAVING FOR INVESTMENT IN PRODUCTION ……………………..31

THE PROFIT IMPACT OF CHANGING PRICES ………………………………………………38

COMMON SENSE AND DIVERSIFICATION FOR RISK MANAGEMENT ………………….43

COST SAVING BENEFITS OF SMALL HOLDER ASSOCIATIONS ………………………...50

VALUE - ADDITION IN THE SCALE OF SMALL HOLDER ASSOCIATIONS………………57

REVIEW OF PROJECTED INCOME STATEMENT IMPROVEMENTS OVER

MARKETING IN THE SCALE OF SMALL HOLDER ASSOCIATIONS ……………………...69

WORKPLANNING AND RECORD KEEPING …..…………………………………………….76

MONITORING AND EVALUATION ………..…………………………………………………84

WRAP UP. ……………………………………………………………………………………91

Training framework and the target clients:

Training sequence and assumptions

Key Training Messages

- Saving is more a profitable input (cost of production) than credit.

Objectives: To understand the term business using familiar examples.

! Divide participants into groups. Ask 1 hour

I. Participants’ Perception of Business

II. Demonstrate That Farming is Like Any Other Business

III. Business Vocabulary

1.3 Trainers’ Notes

Operational ! Cutting the fabric ! Preparing land

Comparative Risks between Agribusiness and Tailoring

Risks Tailoring Agribusiness

1.4 Basic Business Vocabulary:

Person-day: a unit used to measure casual labor.

Kiboko: (Local Ugandan term to mean) Dried ripe coffee cherries.

POTENTIAL PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

Introduce the costs and impact of production credit.

Process Methodology Materials Time

2.2 Training Steps

A Tool for Projecting Profits from a Business Undertaking

I. Select, Quantify and Cost all Inputs

Key Assumptions Regarding Costs:

Second plowing will also require 50 man-days at 1000 USH each.

COSTS PER ACRE TRADITIONAL

II. Estimate Expected Yield and Its Value

Key Assumptions Regarding Yield:

Time of 3-4 months after Normal Harvest

Price 600 USH/kg 450 USH/kg

III. Estimate Expected Profit or Loss

Unit cost and margins

The Costs and the Impact of Credit

COSTS PER ACRE TRADITIONAL - ROBUSTA WITHOUT LOAN WITH LOAN

Net Income/acre Net Income/acre

Unit cost and margins

NOTES: Interest is 50% on costs

1st Harvest = 0.5 * 565,500 * 5 years * 35/100

Total cost = 1,217,188 = 1423.6

Increasing Profits – How?

Some Cost Saving-Strategies Might Include:

--Cooperating with neighbors to buy improved inputs and tools in bulk

Some Income-Increasing Strategies Might Include:

--Harvesting early to maximize the market price received

--Investing in improved varieties of seedlings

PROFITS AND LOSSES WHEN LOOKING AT CURRENT FARMING

Objectives: Understand the implications of investing in improved inputs in a simple agribusiness.

Process Methodology Materials Time