Agr

icul
tur
eEconomi
csandf
arm management
.
1

STANDARDHI
GHSCHOOL-
ZZANA

ADVANCEDAGRI
CULTURE

PRI
NICI
PLESOFAGRI
CULTUREECONOMI
CSANDFARM MANAGEMEN

Economicsi
showscar
cer
esour
cesar
eal
locat
edt
osat
isf
yunl
imi
tedhuman
needs/
wants

Ther
eforeagricul
tur
eEconomicsisthestudyofhowmanusesthescarcer
esour
ces
e.
g.land,capi
tal,
managementetctoproducemaximum out
putf
rom cr
opsand
ani
mal satminimum cost
s.

I
MPORTANCEOFAGRI
CULTURALECONOMI
CS

 I
tassi
stst
hef
armert
omaxi
mizepr
ofi
t

 I
tenabl
esf
armer
stomakepr
operchoi
ceonr
esour
cessi
ncet
heyar
escar
ce

 I
tenabl
esf
armer
stomi
nimi
zecost
sofpr
oduct
ion

 I
thel
psf
armer
stopr
oducehi
ghyi
elds/
out
put

 I
thel
psf
armer
stoal
locat
eresour
cesef
fect
ivel
ytoavoi
dlossesonaf
arm

PRI
NCI
PLESOFECONOMI
CS

1.Scar
cit
y

Thi
sisastat
eofgoodsandser
vicesbei
nginshor
tsupplyi
nr el
ati
ont
othei
rdemand.
I
texi
stswhenhumanwantsandneedsexceedwhattheyhave.

CAUSESOFSCARCI
TYI
NAGRI
CULTUREALPRODUCTI
ON:

 Naturalf
act
orsli
keflood,
droughtwhi
chmaycausescar
cit
yofwat
er,
foodand
pasturef
oodli
vestock

 Hi
ghcost
sofpr
oduct
ionwhi
chl
imi
tspr
ofi
ts

 Poormethodsofproduct
ionwhi
chsl
owdownsuppl
yofgoodse.
g.useof
i
nfer
iorl
ikehandhoes

 I
nadequat
est
ocksoff
act
orsofpr
oduct
ione.
g.l
and,
labour
,managementet
c

 Longgest
ati
onper
iodsespeci
all
yforper
enni
alcr
opswhi
cht
akel
ongt
omat
ure
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
2

tomeetmar
ketdemanddur
ingcer
tai
nper
iods.Thi
scausesshor
tagesi
nsuppl
y
ofgoods

 Poort
ransportandcommuni cat
ionsyst
em e.
g.useofpoorroadswhi
chbr
ings
del
aysindist
ribut
ionofgoodsandservi
cestomarketcent
ers

 Poorpr
icet
hatdi
scour
agepr
oduct
ionofcer
tai
ncommodi
ti
es

 Poorpl
anni
ngbyf
armer
sdur
ingpr
oduct
ionpr
ocess

 Poorgover
nmentpol
ici
esl
ikehi
ght
axes.Thi
sdi
scour
agef
armer
sfr
om
pr
oducing

 causi
ngscar
cit
y

 Poorst
oragef
acil
it
iestostor
egoodsi
nbumperperiodi.
e.per
iodwhenhar
vest
s
i
shighmakingfar
mer stosel
lal
lpr
oducehenceshort
agesinfut
ure

2.Choi
ce

Thisi
stheactofdecidi
ngwhichresour
cesshouldbeal
locatedt
omeetproduct
ion
needsaswellassati
sfyi
ngconsumersneeds.
It
’swhenaf ar
mermakeschoiceoutof
themanyalt
ernat
ives

3.Oppor
tuni
tyCost

Thi
sref
erst
otheval
ueoft
henextbestal
ter
nativefor
egonewhenachoi
ceismade.
Whenanentr
epr
eneuri
smaki
ngchoiceinproducti
on,heanswer
squest
ionon;

Whattopr
oducebasi
ngondemand,
cli
mat
iccondi
ti
ons,
andecol
ogi
calcondi
ti
on(
soi
l
f
act
ors)

Howt
opr
oducebasi
ngont
heski
ll
s/met
hodofpr
oduct
ionandr
esour
cesavai
labl
e

Howmucht
opr
oducebasi
ngonl
evel
sofl
abour
s,demand,
andmechani
zat
ion

Whent
opr
oducebasi
ngonper
iodwhendemandwoul
dbehi
gh,
cli
mat
e,pr
iceset
c

Forwhom t
opr
oducebasi
ngont
het
arget
edmar
keti
.e.LocalorI
nter
nat
ionalmar
ket

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
3

Wheretopr
oducebasingonf
arml
ocat
ion,
mar
ketl
ocat
ion,
resour
cesavai
labl
eand
sour
cesofr
awmat er
ials

PRODUCTI
ON

Thisist
hetransfor
mati
onofinput
se.g.seeds,f
ert
il
izeret
cint
oout
put
s/har
vest
s.I
n
otherwordproduct
ioni
sthecreat
ionofuti
li
ty.

Ut
il
it
yisabi
li
tyofgoodsandser
vicest
osat
isf
yhumanwant

FACTORSOFPRODUCTI
ON

Thesearetheresour
cesi
nthet
ransf
ormat
ionofgoodsandser
vicest
osat
isf
yhuman.
Theyincl
udethefoll
owi
ng;

Land:Thi
sisthemosti
mportantfact
orofpr
oduct
ion.Economi
csr
equi
resl
andi
nfor
m
ofsoi
l,wat
er,
air,
miner
alr
esourcesetc

Char
act
eri
sti
csofLandasaf
act
orofpr
oduct
ion

 Landi
sgeogr
aphi
cal
lyi
mmobi
le

 I
tssuppl
yisf
ixedandst
ati
ci.
e.can’
tbemovedf
rom onepl
acet
oanot
her

 Landdegr
adesi
nqual
it
yifpoor
lymanaged

 Landhasmanyusesl
ikeagr
icul
tur
e,r
ecr
eat
ion,
roadconst
ruct
ionet
c

 Thequali
tyofl
andcanbemai
ntai
nedbyavoi
dingdef
orest
ati
on,
overgr
azi
ng
andovercul
ti
vati
on

Thepaymentf
orl
andi
srent

Labour:Thi
sref
erstohumaneff
ort
sextendedi
nthepr
oduct
ionofgoodsandser
vices.
Itcanbeinf
orm off
orce,
knowl
edge(pl
an)

Char
act
eri
sti
csofl
aborasaf
act
orofpr
oduct
ion

 I
tismobi
lei
.e.cangof
rom onepl
acet
oanot
her

 I
tcanbei
nher
it
edsi
ncei
nvol
vesski
ll
sofper
son

 I
tsi
nfor
m ofhumanbei
ng

 Thequal
it
yofl
abourcanbei
mpr
oved
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
4

 Labouri
susual
lypai
donmont
hlyordai
lybasi
s

Ef
fi
ciencyofLabour

Thisi
stheabi
li
tyoft
hel
abourt
oper
for
m mor
etasksatagoundermi
nimum
super
visi
on

Fact
orst
hatdet
ermi
neLabourEf
fi
ciency

 Cli
mati
ccondi
ti
on,peopl
ecanwor
kformor
ehour
soncoolweat
hert
hanwhen
theweat
heri
shot.

 Lengt
hofworki
nghour
s.Longworki
nghoursdi
scour
ageswor
k.Wor
kinghour
s
shoul
dberegul
ari
sedf
orworker
stodothei
rbest
.

 Tr
aini
ng,
wel
ltr
ainedper
sonper
for
msbet
terwor
kthanunt
rai
nedper
son

 Super
visi
onoft
hewor
k,i
fwor
ker
sar
esuper
vised,
itmakest
hem t
owor
khar
der

 Provi
sionofl
eavedays,
incaseprovi
dedf
orworkerst
heyper
for
m mor
eand
bett
erworktoproducegoodresult
swhentheyr
eturn

 Jobsecur
it
y,i
ncasewor
ker
sfeelsecur
edi
naj
obi
tmot
ivat
est
hem t
oper
for
m
bet
terwor
k

 Inst
it
utingasenseofowner
shipoftheorganizati
on/f
armt
othewor
ker
s
encouragest
hem toworkhardersi
ncetheyfeelsathome

 Special
izat
ionofLabour
,i
ncaseemployeei
sspeci
ali
zed,
he/
shei
sli
kel
yto
fi
nishtheworkinti
meandper f
orm more

 Fai
randear
lypaymenti
ncr
easeef
fi
ciencyofl
abour
s

 Heal
thoft
heworker,
theheal
thi
ert
hel
abouf
orce,
themor
ewor
khecanper
for
m
t
hanwhenhe/sheissick

 Organi
zat
ionoft
hef
arm,
wel
lor
gani
zedf
arm gi
vesgr
oundf
orbet
ter
perf
ormance

Waysofi
ncr
easi
ngLabourEf
fi
ciency

 Pr
ovi
sionoft
ranspor
t
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
5

 Pr
ovi
sionofhousi
ng

 Pr
ovi
sionofmealatwor
k

 Speci
ali
zat
ion

 Pr
ovi
sionofent
ert
ainment

 Pr
ovi
sionofmachi
nest
oincr
easespeedatwor
k

 Pr
operhandl
ingofempl
oyeesi
.e.avoi
dshout
ingatwor
ker
s

LabourAvai
labi
li
ty/
Suppl
y

Fact
orsdet
ermi
ningLaboursuppl
yforwor
k

 Immigr
ati
on,
thi
sincr
easesl
aboursuppl
ysi
ncepeopl
ecomef
rom ot
her
count
ri
es

 Emi
grat
iondecr
easesl
aboursuppl
ysi
ncepeopl
emovesoutt
oot
herpl
aces

 Hi
ghwager
ateat
tr
act
sbi
gpopul
ati
onofwor
ker
s

 Total
popul
ati
on,hi
ghpopulat
ionencour
agesbi
gsuppl
yofl
abour
sunl
ikel
ow
popul
ati
onwhichli
mit
slaboursuppl
y

 RuralUr
banMigrat
ion.Thisl
eadstomoresuppl
yofl
abourf
rom r
ural
areast
o
ur
banareashencereducingagri
cul
tur
all
abouri
nrur
alar
eas

 Tr
aini
ngper
iod,
longt
rai
ningper
iodf
orwor
ker
slower
slaboursuppl
y

 Polit
icalCl
imateoftheworkplace,i
ncaseagivenar
eaofacountr
yispol
it
ical
ly
stable,morepeoplewouldpr
efertoworkinsuchpl
aceshenceat
tr
acti
ngbi
gger
suppl yofl
abourinthatar
ea

 Thenatur
eofthej
ob,Riskyandunpleasantj
obsl
imi
t5smor
epeopl
efr
om
workshencel
ower
inglaboursuppl
y

 Level
sofski
ll
s/knowl
edger
equi
red

 Avai
labi
li
tyofessent
ialf
aci
li
ti
esl
ikeaccommodat
ion,
thi
shel
pst
obr
ingabout
morepeopleforwork

 Labourmobi
li
tyi
ncr
easesl
aboursuppl
y
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
6

LabourMobili
tyref
erstot
heeasewi t
hwhichl
abourcanmovef r
om oneplaceto
another(
geographi
calmobi
li
ty)orf
rom onej
obtoanother(
occupat
ionalmobil
it
y)

Fact
orsAf
fect
ingLabourMobi
li
ty

 Li
mitat
ioninski
ll
si.
e.i
tshar
dforcompoundcl
eanert
ooper
ateat
ract
ordur
ing
pl
oughing

 Timerequi
redf
ortr
aining,l
ongti
met r
aini
ngper
iodsr
educest
her
ateatwhi
ch
suchpeopl
ewouldjointheoccupat
ion

 Raci
aldi
ff
erenceswher
esomej
obsar
ereser
vedf
orapar
ti
cul
arr
aces

 Tr
anspor
t,poort
ranspor
tresi
stpeopl
efr
om movi
ngonepl
acet
oanot
her

Labouri
srewar
dedSal
arydur
ingpr
oduct
ion

Not
e:Usi
ngasui
tabl
egr
aph,
accountf
orr
egr
essi
vesuppl
yofl
abourdur
ingpr
oduct
ion

Capi
tal
:Thi
sisamanmadeweal
thneededt
ogener
ateanot
herweal
thegt
ract
or

Char
act
eri
sti
csofcapi
tal

 I
tsI
tismanmadee.
g.t
ract
or

 I
tdepr
eci
atese.
g.f
armt
ool
sandmachi
nes

 mobi
leandcanmovef
rom onepl
acet
oanot
her

 I
tincr
easespr
oduct
ivi
tyofot
herf
act
orsofpr
oduct
ion

 I
tvar
iesi
nsi
zei
.e.canbel
argeorsmal
l

Capi
tali
srewar
dedi
nter
est
/pr
ofi
t

TypesofCapi
tal

Real
/Fi
xedcapi
tal
,ci
rcul
ati
ngcapi
tal
,semif
ixedcapi
talet
c

AnEntrepreneur
:Thi
sisapersonwhoassumestheresponsi
bil
it
yofor
gani
zat
ion,
bear
ingrisksandmanagementdur
ingpr
oduct
ionprocess

Rol
esofaFar
m Manager

 Hi
reandPayf
orot
herf
act
orsofpr
oduct
ione.
g.l
andandl
abour
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
7

 Pur
chasi
ngf
armi
nput
s

 Mobi
li
zingr
esour
cesf
ort
hef
arm

 Combi
ningFact
orsofpr
oduct
iont
oear
npr
ofi
ts

 Bear
ingr
isksanduncer
tai
ntyoft
hef
arm

 Super
visi
ngpr
oduct
ionpr
ocess

 Makesdeci
sioni
npr
oduct
ion

 Fi
ndsmar
ketf
orf
arm pr
oduceandsal
ethem

 Keepsupt
odat
efar
mrecor
dsf
orf
utur
eref
erence

 Mot
ivat
esl
abour
satt
hef
armf
orbet
terper
for
mance

 Tocoor
dinat
eandpl
anf
arm act
ivi
ti
esasr
equi
red.

PRODUCTI
ONFUNCTI
ON

Thisi
st hephysi
calrel
ati
onshi
pbetweeninput
sandout
puts.I
tshowshowt he
quanti
tyofparti
cul
arproduct
svar
ieswiththel
evel
sofi
nputsusedinaspecif
icper
iod
ofti
me

Mat
hemat
ical
lypr
oduct
ionf
unct
ioni
srepr
esent
edas

Y=f
(L1,
L2,
L3………………….
Ln)

Wher
e;

Yisout
putandL2,
L2,
L3andLnar
ethevar
iousi
nput
susedi
npr
oduct
iont
opr
oduce
Y

TYPESOFPRODUCTI
ONFUNCTI
ONI
NFARMI
NGBUSI
NESS

1.I
ncreasi
ngRetur
n:Thi
sistheproduct
ionf
unct
ioni
nwhicheachaddi
tionaluni
tof
var
iabl
einputr
esul
tsi
nlar
gerincr
easeinout
putt
hantheprecedi
nguni
tofinput.

I
tisdescr
ibedasi
rr
ati
onalbecauser
esour
cesar
eunder
uti
li
zed

Out
put
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
8

2.ConstantRet
urn:Thi
sistheproductionfunct
ioninwhicht
heamountofout put
i
ncreasesatsamerate(amount)foreachadditi
onaluni
tofvar
iabl
einputusedi.
e.the
ret
urnareconst
anttothevari
ableinputused.

Iti
sdescri
bedasir
rati
onalbecauseret
urnt
othevari
ableinputf
actor
scannotincr
ease
athigherl
evel
sofproduct
ion.Thefar
mercannotmaximizeprof
itatt
hisl
evel
.

out
put

3.Decr
easi
ngReturn:Thi
sisthepr
oduct
ionfuncti
oninwhicheachaddi
ti
onaluni
tof
i
nputusedr
esul
tsintodecr
easeinout
putthantheprecedi
ngone.

Out
put

Iti
sdescr
ibedasr ati
onalbecauser
esour
cesar
eputt
oopt
imum useandhi
ghestpr
ofi
t
canbeobtained.I
.e.whereMC=MR

Ter
msusedi
npr
oduct
ionf
unct
ion

Fixedinputs:Thesear
einput
swhi
chcannotbevar
iedeasi
lywi
thi
nthepr
oduct
ion
cyclee.g.Land

Vari
abl
einput
s:Theseareinputswhosequanti
tiescanbechangedeasi
lywi
thi
nthe
pr
oducti
oncycl
ee.g.Labours,
Seeds,andFert
il
izerset
c

Tot
alphysi
calproduct(
TPP):Thi
sistheamountofpr
oduct
sgotfrom usi
ngcert
ain
amountofi
nputsinproduct
ionprocesse.
g.20menproduces222kg0fmaize

Aver
ageProduct
s(AP):Thi
sisthet
otalphysi
calproduct
sdivi
dedbyt
heuni
tsof
i
nputsusedi
nproduct
ionpr
ocessi.
e.AP=TP( X)
/inputused.

Margi
nalProduct
s(MP)
:Thi
sist
heext
rapr
oduct
sobt
ainedf
rom anext
rauni
tof
i
nputsused.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
9

I
.e.MP=Changei
ntot
alpr
oduct
s(TP)
/changei
ninput

Exampl
es:

20l
aboursproduce2000kgofmai
ze,
onaddi
ngonemantheypr
oduces2150kgof
mai
ze.Calcul
atemargi
nalpr
oduct
scont
ri
but
edbyaddi
nganext
raunitofonel
abour

MP=Changei
nTP/
changei
ninput

2150–2000/
21-
20=150kg

Exampl
e:

Thet
abl
ebelowshowstotalout
putofmai
zef
rom t
heuseofvar
iabl
efact
oroff
ert
il
izer
onaonehectar
eofLand

Fixed Qntyof Tot

almaize Margi
nal Aver
age
factor
(l
and) fer
ti
li
zer out
put
(TPP) pr
oducts(
M pr
oduct
s(AP
used P) )

1 1 8 8 8

1 2 18 10 9

1 3 30 12 10

1 4 38 8 9.
5

1 5 44 6 8.
8

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
10

1 6 48 4 8

1 7 48 0 6.
9

1 8 46 -
2 5.
7

1 9 42 -
4 5.
5

Quest
ions

1(a)Pl
ottheinf
ormat
ionf
rom t
heabovet
abl
eont
hesameaxi
sshowi
ngt
he
rel
ati
onshipbet
weenTPP,MPandAP.

(
b).
Indi
cat
eallt
hethreest
agesofpr
oduct
ionf
unct
ionandexpl
aint
heeventt
aki
ng
pl
acein eachstage

(
c).
Indi
cat
ethepoi
ntofdef
lect
ionf
rom t
hegr
aphwher
epr
ofi
tscanbemaxi
mized

Thegraphshowingtherel
ati
onshi
pbetweenTot
alProduct
(TP)
,Margi
nalProduct
(MP)
andAverageProduct
s(AP)usingavar
iabl
euni
toffer
ti
li
zeronafi
xedfact
orofLand

Tpcur
ve

Out
put

Regi
on1 Regi
on2 Regi
on3

APCur
ve

Var
iabl
einput
(y)

St
age1/
Irr
ati
onalzone MPCur
ve

Thi
siscal
ledzoneofi
ncr
easi
ngRet
urns/
Irr
ati
onalzone
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Undert
hiszoneeachaddi
ti
onaluni
tofi
nputr
esul
tsi
ntol
argeri
ncr
easei
nout
putt
han
t
heprecedi
nginput

TPi
ncr
easeatani
ncr
easi
ngr
ate

APal
soi
ncr
easesbuti
slesst
hanMP

Thisisanir
rat
ionalzonebecauset
hef
armerunderut
il
izesr
esour
ces(
input
)in
product
ion

Exampl
eofagricul
tur
alsi
tuat
ionatt
hiszoneisunderuti
li
zat
ionoffert
il
izer
,smal
l
pl
antpopul
ati
on,underst
ocki
nginli
vestock,
underuti
li
zat
ionoflabour

Feedi
ngl
ivest
ockonpr
otei
nfood

St
age2(
Rat
ionalzone)

Thi
siscal
ledzoneofdi
mini
shi
ngr
etur
norr
ati
onal
zone

I
tbegi
nswhenMPandAPar
eequal

TPincr
easesatadecr
easingrat
eunt i
litr
eachest
hemaxi
mum (
maxi
mum
out
put)
.Thi
spointi
scal
ledTechnicalopti
mum poi
nt

Ther
egi
onendswhenTPi
smaxi
mum andMPi
szer
o

I
nthi
sregi
onbot
hAPandMPar
edecr
easi
ng

Resour
cesar
ebei
ngusedef
fect
ivel
yint
hiszone

St
age3(
Ir
rat
ional
zone)

Thi
sisal
socal
ledzoneofnegat
iver
etur
n.

