MODULE 6: FARM MANAGEMENT

Farm records
This refers to systematic entries of various farm business activities and transactions.
Types of records
1. Production records: this is an account of physical units of inputs used and output obtained on
the farm. These include:

• machinery record

• livestock record

• crop record

• labour record

• inventory record

• stock control record

2. Financial records: this is an account of monetary value of the items that are owed and owned
and those which are bought and sold by the farmer. These include:

• profit or loss account

• income and expenditure account

• daily sales account

• purchase account

• debtors account

• depreciation account

• assets and liabilities account

DEFINITION OF TERMS
1. Variable costs: these are input costs that vary with the scale of production and can change
within a short period of time e.g. fertilizer costs, cost of feeds, cost of seeds, cost of
chemicals/fertilizers/pesticides, veterinary bills, wages of casual labour.

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2. Fixed costs: These are input costs that do not vary with scale of production and they remain
fixed throughout the production process e.g. wages of permanent labour, rent, depreciation on
buildings and machinery, interest on loans, tax.

3. Total costs: This is the sum of all fixed and variable costs used in producing a product during
the financial year.
Total costs = variable costs + fixed costs
4. Total returns (gross income): This is the sum of all gains (revenue) obtained from sales of a
particular commodity.

Total returns = quantity sold x price of each unit

5. Depreciation: This is the loss in value of fixed assets over time. This may be due to wear and
tear, age or obsolesce (outdated)
Depreciation = P ( 1 - R / 100 ) n
Where; P=price R=rate n=time

GROSS MARGIN
This is the amount of money remaining once the variable costs have been deducted from the
gross income or overall output of the enterprise.
Determination of gross margin

• determine various output, their quantities and selling price per unit output

• determine the variable inputs, their quantities and purchase prices

• subtract total variable costs from gross income of the enterprise to determine gross
margin
Gross margin = gross income – variable costs
= total revenue – variable costs
= output – variable costs

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Problem 1: Calculate the gross margin of the farm below;

In a 20 hectare field of maize, the farmer bought:

• a second-hand tractor at P60 000.00
• 10 bags of maize seeds at P120.00 each
• a planter at P10 000.00
She hired 12 casual labourers for 20 days at P100.00 each day, paid loan
interest for P500 and P20 000.00 rent.
She produced 1000 bags of maize which she sold at P75.00 each.

Problem 2: In a 4 hectare vegetable farm, the total revenue is P14 000 and the total fixed costs
are P7 000 and the total variable costs are P6 000. Calculate the gross margin per hectare.

PROFIT AND LOSS ACCOUNT

This is a financial statement that gives a summary of revenue (gross income) and expenditure
(total costs) of a business at the end of the financial year.
Profit / Loss = gross income – total costs

= total returns – total cost

Total costs = fixed costs + variable costs

Problem 1: Complete the following profit / loss account.

EXPENDITURE / COSTS INCOME / SALES / RETURNS

ITEM PRICE (P) ITEM PRICE (P)
Feeds 1 800 Broiler sales 3 600
Fertilizers 600 Egg sales 2 200
Drugs 300 Sale of vegetables 900
Casual labour 450 Sale of poultry manure 600
Seeds 70
Purchase of layers 550
Purchase of chicks 1 000

Total costs ___________ Total returns __________

Profit / Loss _________________

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Problem 2: The information below was extracted from the records of a broiler farm in Kgatleng
for the year ending 31st March 2001.

200 broiler chick bought @ P2.00 each

15 bags of poultry manure @ P10. 00 each
10 bags of starter mash @ P100. 00 each
5 packets of medicine @ P50. 00 each
175 mature broilers @ P10. 00 each
6 bags of finisher mash at P90. 00 each
10 labourers at P20 each per day for 20 days

Use the information to prepare a profit / loss account

BALANCE SHEET

• This is the statement of the financial position of a business at a given time at the end of
the financial year.

• It shows the value of all the various assets and liabilities in addition to the net capital or
net worth of the business.

ASSETS
• any item owned by the business
Fixed assets:

• assets held permanently and used continuously for a long period of time

• Examples: land, buildings, equipment, machinery, breeding stock.

