COLLEGE OF AGRICULTURE AND ENVIRONMENTAL SCIENCES
KADUNA STATE UNIVERSITY FACULTY OF AGRICULTURE
KAFANCHAN CAMPUS
FIELD PRACTICAL TRAINING PROGRAMME REPORT ON:
COURSE TITLE: FARM MANAGEMENT RECORD & ACCOUNTING
COURSE CODE: AGF 407
SUBMITTED BY OYELOLA DEBORAH OLUWATOSIN
KASU/19/AGR/1034
SUBMITTED TO:
Dr Gambo Bello Kudan
MAY, 2024.
INTRODUCTION
Farm Record and accounting is a key to Efficient Agricultural Management is a
comprehensive guide that emphasizes the significance of diligent record-keeping within
the agricultural industry. By highlighting various disciplines, including documentation,
organization, and analysis of data, this guide establishes the importance of farm records
as a strategic tool for informed decision-making, efficient resource allocation, and overall
performance evaluation. By delving into the significance of farm records and exploring
their practical applications, this guide aims to empower farmers and agricultural
professionals to optimize their operations and navigate the complexities of modern
agricultural management with precision and foresight.
Objectives
1. This guide serves as a valuable resource for farmers and agricultural professionals,
focusing on achieving the following key objectives:
1 To Stress the importance of thorough farm records in efficient management
Examining different types of farm records, such as cost and return estimation,
depreciation computations, and input valuation
2. To Discuss the practical aspects of maintaining farm records, including managing
activities, crop establishment, and land preparation
3. Equip students with the knowledge and skills to assess farm profitability and pinpoint
opportunities for improvement
4. Analyze farm problems, with an emphasis on utilizing agricultural insurance and farm
records
First lecture
TOPIC: FARM PROFITABILITY ANALYSIS
DATE: 19th APRIL, 2024.
TIME: 9:00AM
VENUE: MULTI-PURPOSE HALL
COURSE LECTURER: DR. KUDAN
INTRODUCTION
In our initial session with Dr. Kudan, we explored the topic of Farm Profitability Analysis. The
session was enlightening, as it provided valuable insights into various aspects of agricultural
decision-making, such as choosing suitable crops or animals to raise, ensuring sustainable
practices, optimizing resources, and managing risks. This summary will cover the objectives,
measures of profitability, and an example for better understanding.
Objectives
1. To emphasize the importance of profit maximization
2. To assist in developing risk management strategies
Farm Profitability Analysis
Farm profitability analysis is a crucial aspect of agricultural management, as it allows farmers to
assess the economic efficiency of their operations. This involves evaluating key economic and
financial aspects, which act as essential indicators for decision-making and strategic planning.
Profitability can be expressed through two types of indicators: profit and rates of return. Profit
reflects the absolute level of profitability, while rates of return measure the extent to which
capital and resources generate profit.Farm profitability analysis is a crucial component of
effective farm management, as it enables farmers to evaluate the financial performance of their
operations and make informed decisions to optimize returns.
MEASUREMENT OF PROFITABILTY
Measurement of profitability refers to the process of quantitatively assessing and evaluating the
financial success of a business by analyzing various metrics, ratios, and indicators that determine
its ability to generate profits (Zielińska-Chmielewska, et al,.2021). It involves the systematic
examination of financial data to determine the extent to which a company's revenue exceeds its
expenses and to assess the overall profitability of its operations.
Profit maximization is one of the important goals of farms. Proft (π) is generally described as the
difference between the Total Revenue (TR) and the Total Cost (TC) of production. The total
revenue is the product of the output sold and the price. The total cost is divided into Total Fixed
Costs (TFC) and Total Variable Costs (TVC). Fixed costs are those incurred on fixed inputs,
which cannot be used up during one production process and they do not vary with the level of
output such as costs of land, building, fences and roads. On the other hand, variables costs are
those associated with variable inputs and they do change with change in output level. They
include costs of labour, agrochemicals and fertilizer.
Example of Total Cost of Production:
This is a budget made by a farmer for the production maize on 1hectare of land he inherited at
zakwa community kafanchan jama'a local Government Kaduna state.