Thezonebegi
nswhenTPi
smaxi
mum,
MPi
szer
o,APi
sdecr
easi
ngbutgr
eat
erMP.

TPi
sdecr
easi
ng;APi
sal
sodecr
easi
ngwhi
leMPi
sdecr
easi
ngandnegat
iveal
ready

It
’sthemostunproduct
ivezoneinagri
cul
tur
eproduct
ionasi
tresul
tsi
ntoreducedTP,
APandMP. MPi snegativewhi
chrefl
ectl
osses.I
nthi
szonethefi
xedfact
orisover
uti
li
zed

Exampl
esofagr
icul
tur
epr
oduct
ionsi
tuat
ioni
nzonet
hreei
ncl
udest
hef
oll
owi
ng

 Keepi
ngt
oomanyani
mal
sonasmal
lpi
eceofl
and(
overst
ocki
ng)l
eadi
ngt
o
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compet
it
ionf
ort
hef
eeds

 Excessi
veappl
icat
ionoff
ert
il
izerl
eadi
ngt
osoi
ltoxi
cit
y

 Overuseofher
bici
dei
ncr
oppr
oduct
ion

 Excessi
vesuppl
ement
aryf
eedi
ngr
atef
ort
heani
mal
s

 Toomanyl abour
sont
hesamef
arm whi
chr
educest
het
otalout
putduet
o
congest
ion

Theref
oret hemostprof
it
abl
ezonethefarmerisadvisedtooper
ateini
sregi
ontwo
becauseinr egi
ontwoTPisincr
easi
ngthoughatadecr easi
ngrate,
APisposi
ti
veand
MPi ssti
llposit
ivet
houghbecomezeroattheveryendoftheregi
on

Thepoi
ntofprofi
tmaximizati
on(EconomicOptimum [Point
)isl
ocatedi nr
egiontwo
ontheTPcurvejustbef
oreMaximum TPi sreached.Profi
tismaxi
mi sedatthepoint
whenMargi
nalCost( MC)isequalt
oMar gi
nalRevenue( MR)whichonl yoccursi
n
regi
on2ofproducti
onfuncti
on.

LawsofDi
mini
shi
ngRet
urn

Itstatethati
fasuccessiveunitofavariabl
efactorisaddedtoafixedf
actorwhi
le
holdingotherfactor
sconstant
,tot
alproducti
onincreasesbutbeyondcert
ainpoi
nt,
the
resulti
ngincreasewill
becomesmal l
erandsmal l
er

COSTSOFPRODUCTI
ON

Thesearet
heexpensesi
ncur
reddur
ingpr
oduct
ionpr
ocess.Exampl
esofpr
oduct
ion
cost
sare,

1.Fi
xedcost
/overheadcost
s/unavoi
dabl
ecost
s

Thesearecost
sthatdonotvar
ywitht
helevel
sofpr
oducti
oni.
e.afarmerhastomeet
them whet
heri
nproduct
ionornot
.egi
nter
estonl
oan,Rent
,Depreci
ati
on,
Salar
iesf
or
permanentwor
kers

2.Var
iabl
ecost
s

Thesearecoststhatvari
eswitht
hel
evel
sofpr
oduct
ion/
out
put
.egcost
sofseeds,
fer
ti
li
zer
,pesti
cide,power,f
uelet
c

3.Tot
alcost
s.

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Thi
sist
hesum off
ixedcost
sandvar
iabl
ecost
s

4.I
mpl
ici
tCost
s.

Theseareexpensesthatar
enoteasi
lyr
ecogni
zedinproduct
ionprocessorindi
rect
expense/
noncash.eguseofownlabour
,famil
ylabour
.Thi
scostisnotalwaysvalued
i
nt hecal
cul
ati
onofpr of
it
sonafarm

5.Expl
ici
tCost
s.

Thesearedir
ectexpensesincurr
edbythef armeraft
erbuyi
ngresour
ces.Theyare
easytoberecogni
zedont hefarm.egTransportCost
s,sal
aryf
orworkers,
depreci
ati
on
ofmachiner
y,costsofseeds,fer
ti
li
zer
,pestici
deetc

6.Mar
ginalcost
s.

Thi
sisthecostofpr
oduci
ngeachaddi
ti
onaluni
tofout
putort
hecostofpr
oduci
ng
margi
nalpr
oductsonafar
m

7.Realcost
s.

Thesear
enonmonetar
ycostsofpr
oduct
ioni
.e.t
her
ealpai
norsacr
if
icegi
venby
l
aboursdur
ingpr
oduct
ionpr
ocess.

8.ReducedCost
s.

Thi
sref
erst
othemoneysavedwhencar
ryi
ngoutfarm act
ivi
ti
es.egTranspor
tat
ionof
mil
kandeggstot
hemarketont
hesametrucksavestr
ansportcostofoneproduct

9.Tot
alVar
iabl
eCost
s(TVC)
.

Thi
sist
het
otalcost
sofal
lvar
iabl
eresour
ceusedi
npr
oduct
iononaf
arm

10.Tot
alFi
xedCost
s(TFC)
.

Thi
sist
het
otalofal
lthecost
soff
ixedr
esour
cesusedi
npr
oduct
ion

11.Aver
ageFi
xedCost(
AFC)
.

Thi
sist
hecostoff
ixedr
esour
cesperuni
tofout
put

AFC=TFC/
Out
put
(Y)

12.Aver
ageVar
iabl
eCost
s(AVC)

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Thi
sist
hecostofvar
iabl
eresour
cesperuni
tofout
put

AVC=AFC/
out
put
(Y)

13.Aver
ageTot
alCost
s(ATC)
.

Thi
sist
het
otalcost
sofal
lresour
cesperuni
tofout
put

AFC+AVC/
out
put
(Y)

QUESTI
ON

1(
a)Descr
ibet
hepr
obl
em ofagr
icul
tur
alpr
oduct
ioni
naneconomy(
10mar
ks)

(b)
Assessthemeasurest
hegover
nmentofUgandahast
akent
odevel
opt
he
agri
cul
tur
alsect
or(10marks)

Sol
uti
ons

Qn1(
a)

 Lackofor
gani
zedmar
ketf
orsomeagr
icul
tur
alpr
oduce

 Conservat
ivenessofsomefarmerstoacceptmoder
nmet
hodoff
armi
ngwhi
ch
l
imitexpansionofagri
cul
tur
alsect
or

 Lackofpr
operst
oragef
aci
li
ti
esespeci
all
yforgr
ainspr
oduct
s

 Rur
ali
naccessi
bil
it
yduet
opoorr
oad

 Hi
ghcostoffar
minputsespeci
all
yfori
mpr
ovedseedswhi
chmakesf
armer
sto
pr
oducepoorqual
it
iespr
oducts

 I
nadequat
ecapit
alf
ori
nvest
mentandt
opur
chasei
mpr
ovedseedsaswel
las
mechani
zati
on

 Hi
ghi
nci
denceofpestanddi
seaseonaf
arml
eadi
ngt
opooryi
eld

 Ari
dit
yinsomepar
toft
hecount
rycoupl
edwi
thpoorsoi
lleadi
ngt
olowcr
op
yi
eld

 Li
mit
edext
ensi
onser
vicest
oassi
sti
ngi
vingadvi
cet
ofar
mer
s

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 Pr
icei
nst
abi
li
tywhi
chaf
fect
sfar
mer
sear
ning

 Unsuppor
ti
vegover
nmentpol
icyofl
evyi
nghi
ght
axesonagr
icul
tur
alpr
oduct
s

Qn1(
b)

 Est
abli
shmentofNAADSPr
ogr
ammest
otr
ainf
armer
sonmoder
nfar
ming
methods

 Pr
ovi
sionofl
oant
ofar
mer
sthr
oughl
ocalbasedSACCOs

 Li
ber
ali
sat
ionofmar
ketsot
hatf
armer
spr
oduct
scanbeboughtf
reel
y

 Provi
sionofhi
ghquali
tyi
nputsli
keimprovedseedver
it
iesbr
eedofcat
tl
e,
fer
ti
li
zerandpest
ici
detoboostproduct
ion

 Improvementini
nfr
astr
uct
uresespeci
all
yforroadstosti
mul
atedi
str
ibut
ionof
agri
cult
uralpr
oducefr
om t
hefarmtopotenti
almarkets

 Encour
agi
ngdi
ver
sif
icat
ioni
nfar
mingbusi
ness

 Encouragi
ngi
ndust
ri
ali
zat
iont
opr
ocessf
armer
spr
oduceandi
ncr
easet
hei
r
keepi
ngquali
ty

 Promoti
ngadopt
ionofmodernagr
icul
tur
alt
echnol
ogyt
hroughuseofMedi
as
l
ikeRadios,
TVs,
Newspaperset
c

 I
mpr
ovementofheal
thsect
orst
oensur
esheal
thoft
hef
amer
s

 Encouragi
ngfar
merstofor
m gr
oupsi
nor
dert
ofaci
li
tat
elar
gescal
epr
oduct
ion
andreali
sehi
ghincome

 Int
roduct
ionofbuf
ferstockandpr
icest
abi
li
zat
ionf
undt
oover
comet
he
probl
emsofpricef
luctuati
on

CONCEPTSOFDEMANDANDSUPPLY

1.DEMAND:Thi
sref
erst
othequant
it
yofacommodi
tyt
hatani
ndi
viduali
swi
ll
ingand
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abl
etobuyatagi
venpr
iceandt
ime

Demandissaidtoeffect
ivewhenthebuyeri
swil
li
ngandabl etobuythecommodityat
var
iouspr
icesandtimebutit’
ssai
dt obeLat
entwhent hedesi
retobuyapart
icul
ar
commodit
yi snotbackedbytheabil
it
ytopur
chaseitatvari
ouspri
cesandti
me

DemandSchedul
e:Thi
sisatabl
eexpressi
ngt
hequant
it
yofgoodsbuyer
sar
ewi
l
ling
t
obuyatvari
ouspri
cesatpar
ti
cul
arperiod

TheDemandschedul
eformai
zei
nNakaser
oMar
ketbet
weenJan-
Mar
ch2016

Pr
ice(
shs) Qnt
ydemanded(
kg)

1000 20

900 40

800 60

700 80

600 100

500 140

DemandCurve:Thi
sisagr aphshowingthequant
it
yofacommodi
tyt
hatconsumer
s
buysatdi
ff
erentpr
icesatpart
icul
arperi
odofti
me.

Pr
ice

Qnt
ydemanded

Changei
ndemandandchangei
nquant
it
ydemanded

Changei
ndemand:Thi
sisashi
fti
ntheent
ir
edemandcur
veei
thert
othel
eftorr
ight
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duechangeint
hedet
ermi
nant
sofdemandot
hert
hanchangesi
nthepr
icesof
commodity

Po

Pr
ice

Quant
it
ydemanded

Ashi
ftf
rom dot
od2i
sani
ncr
easei
ndemand

Ashi
ftf
rom dod1i
sadecr
easei
ndemand.

Changei
nquanti
tydemanded:Thisi
sthemovemental
ongt
hedemandcur
veduet
o
changei
npr
iceofthecommodity

Pr
ice B

Quant
it
ydemanded

A-
Decr
easei
nquant
it
ydemanded

B-
Incr
easei
nquant
it
ydemanded

Thel
awofDemand:

Itstat
ethatt
hehighert
hepri
cethel
owert
hequant
it
ydemandedandt
hel
owert
he
pricethehi
ghert
hequanti
tydemanded

Fact
orsAf
fect
ingDemandofacommodi
ty
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Pri
ce:Consumersal
waysbuysmor ewhenthepri
ceofthecommodi
tyisf
alli
emore
consumersjoi
nthemarkett
obuycheapcommodi t
iesbutwhent
hepri
ceri
ses,t
he
demandofthecommodi t
yinquest
ionwil
lfal
ldown

Pr
iceofot
hercommodi
ti
ese.
g.subst
it
uteandcompl
iment
s.

Substi
tut
earetwocommodi ti
esthatcanbeusedtosati
sf yt
hesamedemande. g.
beansandPease–incr
easeinpr i
ceforbeanswil
ldef
ini
telyl
eadstodecreasei
nits
demandsincepeopl
ewilloptforPeasewhichi
scheappr ovi
dedthei
rpri
ceisconst
ant

Compli
mentarygoods:Thesearejoi
ntl
ydemandedcommoditye.g.pet
rolandcar,
shoepol
ishandshoesetc.I
ncreaseindemandforcar
swi
lli
ncreasedemandf orpetr
ol
andvi
ceversa

I
ncomeoftheconsumers:Consumer
swithhi
gherincomebuysmor
ethanconsumer
s
wit
hli
tt
lemoneyhencecommandahi ghdemand.

Populati
onsize:Increasei
npopul
ati
onincr
easedemandf oracommodit
ymore
especial
lynecessit
ygoodswhil
edecli
neinpopul
ati
onleadstodeceasei
ndemand.

Popul
ati
onstruct
urei
nter
msofagesex:Apopul
ati
onful
lofagedpeopl
eisl
ess
pr
oducti
vehencehasalowpur
chasi
ngpoweranddemand.

Tast
eandPr ef
erence:Peopl
eal
waystendt
odiffer
sintast
eandpr ef
erence.Therefor
e
i
fpeopl
elosetasteforonecommodi
tyinpr
efer
enceforanothert
hedemandf orsuch
commodit
ieswilldecr
easeandwhenpeopl
egaintast
eagainthedemandwi llincr
ease
andvi
ceversa

Futurepri
ceExpectat
ion:Whenthepri
ceareexpect
edtori
sei nfutur
edueto
anti
cipat
edshort
age,consumerswil
lbuysmoreandstockincreaseddemandatt
hat
ti
mebutwhenpr iceareexpect
edtofal
linf
uturedemandwillbelow

Level
sofadver
ti
sement
:Incr
easeinadver
ti
sementwil
lincreaset
heawarenessof
suchcommodit
yandpeoplewil
lbuymoreofithencei
ncreaseindemand.

Incr
easedtaxes:I
ncr
easedt
axesongoodsi
ncr
easespr
icesoft
hecommodi
tyhence
decreasei
ndemand.

Cul
tureandReli
gion:Somecommuniti
esandrel
igi
onforbidconsumpti
onofcert
ain
i
temse.g.Por
kbyMosl emsandSeventhDayAdventi
sts.Thi
slowersdemandforsuch
i
tem i
nthecommuni ty.

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epar
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El
ast
ici
tyofDemand(
ED)
:

Thisist
hedegreeofresponsi
venessofchangei
nquant
it
ydemandedt
ochangei
n
fact
orwhichi
nfluencedemandlikepr
ice

Pri
ceElast
ici
tyofDemand:Thi
sisthemeasureoft
heresponsi
venessofchangei
n
quant
it
ydemandedt ochangei
nthepri
ceofthecommodity

ED= Per
cent
agechangei
nQuant
it
ydemanded/
Per
cent
agechangei
npr
ice

Exampl
es:

1.Whent hepri
ceofmaizewasshs100/kg.Quant
it
ydemandedwas1000kgand
whent hepri
cewasincr
easedto200shs/
kgquanti
tydemandedwas400kg.
Cal
cul
ate
Elast
ici
tyofdemand.

ED=per
cent
agechangei
nquant
it
ydemanded/
per
cent
agechangei
npr
ice

Per
cent
agechangei
ndemand=1000-
400/
1000*
100

=60%

Per
cent
agechangei
npr
ice=200-
100/
100*
100

=100%

Ther
efor
eED=60/
100

=0.
6

Typesofel
ast
ici
tyofdemand

1.Complet
elyi
nelast
icorper
fect
lyi
nelast
ic:Thi
sist
hetypeofel
ast
ici
tyofdemand
whereachangeinpri
cedoesnotcausechangeinquant
it
ydemanded.Pri
ceEDiszero

Pr
ice

2.I
nel
ast
icdemand:Thi
sist
het
ypeofel
ast
ici
tyofdemandwher
eal
arge
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propor
ti
onat
echangei
npricel
eadstoasmal
lpr
opor
ti
onat
echangei
nquant
it
y
demanded.EDi
sgreat
erzerobutl
esst
hanone.

Pr
ice

Quant
it
ydemanded

3.Elast
icdemand:Thisisthetypeofel
ast
ici
tyofdemandwhereasli
ghtchangein
pri
celeadstoalargeproport
ionat
echangeinquant
it
ydemanded.EDisgreat
erthan
butlessthani
nfi
nity.

Pr
ice

4.Unitel
ast
ici
tyofdemand:Thi
siswhenper
cent
agechangeinpr
iceisequalt
o
percent
agechangeinquant
it
yemandded.
PED=1i
.e.quant
it
ydemandedchanges
exactl
yaspri
cechange.

Pr
ice

Fact
orst
hataf
fectel
ast
ici
tyofdemand.

Avai
labi
li
tyofsubst
it
utes:Commodit
ywit
hmanysubsti
tutegoodshasel
ast
ic
demandsinceconsumersshif
tfr
om i
twhent
hepr
iceincreases

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edby:Mr
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.
21

Degr
eeofnecessi
ty:Pr
iceel
asti
cit
yofdemandfornecessiti
est
endst
obeinel
ast
ic
si
netheyar
eindi
8spensbl
ee.g.whenthepr
iceofsal
tincreaset
hequant
it
ydemanded
i
sthesame.

Consumers’i
ncome:Whenconsumersar eoflowincomeel
ast
ici
tyofdemandtendt
o
beelast
icaspri
cei
ncreasebecausei
treducesthei
rdemandaspri
ceincr
ease.

Numberofusesservedbyacommodity:I
facommodit
yhasmanyuses, ar
educt
ion
i
npri
cemayl eadt
oaver yhi
ghr
aisei
ndemande.g.cl
othes,
leat
herandmil
k

Str
engt
hofconsumerhabit
s:I
fthehabitoft
heconsumerwithregar
dtoapar
ti
cular
commodit
yisver
ystr
ong,EDwillbever
yinel
ast
ice.g.ci
gar
ett
esmokerandci
garett
e

Durabi
li
tyoft
hecommodi t
y:Dur
abl
ecommoditi
esl
iker
adios,
car
shavel
owprice
el
asti
cit
yofdemand.Evenwhenpri
cei
slower
edonecannotonei
fhe/
shehasone

Pri
ceexpectat
ion:Whenthepri
ceisexpect
edtoincr
easei
nfut
ure,
demandwoul
dbe
i
nelast
icaspeoplewi
llbuyandstockandvicever
sa.

Timeoftheyear
.Towar
dandduringpubl
icholi
days,
demandtendtobei
nel
ast
icsi
nce
evenwhenthepri
cei
sincr
easedpeopl
estil
lbuysmoree.
g.atChr
ist
mas

Consumer’si
gnor
ance:Consumer
swi
llbuymorecommodi t
iesathi
ghpr
icewhen
t
heydon’tknowwheresuchcommodi
ti
esorthei
rsubst
it
utesaresol
d.

Level
sofpri
cechanger
elat
ivet
oincome:e.
g.i
fthepr
icechanger
elat
ivet
oincomei
s
small
,el
ast
ici
tyi
slow

SupplyTheor
y:Thi
sisthequant
it
yofcommodi
tyt
hatpr
oducer
sof
ferf
orsal
eat
var
iouspri
cesandperi
odofti
me.

Quanti
tysuppl
ied:Thi
srefer
stotheamountofcommodit
ythatpr
oducer
sar
ewi
ll
ing
t
obringtothemarketatvari
ouspri
cespert
imeperi
od.

Suppl
yschedul
eforbeans(
kg)atMpi
giMar
ketJune2016.