Current assets:

• the items which are easily converted into cash.

• the items are working assets of the business and are normally used or sold during a period
of one year or less.

• Examples: raw materials, finished goods, work in progress, debtors, cash at hand, cash t
bank, livestock held for sale.

LIABILITIES
• items that the business owes some money.

• these are claims by people outside the business on the assets of the business.

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Current liabilities:

• these are amounts payable within a period of 1 year or less.

• Examples: creditors, bank overdrafts, short term loans, annual interest payable, tax
payable.

Long term liabilities:

• amount owed by the business and are payable over a long period of time usually over a
year

• Examples: bonds, dentures, mortgage, long term loans,

Net capital / net worth / owner’s equity:

• the amount of the money left for the owner of the business if all the assets are sold and all
liabilities paid.

• The business is solvent when the assets are more than the liabilities

• the business is bankrupt when the assets are less than the liabilities
Net capital = assets - liabilities
N.B.: Assets = Liabilities + Net capital
Example of a balance sheet (to complete)

Liabilities Assets
item value Item Value (P)
Bank loan (pay in 3 30 000
years) 500 cash in hand 5000
Bank over draft 5 000 Cash at bank 10 000
Interest payment 4 000 debtors 3500
Creditors 5600 tractor 12 000
wages payable 3000 building 20 000
mortgage 9000 Crops 4000
Short term loan (10 fertilizers 800
months payment) Mould board 5000

Total liabilities ---------------------------

Net worth ---------------------------

Liabilities + net worth --------------------------- Total assets ---------------------------

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State the financial position of the business ______________________________

Separate Assets; fixed assets and current assets and liabilities in to long term and
current, and prepare a balance sheet for Mr Thuso using the following information:

Bank loan- P250,000 (payable in 3 years)

Value of crops in field- P18,000
Cash at hand- P2050
Cash at bank- P 27,000
Buildings- P 46,000
Interest- P3,000
Ms Ditso bought Maize worth P1700 and the money to be paid within two months.
Mr Thuso bought fertilizers at P11,000 but the money is to be paid after 3 months.
Bank over draft- P1,700
Mortgage – P1,300
Planter- P3,200
Tractor- P80,000
seeds- P120
Herbicides- P350

State the financial position of Mr Thuso’s business _________________________

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 Agribusiness and entrepreneurship
Skills necessary to start an Agribusiness enterprise and Resources
The main skills required to start an agribusiness are as follows;

• Managerial skills- planning, decision making skills, organising, implementing and monitoring
skills.
• Marketing skills
• Communications skills
• Technical skills
• Financial management skills
• Information resourcing skills- knowing what, how, when, where from whom to get the needed
information
• Problem solving skills and risk bearing skills
• Time and stress management skills

Resources needed are:

• Capital
• Land
• Capital
• Management/entrepreneurship
• Time

COMMON FORMS OF BUSINESS ORGANISATIONS

Sole proprietorship

It is the business owned by one person. She/he provides all the capital needed to set up and run it
and takes all the profit as his/her reward. Depending on the size of the business other people can
be employed on either full-time or part-time basis.

Advantages of sole proprietorship

✓ It is easy to set up.

✓ Requires small amount of capital to set up.

✓ The owner makes independent and quick decision on how the business is to be run.

✓ The owner has personal contact with his/her workers and customers. This enables him
/her to try and provide them with personal services.

✓ The owner receives all the profit made by the business.

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Disadvantages of Sole proprietorship

✓ This form of business ends when the owner dies.

✓ The proprietor has unlimited liability, this means that his/her personal assets are at risk of
being attached by the court if she/he fails to pay back the creditors e.g. bank.
✓ There is lack of funds for expansion as the proprietor is the only one to provide all the
funds.

Partnership

It is the business that is owned by 2 to 20 people called partners. They draw up legal documents
called a partnership deed which gives details of the way they want to organise and run the
partnership. They also have a written agreement on how capital, profit and losses will be shared.

Advantages of Partnership

✓ Partnership is easy to set up.