S/N ACTIVITY UNIT COST/UNIT TOTAL(N)
1 Land preparation
Land clearing 1Ha 50,000 50,000.00
Harrowing 1Ha 100,000 100,000.00
2 Inputs
Seeds 18 kg - 48,000.00
Fertilizer(NPK 15-15-15) 7 bags 55,000 90,000.00
Fertilizer(UREA 46-0-0-0) 2 bags 45,000 90,,000.00
Herbicides
9 Lits 4,500 40,500.00
Paraquat
5 Lits 5,000 25,000.00
Atrazine
70 500 35,000.00
Empty bags (100 kg size)
3 Operations/Labour
Planting 1Ha 30,000 30,000.00
1st fertilizer application(NPK) 1Ha 25,000 25,000.00
2nd fertilizer application(UREA) 1Ha 10,000 10,000.00
Herbicides application 1Ha 12,000 x 2 22,000.00
Earthen up 1Ha 70,,000 70,000.00
Harvesting 1Ha 60,000 60,000.00
Cob breaking/Heaping 1Ha 55,000 55,000.00
Threshing/100kg clean grain 1Ha 700 x 70 49,000.00
Transportation 70bags 300 x 70 21,000.00
Miscellaneous 25,000 25,000
1
expenses(transport)
4 Total Variable Cost 775,500.00
Insurance premium at 2% 1Ha 15,510.00
5 Total Fixed Cost 1Ha 15,510.00
6 TOTAL COST 1Ha 791,010.00
GROSS MARGIN ANALYSIS
Gross margin is a crucial financial indicator that assesses a company's profitability and financial
well-being by calculating the percentage of revenue it keeps after deducting the cost of goods
sold (COGS) from its total revenue. This metric represents the remaining funds from sales after
accounting for the direct costs associated with producing or procuring the goods or services
being sold. As a key measure of a company's financial health, gross margin demonstrates the
revenue available for covering other business expenses, distributing dividends, or investing in
growth opportunities.
Gross margin is a very useful planning tool in a situation where fixed cost is a negligible portion
of farming enterprise as is the case in subsistence agriculture. According to Olukosi and Erhabor
(1988), gross margin analysis involves evaluating the efficiency of an individual enterprise or
farm plan so that comparison can be made between enterprises or different farm plans. It is
usually expressed as gross farm income less total variable cost. The formula is specified as:
GM = GI – TVC……………………………..(1)
Where:
GM = Gross margin (N)
GI = Gross income (N)
TVC = Total Variable Cost (N)
Net Farm Income
The net farm income is gross receipts less total cost of production (Olukosi and Erhabor. 1988).
The net farm income model is specified as:
NFI = GI – TC………………………………………….(2)
Where:
NFI = Net farm income (N)
GI = Gross income (N)
TC = Total cost (N)
Moreover, NTI could be computed as follows:
NFI = GI – (TVC + TFC)
NFI = GI - TVC – TFC
NFI = GM – TFC.
EXAMPLE: 2
Below is my worked example on Gross margin and net farm income analysis; on how to
determine the gross margin for each crop, the whole farm and the net farm income:
Data:
Crop Size of Land Cropped (hectares) Estimated Value of Variable or Specific
Crops (N per hectare) Costs (N per hectare)
Rice 2.0 1,440,000 108,000
Yam 2.0 950,000 100,000
Soy 4.0 1,700,000 127,000
bean
The fixed cost of land is N600,000
Solution:
i. Total Gross margin for Rice (GMr) = (1,440,000 – 108,000) X 2 = N2,664,000
ii. Total Gross margin for Yam (GMy) = (950,000 – 100,000) X 2 = N850,500
iii. Total Gross margin for Soy bean (GMs) = (1,700,000 – 127,000) X 4 = N6,292,000
iv. Total Gross margin for the 8 hectares farm = GMr + GMy + GMs = N9,808,900
v. Total Gross margin per hectare = N9,808,900/8 = N1,226,112
vi. Net farm income = TGM – TFC = N9,808,900 – N600,000 = N9,208,900
vii. Net farm income per hectare = N9,208,900/8 = N1,151,112
GROSS MARGIN ANALYSIS AS A BUDGETING TOOL
The gross margin can be used as a budgeting tool to compare the profitability of one enterprise
with another. For example a farmer wishes to substitude the production of 3 hectares of Yam for
Rice, the gross margin of each can be determined on per hectare basis and the crop enterprise
with highest gross margin selected.