Pr
ice(
shs) Quant
it
ysuppl
ied(
kg)

200 50

300 100

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epar
edby:Mr
.GonzagaOkumu. Standar
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.
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400 150

500 200

600 250

800 350

Suppl
yCur
ve

Pr
ice

Quant
it
ySuppl
ied

Lawofsupply:I
tst
atest
hat,
thehi
ghert
heprice,t
hehigherquant
it
ysuppli
edandt
he
l
owerthepr
icethel
owerthequant
it
ysuppl
iedotherf
actorsaff
ect
ingsuppl
yremai
ning
const
ant
.

Fact
orsaf
fect
ingsuppl
yofagr
icul
tur
alcommodi
ti
es.

Marketpri
ce:Whenthepr
iceishi
gh,t
hesuppl
yisincr
easedbecausethecommodi
ty
i
smor eprofi
tabl
eandwhenthepri
ceisl
ow,suppl
yreducessi
nceproducerf
ear
s
makingloss

Costofproduction:Changesi ncostofproduct
ionwi l
lincr
easeorreducesf
armers’
’
outputcapaci
ty.Thisleadst ouncontr
oll
edsupply(excessivesuppl
yinsomeseason
whencost sofproductionar el
owandl owsupply(scarcit
y)insomeseasonwhen
costsofproducti
onincr easessigni
fi
cantl
y.

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epar
edby:Mr
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icul
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.
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Futur
epriceexpect
ati
on:Whensel l
ersant
ici
pat
eani
ncreasei
npriceofthe
commodityIthenearfut
ure,theywi
thhol
dthecommodi
tyandrel
easethem whent
he
pri
ceincr
easehenceloweringsuppl
y.

Demand:Hi
ghdemandf
oranycommodit
ycal
lsf
ori
ncr
easedpr
oduct
ionandsuppl
y
aswel
landl
owdemandcal
lsforl
owsuppl
y

Poli
ti
calstabi
li
ty:Indi
vidual
andf i
rm canengageinmeaningfulpr
oduct
ionwhenthey
aresurei
fpolit
icalatmosphere(securi
ty)oft
heareas.I
nsecuri
tyl
eadst
ol owsuppl
y
duetofarm devastati
onbylooti
ngandembezzl ementoffundsforpr
oduction.

Gestati
onper i
od:Thelengt
hofti
metakentopr oduceacommodi tyalsoinfl
uences
supply.Shortgest
ati
onperi
odenabl
ethesupplyoft hatcommoditytobei ncr
eased
thanwhent hegestat
ionperi
odi
slonge.g.beansandcof feer
espect
ively.

Manageri
alabi
li
tyandeffi
ciency:Goodfar
m managementi
ncr
easesf
arm out
put
hencet
hesupplyofthecommodi tytot
hemarket
.

I
mportandExport:Anincr
easedi
nthei
mportofcommodityi
ncr
easesit
ssupplyon
t
hedomesti
cmar ket;i
ncontr
astwhenacommodityi
sexport
edi
tssuppl
yisreduced
i
nthel
ocalmarket.

Seasonoftheyear
:Agr
icult
uralpr
oductioni
shighl
yseasonalandhencepr
oduct
sar
e
moreavai
ledonthemarketi
ncer t
ainseasonthanot
hers.

Technologyofpr
oduction:Farmer
susingtract
orandothermachi
nesproducesmor
e
thanthoseusi
ngtradi
ti
onaltoolsl
ikehandhoe,pangahencehi
ghersuppl
y.

Number
sofsel
ler
s:I
fmanysel
ler
sbr
ingmor
egoodst
othemar
ket
,suppl
ywi
ll
i
ncr
ease

Tr
ansport:I
mprovedandef
fi
cientt
ranspor
tfaci
li
tat
edel
iver
yoff
arm pr
oducet
othe
marketi
ncreasi
ngsuppl
y

Priceofotherpr
oduct(subst
it
ute)
:Incr
easedinthepri
ceofonewilli
ncr
easedemand
fortheotherwhosepri
cehasnotbeenincreasedhencelower
ingt
hesupplyoft
he
producti
nquestion.

Governmentpolicy:Gover
nmenti nfl
uencesupplybylevyi
nghightaxonaparti
cul
ar
goodmor eespecial
lyagri
cult
uralinput
s,thi
sleadstoincr
easeinpri
ceofsuchgood
henceloweri
ngdemandwhi chaffectsupplynegat
ivel
y.

Weat
hercondi
ti
on:Goodweat
herwi
thadequat
erai
nfal
lwel
ldi
str
ibut
edandsunny
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har
vest
ingper
iodi
snecessar
yforhi
ghyi
eldshencehi
ghsuppl
y.

Quest
ion:

1(
a)Def
ineel
ast
ici
tyofdemandanddescr
ibet
het
ypeofdemandel
ast
ici
ty(
10mar
ks)

(
b)Descr
ibet
hef
act
orst
hataf
fectel
ast
ici
tyofdemand(
10mar
ks)

2(a)Usingsui
tabl
eexamplesdescr
ibehowsupplyofagri
cul
tur
alpr
oduct
sof
subsist
encefarmersvar
ieswi
thmar ketpr
ice(
6marks)

(
b)Expl
aint
hef
act
orst
hataf
fectsuppl
yofagr
icul
tur
alcommodi
ti
es(
14mar
ks)

3(
a)Explai
nhowagr
icul
tur
epr
oduct
ioncont
ri
but
est
oeconomi
cdevel
opment(
6
marks)

(
b)Descr
ibet
hechar
act
eri
sti
csofagr
icul
tur
epr
oduct
ioni
nUganda(
8mar
ks)

(
c)Descr
ibet
hewaysofi
ncr
easi
ngsuppl
yoff
armer
s’pr
oduce(
6mar
ks)

TheconceptofEqui
li
bri
um andt
her
elat
ionshi
pbet
weendemand,
suppl
yandpr
ice.

Theamountpai
dforagi
vencommodi
tydependsonmost
lydemandandpr
ice

Theeconomicpri
nci
plesgover
ningt
hepri
ceoff
arm pr
oduct
sinaf
reemar
ketar
e
i
ll
ust
ratedbythei
nfor
mat i
oninthet
abl
e.

Suppl
yanddemandschedul
eformi
lk

Pr
ice(
shs) Amount Amount Excess
suppl
i
ed(
li
tr
es) demanded(
li
tr
es) demand(l
it
res)

100 250 95 +155

80 220 140 +80

60 185 185 0

40 120 200 -
80

20 85 240 -
155

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epar
edby:Mr
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arm management
.
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10 20 255 -
235

Suppl
yanddemandcur
veshowi
ngequi
li
bri
um pr
iceandquant
it
ies

dd Downwar
dpr
essur
eonpr
ice

Eqpr
ice Equi
li
bri
um poi
nt

Pr
ice upwar
dpr
essur
eonpr
icedd

(
shs)ss

Li
tr
esofmi
lkdemandedandsuppl
ied

1.Downwradpressureonpr i
ce:Suppli
esofmil
kareplenti
ful
l.
250li
tr
ebutatahigh
pri
ceof100shsperli
tr
e,theconsumer sonl
ybuys95li
tres.Suppl
yexceeddemandby
255li
tr
es.
Thefarmeristheref
oreforcedtor
educepri
cesoast oavoidwast
age.

2.Demanddefi
cit
:Att
hepri
ceof10shsperl
it
re,
farmeri
sdiscour
agedf
rom
suppl
yingmi
lkyett
hedemandforcust
omer
sisveryhi
gh,255li
tr
es.

Atthi
spri
cet
her
e’si
sshor
tageofmi
lki
nthemar
ket
.Thi
ssi
tuat
ionf
orcest
hepr
ice
upward

3.Equi
li
bri
um quanti
ti
es:Whenthepri
ceofmil
kis60shsperl i
tt
er,
theconsumer
sare
wil
li
ngtobuyj
usttheamountofmi l
ksuppl
iedbytheproducer
s.Therei
snoexcessof
mil
kordemanddef i
cit
.Thi
spri
ceisknownasequili
bri
um pri
ce

Ther
efor
eEqui
li
bri
um quant
it
yist
hequant
it
yatwhi
chdemandequal
ssuppl
y

4.Equil
ibr
ium pr
ice:Thi
sist
hepr
iceatwhi
chquant
it
ysuppl
iedequal
squant
it
y
suppl
ied

5.Equil
ibr
ium poi
nt:Thi
sist
hepoi
ntatwhi
chquant
it
ydemandedi
sequalt
oquant
it
y
suppl
ied.

CHARACTERI
TICSOFAGRI
CULTUREPRODUCTS
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Theyar
eper
ishabl
e

Theyar
ebul
ky

Theyar
eseasonali
npr
oduct
ion

Theyar
eofmi
xedqual
it
y

Theyhavel
onggest
ati
onper
iod

Theyhavei
nel
ast
icdemand

Theyhavesynt
het
icsubst
it
utes

Theyhavedi
ver
gentpr
oduct
ion

PRODUCTCOMBI
NATI
ON

1.
Competit
veproduct
s:Theseareproductswhichcompeteforthesameresour
ces
dur
ingpr
oducti
onegkeepinganimalandgr owingcroponthesamepieceof
l
and.I
ncr
easeinoneproductreducestheproduct
ionoftheotheri
nquest
ion.

2.Jointproducts:Thesear
eproduct
swhi
chsr
epr
oducedal
ongt
hesamel
ineof
producti
onpr ocessegmeatandhide

3.Compl ement aryproducts:Theseareproductswhichsuppor teachotherduri

ng
producti
oneggr owingpast ur
elegumesi nami xt
urewit
hgr ass,mi xedfar
mingsystem
i
nwhi chlivestockandcr opsar eful
lyi
ntegr
atedandcompl ement ingeachothereg
manur efrom animal enri
chespl ant
swithnutr
ientsandplantresiduesfedtoli
vest
ock.

4.Suppl
ementar
yproducts:Thesearepr
oductswhi
chhavenoeff
ectsont
heout
putof
theot
herdur
ingproduct
ionegkeepingpigandpoul
tr
yinthesamefar
m.

Far
m Ef
fi
ciency:

Farm eff
ici
encyi
spr
oducti
onofmaxi
mum out
put(
qual
it
yandquant
it
yout
put
)ona
far
mf rom amini
mum ofl
owcost
sinput
s.

Factorsaf
fect
ingpr
oduct
ionEf
fi
ciency/
Fact
orsaf
fect
ingef
fi
ciencyst
andar
dsi
n
far
mi ng

Cl
imat
e:Wel
ldi
str
ibut
edandr
eli
abl
erai
nfal
lonaf
arml
eadst
ohi
ghout
put
shence

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epar
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hi
ghef
fi
ciency.

Pr
iceofout
put
:Thehi
ghert
hepr
ice,
thehi
ghert
hepr
ofi
ts.

Mechanisat
ionl
evelandl
eveloff
armingint
ensi
fi
cat
ion:Machi
nesi
ncr
easesl
abour
ef
fi
ciencyandpr
oducequali
tyandquant
it
y

Pestsanddiseaseslower
sef
fi
ciencyoff
armi
ngsi
ncet
heyr
educest
hequal
it
yand
quanti
tyoff
arm produce.

I
nci
denceofpest
sanddiseasesonafarm e.
g.i
nsectpest
s,r
odent
s,di
seaseset
c
l
owersqual
it
yandquant
it
youtputpr
oduced

Nat
uralhazar
dsl
ikef
loodsandear
thquakesr
esul
tsi
ntodest
ruct
ionofcr
opswhi
ch
l
owersoutput

Ecologi
calfact
orsli
kef
ert
il
ity,
aerati
on,moi
stur
econtent,
struct
ureoft
hesoi
lgreatl
y
aff
ectsyiel
d.Favour
abl
esoilcondit
ionsl
eadstohi
gherretur
nhencehighef
fi
ciency.

Governmentpoli
cye.
g.pr
ovi
sionofl
oan,
inputsubsi
dies,
reduct
ionoft
axesi
mpr
oves
far
m eff
ici
ency

Secur
it
y:Thi
sisaprerequi
sit
ei nagr
icult
ureproduct
ionsi
ncegoodpol
it
ical
at
mosphereofthear
eaencour agesframerstoworkhardandmore

Int
ensif
icat
iononresearchdevel
opmenti
nor
dert
oest
abl
ishi
mpr
ovedcr
opver
it
ies
t
hatproducehighyi
elds.

Useofi
mpr
ovedf
armi
ngmet
hodsi
ncr
easesf
arm ef
fi
ciency.

Avai
labi
li
tyofi
nfr
ast
ruct
uresuchaspr
ocessi
ngpl
ant
,st
oragef
aci
li
ty,
elect
ri
cit
yet
c

Avai
labil
it
yandadequacyofcapit
al.Adequat
ecapitalenabl
eshi
ghpr
oduct
ivi
tyofal
l
t
heot herf
act
orsofpr
oducti
on,hencehigheff
ici
ency.

Recordkeepi
ng:Thishelpsthefar
mert ot
aket heri
ghtdecisi
oninpr
oducti
onsoast o
becomeeffi
cientSi
zeoft hefar
m:Incasefarmingisonlargescal
e,t
hefarmerisabl
e
toenj
oyeconomi cofscaleandproduct
ionintegr
ati
onhencebecomeeffici
ent.

Waysofassessi
ngef
fi
ciencyoff
arm/Typesoff
arm ef
fi
ciency

1.Technicaleff
ici
ency:Thi
sisthemeasur
eofphysicalout
putperuni
tofinput
.One
far
merpr oduces2500kgofmaizeandanotherf
armerproduces3500kgofmaizefr
om
onehectareoflandwhichissubject
edt
othesametypeofsoilandgrowi
ngconditi
on,
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sameamountofseeds,
fer
ti
li
zer
s,andl
abour
s.

2.Economicef f
iciency:Thisi
sthet ypeofeffi
ciencywher ethecostsofpr
oducti
onare
weighedagainstthereturnobtai
ned.Pr of
it
abil
it
yi stheref
oreusedascompar i
sone.g.
twofarmerssell
ing1. 5li
ter
sofmi lkperdayfrom theirgoatsatthesamepricebutwit
h
var
yingproducti
oncost ,profi
tdi
fferencebetweent hetwof ar
mer swil
lbet
hemeasur e
ofthei
reconomi ceffi
ciency.

3.Effi
ciencySt andar d:Thi sisaphysi
caldat
aobt ai
nedthroughr
esear
chfi
ndi
ngabout
theproductivi
typot entialoffactor
sofproduct
ion.Theyactasperf
ormance
standard/yardstickforaf arm.Therei
stwotypesofeffi
ciencyst
andar
d

(a)Parti
aleffi
ciencystandar
d:Thisi
sthemeasur
eoftheperformanceofsmall
fract
ion(par
t)oftheproducti
onunit
/far
m.egMai
zeyiel
dfrom oneacreonfar
mA
compar edtofarm Bismeasur edbyusi
ngthemethodbel
ow

Yi
eldi
ndex=Act
ualyi
eld(
out
put
)/Expect
edyi
eld(
out
put
)*100%

Systemi
cindex=Out
putf
rom anent
erpr
iseonf
arm A/
Out
putf
rom anent
erpr
iseon
far
m B*100%

(b)Overal
lef f
ici
encystandar
d:Thisistheassessmentoft
heperf
ormanceoft
he
enti
refarm asasi ngl
eunit
.Theprofi
tfrom al
lenter
pri
seonthef
armissummedup
andtheaver ageprofi
tperacr
eobtained.

Over
allEf
fi
ciency=Aver
agepr
ofi
t/
Tot
alcapi
talempl
oyed*100%.

Agr
icul
tur
alMar
ket
ingandPr
ici
ng

AMar keti
sanest
abli
shedarr
angementbywhi
chbuyer
sandsel
ler
scomet
oget
hert
o
exchangegoodsorser
vices

Marketi
ngref
erstoal
lprocessesi
nvol
ved/
associ
atedwi
tht
hef
lowofgoodsand
ser
vicesfr
om pr
oduct
iontoconsumpti
on

Market
ingFunct
ionrefer
stoal
lact
ivi
ti
escar
ri
edoutt
ofaci
li
tat
emar
ket
ingof
agr
icul
tur
alpr
oducts.

Mar
ket
ingf
unct
ionsi
ncl
udest
hef
oll
owi
ng;

1.Buyi
ngandassembl
ingofpr
oduct
s:Thi
sinvol
vebuyi
ngpr
oduct
sinsmal
lfr
act
ion

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
29

fr
om farmersorpr
oducersandgat
her
ingi
tatcol
lect
ingcent
ers.I
t’
sdoneby
cooperat
ive,
market
ingboardet
c

2.Sel
li
ng:Thisi
nvol
vespresent
ati
onofproduct
sinanat
tr
act
ivewayf
orconsumer
sto
buy.I
tinvol
vesbar
gaini
ngandadvert
isi
ng.

3.Tr
anspor
tat
ion:Herecommodi t
iesar
ephysical
lymovedfr
om onel
ocat
iont
o
anot
herorf
rom product
ioncent
erstoul
timat
econsumptionpoi
nt.

4.Processi
ng:Thi
sinvol
vechangi
ngthefor
m ofthepr
oducef
rom i
tsrawformto
bett
eraform whi
chismoreacceptabl
eandconsumabl
ebythebuyer
.Iti
nvol
vesval
ue
addit
iontomeetconsumersneed,
andmayincreasewort
hofacommodity.

Advant
agesofpr
ocessi
ng

 I
taddsval
uet
othepr
oduct
sbyi
mpr
ovi
ngqual
it
yinf
orm ofcol
our
,tast
eand
f
lavor
.

 Tomakei
tmor
eat
tr
act
ivet
obuyer
sandt
her
efor
eincr
easedemand

 I
thelpstodestr
oyt
oxi
nsi
nthepr
oduct
se.
g.heat
ingofsoyabeansdest
roys
t
rypsini
nhibi
tor
.

 Reduceswast
ageoft
hepr
oduct
sduet
ospoi
lage.

 I
teasesut
il
izat
ionoff
inalpr
oduct
se.
g.i
nmai
ze

 I
teasest
ranspor
tat
ionofpr
oduct
ssi
ncei
tisl
essbul
ky.

 I
text
endt
hel
if
espanoft
hepr
oduct
smaki
ngi
tavai
labl
eint
hemar
ketf
orl
ong

5.Gradi
ng:Thisinvolvesort
ing/
cat
egor
izat
ionofpr
oductsi
ntouni
formlotsof
di
ffer
entquali
ty.Gradingcanbedoneaccor
dingtosi
ze,col
our,
shape,degr
eeof
ri
penessetc

Advant
ageofGr
adi
ng

 Iti
ncreasesfar
mers’
prof
itsi
ncei
tencour
agespr
oduct
ionandmar
ket
ingof
quali
typroduct
s.

 Makesi
teasyf
ort
hef
armert
ofi
xpr
icef
ormt
hecommodi
ti
es.

 I
tensur
esconsumer
ssat
isf
act
ionsi
nceconsumer
sgetexact
lywhathe/
she

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
30

wanti
nthemar
ket

 Itf
aci
l
itat
esmarket
ingbynotnecessi
tat
ingper
sonali
nspect
ionoft
he
commoditi
es.

 Itminimizesspoil
ageofthecommodi
tysi
ncepr
oduct
sofdi
ff
erentqual
it
iesar
e
separatedfrom oneanot
her.

 I
tmakesdi
str
ibut
ionofproduct
seasi
ersi
ncebecausecust
omer
sindi
ff
erent
l
ocal
it
yar
egiventhegradetheywant
.

6.Standardi
zat
ion:Thisi
smaki ngquali
tyspeci
fi
cat
ionusedi ngr
adingunif
orm
amongbuyer sf
rom placetoplaceandfrom t
imetoti
me.St andar
dizat
ionensur
est
hat
simil
arcommodi t
iescarr
iessamepr i
cesindif
fer
entlocat
ionandprovi
desthebasi
s
forqual
it
yandquant i
tystandardcont
rol
.

7.Packagi
ng:Thisi
nvol
vesplacementofagricul
tur
alproduct
sinconveni
ent
packages/
cont
ainer
stofaci
li
tatehandl
ing,
transpor
tati
onandsell
ing.

Advant
agesofpackagi
ng.

 I
teasest
ranspor
tat
ionandhandl
ingoft
hepr
oduct
s.

 I
treducesbul
kinessofpr
oduct
s.

 I
tfaci
l
itat
est
ranspor
tat
ionofpr
oduct
s.

 I
tcont
rol
sleakagesandspoi
lageoft
hepr
oduct
s.

 I
teasesadver
ti
sementoft
hepr
oduct
s.