✓ More people in the business increases the finance of the business so they can expand the
business
✓ Responsibilities are shared among members
✓ Members contribute in decision making hence concrete decisions are made
✓ If one partner dies or leaves a new partnership is formed.

Disadvantages of partnership

✓ Decision is made by one person who can result in disagreement thus delaying some
decisions to be made.
✓ The partners have unlimited liability, in case the business becomes bankrupt each
member will be responsible for paying the debts, therefore their personal assets are at
risk.
✓ The partnership terminates if one partner dies or retires and a new partnership agreement
is required. Sometimes it is not easy to find the right partner.
✓ If one partner is in efficient, the other partners may suffer if the business loses.

Limited company

It is a form of business owned by shareholders and run by board of directors that has been
elected by the shareholders. There are two types of limited companies; private and public
company. Private companies sell shares to certain individuals they trust. Public limited
companies sell shares to anyone who can afford to buy them, they have thousands even millions
of shareholders, and operate on a national or international scale.

Advantages of limited companies

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 ✓ The limited company is legally a separate thing, which means it has certain rights which
are recognised by the courts.
✓ It can easily raise more capital by selling shares.
✓ All shareholders have limited liability therefore their personal assets are not at risk.
✓ A company continues regardless of changes in the membership.

Disadvantages of Limited company

✓ Requires complicated legal matters to form and register the company

✓ The capital of the business is strictly controlled by the companies Act.

COOPERATIVES

A cooperative society is a registered association of 10 or more people with common economic

needs who have come together to own and control a business enterprise for the satisfaction of
their needs in accordance with co-operative principles.

Advantages of Cooperative Society

✓ Easy to form: Any ten adults can join together and form a cooperative society. The
formation and registration of a cooperative society is very simple and easy.

✓ Limited liability: The liabilities of the members of the society are limited. Hence, their
private property is not at risk in case the society suffers financial loss.

✓ Democratic management: Every member has equal rights through its single vote but
can take active part in the formulation of the policies of the society.

✓ Stability and continuity: A cooperative society cannot be dissolved by the death of the
members or if they quit.

✓ Government provides special assistance to the societies to enable them to achieve their
objectives successfully.

Disadvantages of Cooperative Society:

✓ Limited resources: Cooperative societies financial strength depend on the capital

contributed by its members and loan raising capacity from state cooperative banks. The
membership fee is limited for which they are unable to raise large amount of resources as
their members belong to the lower and middle class.

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 ✓ Inefficient management: A cooperative society is managed by the members only. They
do not possess any managerial and special skills. Inefficiency of management may not
bring success to the societies.

✓ Lack of secrecy: The cooperative society does not maintain any secrecy in business
because the affairs of the society are openly discussed in the meetings. This paved the
way for competitors to compete in better manner.

✓ Excessive Government interference: Government put their nominee in the Board of

management of cooperative society. They influence the decision of the Board which may
or may not be favourable for the interest of the society.

Organisational structure of a business

Organizational structure refers to the way that an organization arranges people and jobs
so that its work can be performed and its goals can be met. When a work group is very
small and face-to-face communication is frequent, formal structure may be unnecessary,
but in a larger organization decisions have to be made about the delegation of various
tasks. Thus, procedures are established that assign responsibilities for various functions.
It is these decisions that determine the organizational structure.

OR
A hierarchy of authority and responsibility of a business organisation.

MANAGING DIRECTOR

PRODUCTION DIRECTOR MARKETING DIRECTOR

PRODUCTION MANAGER PROMOTION MANAGER DISTRIBUTION

MANAGER

EMPLOYEES EMPLOYEES
EMPLOYEES

MARKETING

Marketing can be defined as all business activities involved in the flow of goods and services
from the point of initial production until they reach the final consumer.

Marketing comprises of a range of activities called Marketing functions. A marketing function

describes what happens to a product between the time of production and the time of purchase by
customers.

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Marketing functions

1. Exchange functions

▪ Buying and assembling

▪ Selling

2. Physical functions

▪ Storage

▪ Transportation

▪ Processing

3. Facilitating functions

▪ Standardization

▪ Packing

▪ Financing

▪ Risk bearing

▪ Marketing intelligence

1. Exchange functions: these include determining the price of products. These functions cover
selling, buying and assembling.