 I
tencour
ageseasyi
dent
if
icat
ionofqual
it
yandquant
it
yofpr
oduct
s.

 I
tpr
otect
scommodi
ti
esf
rom badweat
her
.

 I
tfaci
l
itat
esl
abel
ingandput
ti
ngi
nst
ruct
ionsonhowt
ouset
hecommodi
ti
esby
t
heconsumers.

 I
tpr
event
ssubst
it
uti
onandadul
ter
ati
on.

 I
treducesshr
inkageandspoi
lageoft
hepr
oduct
sduet
oenvi
ronment
.

 I
tincr
easesshel
fli
fe.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
31

 I
treducesot
hermar
ket
ingcost
sbyf
aci
li
tat
ingsel
fser
vicer
etai
li
ng.

8.Storage:Thisi
st hetemporaryhoardi
ngoftheproduct
ssot hattheyareavai
ledto
consumer swhent heyneedthem andwhenpr i
cesaresatisf
actor
y.Storageimproves
quali
tyofsomepr oduce,protect
sproducefrom badweatherandpestattacksandit
hel
psi npreventi
ngeffectsofpri
cefluct
uat
ion.

9.Ri
skbear i
ng:ManyRi sksanduncer
taint
ymaybeexperiencebetweentheti
meof
set
ti
ngupt heenterpri
seandactual
mar ket
inge.
g.fi
reout
break,
theft
s,changein
demandetc.Thef armermayneedtoinsuretoavoi
dtheri
sks.

10.Financing:I
ttakesbothtimeandresourcestoprocurerawproduct
sfrom t
he
suppl
ier
/producersandt r
ansformingi
tint
oacommodi t
yreadyforconsumpti
on.
Capit
ali
sthereforenecessarytofundal
ltheacti
vit
iesi
nvolved,
whichmaybeacquir
ed
fr
om dif
ferentsources.

11.Coll
ect
ionandanalysisofmarketinformat
ion:Effi
cientmarket
ingrequi
res
adequat
einfor
mat i
ontoallpar
ti
esinvolvedint
hepr ocesse.g.knowledgeofsuppl
y
anddemandhel psconsumersandproducer st
odeterminepr i
ceofthecommodi t
y.

12.Research:Thi
shel
pstocomeupwiththepr
oduct
sondemand,bestmethodof
product
ion,aswel
lasthepr
obl
emsinvol
vedinper
for
mingmar
keti
ngdutiesandhow
theycanbesold.

Pr
obl
ems/
chal
lengesofmar
ket
ingagr
icul
tur
alpr
oduce.

 Agri
cul
tur
alpr
oductsar
ebul
kyasar
esul
t;t
ranspor
tat
ionofsuchpr
oduct
sis
di
ff
icul
tandexpensi
ve.

 Pr
oducti
onoccur
si nrur
alar
easwher
etr
anspor
tat
iont
othemar
ketmaybe
di
ff
icul
tduebadroads.

 Product
ssuchasmil
k,meat
,veget
abl
esar
eper
ishabl
eandt
her
efor
emar
ket
ing
hastobedonequi
ckl
y

 Agri
cul
tur
alproduct
sar
eseasonal
;pr
iceswi
llt
her
efor
efl
uct
uat
ewi
thseasonof
pl
entyandscarci
ty.

 Demandf
oragr
icul
tur
alpr
oduct
sisi
nel
ast
icsucht
hatevenwi
thf
all
inpr
ice.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
32

Consumpt
ionmaynoti
ncr
ease.

 Poorst
oragel
ower
squal
it
yofpr
oducehencel
owerpr
ice.

 Ther
earemanysmallscal
eproducerswhoindi
viduall
ymaynotbeabl
eto
i
nfl
uencepr
iceandcr
eatecompetit
ionforsmal
lmar ket
.

 Uncer
taint
yishi
ghaspr
oduct
stendt
ohavel
ongpr
oduct
ioncycl
eforexampl
e
per
ennialcr
ops.

 Agri
cult
uralproduct
iontendstobeaff
ectedbyext
ernalfact
orsl
ikebadweather
,
pestanddiseasesallofwhichl
owerscropyi
eldsmakingfarmer
sf ai
ltomeet
marketdemand.

 Lackofmar
keti
nfor
mat
ionmakesf
armer
stobeexpl
oit
edbymi
ddl
emen.

 Lackofef
fi
cientadver
ti
singser
vice.

 Poli
ti
calinst
abi
li
tymakessomepar
toft
hecount
ryi
naccessi
ble,
ther
efor
ecut
s
thepotenti
almar
keti
nthesear
eas.

 Lowincomeelasti
cit
yofdemand,asone’
sincomeincr
easesbeyondcert
ain
poi
nt,t
heproport
ionoft
hatincomespentonagri
cul
tur
al[
productsdecr
eases.

Possi
blesol
uti
onst
opr
obl
emsofmar
ket
ingagr
icul
tur
epr
oduce.

 Di
ver
sif
icat
ionsoast
ospr
eadr
isksi
nagr
icul
tur
alent
erpr
ises.

 Encour
agi
ngi
ndust
ri
ali
zat
iont
oaddval
uest
opr
oduct
sthr
oughpr
ocessi
ng.

 Encour
agi
ngmarketi
ngboar
dtoor
gani
zemar
ket
ingofagr
icul
tur
alpr
oduct
sso
astost
abi
li
sepr
ices.

 For
mat
ionofcor
por
ati
vet
oincr
easepr
oduct
ionandi
mpr
ovebar
gai
ningpower
oft
hef
arm.

 I
mprovementofmarketi
nfor
mat
ionser
vicet
ohel
pfar
mer
stopl
anf
ort
hei
r
mar
keti
ngprogramme.

 Improvi
ngontr
ansportser
vicet
ofaci
li
tat
ebet
terdel
iver
yofagr
icul
tur
al
product
stot
hemar ket
.

 I
nter
nat
ionalcommodi
tyagr
eementt
oreducet
hepr
obl
em ofpr
icef
luct
uat
ion
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
33

i
nlocalmar
ket
s.

 I
ntr
oduct
ionofbuf
ferst
ockt
osavef
armer
sfr
om pr
icef
luct
uat
ion.

 I
ntr
oduct
ionofst
abi
li
zat
ionf
undst
ocont
rolpr
obl
emsofpr
icef
luct
uat
ion.

 Ir
rigat
ion,spr
ayi
nganduseoff
ert
il
izert
oimpr
ovequal
it
yofagr
icul
tur
al
products.

 Timel
yprovi
sionofcr
edit
stofar
merstoenabl
ethem accessfar
minput
sinti
me
andperf
ormf ar
mingoper
ati
onatther
ightt
imepossi
ble.Useofquot
asystem
si
nceitr
estr
icti
onofpr
oducti
onorsal
essoastostabil
izepri
ce.

 Pr
operext
ensi
onser
vicet
ofar
mer
s

 Const
ruct
ionofpr
opermar
ket
ingf
aci
li
ti
es

 I
nst
it
uti
ngmar
ketr
esear
chandpr
opermar
keti
nfor
mat
ion

TheMar
ket
ingcondi
ti
onst
hatexi
sti
nthemar
ket

1.Perf
ectCompet
iti
veMarkets:Thisi
samar ketwherepr
icesaredet
erminedbyfor
ce
ofdemandandsupply.
Per
fectcompetit
ionexistwhennosingl
ebuyerorsell
eri
s
capabl
eofchangi
ngthemarketpriceI
texist
si nafr
eemarketeconomy.

Char
act
eri
sti
csofper
fectcompet
it
ivemar
ket
.

 Manysel
ler
soft
hesamesi
ze

 Fr
eeent
ryandexi
tbyf
ir
msi
nthemar
ket
.

 Perfectknowl
edgebybothbuyersandsel
ler
s,buyer
shasf
ullknowl
edgeoft
he
prevail
ingmarketpr
iceswhi
chtheyadher
eto.

 Buyer
spurchaset
hegoodstomaxi
misesat
isfact
ionandsel
ler
sImt
hei
r
pr
oductswit
hasoleai
m ofmaxi
misi
ngprof
it.

 Nogover
nmentr
egul
ati
onandi
nter
vent
ioni
nfor
m ofpr
icef
ixi
ng,
subsi
dies,
r
ati
oni
ngetc

Not
e:Excesscapaci
tyr
efer
stoasi
tuat
ionwher
efi
rmspr
oducel
essout
putt
hant
hei
r
i
nst
all
edcapacit
y.

Reasonsf
orExcesscapaci
ty.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
34

 I
nadequat
ecapi
talt
owor
ktof
ullcapaci
ty.

 I
nadequat
erawmat
eri
alst
ousei
nthef
act
ory.

 Smal
lmar
ketwhi
chi
snotenought
ojust
if
ypr
oduct
ionatf
ullcapaci
ty.

 Hi
ghpr
oduct
ioncost
sduet
ohi
ght
axes,
inf
lat
ionandhi
ghcostofr
ent
.

 Poortechnol
ogyofpr
oduct
iont
hatcannotenhancet
hef
ir
mtopr
oduceatf
ull
capacit
y.

 Desi
rebyt
hef
ir
mtodi
ver
sif
ythei
rent
erpr
isei
nor
dert
owi
deni
ncomebase.

2.Imperfectmar ket
:Thisi
samar ketwherebypri
cesareinfl
uencedbyotherfactor
s
othert
handemandandsuppl y.I
mper f
ectcompeti
ti
onexistwhenonesellerorgroup
ofsell
erscontrolthesuppl
yofcommodi t
ies,whi
chdif
ferfrom oneanot
herinthe
samemar ket
.Theyi ncl
udet
hefol
lowing

 Monopol
y

 Ol
igopol
y

(a)Monopoly:Thisisamarketsi
tuati
onwher etherei
sonesellerofa
product,whi
chhasnocl osesubstit
ute,
hecanr ai
sethepri
ceupt oacert
ain
l
evelasmuchast heconsumerscanst i
llbuy.Entr
ytotheindustr
yis
restr
ict
edandt hereisnoper
suasiveadverti
sement.E.
g.Lugazisugar
i
ndust r
y.

(b)
.Oli
gopoly:Thisisast at
eofli
mi t
edcompet it
ioninwhichamar keti
sshar
edby
numberofsmal lproducersdeal
ingwi t
hapar t
icularpr
oductswhichmaybesimil
art
o
oneanother
.Eachsel l
erisfr
eetof i
xthepri
ceofhi sproductal
thoughhehasto
consi
derthepriceschargedbyot hercompetors.

Mar
ket
ingagenci
es/
inst
it
uti
on.

I
ti
ner
anttr
ader
swhomovesf
rom pl
acet
olacebuyi
ngagr
icul
tur
alpr
oducef
rom
f
armers

Processorsar
eorganizat
ion/
compani
eswhi
chpr
ocessagr
icul
tur
epr
oduct
sint
oa
usablefor
mt osat
isf
yhumanneeds

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
35

Whol
esal
ersbuyspr
oducei
nbul
kfr
om t
hemanuf
act
ureandsel
ltor
etai
ler
s.

Ret
ail
ersbuyf
rom t
hewhol
esal
ersandsel
lsi
nsmal
lquant
it
iesdi
rectt
oconsumer
s.

Brokerswhobri
dgethegapbetweenthesell
erandthebuyerwit
houtthebr
oker
handli
ngtheact
ualgood.Theyl
ocatemarketsandorgani
zeproducer
stosuppl
yso
thatt
heygetcommission.

Commi ssi
onagent
swhoalwaysr
ecei
vegoodsandsel
lthem onbehal
foft
hei
r
pr
inci
pleforacommissi
on.

Cor
por
ati
ve,f
armer
swhoal
waysor
gani
zet
hemsel
vesi
n-gr
oupsr
egi
ster
edt
omar
ket
t
hei
rpr
oduce.

Mar
ketingboar
dwhi chi
sapubl
icbodysetupbythegover
nmenttoassi
stf
armer
sI
t
heproduct
ion,
processi
ngandmarket
ingofagr
icul
tur
eproduct
s.

Pri
cingi
nagri
cult
uralpr
oduct
ion:Pr
icei
stheamountofmoneypai
dinexchangeof
goodsandser
vices.

Det
ermi
nat
ionofpr
icesofagr
icul
tur
alcommodi
ti
esi
nthemar
ket
.

Haggli
ng:Refer
stoabargai
ningpr
ocesstaki
ngpl acebet
weenonebuyerandone
sel
ler
.Theprocessofbar
gai
ningcont
inuesunti
lthebuyerandsel
leragr
eeonthe
samepoint.

Fixi
ngbyt
reati
es:Her
ebuyer
sandsell
erscometogethertofixt
hepr
iceofa
commodit
y.Thepri
cecanberevi
sedbyamendi
ngt hetreat
ies.

SalesAuct
ion:Thi
stakespl
acebetweenonesell
erandmanybuyer
swher et
hebuyer
competesf
oracommodi tybyfi
xinghi
ghpri
ces.Thecommodit
yistakenbyonewho
paysthehi
ghestpri
ce.

For
ceofdemandandsuppl
y:Theset
woactt
ofor
m anequi
li
bri
um ormar
ketpr
ice.

Ret
ailpr
icemaint
enance:Heret
hemanufactur
eprovi
desr
etai
lrecommendedpr
ice
i
nscri
bedonthecommodi t
iese.
g.ai
rt
imevoucher

Fixi
ngpricebyt hegover
nment.Heremaxi
mum pr
icei
ssetbyt
hegover
nmentt
o
avoidexploi
tat
ionofbuyersandsel
ler
s.

Cont
ractagr
eement
:Her
ethesuppl
ieragr
eeswi
tht
hebuyeront
hepr
icebef
ore
commencementoft
hebusi
ness.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
36

Car
tel
:Pr
oducer
sagr
eeont
hepr
iceoft
hei
rpr
oduct
s.

I
nter
nat
ionalcommodi
tyagr
eement
:Her
epr
icesar
esetbyi
nter
nat
ionalpr
oduces.

Thr
oughpr
iceleader
shi
p:Thi
siswher
eabi gplayerinthemarketdeci
dest
oraiseor
l
owerst
hepri
ceofcommodityint
hemarkethencef or
cingot
herplayer
stofol
low

Thr
oughusi
ngmar
ket
ingcostanddesi
redpr
ofi
tmar
gin.

Thr
oughusi
ngpr
oduct
ioncost
sanddesi
redpr
ofi
tmar
gin.

Thr
oughcont
ractpr
ici
ng

I
mpor
tanceofpr
icei
nAgr
icul
tur
e

 I
tenabl
essmoot
hresour
ceexchangei
npr
oduct
ion

 Itcontr
olsconsumpt
ionl
evel
soff
arm pr
oduct
sthr
oughf
orceofdemandand
supply.

 I
tst
imul
atespr
oduct
ionbecausef
armer
sal
waysai
m atmaxi
mizi
ngpr
ofi
ts.

 Itr
ewardsandpr
omot
esef
fi
ciencyofwor
ker
sthr
oughcor
rectal
locat
ionof
duti
es

 Theyi
ndi
cat
etot
hef
armerwhatt
opr
oduce.

 I
tdet
ermi
nest
hel
evel
sofout
put
s.

 Theyenhancebett
erandeff
ici
entmethodofpr
oduct
ionmor
eespeci
all
ywhen
pri
ceofcert
aincommodit
yincrease.

Fact
orswhi
chi
nfl
uencepr
iceofacommodi
ty

Forcesofdemandandsupply:Hi
ghdemandsl
eadst
ohi
ghpr
ices,
highsuppl
y
reducespr
icesandvi
cever
sa

Costofpr
oduct
ion:Ahi
ghcostofpr
oduct
ioni
mpl
ieshi
ghpr
iceandal
owcost
sof
pr
oducti
onimpl
iesalowpr
ice.

Tr
anspor
tcost
:Hi
ght
ranspor
tcosti
ncr
easespr
ice,
lowt
ranspor
tcostr
educespr
ice.

St
oragecost
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
37

Gover
nmentpoli
cyregar
dingsubsi
diesandt
axat
ion:Hi
ght
axesi
ncr
easescostof
pr
oducti
onhencehi
ghpricesandvi
ceversa.

Qual
it
yofpr
oduct
s.Hi
ghqual
it
ypr
oduct
shavehi
gherpr
icest
hant
hatofl
owqual
it
y.

Pr
iceMechani
sm andal
locat
ionofr
esour
ces.

Pri
cemechani
sm i
sasystem i
nafreemar
keteconomywher
epr
icesi
nthemar
ketar
e
det
ermi
nedbythef
orcesofdemandandsuppl
y.

Not
e:Descr
ibehowt
hepr
icesofagr
icul
tur
alcommodi
ti
esar
edet
ermi
nedi
naf
ree
mar
keteconomy

Howt
hegover
nmentcani
nter
fer
ewi
thpr
icemechani
sm

1.
PriceLegisl
ati
on:Thi
sist hei
nter
f er
enceint
hepr i
cemechani
sm bythegovernment
i
nordertoavoidexploi
tat
ionofconsumer sandproducer
s.Thegover
nmentinterf
eres
wit
ht hepr
icemechanism inthefol
lowingways.

a)Maxi
mum pricelegisl
ati
on(pri
cecei
li
ng)
:Thi
sisthepr
icesetbelowtheequil
ibr
ium
abovewhi
chitbecomesi ll
egalt
obuyorsel
lgoodsandservi
ces.I
t’
ssetinthe
consumer
s’i
nterest.

d s

Pr
ice Pe EP

Pmax maxi
mum pr
ice

Qe

Quant
it
y

b)Minimum price(pr
icef l
oor
ing)
:Thi
sthepri
cesetabovetheequi
li
bri
um bel
ow
whichiti
sil
legaltosellandbuygoodsandser
vices.I
tisseti
nthei
nter
estofthe
producer
s.

Pmi
n Mi
nimum pr
ice

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
38

Pr
icepe EP

S d

2.Buf f
erst
ock:Buff
erst ocksar
epr oduct
skeptinstor
eandar eonlyr
eleasedwhen
thereisanacuteshortageinthemar ketl
ikel
ytocauseabigincr
easeinprice.Inthi
s
wayt hepri
cesarebroughtdownt onor malandsi
milar
ly,
duri
ngbumperyeas( years
whent her
eisplent
yofhar vestl
ikel
ytocausedecreaseinpri
ces),
theproductsis
withdrawnfr
om themar ketandstored.

3.Pri
cestabi
li
zat
ionf
und:Thisisamoneysetasidesothatift
hereisoverproduct
ion
ofacertai
ncommodit
ye.g.cot
ton,thegover
nmentcansti
llbuyfar
mers’cott
onata
fai
rpri
ceinst
eadofal
lowi
ngthepricetobesetbyfor
cesofdemandandsuppl y.

Probl
emsfacedbythegovernmenti
ntr
yingt
oest
abl
ish/
impl
ementst
abi
li
zat
ion
fundandbuf
ferst
ockpoli
cies.

 Compet
it
ionfr
om synthet
icpr
oduct
sleadst
oshi
ftofdemandwhenagr
icul
tur
e
pr
oducepri
cesar
ehi gh.

 Conf
lict
inggover
nmentpol
ici
esoft
radel
iber
ali
zat
ionwhi
chdi
scour
agepr
ice
cont
rol.

 Highrat
eofil
li
ter
acyamongfarmerst
hatobjectmostdevelopmentadvances
becauseofunf
oundedsuspi
cionanduncooperat
iveness.

 Inadequatef
undingofagr
icult
uresect
orbythegover
nmentperpet
uated
subsist
encefarminganddiscour
agesproduct
iont
hatmakescoll
ecti
ve
mar ket
ingdi
ff
icult
.

 Lackofadequat
eagr
icul
tur
epr
oducesmechani
sm cont
rol
.

 Poorcommuni
cat
ionnetwor
kmai nl
yinar
easofpr
oduct
ionpar
ti
cul
arl
yroads
l
imit
smovementofcommodit
ies.

 Pr
oduct
ionofmi
xedqual
it
ypr
oduct
sbyf
armer
s.

 Unsust
ainabl
esupplyofagri
cul
tur
erawmateri
alst
oagrobasedindustr
iest
o
encour
agevalueaddit
ionandhencepr
icest
abi
li
sat
ion.Weakfar
mer s’
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
39

or
gani
zat
iont
hatwoul
dassi
sti
ntheor
gani
zat
ionofmar
ket
ing.

4.Int
ernati
onalcommodi
tyagr
eementwher
ethepr
icesar
esetbyi
nter
nat
ional
producer
sdirect
ly.

5.Subsi
disat
ionpar
ti
cul
arl
yonagri
cul
tur
einput
sli
keseeds,agrochemi
cal
s,f
ert
il
izer
etct
oreducecostsofpr
oduct
iont
hatmayresul
tsi
ntoi
ncreasedinpri
ces.

Pr
icef
luct
uat
ioni
nagr
icul
tur
e:

Pri
cefluct
uati
onorpr i
cei
nstabi
li
tyref
erstosuddenchangesthatoccuri
ntheprices
ofagr
icult
ureproduct
s.Pr
icesofagr
icul
tureproduct
softenf
allandri
seerr
ati
cal
ly.
Thi
sinstabi
li
tycanbeexpl
ainedbythefoll
owingfacts:

Seasonalnatur
eofproducti
onofagri
cul
tur
eproduct
s:Thi
sresult
sintosurpl
usat
harvestwhi
chleadst
oadr opinpr
iceandscar
cit
ynearhar
vest,whichleadtopr
ice
ri
se.

Mostagri
cul
tur
ecommoditiesarehi
ghlyper
ishabl
eandsomustbesol
dimmedi
atel
y
r
egardl
essofpr
icepr
evai
li
ng{ i
nel
ast
icsuppl
ye.g.t
omatoes)
.

Mostagr
icul
tur
eproduct
shavel
ongpr
oduct
ioncycl
esandt
her
eiosnoguar
ant
eeof
t
hepri
ceonewillr
ecei
ve.

Mostagr i
cult
urepr oduct
shaveani nelasticdemandandwhenthisiscombi
nedwith
seasonalsupply,i
tmeanst hatmarketpricesvaryconsi
der
abl
y.i
ethedemandforf
ood
cropsdoesnotr esponsequickl
ytopricechanges.

Agricultur
epr oducti
onislargel
yaffect
edbynat ur
alfact
orse.g.badweat
her,
pest
s
anddi seasesetc.ifunf
avorablepr
oductionwil
lbelowandpricesgoesupwhil
eif
favorableproducti
onwi l
lbehighandpr i
cesfal
l.

Far
merslackproper
/reasonabl
estoragefaci
li
ti
esandsot
heyar
efor
cedt
osel
lthe
har
vestatanypri
cetoavoidfur
therposthar
vestloss.

Therearemanysmal lsaleproducerspar
ti
cular
lyinthevi
ll
agest hatindi
vidual
ly
cannoti
nfluencemarketpri
ces,sincet
heyhavenobar gai
ningpower .Sti
ffcomplet
ion
fr
om syntheti
cli
kepolyt
hene,plasti
cs,
petr
oleum pr
oductsforrubberandsi sal
.

Agri
cult
uralpr
oduct
sform smallpar
tofmanufacturedproduct
shencet
heexcess
suppl
ycannotbeabsor
bedi nt
hemanuf act
uri
ngindustr
y.

Lowl
evel
sofi
ndust
ral
isat
ionpar
ti
cul
arl
yinmostdevel
opi
ngcount
ri
es.Thi
sli
mit
s
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
40

pr
ocessi
ngofagri
cul
tur
alproductwhi
chwoul
dhaveot
her
wiseaddedval
uet
othe
[
product
stoat
tr
acthi
ghprices.

Changi
ngtechnol
ogywhichunderminesagr
icul
tureproduct
se.g.cl
othesmadeof
pol
yest
erandlesscot
ton.Thi
sreducesdemandf orcot
tonhencepri
cef al
l
.

Cl
imat
icf
act
orsl
iker
ainf
allandt
emper
atur
egr
eat
lyaf
fect
sagr
icul
tur
epr
oduct
ion.

Ri
sksanduncer
tai
ntywhi
chactt
oget
heraf
fect
ingt
hequal
it
yandquant
it
ypr
oduct
ion.

Bulkinessofagr
icul
tur
alcommodi
ti
eswhi
chmaket
ranspor
tat
iondi
ff
icul
tfr
om pl
ace
ofplentytopl
aceofscarci
ty.

Farm pr
oduct
sareoft
enofmixedquali
tyduetobadweat
her
,pestanddiseaseandat
ti
mespoorhandl
ingofcommodit
y,andther
efor
efet
chver
yvari
ablepri
ces.

Onceagi
vencrophasbeenpl
ant
edi
t’
sdi
ff
icul
ttoi
ncr
easeordecr
easet
her
esul
ti
ng
out
put
,soreadj
ust
mentisl
ow.

Remedi
es/
Waysofr
educi
ngpr
icef
luct
uat
iononaf
arm.

 Di
ver
sif
icat
ionofagr
icul
tur
alsect
ort
osaf
eguar
dagai
nstt
otall
ossont
hef
arm.

 Improvi
ngstor
agefacili
ti
esmoreespeci
all
yforper
ishabl
epr
oduct
ssot
hat
supplycanberegul
atedtomeetdemand

 Increasedr
esear
chsot hatqual
itycr
opsthatar
eresist
anttodrought
,pestand
diseasewit
hshortgest
ati
onperiodaregr
ownt oreduceri
sks.

 Fixi
ngpri
cesbythegover
nmenti
.e.mi
nimum andmaxi
mum pr
icest
oavoi
d
expl
oit
ati
onofbotht
heconsumer
sandpr oducer
s.

 Processi
ngofagri
cultur
alpr
oductsl
ikecott
onandcof
feebef
orebei
ngsol
dto
i
ncreasethei
rshel
fli
feandvaluef
orhigherpr
ices.

 I
mprovingtechnologyinagri
cul
tur
eproducti
onthr
ought heuseofirr
igat
ion,
f
ert
il
izerappl
icat
ionetcthi
sincr
easeproduct
ionandreducescarci
ty.

 Int
ernat
ionalcommodityagr
eement
.Thesefi
xquotasandpr
icesf
orbot
h
buyersandsell
ersofcommodit
ytor
educeexploi
tat
ion.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
41

 I
mprovi
ngtr
anspor
tsothatpr
oductscanbet
ranspor
tedt
opl
aceswher
ether
e
i
sshort
aget
ocontr
olpr
icefl
uctuat
ion.

 Pri
cesupportwheret
hefarmer
ssellt
heirpr
oductsatmarketpr
iceandpr
esent
t
heirr
ecei
ptstothegover
nmentforatopuptoreali
sti
cpr
ice.

 Int
roducti
onofBuff
erst
ockandst
abi
li
sat
ioi
nfundbyt
hegover
nmentt
oavoi
d
pri
cefluct
uat
ion.

 I
mprovementi
ncommuni
cat
ion.Thi
senabl
ethef
armer
stor
eacht
ofarof
f
mar
ket

 Provi
sionofextensi
onser
vicet
oeducat
efar
mer
sonbestpr
oduct
ionmet
hods
andmar ket
ing.

 Formati
onofmar ket
ingorgani
sati
onli
kecooper
ati
vetoimprovethefar
mers’
bargai
ningpowerandther
eforeenabl
ethem t
omarkett
heirproduceatafai
r
pri
ce.

 I
mprovementofmarketi
nformati
ontoenabl
efar
mer
stof
air
lypr
edi
ctf
utur
e
mar
ketcondi
ti
onforthei
rproduct
s.

 I
ntr
oduct
ionofagro-
basedi
ndust
rytoenabl
epr
ocessi
ngoft
her
awpr
oduct
s
maki
ngthem st
orabl
eandofhi
gherval
ue.

Ef
fect
sofpr
icef
luct
uat
ioni
nagr
icul
tur
e.

 Leadstofl
uctuat
ionoffar
mers’incomeandhencel
owstandardofl
ivi
ng.It
l
eadstoreducti
onofrevenueforthegover
nmentwhenpr
icesarel
owaf f
ecti
ng
count
ry’
sdevelopment.

 Empl
oymenti
nagr
icul
tur
efl
uct
uat
ewi
thf
luct
uat
ioni
npr
ice

 For
eignexchangeear
ningswi
llf
luct
uat
ewi
thf
luct
uat
ioni
npr
icesaf
fect
ing
Bal
anceofpayment.

 Makespl
anni
ngbyt
hegover
nmentdi
ff
icul
tbecauseofuncer
tai
nfut
urei
ncome.

 Agr
icul
tur
emechani
zat
ionbecomesapr
obl
em whent
her
eisl
owi
ncome.

 I
tmakesf
arm budget
ingandpl
anni
ngdi
ff
icul
tbecauseofl
owi
ncome.

 Pol
it
icali
nst
abi
li
tysi
ncepeopl
ebl
amesi
tal
longover
nment
.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
42

Ri
sksandUncer
tai
ntyi
nagr
icul
tur
e:

Ri
sks:Thesear
ehazardsinfar
mingbusinesswhoseprobabi
li
tyofoccur
rencecanbe
pr
edict
edbasedonpastexperi
ence.Andcanbeinsur
edagains

Exampl
esofRi
sksar
e

 Changesofweat
herwhi
chcausedest
ruct
iont
ofar
m bui
ldi
ngsandpr
oper
ti
es.

 Pestanddi
seasewhi
chcancausel
ossesi
nbot
hcr
opsandani
mal
.

 Fi
reout
breakwhi
chcandest
royf
arm pr
oper
ti
esandl
if
e.

 Thef
toff
arm pr
oduceandpr
oper
ti
es

 Vari
ati
oninyi
eldfr
om seasontoseasonsi
ncepr
oduct
ioni
scont
rolbynat
ural
fact
orsli
ker
ainf
all
,temper
atur
e

 Damagesofagr
icul
tur
alpr
oper
ti
esi
ntr
ansi
tet
c

Uncer
tai
nti
es.Theseareanunf
oreseeabl
eandunavoi
dabl
eci
rcumst
ancet
hataf
fect
s
t
heoutcomeofagricul
tur
e

Oruncertai
nti
esarehazar dswhoseoccurrencecannotbepredi
ctedbyprobabi
li
ty
esti
matesandt her
eforediff
icul
ttoi
nsureagainst
.Herethefar
merlacksperf
ect
knowledgeofthesituat
ionandt hef
utur
eout comescannotbecompletel
ypredi
ctedby
probabi
li
tyest
imates.

Exampl
esofuncer
tai
nti
esi
nAgr
icul
tur
e:

Yiel
duncert
aint
y:Thef
armercannott
ellaccur
atel
ytheyiel
dhewil
lobt
ainsincehe
doesnotknowtowhatextendt
hecropsoranimalwillbeaff
ect
edbypests,
weather
changeset
c.

PriceUncer tai
nty:Pr
icesofagri
cul
tur
ecommodi ti
eskeepschangingovert
imeandit
’s
verydiffi
cultforafarmertoknowwhenthepricewillf
luct
uateandatwhatpri
cehewil
l
sellhisproductsattheti
mewhenhei splant
ing.Therefor
efarm pr
ofi
tcanonl
ybe
predictedwithuncertai
nty.

Gover
nmentpol
ici
es:Gover
nmentpol
ici
escanaf
fectagr
icul
tur
edi
rect
lyori
ndi
rect
ly
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
43

andsuchabr
uptchangesar
enotknowni
nadvance.Exampl
esofsuchpol
ici
escanbe
madeon;

Taxassessment
,subsi
diesonf
armi
nput
s,pr
ices,
whatcr
opst
ogr
owet
c.

Changeint echnology:Becauseofr apidchangeinfarmi ngtechnologywhichalways

comesasar esult
sofnewcr opsverit
iesbeingi
ntroducedt ofarmer s,
farmer
stendto
facechall
engesespeci al
lywhent heyaremor econfidentinusingtheol dmethodsof
product
ione.g.useofamai zeplanterforpl
anti
ngmai zewhenf armersaremor e
experi
encedi nusi
nghandt oolsonaf arm.

Changei ndemand:Demandforagri
cul
tur
alpr
oduct
skeepschangingyett
hel
osses
asresultoft
hisisdi
ff
icul
ttomeasur
e.Far
merswil
lneverbecer
tai
nofthedemandof
thei
rproducts.

Unr
eli
abi
li
tyoftr
anspor
tandcommunicati
oninti
mesofhighneed,
thi
scausedel
ays
i
ntr
ansport
ati
onandatti
messpoi
lageofproduct
scausi
ngbigl
osses.

Managementuncertai
nty:Thepoli
ciesanddecisi
onforpeopl
eresponsi
blef
orfar
m
product
ionvari
esfr
om eachindi
vidual
,ther
efor
echangeinfarm managementmay
causebiglosesonafar
mi fnotpr
oper l
ymeasured.

Waysofguar
dingagai
nstRi
skandUnce6t
aint
y:

 Diver
sif
icati
onoff armi
ng.Thi
sisthepr oduct
ionofdif
ferentcommodi t
ieson
thesamef arm att
hesamet i
me.Itsafeguardagainstt
otall
osssincelossin
oneenterpri
seduet ori
skswil
lbeoffsetbygainintheotherenter
pri
se.

 I
nsurance.Thi
siswherefar
mer spaysrel
ati
velysmallamountofmoney
(
premium)totheinsur
ancecompanyagainstriskssothatiti
str
ansf
erredtothe
i
nsurancecompanyincaseithappened.I
nsurancecompanywi l
lcompensate
f
oranydestruct
ionmadeont hefar
m onceinsuredagainstmaki
ngfarmerssafe.

 Flexi
bili
tysothatproducti
oncanbechangedf rom oneproductstoanotheri.
e.
fr
om riskyenterpr
isetolessr
iskyent
erpri
see.g.constr
ucti
onoff ar
m buil
ding
i
nawayt hef
tcanallowchangeform poul
tr
y,pig,weaners’
calvesetc.

 Adopti
ngmodernmethodofpr
oduct
ione.
g.useofi
rr
igat
ion,
chemi
calspr
ay
agai
nstpest
sanddi
seasesi
ncroppr
oduct
ion.

 Cont
ractpr
oductionwhereagr
eementismadeforafar
mt oproducespeci
fi
ed
amountofproducetobeboughtbyanot
herf
arm ataguar
anteedpri
ce.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
44

Theref
oretheuncer
tai
ntyofpri
cer
educti
onisr
emovedfrom t
hefarmerand
tr
ansfer
redtothebuyerbutt
hefar
merlossest
hechancetogai
nfrom hi
gher
pri
ces.

 Pr
operst
oragefaci
li
tyt
omai
ntai
npr
oducequal
it
yandexpl
oitmar
ketpr
ices
whent
heyshootup.

 Properrati
oni
ngofinputsi
npr oduct
ionandmarket
ing.Thi
siswhereafar
mer
usesfewerinputst
hantherecommendedquanti
tytobeusei nor
dertor
eserves
someint henextpl
ant
ingseasonincasetheot
heronesfail
.

 I
ntensi
vet
rai
ningofext
ensi
onst
affsot
hatf
armer
sar
enotl
eftbehi
ndwi
th
t
echnol
ogychanges.

 Liquidit
y:Liquidit
yistheeasewi t
hwhi chfar
m assetscanbeconvertedint
o
cash.Thi shelpsinfight
ingagainstri
skanduncer t
aint
ysincetheasstscan
easilybeconver tedint
ocashifcircumstancesdict
ate.,hencethef
armercan
selloffallt
hest ocksofhisl
ayinghensoft hepri
ceofeggsf all
.

 Choosi
ngthemostcer
tai
n/pr
ofi
tabl
eenterpri
se(choosi
ngwhatt
opr
oduce
wit
hcare)t
ocomeupwi t
hmoresecuredenter
pri
se.

 Thr
oughbui l
dingadequateowner
’sequi
tyi.
e.,t
hefar
mermakesadequate
per
sonalsavi
ngsot hatt
hehecanestabl
ishotherent
erpr
isesi
ncaseoff
ail
ure
i
nsomeeofhi sent
erpri
seonafarm.

 Empl
oyi
ngexper
iencedper
sonnelt
oavoi
d/r
educef
aul
tymanager
ialdeci
sion.

 Encour
agi
ngcooper
ati
vei
nor
dert
opul
lresour
cest
oget
hert
ohel
pthef
armer
s.

 Gover
nmentsupportt
hroughpr
ici
ng,
subsidi
esoninputsandi
ssui
ngcr
edi
tst
o
far
merst
oencouragefarmer
smakesreasonabl
einvest
ment.

 Ensuri
ngemploymentofpeoplebythegovernmenttoensur
econti
nuous
ef
fecti
vedemandofagri
cult
uralcommodit
iessincet
herewouldbehighmoney
i
ncircul
ati
onamongpeople.

Speci
ali
zat
ionandDi
ver
sif
icat
ioni
nAgr
icul
tur
e:

Speci
ali
sat
ion:Thi
siswher
eaf
armerdeci
dest
oengagehi
msel
finone
act
ivi
ty/
ent
erpri
se.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
45

Advant
agesofspeci
ali
zat
ion.

 I
tenabl
est
hef
armert
omast
erhi
spr
oduct
ionmet
hods.

 Maxi
mum r
etur
nsar
eobt
ainedduet
obet
teruseofr
esour
ces.

 I
tsavest
imet
hatwoul
dbeusedi
nmovi
ngf
rom oneent
erpr
iset
oanot
her
.

 Iti
mprovesonthel
abourski
ll
sinapar
ti
cul
arf
iel
di.
e.l
abour
sbecome
speci
ali
sedandmorecompetent
.

 I
tpr
omot
est
heuseofmachi
nei
nindust
ri
es.

 Itpr
omoteshigherpr
oduct
ioncapaci
tysi
ncespeci
ali
zedpr
oduct
ioni
sal
ways
onlargescal
e.

 I
timpr
ovest
hequal
it
yofpr
oduce.

 Easymar
ket
ingofonepr
oduct
.

Di
sadvant
agesofspeci
ali
sat
ion.

 Greaterl
osesar
eal
waysexper
iencedf
rom nat
uralcal
ami
ti
esandpr
ice
fl
uctuati
on

 I
tdoesnotal
lowt
hef
armert
ogetconst
anti
ncomet
hroughoutt
heyear
.

 Monot
onyofwor
kcr
eat
esbor
edom t
othef
armer
s.

 I
fonewor
keri
sabsent
,thent
hepr
oduct
ionpr
ocessmaycomet
oast
andst
il
l.

 Ther
eisgr
eat
err
iskofunempl
oymenti
fthebusi
nesscl
osesdown

Diver
sif
icati
on:Thisisasi
tuat
ionwhent
hef ar
merdeci
destoengagei
nmor
ethan
oneacti
vity/
enter
priseatt
hesametimeespeci
all
yonalar
gefarm.

Advant
agesofdi
ver
sif
icat
ion:

 Thereisi
nsuranceagainstlossf
rom nat
uraldisast
ere.
g.whencatt
lei
sinfect
ed
withcont
agiousandinfecti
ousdiseaset
hef ar
mercansellhi
scropsandisnot
l
ikelyt
oincurgreat
erlosses.

 Thef
armerget
sconst
anti
ncomet
hroughoutt
heyearf
rom di
ff
erentent
erpr
ise.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
46

 Itenabl
eseffi
cientuti
li
zat
ionoff
armr
esour
cesespeci
all
ylabour
,machi
ner
y
andf ar
m equi
pment s.

 I
tenabl
est
hef
armer6obesel
fsust
ainedt
hant
hecasewi
thspeci
ali
sat
ion.

 Itoffsetthechall
engesofpr i
cefluct
uati
onsincet hefarmercanaffordtostor
e
producewhosepr iceshavegonedownandsel lthosewhosesat i
sfiedmarket
price.Thereisint
egr ati
onoffar
m biproduct
sandi ndi
rectl
yreducesoncostof
product i
one.g.cropr 4esi
duescanbeusedasl ivestockfeedswhilepoult
ry
l
iters,cowdungandur i
nemaybeusedi nsoilferti
li
tyimprovementasmanur e.

 Itcheckst
heprobl
em ofseasonalunempl
oymentsi
ncepr
oduct
ionact
ivi
ti
esar
e
spreadthr
oughoutt
heyear.

 Itwidenst
heexpor
tbaseofacount
rywhi
chi
sapr
erequi
sit
eforeconomi
c
growth.

Di
sadvant
agesofdi
ver
sif
icat
ion.

 I
tisdi
ff
icul
ttomanaget
hansi
ngl
eent
erpr
ise.