A. Buying and Assembling:

• Assembling starts after the products have been harvested, collected or slaughtered
depending on what is produced.
• Products (when still raw) are bought from different producers; they have to be
assembled at one place before the next activity.
• Farmers as producers sell products which are raw to firms which will transform
the product in to different forms, for example firm will buy milk from different
small suppliers. They then assemble milk as raw or finished product. Raw milk
includes fresh milk whilst finished milk products include cheese and yoghurts.

B. Selling:

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 • this is the actual selling of product from the producer to the consumer at a certain
price.
• It includes all activities that will present the products to the consumers in an
attractive way, there are the physical arrangements of the product, advertising and
determining the price of the product.

2. Physical functions: these are the activities involved in the handling and movement of the
product. They are storage, transportation and processing.

A. Storage:
• agricultural products are seasonal but consumers will desire to buy them any time
of the year so this becomes the most important marketing function.
• It makes sure that goods or products are made available whenever consumers are
willing to buy them.
• There has to be good storage facilities to store both raw and processed products
maize after harvesting has to be stored in a facility that will not allow weevils and
rats to damage it.
• After processing agricultural products like yoghurts they are stored in a cool
storage that will increase their shelf life.
• Products are also stored when they are awaiting transportation and processing.

B. Transportation:
• this is concerned with marketing agricultural goods or products available at a
particular place and time.
• It involves the movement of products from producers until they reach consumers.
Products are transported between the farmer and the storage facility, between the
processor and wholesalers and retailers.
• Transportation method includes air, road and ship. When choosing the method to
use, cost and adequacy in meeting the needs of customers should be considered.
• Transportation also includes loading and unloading products in a mode of
transportation used. This should be done in a way that will put goods at risk of
being damaged.

C. Processing:
• transforming raw agricultural products in to a form that consumers want.
• Many agricultural products are processed before consumption.
• In agriculture the processing functions could take a form of milling, baking,
canning, drying and slaughtering. For example maize is milled into samp, maize
rice, maize meal and corn flakes.

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 • Processing increases the utility of most farm products thus increasing their value
including their shelf life and price.

3. Facilitating function: these functions make sure that exchange and physical functions are
carried out properly.

A. Standardization: this function includes weighing packaging and grading. Packaging

makes products easier to handle, helps sell products which are clean, protects products
from damage and adds value to product.

i. Packaging should be done in such a way that it attracts the customers. Weighing
ensures that the exact quantity is known and makes pricing easier.

ii. Grading - for example eggs are graded depending on their size, there is grade 1,2 and
3.

B. Financing: to carry all the functions of marketing money is needed. Money may be
borrowed from commercial institutions like banks.

i. Risk Bearing:
• risk is defined as a likelihood of a harmful event or loss to occur.
• Example of risks which can cause damages are pests and diseases, fire, floods,
frost and storms. Fire can destroy buildings and products.
• It is very difficult to prevent all these but marketing agencies are prepared to bear
the risk.
• Risks are transferred to an insurance company so that they can cover the
damages for a certain amount.

ii. Marketing intelligence: this is concerned with collecting, interpreting and

disseminating data necessary for the marketing process to operate efficiently. It involves
market research and price determination.

Market Research

It is the systematic collection of information about the market and analysis of this information
for market planning and decision making.

Reason for market research

➢ To know the customers.

➢ To know extent of the demand.
➢ To know how the consumers want the product in terms of colour, size etc.

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 ➢ To know your competitors.
➢ To know the price that consumers are willing to pay for your product.
➢ To identify the strengths of the business.
➢ To minimize or overcome weakness.

Advertising

It is the spreading of information (creating awareness) about a product to potential customers,

and to persuade them to purchase it.

Why businesses advertise

1. To persuade more people to buy the product resulting in higher sales which lead to more
profits
(or to create a demand for the product).
2. To promote or launch a new product.
3. To inform the customers about the change in the nature of the product. Hence “New” or
“Super” brand.
4. To keep the name of the product in the mind of the consumers.
5. To ensure competitors do not take away sales through their own advertising.

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