 I
trequi
resmanyski
ll
sforwor
ker
stoacqui
re.

 I
tisdif
fi
cultt
oorgani
zef
ormar
ket
ingofmany/
sever
alpr
oduct
sthanmar
ket
ing
asingl
eproduct
.

 Thereisdi
ff
icul
tyi
nsel
ect
ion,
combi
nat
ionandmanagementofcr
opsand
l
ivest
ock.

 Pestanddi
seasecaneasi
lyspr
eadf
rom oneent
erpr
iset
oanot
heront
hef
arm.

 I
trequi
resl
argeacr
eageofl
andt
ooper
atemanyent
erpr
ises.

 Hugecapi
talout
layi
sneededt
ofi
nancesever
alent
erpr
isesatt
hesamet
ime.

 Ther
eisal
sor
iskofani
maldest
royi
ngcr
opsi
ncaseofmi
xedf
armi
ng.

 Di
ver
sif
icat
ionmayl
eadt
olandf
ragment
ati
onwi
thi
tsef
fect
sonaf
arm.

Agr
icul
tur
ecr
edi
ts:
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
47

Thisref
ertofi
nanci
alassi
stancegivent ofar
mersi
nfor
m ofloanstofi
nancetheirf
arm
product
ionandrepayswit
hinterest
s.Itisaborr
owedcapi
taleit
herincashorki9nd
usedbyf ar
merstofi
nancetheiract
ivi
ties.

I
mpor
tanceofAgr
icul
tur
ecr
edi
ts.

 I
t’
susedt
opur
chasel
ongt
erm asset
ssuchasl
andandmachi
nes.

 I
t’
susedt
opr
ovi
dewor
kingcapi
tal
tobuyf
armi
nput
s

 I
tisusedtoovercomeRisksandUncert
aint
iese.
g.t
otalcr
opf
ail
urebygi
ving
t
hefarmercapit
altocont
inuewit
hproducti
on.

 I
tpr
ovi
descapi
talf
orconst
ruct
ionoff
arm st
ruct
ures.

 I
tisusedt
oincr
easet
hel
evelofpr
oduct
ionandf
orconst
ruct
ionofst
ores.

 I
tencour
agesbetterf
armingtechni
quesi
nagr
icul
tur
ethr
ought
heuseof
i
mprovedbreedsandveri
ties.

 I
tcanl
eadst
oimpr
ovementi
nfar
mer
s’st
andar
dofl
ivi
ng.

 I
tal
soencour
agesf
armer
stodevel
opsenseofsavi
ng.

Sour
cesofAgr
icul
tur
alcr
edi
ts.

 Commer
cialbankl
ikesat
ani
c,DFCU

 Co-
oper
ati
veor
gani
zat
ion

 Far
mer
s’or
gani
zat
ione.
g.UgandaNat
ional
Far
mer
s’Feder
ati
on.
(UNAFF)

 I
nsur
ancecompany.

 Mar
ket
ingboar
de.
g.UgandaTeaBoar
d.

 Gover
nmentschemesuchasEnt
andi
kwa.

 Int
ernat
ionalbodi
eslikeInter
nat
ionalFundsf
orAgr
icul
tur
eDevel
opment
,Food
andAgricul
tureOrganisat
ion.

 I
ndi
vidualmoneyLender
sli
kei
nfor
mal
;cr
edi
tsbor
rowedf
rom f
ri
ends.

 Mi
crof
inancei
nst
it
uti
onsuchasPr
idewomen’
sFi
nanceTr
ust
.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
48

TypesofAgr
icul
tur
alcr
edi
ts:

Shor
tter
m cr
edi
t:Thi
sisacreditr
epayabl
ewi
thi
noneyearandi
tisusedt
opur
chase
i
nput
ssuchasseedsandfer
til
izer
.

Medium t
erm cr
edit
:Thi
sist
hetypeofcredi
trepayabl
ewi
thi
n2-5year
sanditi
suse
t
ofinancepr
oject
sorminormai
ntenanceoflandsuchasminorf
enci
ngofl
and.

Longter
m credi
t:Thistypeofcr
edi
tisr
epayabl
ewithi
nmanyyear
ssay15year
sandi
t
i
susuall
ygivenforpurchaseofl
ongter
m asset
sli
keland,
put
ti
ngupbui
ldi
ngsand
soi
lconser
vati
onstructures.

Note:Ahardloani
sthemoneybor r
owedaf
tergi
vingasubst
anti
alsecur
it
yandt he
i
nterestr
atei
shighwhil
esoftloani
sthemoneyborrowedwi
thoutasubstant
ial
securi
tyandt
heinter
estr
ateislow.

Pr
obl
emsofcr
edi
tadmi
nist
rat
ion.

 Shor
tageoft
rai
nedst
afff
orcr
edi
tadmi
nist
rat
ion

 Hi
ghr
ateofpoorr
epaymentofl
oan.

 Poormanagementski
ll
sbyt
hef
armer
s.

 Manyoft
hef
armer
sar
est
il
lnotyetawar
eoft
hecr
edi
t.

 Li
mit
edf
aci
li
ti
esf
orl
anddevel
opment
.

 Ri
gidi
tyi
nrepaymentschedul
e.

 Shor
tageofcapi
tal
.

 Hi
ghi
nter
estr
ate.

Measur
est
hatcanensur
esef
fect
ivenessofagr
icul
tur
ecr
edi
t.

 Co-
ordi
nati
onofcredi
tsupervi
sione.g.maki
nguseofnor
malext
ensi
onst
aff
andi
ntensi
fi
cat
ionofpersonalt
raini
ng.

 I
mpr
ovementofl
oansuper
visi
ont
oensur
espr
omptpayment
.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
49

 Improvi
ngl
oanr
ecover
ypr
ogr
am byencour
agi
ngpar
trepaymentoveraper
iod
ofti
me.

 Pr
ovi
sionofext
ensi
onser
vicet
ofar
mer
sonhowt
ousecr
edi
t.

 Sensit
izi
ngt
hef
armer
stodevel
opacommer
cialat
ti
tudenotj
ustpr
oducef
or
thesake.

 Thel
ender
sshouldl
ookf
orappr
opr
iat
ecol
lat
eralsecur
it
yorgi
vingsof
tloan
wher
epossibl
e.

 Thel
endingagent
sshoul
ddemandf
orf
easi
bil
it
yst
udi
esbef
orei
ssui
ngouta
l
oantothefar
mer.

 Repaymentschedul
eshoul
dbef
lexi
blet
ofi
twi
thmat
uri
tyoft
heent
erpr
ise.
.

 I
ncreasef
armer
’sknowl
edgeoncr
edi
tavai
labi
li
tyt
hroughf
requentvi
sitt
othe
media.

 Coor
dinat
ionofal
lcr
edi
tinst
ruct
ionst
oavoi
ddoubl
elendi
ng.

 Theloanshoul
dbegi
vent
othef
armer
sint
imewi
thl
esst
imespentonpaper
work.

 Ther
eshoul
dberouti
nef
oll
owupandmoni
tor
ingoff
armer
s’act
ivi
ti
esbyt
he
l
endi
ngagenci
e4s.

 Ther
eshoul
dbereasonabl
egraceper
iodgi
vent
ot hef
armersandan
appr
opr
iat
eloanr
epaymentschedul
eshoul
dbegiventothefar
mers.

 Providef
armerswithinput
satf
airpr
icessot
hatt
heycanear
npr
ofi
tforeasy
repaymentofcredi
t.

 Provisi
onofmostcredi
tsinki
ndl
ikegi
vingi
mpr
ovedseeds,
fer
ti
li
zer
s
,agrochemi
cal
setc.andlessI
ncashtoavoi
dmi
suse.

 Or
ganisemarket
ingoff
armerspr
oduceatf
airpr
icest
osot
hatf
armer
scanget
pr
ofi
tearl
ytopaybackcredi
t.

 Hel
pfar
mer
stoi
dent
if
yvi
abl
epr
oject
swi
thf
ewerr
iskst
oavoi
dloss.

 Cr
edi
tsshoul
dbet
akent
othef
armer
srat
hert
hanf
armer
slooki
ngf
ori
t.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
50

Reasonswhymostf
amer
sfai
ltopaycr
edi
t.

 Hi
ghint
erestr
atechar
gedbythelendi
ngagencies.Thi
smakest
hef
armer
sfai
l
t
orepaycredi
twit
hint
herepaymentschedul
e.

 Fai
lur
eoft
heent
erpr
iseduet
onat
uralf
act
orsandpoormanagement
.

 I
llheal
thoft
hef
armer
sleadi
ngt
opoorsuper
visi
onofhi
sent
erpr
ise.

 Deat
hoft
hef
armerl
eavi
ngnobodyt
opaybackt
hel
oan.

 Mar
keti
ngproblemslikepr
icef
luctuati
onwhi
chmaymakesf
armer
sfai
ltoear
n
t
herequi
redprofi
ttopaybackcredit
.

 Unreal
ist
icnat
ureofsomefar
mersassomecanbor r
owmor
ethanwhatt
hey
canaff
ordtopaybackwit
hinthespeci
fi
edper
iod.

 I
nfl
ati
onwhichcaner
odethemoneyvaluei
.e.canincr
easecostofpr
oduct
ion
maki
ngitdi
ffi
cul
ttof
ull
ycovert
hei
ntendedtask.

 Pol
it
icali
nst
abi
li
ti
est
hatmayl
eadst
odest
ruct
ionoff
armer
’sasset
s.

 Lowlevelofeducati
onmaki
ngf
armer
sfai
lst
oanal
ysef
inanci
alpr
ogr
essof
thei
rfar
mingenterpri
se.

 Lackofext
ensi
onservi
cetoadequat
elyadvi
cefar
merresult
ingint
opoor
deci
sionmaki
ngasregardtoent
erpr
isesel
ecti
on,
product
iontechniqueand
marketi
ng.

 Poorl
oanr
epaymentcul
tur
eordi
shonest
yofmostf
armer
s.

 Inadequat
ecr
edi
ttoef
fect
ivel
ycovert
heent
ir
epr
oduct
ionandmar
ket
ing
process.

 Lategi
vingofloant
othefar
mersbythefi
nanci
ali
nst
it
uti
onleadi
ngtount
imel
y
far
m acti
vit
ies,
poorpl
anni
nghencepoorl
oanperf
ormanceaswell.

 Shortr
epaymentperi
odgi
ventothefar
mersbythef
inanci
ali
nsti
tut
ionwhi
ch
doesnotmakesfarmerst
oreal
iset
hevalueoft
hemoneyborrowed.

 Ri
sksanduncer
tai
nti
esi
nfar
mingmayaf
fectt
otalpr
oduct
ionnegat
ivel
y.

 Poorl
oansuper
visi
onamongt
hel
oanpr
ovi
der
swhodonotmoni
torand
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
51

eval
uat
ethepr
oject
stowhi
cht
hel
oanswer
eint
endedf
or.

 Misuseofloanbymostf armerswhodi
ver
ttheloanforf
armingforthei
r
personalconsumpt
ion.I
t’sver
ycommonforthoseloansof
feredincash.

Fact
orst
hatl
imi
tsavai
labi
li
tyofcr
edi
tst
otheagr
icul
tur
alsect
orsi
nUganda.

 Mostf
armer
slackcol
lat
eralsecur
it
y.

 Mostf
armer
slackadequat
eknowl
edgeaboutt
heavai
labi
li
tyofcr
edi
ts.

 Mostcredi
tinst
it
uti
onsarel
ocat
edi
nur
banar
eas,
farawayf
oreasyaccessby
t
hepotenti
alborr
owers.

 Longtermloanr
equiressupervi
sionandi
twouldinconveni
encewhoeveri
s
chargedwit
hsuper
visionbecausefarmer
sarescatter
edandroadsIrur
alareas
arepoor.

 Somecr
edi
tsar
einadequat
etoenabl
efar
mer
sst
artaser
iousbusi
ness.

 Repaymentper
iodofmostcr
edi
tisshor
tandwi
thhi
ghi
nter
estr
ate.

 Agr
icul
tur
eisfacedwi
thmanyr
isksanduncer
tai
nti
est
her
efor
emoneyl
ender
s
donotl
iketol
endagri
cul
tur
epr
oject
s.

 Cor
rupt
ionandembezzl
ementoff
undsi
ncr
edi
tadmi
nist
rat
ion.

 I
nter
estr
atei
shi
ghanddoesnotat
tr
actt
hef
armer
stoacqui
rel
oan.

 Exi
stenceofi
nfl
ati
onr
educest
her
ealval
uesofcr
edi
tther
efor
einst
it
uti
onmay
l
ose.

Inter
est:Thi
sist
hepercent
agechargedforthel
oanortheper
cent
agechar
gedforuse
ofloan.Theamountofint
erestpai
dtolendi
ngagenci
esbythebor
roweri
sdet
ermined
alwaysby;

Thedemandforthecredit
,suppl
yoft
heloanabl
emoney,
sizeoft
hecr
edi
t,t
ypeof
cr
edi
t,andcol
lat
eralsecuri
tyoft
heborr
ower.

Note:Loancanbepai
dbackei
thert
hroughdi
rectcashpaymentort
hrough
cooperat
ives.

Consi
der
ati
ont
obemadebymoneyl
ender
sbef
oregi
vingal
oant
othebor
rower
.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
52

 Amountofmoneyt
obebor
rowedi
nrel
ati
ont
othepur
poseoft
hel
oan.

 Typeofcr
edi
ti.
e.shor
tter
m,medi
um t
erm orl
ongt
erm cr
edi
t.

 I
nter
estr
atet
obechar
ged.

 Avai
labi
li
tyofcol
lat
eralsecur
it
y.

 Typeofpr
ojectt
oinvesti
n.

 Fi
nanci
alposi
ti
onoft
hef
arm(
proj
ect
)basi
ngont
hef
armr
ecor
ds.

 Exper
ienceoft
hebor
roweri
nthepr
oposedpr
oject
s

 Pr
evi
ousl
oanhi
stor
y.

 Thei
ntendedcont
ri
but
ionoft
hebor
rowert
othepr
oject
.

Whendoesagr
icul
tur
alcr
edi
tsai
dtobeef
fect
ive.

 Wheni tpromot
eagr
icul
tur
edevel
opmentbyi
ncr
easi
ngt
heamountofcapi
tal
avai
lable.

 Wheni
thasef
fect
iveut
il
isat
ionofagr
icul
tur
alr
esour
ces.

 Wheni
tencour
agesbet
terf
armi
ngt
echnol
ogi
es.

 Whenitprovi
dethefar
merwi
thanat
ti
tudet
ocompl
etel
yadoptacommer
cial
at
ti
tudetowardsfar
ming.

 Wheni
tleavet
hef
armerbet
terof
fthanbef
ore.

Far
mingOr
gani
sat
ions

Cooperat
ives:Thi
sisaregist
eredor
gani
zat
ionofpeopl
e(f
armer
s)whodeci
dest
owor
k
toget
herformutualbenef
it
s.

Typesofco-
oper
ati
ve.

Tr
ansportco-
oper
ati
ves:Thi
sdealswit
htr
ansport
ati
onofproduceeit
herfor
tthe
membersorforpr
ofi
tfr
om otheror
gani
zat
ione.
g.Ugandacooperat
ivetr
ansportuni
on.

Credi
tsavi
ngco-oper
ati
ves:Thi
sdealswit
hsavingofmember
’smoneyandpr
ovi
sion
ofsmalll
oanse.
g.Ugandawomencr edi
tandTrustf
und.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
53

Consumerco-
operat
ive:Thisst
ocksandsellscommodi
tyt
omember
satsubsi
dized
pr
icesandcanal
sogivef i
nanci
alassi
stancetomember
s.

Pr
oducerco-oper
ati
ves:Theseareconcer
nwi
thmar
ket
ingofmember
s/f
armer
s
pr
oducee.g.Masakacooperat
iveuni
on.

Tr
adeandcr aftco-
oper
ati
ves:Thesear
econcernwit
hbuildingandconst
ruct
ionwor
k
e.
g.const
ructi
onofwarehousingforst
orageoff
armers’
pr oduce.

Pr
inci
plesofco-
oper
ati
ves:

Thesearethebasi
cgui
del
ineonwhi
cht
hef
ormat
ionanddayt
odayr
unni
ngofco-
operat
ivesi
sbasedon.

Openandvol
unt
arymember
shi
p:

Al
lpeopl
ear
efr
eet
ojoi
norl
eavet
hegr
oupwi
thoutanyr
est
ri
cti
onofanyki
nd

Democr
acy:

Co-
operati
vesar
erunondemocr
ati
cpr
inci
pleevenwhenel
ect
ionf
ort
hel
eader
sis
hel
d.I
.e.onemanonevot
e.

I
nter
estandpr
ofi
t:

Thepercentageofr
etur
nonbor
rowedmoneyshoul
dbel
owsi
ncet
heor
gani
sat
ioni
sa
prof
itmakingone.

Co-
oper
ati
on:

Co-oper
ati
vesmustwor
ktoget
herwi
thot
herco-
oper
ati
veor
gani
zat
ioni
nor
dert
olear
n
fr
om eachother
.

Neutr
alit
y:Co-
oper
ati
vesmustbeneut
rali
npol
it
ics,
rel
igi
onoranyot
herbi
ast
hatcan
af
fectthei
roper
ati
on.
.

Promot
ionofmember
s:Al
lpr
omot
iont
opl
acesofhi
ghr
esponsi
bil
it
iesmustbebased
onmeri
ts.

Education:Co-
oper
ativesmustpr
omoteeducati
onforthei
rmember
sinor
derto
reducetherateofi
ll
it
eracyandal
soi
ncreasetheski
ll
sneededi
nrunni
ngofco-
operat
ives.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
54

Cont
inuousexpansi
on:co-
operat
ivesmusthavecont
inuousexpansi
oni
nter
msof
membersandphysicalf
aci
li
ti
es.e.g.bui
ldi
ngs,
machi
nerieset
c.

Shareofdivi
dends:Ther
eisshareofdi
videndsaf
tercal
cul
ati
nghowmuchmember
s
havecontr
ibut
edtotheco-oper
ati
ves.

I
mpor
tanceofco-
oper
ati
ves.

 I
tpr
ovi
desl
oant
omember
sfordevel
opment

 I
tbr
ingst
oget
hermanysmal
lscal
efar
mer
stoachi
evel
argescal
efar
ming.

 I
tpromoteseducat
ionandt
rai
ningf
ormember
stoachi
evehi
ghl
evelof
management.

 I
tpr
ovi
desmar
ketf
orf
armer
spr
oducebybuyi
ngcommodi
ti
esf
rom f
armer
s.

 St
oresf
armer
spr
oducebef
oresel
li
ngr
educi
ngr
iskst
ofar
mer
s.

 Canpr
ovi
deempl
oymentt
omember
sasaccount
antandmanagement
.

 Canpr
ovi
dest
ranspor
tforpr
oducef
rom f
armst
omar
ketpl
ace.

 Someco-
oper
ati
vescanpr
ocesspr
oducebef
oresel
li
ngt
oaddval
ues.

 Canpr
ovi
dei
nput
stof
armer
satsubsi
dizedpr
icest
oincr
easepr
ofi
ts.

 Co-
operat
ivescanmobil
izepr
icesf
oragri
cult
urepr
oduct
sbybuyi
ngpr
oduce
dur
ingperi
odofplent
yandselli
ngi
tattheti
meofscarci
ty.

 Theyel
imi
natewastef
ulcompet
it
ionandexpl
oit
ati
onoff
armer
sbymi
ddl
emen
hencei
ncr
easingt
hefarmer’
spr
ofitmar
gins.

 Theyi
ncreaset
hebar
gai
ningpowerofmember
sint
hemar
ket
ingandpr
otect
weakones.

Pr
obl
emshi
nder
ingpr
ogr
essoff
armi
ngor
gani
zat
ion.

 I
nadequateskil
lsofmanagementamongfar
merswhi chmakesthem
i
ncompetentinexecut
ionoft
hedaytodayacti
vit
iesoftheor
ganizat
ion.

 I
nadequat
efundst
ofi
nancet
heact
ivi
ti
esf
orco-
oper
ati
veswhi
chl
imi
t
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
55

i
nvest
mentsandexpansionsofco-operat
ives.Thi
sismainl
yduet
ofai
lur
eof
memberstopaysubscr
ipti
onfeeregularl
yandf ai
lur
etokeept
hei
rmoneywi
th
t
heco-oper
ati
ves.

 Embezzl
ementandcor
rupt
ionbymanager
shasr
educedt
hegr
owt
hofmostco-
oper
ati
vesi
nUganda.

 I
nadequat
etr
ansport
:someco-
operati
vesdohavet
ruckt
otr
anspor
tpr
oduce
f
rom pr
oduct
ioncent
erst
omarketplaces.

 Short
ageofstor
agefaci
li
ties.Mostco-operat
ivesIr
uralar
easdonothave
enoughst
oreswithf
acil
it
ieslikef
reezersthathel
pinstori
ngofpr
oduct
s.

 Unstabl
epri
ceofagr
icul
tur
eproduct
sbothatlocalandi
nter
nat
ionalmar
kethas
l
imitco-
oper
ati
vesfr
om expandi
ngfi
nanci
all
y.

 Highri
sksanduncert
aint
yinagricul
tur
e:Thi
sreducest
hepr
ofi
tmar
ginf
orco-
operat
ivewhi
chgreat
lydiscour
agefarmers.

 Poli
ti
cali
nstabi
li
ti
es:I
nplaceswher
ether
eisi
nsur
gencyi
t’
sbeenver
ydi
ff
icul
t
forco-
operat
ivetooper
ate.

 Di
shonest
yoft
hemember
swhor
efuset
opaybackt
hel
oanbor
rowed.

 Ahighcompleti
onfr
om pri
vat
esect
orswhi
chhasaf
fect
edt
heamountof
pr
ofit
sthatcanbeearned.

 Lackofgovernmentsuppor
t:i
sasresul
tsofi
ntr
oduct
ionofliberal
izat
ionpol
icy
wherethegovernmentst
oppedsupport
ingf
armer’
sco-oper
atives.

 Tr
ibal
ism andnepot
ism whi
chendangert
heuni
tyofco-
oper
ati
ves.

 Widespreadil
li
ter
acyespeci
all
yoftheruralpopul
ationaboutt
heaff
airsofthe
co-
operati
ve.Theyar
enotawar eofthebenefi
tsofjoini
ngsuchor
ganizati
on.

Sol
uti
onst
opr
obl
emsf
aci
ngco-
oper
ati
ves.

 Morecent
ersf
ort
rai
ningmanager
sshoul
dbesetupt
oequi
pmanager
swi
th
ski
ll
s.

 Co-oper
ativeshoul
daccessloanf
rom Banksandot
herl
endi
ngi
nst
it
uti
onsi
n
caseoffinanci
alconst
rai
nts.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
56

 Constantaudi
ti
ngshoul
dbedonesothatthemanger
saremadetobemor
e
accountabl
etothel
ossesmadehencereduci
ngembezzl
ement
.

 Gover
nmentshoul
dsuppor
tco-
oper
ati
vet
hroughst
abi
li
zat
ionf
undi
ncaseof
l
owprice.

 Membersborr
owi ngmoneyf
rom t
heor
gani
zat
ionshoul
dpr
esentsecur
it
yto
pr
eventdef
aul
ting.

Mar
ket
ingBoar
d:

Thesearepubl
icbodi
essetupbythegovernmentt
oassi
stf
armer
sint
hepr
oduct
ion,
processi
ngandmarket
ingofagr
icul
tur
eproduct
s.

Theai
msoft
hemar
ket
ingboar
ds.

 Toprovi
deessent
ialst
oragef
aci
li
ti
esf
orst
ori
ngagr
icul
tur
alpr
oducef
rom
far
mers.

 Toensur
est
eadysuppl
yofagr
icul
tur
alpr
oducet
othef
inalconsumes.

 Tosetandguar
ant
eedpr
icesf
ort
hegoodspr
oducebyt
hef
armer
s.

 Tohel
pfar
mer
sinor
dert
opr
oducehi
ghqual
it
yagr
icul
tur
epr
oduct
s.

 Topromoteexpansi
onofcashcr
opse.g.cot
ton,
cof
feesoast
oreduce
economy’
sdependenceononecrop.

 Toincreasest
atepar
ti
cipat
ioni
neconomi
caf
fai
rsandpubl
ici
nvest
mentbyt
he
government.

Exampl
esofmar
ket
ingboar
dsi
nUganda.

 Cof
feemar
ket
ingboar
ds.

 Li
ntmar
ket
ingboar
ds.

 UgandaTeaAut
hor
it
y.

 Pr
oduceMar
ket
ingboar
ds.

Funct
ionofMar
ket
ingBoar
ds.

 Theycol
lectpr
oducef
rom gr
owi
ngar
east
oacent
ralst
orewher
etheycanbe
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
57

expor
tedt
oext
ernal
mar
ket
.

 Theypr
ovi
depl
ant
ingmat
eri
alse.
g.Li
ntmar
ket
ingBoar
dspr
ovi
decot
tonseeds.

 Theybuypr
oducef
rom f
armer
satf
airpr
iceandr
esel
litabr
oad.

 Theyof
fert
echni
calser
vicewhi
chani
ndi
vidualf
amercannotaf
for
dtopayf
or.

 Mar
ket
ingboar
dseli
minat
eexpl
oit
ati
onoff
armer
sbypr
ivat
etr
ader
swhot
end
t
opayl
esstothef
armers.

 Theyadvi
cegover
nmentwhenf
ixi
ngpr
icef
oragr
icul
tur
epr
oduct
s.

 Theycoll
ectagr
icult
ureproducefr
om f
armer
sandt
ranspor
titt
othemar
ket
,i.
e.
theyof
fertr
ansportser
vicetofar
mers.

 Theyensuret
hatpr
oducef
rom f
ramer
sar
eofhi
ghqual
it
ysoast
omeetmar
ket
st
andard.

 Market
ingboardscanst
orepr
oduceonbehal
foft
hef
armer
sespeci
all
ydur
ing
per
iodofsurpl
uswhenthepri
cesar
elow.

 Theyof
fercr
edi
tst
ofar
mer
sinf
orm ofl
oanandi
nput
s.

 Market
ingboar
dscanfinanceresear
chi nthedevel
opmentofbet
termet
hodof
f
armingandbestqual
it
yagr i
cul
tureproducts.

 Theycanal
sodi
ssemi
nat
eresear
chi
nfor
mat
iont
ofar
mer
sint
hevi
ll
ages.

 Theyof
ferexpor
tli
censeandt
her
efor
efi
ghtmal
pract
icesl
ikesmuggl
ing.

 Theyencouragethepr
oduct
ionofcr
opst
hatwer
epr
evi
ousl
yimpor
tedby
guar
anteei
ngpr i
cetof
armers.

Pr
obl
emsofmar
ket
ingboar
ds.

 Smuggl
ingwhi
chint
roducescheappr
oduct
sint
hemar
kethencer
educi
ng
pr
ofi
tsofmar
keti
ngboards.

 I
nadequat
est
oragef
aci
li
ti
esf
orpr
oduct
s.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
58

 Excessi
vepr
oduct
ionhencel
owpr
icef
ormar
ket
ingboar
dint
hei
nter
nat
ional
market.

 Del
ayedpaymentoffarmer
swhichdi
scour
agesf
armer
sfr
om sel
li
ngt
hei
r
pr
oducetothemarketi
ngboar
ds.

 Poorroadnetwor
ksinruralar
easmakestr
anspor
tati
onofpr
oducebought
di
ffi
cultandmoreexpensivef
orthemar
keti
ngboards.

 Loandefaul
tingwheresomefarmersf
ailt
opaybackthel
oangi
vent
othem by
themarketi
ngboards,t
hisaf
fect
sthei
rperf
ormance.

 Market
ingboardtendt
ofi
xpr i
cesofcer
tai
ncommodit
ybef
orehar
vest
ingand
asaresul
ts,sur
pluspr
oduct
ionmaycomewi t
hprobl
emsofpur
chasedueto
fi
nanci
alprobl
em.

Far
m management

Farm Records:Thesear
ewr
it
tenaccount
sofal
lthei
nfor
mat
ionkeptont
hef
armf
or
fut
urerefer
ence.

Char
act
eri
sti
csofagoodr
ecor
d

 Theyshoul
dbesi
mpl
etomake.

 Theyshoul
dbeconci
se.

 Theyshoul
dbeaccur
ate.

 Theyshoul
dbecompl
ete.

I
mpor
tanceofagoodf
arm Recor
d.

 Theyenabl
esafarmertoknowwhethert
hefar
mi smaki
ngprof
itornotandthe
unpr
oducti
veent
erpr
isesaredr
oppedandtheprof
it
abl
eonesareconcentr
ated
on.

 Theyassi
stf
armer
sinpl
anni
ngandbudget
ingf
ort
hef
arm.

 Theenabl
eaf
armert
omakeasounddeci
sion.

 Theyhel
pfar
merstoshar
epr
ofi
tandl
ossesatt
heendofaf
inanci
alseason,
in
caseofaco-
oper
ati
ve.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
59

 Theyhel
pthef
armertoobt
ainloanf
rom t
hemoneylender
sbecausegood
recor
dsr
eveal
sthef
inanci
alst
andofthebusi
ness.

 Theyar
eusetoassessthefar
mer
’si
ncomet
axbecauseandt
hissavest
he
far
merfr
om bei
ngovert
axed.

 Theyhel
pst
hef
armert
olauncht
hecl
aimt
othei
nsur
ancecompanyi
ncaseof
l
ose.

 Theyhel
pthefarmertocar
rymanagementact
ivi
ti
esont
hef
arm e.
g.pedi
gree
sel
ect
ionusedinbreedi
ngandcul
li
ng.

 Theyareusef
uli
ncompari
ngef
fi
ciencyoft
hef
arm wi
thot
hersi
mil
arf
armsi
n
thesameareaorel
sewher
e.

 Theyprovi
del
abouri
nfor
mat
ionwhi
chcanbeusedt
ocal
cul
atet
ermi
nal
benef
it
softhefar
m.

 I
tal
sohel
psi
ndet
ermi
ningwager
atef
orl
abour
sont
hef
arm.

 Recordsareveryimpor
tancei
nsolvi
ngdisput
esamongf
ami
lymember
smor
e
especial
lywhentheowneroft
hefarm di
ed.

 Theyactasanincent
ivet
othef
armerbyr
eveal
ingt
hosear
easwhi
chneeds
i
mprovement.

 Theyhel
ptodet
ermi
net
heval
ueoft
hef
armi
ncaseofsal
e.

 Heal
thr
ecor
dhel
psi
nef
fect
ivepestanddi
seasecont
rol
.

 I
thel
pst
oshowt
hehi
stor
yoft
hef
arm andi
tsdevel
opment
.

Typesofr
ecor
dskeptbyaf
armer
.Theyar
eoft
wocat
egor
ies

(
a)Pr
oduct
ionr
ecor
ds.

Breedingrecor
dsindi
catesthedat
et heani
mali
sonheat
,dat
eofservi
ce,
dat
esof
calvi
ng,sexofthecal
f,expect
eddateofdryi
ngof
fandst
eamingup.

Feedingrecor
dsshowst
heamountoff
eedsgi
vent
otheani
maldai
lyandt
het
ypesof
feedgiven.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
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ncampusTel
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icul
tur
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csandf
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.
60

Heal
thr
ecordsshowsthei
dentit
yofanimal
,nameofdi
seasedi
agnosed,
dat
eof
t
reat
ment,
kidoftr
eat
mentgiven,anyexami
nati
onmade.

Labourrecor
dsshowsthenumberofworker
sonaf ar
m, l
evel
sofqual
if
icat
ion,
typeof
workdonebyeachworker,
dai
lyatt
endanceofeachworker
,andamountofwork
supposedtobedonebyeachworker.

Croprecor
dsshowsthetypesofcropsgr
own,
yiel
dsandagr
onomi
cpr
inci
ples
employedi
nproduci
ngthecrops.

I
nventor
iesr
ecordsshowsallt
hetot
alphysi
calpr
oper
ti
esoft
hef
arm,
i.
e.numberof
t
ools,machi
neri
es,,
buil
dingset
c.

Fi
nanci
alr
ecor
dsshowpr
ofi
tandl
ossesoft
hef
arm,
dai
lyi
ncomeandt
otalsal
es.

Recor
dsonf
arm hi
stor
yi.
e.dat
esofset
ti
ngupt
hef
arm andowner
shi
poft
hef
arm.

(b)Farm account
:Thesei
ncl
udef
inanci
aldocument
s,f
inanci
albooksandf
inanci
al
statement.

 Fi
nanci
aldocuments:Thesear
einvoi
ces,
recei
pts,
del
iver
ynot
e,pur
chase
or
derandfi
nanci
alstat
ement.

Invoi
ceisadocumentissuedt
othefarmerwhenheorder
sfort
hef
armi
nput
sandi
t
showsthequanti
ty,
pri
ce,andcostofdel
iver
edgoods.

Receiptisf
inanci
aldocumenti
ssuedbyt
hesel
l
ert
othebuyerasapr
ooff
orpayment
fort
hei t
emsbought.

Del
iver
ynoteisaf
inanci
aldocumentprepar
edbythesel
lert
othebuyershowi
ngt
he
i
temsincl
udedint
heorderandsuppl
iedtothebuyer
.

Pur
chaseor
derisadocumentpr
epar
edbyt
hebuyert
othesel
leront
hegoodshe
want
stoobt
ain.

Statementisabil
lshowingdet
ail
sofvar
iousor
der
soveraper
iodoft
imeaf
ter
receivi
ngsever
alsuppl
ies.

 Fi
nanci
albooks:Thesear
einvent
ori
esandcashbooks.

Invent
ori
esi
swheret
hefarmerrecor
dseveryt
hingheownsont hefar
m whi
lecash
bookshowsther
ecei
ptsandexpensesonthefarm overaspeci
fi
edti
meper
iod.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
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ncampusTel
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icul
tur
eEconomi
csandf
arm management
.
61

 Financialstatement :Thesear
etherecor
dswhichshowt
hef
inanci
alst
atusof
thefarm/ enterpr
ise.Theyincl
udethefol
lowi
ng;

Budget

Tr
adi
ngaccount
/Pr
ofi
tandl
ossacount

Bal
ancesheet

Budget:Thisisafi
nanci
alstat
ementoutl
ini
ngtheanti
cipat
edfarmrevenueand
expendit
ureforanenter
pri
seorapartofthewholef
armf orthef
ort
hcomi ngfi
nanci
al
peri
od.

I
mpor
tanceoff
arm budget
ing.

 I
tenabl
est
hef
armert
oachi
evet
hesetf
arm obj
ect
ives.

 I
tmot
ivat
est
hef
armert
owor
khar
dtoachi
evet
hesetgoal
sfort
hebudget
.

 I
thel
psthef
armeri
nfor
ecast
ingpr
ofi
tsandl
ossesest
imat
ingpr
ofi
tabi
li
tyof
t
hefar
m.

 I
tcanbeuseddur
ingal
locat
ionoff
undst
ovar
iousar
easofpr
oduct
ion.

 Usedi
ndeci
sionmaki
ngwhencompar
ingent
erpr
ise.

 I
thel
pst
hef
armeri
nmaki
ngef
fect
ivechangei
ntheor
gani
sat
ion.

 I
thel
psthefarmert
oest
imat
ether
equi
redr
esour
cesi
npr
oduct
ioni
nter
nsof
l
abour
,capi
talet
c.

 I
tgui
dest
hef
armerwhenbor
rowi
ngl
oanf
rom t
hel
endi
ngagenci
es.

 I
tcanbeusedasr
efer
encedur
ingf
utur
epl
anni
ng.

Typeofbudget

Parti
albudget:Thi
sisafi
nanci
alst
atementout
li
ningt
heanti
cipat
edr evenueand
expendit
ureforapartoft
hewholeenter
pri
sei
nthefor
thcomingfinancialper
iod.

Completebudget
:Thi
sisfi
nanci
alst
atementout
li
ningt
heant
ici
patedr evenueand
expendi
tur
eforanent
erpr
ise/
wholef
arminthefort
hcomingf
inancialperiod.
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
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ncampusTel
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icul
tur
eEconomi
csandf
arm management
.
62

Pr
ocedur
esofmaki
ngacompl
etebudgetonaf
arm.

 Statet
heobj ect
ivesoff
armi
ngbusi
nesssot
hatt
hebudgetcananswersuch
object
ives.

 Li
stal
ltheent
erpr
isef
oundonaf
arm.

 Li
stal
ltheavai
labl
eresour
ceswhi
chcanbeusedi
npr
oduct
ion.

 Est
imatest
henumberofuni
tsofpr
oduct
ionf
orthegi
venresour
cese.
g.
numberofpl
ant
s,numberofacr
es,
numberofanimal
set
c.

 Est
imat
ethephysi
cali
nput
sandt
hei
rcost
s.

 Est
imat
ethephysi
calout
putandt
heexpect
edr
etur
n.

 Cal
cul
atet
hef
ixedcost
sint
henextt
radi
ngyearorper
iod.

 Wor
koutt
heest
imat
edpr
ofi
tsf
ort
hedi
ff
erentent
erpr
ises.

 Workoutthecost
sthatwoul
doccuri
ntheyear
’sbusi
nessdi
rect
lyasar
esul
tof
change.

 Cal
cul
atet
heoppor
tuni
tycostofanyi
nputsoast
omaket
her
ightdeci
sion.

 Consi
dert
hedi
ff
erentbet
weent
otalcr
edi
tsandt
otaldebt
sast
hechangei
nthe
neti
ncome.

 Addupt
heest
imat
eforal
ltheent
erpr
iseont
hef
arm.

Poi
ntst
oconsi
deri
nbudget
ing.

 Leastcombi
nat
ionoff
act
orsofpr
oduct
ionusedont
hef
arm.

 Far
mer
’sexpect
ati
ont
hrought
ime.

 Oppor
tuni
tycost
sforf
act
orsofpr
oduct
ion.

Const
rai
ntsi
nbudget
ing

 Fai
lur
etoseeori
dent
if
ycompl
ement
aryandsuppl
ement
aryent
erpr
ises.

 I
nadequat
eknowl
edgeaboutbudget
ing.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
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icul
tur
eEconomi
csandf
arm management
.
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 I
nadequat
etechni
cal
inf
ormat
ionaboutbudget
ing.

 Bi
asi
nchoosi
ngent
erpr
isei
nst
eadofai
mingatmaxi
msi
ngpr
ofi
t.

 I
nadequat
emar
keti
nfor
mat
iononpr
icesofi
nput
sandout
put
s.

 Pr
icef
luct
uat
ioni
nagr
icul
tur
ethatmakesant
ici
pat
iont
obeunachi
evabl
e.

I
mpor
tancei
nfor
mat
ioni
nbudget
ing.

 Resul
tsfrom r
esear
chst
ati
on-
thi
scanshowt
heexpect
edpr
oduct
ionofan
ent
erpr
ise.

 Dat
aoni
nput
-out
putr
elat
ionshi
pi.
e.pr
oduct
ionf
unct
ion.

 Cost
sofi
nputandout
puti
nfor
mat
ionsoast
ofor
ecastl
ossesandpr
ofi
t.

 Far
mrecor
donoper
ati
onoft
hef
arm.

Pr
ofi
tandLossAccount
.

Apr
ofi
tandl
ossaccountcanbedef
inedi
ndi
ff
erentways;

I
tisapr
oject
ionofsal
esandrecei
ptsagai
nstpur
chasesandexpensest
odet
ermi
ne
t
heprof
itorl
ossofthebusi
ness.

Ori
saf i
nancialst
atementwhichshowsallt
hetransacti
oncar
ri
eddur
ingthetradi
ng
per
iodusual
lyayearanditreveal
swhetherthebusinesshadmadepr
ofi
torloss.

Feat
ures/
component
sofpr
ofi
tandl
ossaccount
.

Ti
tl
e/Headi
ng.Thi
shasthenameofthestatement,
thedur
ationi
nwhi chthebusi
ness
i
scarri
edoutandapref
ixf
ortheyearendi
ngfoll
owedbyfinanci
alyear.

Exampl
e,Apr
ofi
tandl
ossaccountf
orMr
.Gonzagaf
armf
ort
heyearendi
ng
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
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 Agr
icul
tur
eEconomi
csandf
arm management
.
64

9th/
Dec/
2012.

Ithastwosidesi.
e.pur
chaseandexpensewhichcompr i
seofli
stofcommoditiesand
servi
cesspentonanditusuall
yappearsonthelef
thandside,
thensalesandrecei
pts
sidewhichcompriseofl
istofcommoditi
esoff
eredforsal
esbythefarmthatgenerat
e
earni
ng.Itappear
susuall
yont her
ighthandsi
de.

Ithasanopeni ngvaluat
ionputonpur
chaseandexpenseside.Openingvaluati
onis
thevalueofalltheassetafar
m hasatthebegi
nningofafi
nancialyear.Iti
sputonthe
purchasesidebecauseitisassumedthati
fthefarmerwastobuyt hatfarmthati
sthe
moneyhewoul dspend.

Ithasacl
osi
ngvaluat
ionputonsal
esandreceiptside.Cl
osingval
uat
ionist
hemoney
andasset
sthatt
hefarm hasatt
heendofafinancialyear
.egfedinst
ore.

Ithaseit
hernetpr
ofi
tornetl
ossandthenetpr
ofi
tisputont
hepur
chasesi
dewher
e
asnetlossisputonthesal
esandrecei
ptsi
de.

Note:Anetprofi
tornetl
ossi
sthedi
ff
erencebet
weensal
esandr
ecei
pt,
andpur
chase
andexpendi
ture.

Thediffer
entbetweengrosspr ofi
tandnetprof
iti
sthat,
grosspr
ofiti
st hetot
al
revenuelesst
hevar i
ablecostsandnetprofi
tcanalsowhil
enetprofi
tisthetotal
revenuelesst
otalcosts(var
iablecostandf
ixedcostsummedup).

Examples:Gi
ventheinfor
mationpr
epar
epr of
itandl
ossaccountf
orMr
.
st
Ssenyonga’
sfar
mf ortheyearendi
ng31 July2012.

Dr
ugpur
chase 45000

Hei
fersal
es 1,
500000

Mi
lksal
es 7500000

Depr
eci
ati
onofmower 270000

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
65

Cl
osi
ngval
uat
ion 1800000

I
nter
estonl
oan 200000

Cr
opsal
es 350000

Seedpur
chase 190000

Feedpur
chase 253000

Fer
ti
li
zerpur
chase 290000

Paymentf
rom r
ent
edt
ract
or700000

Openi
ngval
uat
ion 1050000

Eggsal
es 350000

Labour 250000

APROFI
TANDLOSSACCOUNTFORMRSSENYONA’
SFARM FORTHEYEAR
st
ENDI
NG31 Jul
y2012

Purchasesand Ugx Sal

esandr
ecei
pt Ugx
expenses

Openi
ngval
uat
ion 1050000 Cl
osi
ngval
uat
ion 1800000

I
nter
estonl
oan 200000 Hei
fersal
es 1500000

Labour 250000 Mi
lksal
es 750000

Dr
ugpur
chase 45000 Cr
opsal
es 350000

Seedpur
chase 190000 Tr
act
orpayment 700000

Feedspur
chase 235000 Eggsal
es 350000

Fer
ti
li
zerpur
chase 290000

Subt
otal 2530000 5450000

Pr
ofi
t 2920000

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
66

Tot
al 5450000 5450000

Exampl
e2

Apr
ofi
tandl
ossAccountf
orMr
s.Cl
ara’
sf m asat31stDecember2012
ar

Pur
chaseandexpenses shs Sal
esandr
ecei
pt shs

Openingval
uat
ion Closi
ngval
uat
ion
2300000 4400000

Veter
inar
ycost
s Vegetabl
esal
es
160000 1000000

Depreci
ati
onofmachi
ne Rentr
ecei
vabl
e 595000
150000
Incr
easeImachi
neval
ue
Pesti
cide 205000
80000
Mil
ksales
Fert
il
izer 850000
260000
Cropproducesal
es
Int
erestpayabl
e 1800000
100000

Wages
2500000

Subtotal
4550000 8850000

Netprof
it
4300450

Total
8850450 8850450

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
67

(
a)Usi
ngt
hei
nfor
mat
ionont
het
abl
eabove,
det
ermi
net
hepr
ofi
torl
oss

ANetpr
ofi
t=Tot
alsal
esandr
ecei
pt–Tot
alpur
chaseandexpendi
tur
e

885045-
4550000=4300450

(
b) Wi
thr
eason,
suggestweat
herMr
s.Cl
arai
sli
kel
ytogetabankl
oan.

Mrs.Clar
amadeaprof
itof4300450andt
her
eiti
sconvi
nci
ngt
hathecaneven
usetheloant
heygi
vehim pr
ofi
tabl
y.

Exer
cise.

Uset
hei
nfor
mat
ionpr
ovi
dedbel
owf
orMr
.El
aduf
arm asatDecember2010

Casuall
abour 150000

Tr
anspor
tchar
ge 100000

Pur
chaseofani
malf
eeds 103000

Sal
esofmi
lk 160000

Fer
ti
li
zerpur
chase 120000

Pur
chaseofveget
abl
eseeds20000

Sal
esofmai
ze 100000

Eggsal
es 350000

Ot
herr
ecei
pts 18000

Fi
xedcost
s 253000

Sal
esofonebul
lock100000

Tr
aini
ngwor
ker
s 200000

Veget
abl
esal
es 20000

(
a)Drawupaprofi
tandl
ossaccountf
orMr
.El
adu’
sfar
mfort ng31st
heyearendi
December2012

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
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ncampusTel
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icul
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csandf
arm management
.
68

(
b)Cal
cul
ategr
osspr
ofi
tandnetpr
ofi
tshowi
ngyourwor
kcl
ear
ly.

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-

Bal
anceSheet

Thi
sisafi
nanci
alst
atementdrawnt
oshowt
hef
inanci
alposi
ti
onoft
hebusi
ness
ofabusi
nessasatapart
icul
arti
me.

Iti
safi
nanci
alst
atementshowi
ngassetandl
iabi
li
tyatapar
ti
culart
ime.Af ar
mer
drawsupali
abi
li
tyinor
dertofi
ndoutt
heNetcapit
al/Wor
thornetcapi
taldefi
cit
.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
69

Li
abil
it
ies:Thi
srefer
stotheval
uesofallt
hecl
aimst
hatt
hef
arm hast
opay
out
sidetootherpeopl
e.Li
abi
li
ti
esincl
ude;

Loan,moneythatt
hefar
m hat
opayoutbuthehasnotyetdone(
debt
spayabl
e),
overdr
aftatt
hebank.

Typesofl
iabi
li
ti
es:

1.Curr
entLiabi
li
ti
es;Theseareclai
msthatmustbepaidinashor
tti
menot
exceedingyeare.
g.rent
,wages,bankover
draf
t,cr
edi
tor
setc.

2.Longt
ermliabi
li
ti
es;t
heseareclai
msthatmustbepaidwit
hinalongper
iodof
ti
meexceedi
ngayeare.g.capi
tal
shares,
devel
opmentloan,
Treasur
ybil
let
c

Assets:Thi
srefer
st ot
heval
uesofal
lthei
temspossessedbyt
hef
arm.Asset
s
i
ncludethefol
lowing;

Theval
ueofl
ivest
ock,
equi
pmenthouse,
crops,
machi
ner
yet
c

Moneythatthefarm hopet
orecei
vef
rom asal
esofgoodsbutnotyetpai
dfor
(
deptr
eceivable)

Casht
hatt
hef
armerhasei
theri
nthehouseori
nthebank.

Typesofasset

Ther
ear
ebasi
cal
lyt
wot
ypeofasseti
.e.f
ixedassetandcur
rentasset
s

Fi
xedasset
shavemorethanoneyearofuseful
nesse.
g.Machi
ner
y,bui
ldi
ng,
br
eedi
nganimal
s,per
enni
alcr
ops,l
and,fi
tt
ingsetc

Currentasset
shaveoneorlessthanoneyearofusef ulnesssuchascashathand,
cashinbank,annualcr
ops,debtr
eceivable,pr
e-pai
dexpenses,promissor
ynotes,
etc.orasset
sthatcanbeeasil
yconvertedintocashe.g.Meat,milk,
cropproduce
etc

Note:Ifthevalueofasset sexceedst hatofli

abil
it
y,t
hebusinessissaidtobe
sol
venti.e.t
hebusi nesscanmeetal lit
sl i
abi
li
tyandhavesomebal anceleft(net
capit
al/worth)
.Ifthevalueofli
abil
it
iesexceedst hatofassets,
thebusinessissaid
tobeinsolventi.e.cannotmeetalli
tsl iabi
li
ti
esandabal anceiscal
lednetcapital
defi
cit
.

Wor
kingcapi
tali
sthedi
ff
erencebet
weencur
rentasset
sandcur
rentl
iabi
li
ti
es.

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
70

Insol
vencyi
sastat
eofbankrupt
cyofthef
arm whenl
iabi
li
ti
esar
egr
eat
ert
hant
he
asset
sandthef
arm cannotr
unitsel
f.

Networ
thorequi
tyi
sthef
igur
eusedt
obal
ancet
hebal
ancesheetst
atement
.

Cur
rentl
iabi
li
ti
esar
eobl
igat
ionordebt
spayabl
ewi
thi
nayeare.
g.shor
tter
mloan.

Longt
erml
iabi
li
ti
esar
edebt
spayabl
eoversever
alyear
se.
g.l
ongt
erml
oan.

Bankover
draftr
eferstobor
rowi
ngmoneyfr
om thebankwher
ethebor
rower
over
drawshisaccountuptoanagr
eedamount
.

Mor
tgagei
sat
ransf
erofr
ightoverpr
oper
tyusual
lyassecur
it
yforal
oan.

Depr
eci
ati
onr
efer
stodecr
easei
nval
ueoft
hef
ixedcost
s.

Youareprovi
dedwort
habalancesheetofMr.
Kaj
ura’
sf m asat31stDecember
ar
2012.
Detwerminet
henetwort
hvalueandstat
eit
simport
ance.

Li
abi
li
ti
es shs Asset
s shs

Longt
erml
iabi
li
ti
es Fi
xedAsset
s

Capit
ali
nvest
ment Land 3000000
1000000
Bui
ldi
ng 1200000
Mor
tgageoff
arm wi
thbank 1200000
Lessdepr
eci
ati
on 1100000
Loanf
rom hi
sbr
other 100000
Fence
Subt
otal 2300000 300000

Subtot
al
5600000
Cur
rentl
iabi
li
ti
es

Bankover
draf
t 200000
Cur
rentAsset
s
Hi
repur
chasedebtf
orvan 250000
St
ock 150000
Agr
imar
ket
ingboar
d 360000
Gr
owi
ngcr
ops 190000
Subt
otal 810000
Debt
ors 77000

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
71

Cashathand 270000

Tot
all
iabi
li
ti
es 3110000 Subt
otal 687500

Tot
alasset
s 6287500

Networ
th 3177500

Bal
ance 6287500 6287500

Networ
thval
ue=Tot
alasset
s–Tot
all
iabi
li
ti
es

=6287500–311000

=3177500.

Thenetwort
hstat
ementpr
ovi
desinf
ormati
ononthesol
vencyoft
hebusi
ness.I
t
showstheabi
li
tyt
omeetshor
trunfi
nanci
aldemand.

Exer
cise.

Usethefol
lowinginf
ormat
iont
oconst
ructabal
ancesheetf
orMr
.Apol
lo’
sfar
m gr
een
val
leyzoneLacekocot.

Bankover
draf
t 1500000

Bui
ldi
ngs 20000000

Cashi
nbank 90000000

Cof
fee 15000000

Dai
rycat
tl
e 10000000

Debtpayabl
e 800000

Debtr
ecei
vabl
e 5000000

Longt
erml
oan 5000000

Machi
ner
yandequi
pment60000000

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
72

Val
ueofl
and 40000000

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-

Exer
cise2.

Thei nf
ormati
onbel
owshowst
heasset
sandl
iabi
li
ti
esofAbacusmi
xedf
arm asat
st
31 .12.2014

Debt
srecei
vabl
e 860000/
=

Pr
omi
ssor
ynot
es 105000/
=

Deptpayabl
e 600000/
=

Cashatbank 72000/
=

Pr
epai
dexpenses 890000/
=

Bankover
draf
t 966000/
=

Unpai
dinsur
ance 28000/
=
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
73

Val
ueofsheep 365000/
=

Val
ueofmai
ze 512000/
=

Bui
ldi
ng 20000000/
=

Depr
eci
ati
on 694000/
=

Longt
erml
oan 8,
500000/
=

I
nter
estonl
oan 947000/
=

(a)
From thei
nfor
mat
iongi
venabove,
drawabal
ancesheetf
orAbacusmi
xedf
arm’
s
business.

(
b)Wi
thr
eason,
commentont
hef
inanci
alposi
ti
onofAbacusmi
xedf
arm.

©Howcansuchf
inanci
alr
ecor
dbenef
itAbacusmi
xedf
arm.

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--

Advant
agesofpr
epar
ingabal
ancesheet
.

 Hel
pinpl
anni
nganddeci
sionmaki
ng

 Hel
pdur
ingt
axassessmentont
hef
arm
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
74

 Hel
pthef
armert
oacqui
rel
oanf
rom t
hebanki
ncasehehasanetwor
th.

 Hel
pthef
armert
oassesst
heval
uesofhi
sfar
mincasehewant
stosel
lit
.

 I
tremi
ndst
hef
armerofhi
sdebt
sinor
dert
opayi
tint
ime.

 I
tshowst
hef
armer
’spossessi
onandasset
s.

Grossmargi
n.Thisi
sthedif
fer
entbet
weent
heval
ueoft
otalpr
oduct
ionorr
evenue
andvar
iabl
ecostsonafarm.

Gr
ossmar
gin=Tot
alr
evenue-
tot
alvar
iabl
ecost
.

I
mpor
tanceofgr
ossmar
gin

 Usei
nmeasur
ingpr
ofi
tabi
l
ityofeachent
erpr
iseont
hef
arm

 Tof
indoutent
erpr
iset
hati
snotear
ningpr
ofi
ttot
hef
arm

 Tofi
ndouthowt
hecostofpr
oduct
ionsar
ebei
ngusedoneachent
erpr
iseon
thef
arm.

 Tocompar
epr
ofi
tabi
li
tyofent
erpr
isesofonef
arm wi
thanot
heronei
nthesame
ar
ea.

 Usef
uli
nmaki
ngbestchoi
ce/
oppor
tuni
tycost
.

Exampl
e.

Afar
merplanted5haofmaizeandobtained10000kgmaize.Hesol
dthemai
zeeat
300/
=perkil
ogram.Hi
sproduct
ioncostswereasfoll
ows;

Boughtseedat5000/
=

Boughtf
ert
il
izerat10000/
=

Pai
dforcasual
labour200000/
=

Sal
aryf
or2per
manentwor
ker
s480000/
=

Ot
herf
ixedcost
s650000/
=

Cal
cul
atet
hegr
ossmar
ginperhect
are.

Gr
ossmar
gin=Tot
alr
evenue–Var
iabl
ecost
s
Pr
epar
edby:Mr
.GonzagaOkumu. Standar
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icul
tur
eEconomi
csandf
arm management
.
75

Tot
alr
evenue=10000*300

=3000000/
=

Var
iabl
ecosti
ncl
ude

Costofseed 50000/
=

Cost
soff
ert
il
izer100000/
=

Casuall
abour 200000/
=

Tot
al 350000/
=

Gr
ossmar
gin=3000000–350000/
=

=2650000/
=

Gr
ossmar
gin/
ha=2650000/
5

=530000/
=

(
b)Whati
stheNetpr
ofi
toft
hef
arm?

Netpr
ofi
t=Gr
ossmar
gin–Fi
xedcost
s

GM=2650000/
=

Fi
xedcost
sar
esal
aryof2per
manentwor
ker
s=480000

Ot
herf
ixedcost =650000

Tot
al =1130000/
=

Netpr
ofi
t=2650000–1130000

=1520000/
=

Exer
cise.

Afar
merhas200broil
ersand200localbi
rds.Hewoul
dincurt
hefoll
owingcostsi
n
t
heproduct
ionofl
ocalbi
rds;Housi
ng20000shs,chi
cks400000shs,f
eeding200

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
76

000shs,l
abour100000shs.
Inr
aisi
ngbroil
ersheincurr
edt hefol
lowi
ngcost
shousi
ng
20000shs,chi
cks450000shs,f
eeding150000shs,labour100000shs.
Thepri
ceper
broi
leronsel
li
ngis20000shsand15000shsf orl
ocalbirds.

Calcul
atet
hegrossmargi
nforeachent
erpr
ise.Wi
thr
easonst
atet
het
ypeofbi
rdt
he
far
mershouldprof
it
abl
ykeep.

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--

Not
e:Resear
chonf
arm pl
anni
ngandmanagement

Quest
ions.

1(
a)Expl
ainhowf
armr
ecor
dscanbeusedt
oimpr
ovef
arm ef
fi
ciency.

(
b)St
atehowf
arm ef
fi
ciencycanbeachi
eved

2(
a)whati
smeantbydi
ver
sif
icat
ioni
nfar
ming?

(
b)Descr
ibef
ourf
armi
ngpr
act
icest
hatcl
ear
lyshowdi
ver
sif
icat
ioni
nfar
ming.

(
c)Expl
aint
hemer
it
sofdi
ver
sif
icat
ionsi
nfar
ming.

3(
a)Expl
aint
hecont
ri
but
ionoff
armi
ngor
gani
asat
iont
othedevel
opmentoff
armer
s

(
b)St
atet
hepr
obl
emshi
nder
ingt
hepr
ogr
essoff
armi
ngor
gani
sat
ion.

4(
Descr
ibet
hef
act
orst
hati
nfl
uencet
hechoi
ceofanent
erpr
ise

(
a)Expl
aint
hest
epst
akeni
nmaki
ngaf
arm pl
an

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
77

5(
a)descr
ibest
hef
unct
ionsofmar
ket
ingboar
d

(
b)HowcanNat
ionalAgr
icul
tur
edevel
opmentar
eachi
eved

6(a)whataret
hecommonmeasur
esoff
ight
ingr
isksanduncer
tai
nti
esi
nfar
ming
business.

(
b)Whatar
ethecausesofl
owsuppl
yofagr
icul
tur
alpr
oduct
s?

7Explai
nwhythepri
cesofagr
icul
tur
alpr
oduct
sar
eunst
abl
eandsuggestwaysof
over
comingt
heproblems

8Descr
ibet
hepr
osandconsofspeci
ali
sat
ionanddi
ver
sif
icat
ion.

9(
a)Expl
ainwhyaf
armermakesbudgetbef
orest
art
inganent
erpr
ise.

(
b)Whatl
imi
tat
ionsdof
armer
sfacewhenmaki
ngf
arm budget

10(
a)Def
ineel
ast
ici
tyofdemandanddescr
ibest
het
ypeofel
ast
ici
tyofdemand

(
b)Descr
ibet
hef
act
orst
hataf
fectel
ast
ici
tyofdemand.

11(a)usi
ngsui
tabl
eil
lust
rat
ion,descri
behoesuppl
yofagr
icul
tur
alpr
oduct
sfor
subsist
encef
armersvari
eswithmar ketpr
ice.

(
b)Expl
aint
hef
act
orst
hataf
fectsuppl
yofagr
icul
tur
alcommodi
ti
es.

12(
a)usingsuit
ablei
ll
ust
rati
on,
explai
nhowmar
ketpr
icei
sdet
ermi
nedi
naf
ree
marketeconomy/compet
it
ivemarket.

(b)
Outli
net
hevar
iouswaysofdet
ermi
ningpr
iceofagr
icul
tur
alcommodi
ti
esi
nthe
market
.

©Examinethef
act
orsresponsi
bleforr
egr
essi
ve/
backwar
dsl
oppi
ngofsuppl
ycur
ve
ofl
abouri
nagri
cul
tur
alproduct
ion.

13(
a)Howdoesl
andcont
ri
but
etoagr
icul
tur
alandnat
ionaldevel
opment
.

(
b)Whatr
olesdoesent
repr
eneur
shi
ppl
ayi
nagr
icul
tur
alpr
oduct
ion?

END

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
78

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
79

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
80

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276
 Agr
icul
tur
eEconomi
csandf
arm management
.
81

Pr
epar
edby:Mr
.GonzagaOkumu. Standar
dHighschool
-zzanamai
ncampusTel
0759261276