Rice
Value of production per hectare = N1,440,000
Variable cost per hectare = N108,000
Gross margin per hectare = N1,332,000
Yam
Value of production per hectare = N950,000
Variable cost per hectare = N100,000
Gross margin per hectare = N850,000
Since Rice gives a higher gross margin per hectare, the farmer will be advised to turn the 3
Hectares of land to the production of Rice.
TOPIC 2: AGRICULTURAL INSURANCE
INTRODUCTION
On the same day Dr. Kudan taught us how to avoid risk in farming or any business we venture
into, He also taught us how to get maximum profit with less risk or damages done through
Agricultural Insurance which is aimed at reducing risk with maximum profit to farmers.
Objectives/Aims
i. To enlighten students on risk management.
ii. To help in educating on how to increase in agricultural production through agricultural
insurance companies.
Agricultural Insurance
Agricultural Insurance is a policy in which farmers pay a small amount, known as a premium, to
an insurance company to protect themselves against financial loss due to various risks, such as
death, flood, drought, and other covered perils. This premium is typically a percentage of the
total value of the insured items and is paid for a specific period, usually not exceeding one year.
In return, the insurance company promises to compensate the farmer for any loss incurred during
the coverage period.
DECISION MAKING IN AN ENVIRONMENT OF RISK AND UNCERTAINTY
Farmers are faced nearly everyday with situation in which outcomes are uncertained especially
because nature has significant impacts on farming e.g. weather particularly rainfall,pest and
diseases. Farmers are also faced with uncertained market situation, e.g. prices. Farming takes
place in an environment of risk and uncertainty. Somebody who work to differentiate between
risk and uncertainty is FRANK NIGHT. In his definition he said that uncertain event is an event
that the possible outcomes and the probability of their occurrences are not known. Risky events
are event that both the outcomes and possibility of their occurrences are known.
Insurance Premium
Insurance premium is the amount of money an individual or business pays to an insurance
company in exchange for financial protection against specified risks. It is a crucial component of
any insurance policy and is typically paid on a regular basis, such as monthly or annually
(Morrisey 2020).
There is also a continuum between risk and uncertain event. At one end is risky event and at one
end is uncertain event. Many event in farming lies between these two. On the basis of farmer’s
attitude towards risk they are classified as risk neutral and risk averse, e.t.c. the attitude depends
on the state of nature and the strategy.
This is a table I drafted a showing a farmer who is confronted with 4 strategies for making
decisions/income. Each strategy can produce 3 incomes outcomes and the probability attached to
it is known.
Strategy Income(N) Probability
A 0 0.3
9,000,000.00 0.4
-6,000,000.00 0.3
B 10,000,000.00 0.4
7,000,000.00 0.2
0 0.1
-2,000,000.00 0.3
C 7,000,000.00 0.2
5,000,000.00 0.7
0 0.1
D 8,000,000.00 0.3
4,000,000.00 0.1
1,000,000.00 0,4
0 0.2
For each strategy, the sum of probability must be equals to 1, with this strategy I calculated the
expected income by weighing their probability of occurrences on the basis of their expected
income determined.
Income from strategy:
A = 0 X 0.3 + 9,000,000 X 0.4 -6,000,000 X 0.3 = 0 + 3,600,000 – 1,800,000 = N 1,800,000
B = 10,000,000 X 0.4 + 7,000,000 X 0.2 + 0 X 0.1 -2,000,000 X 0.3 =4,000,000 + 1,400,000 + 0
– 600,000 = N4,800,000.
C = 7,000,000 X 0.2 + 5,000,000 X 0.7 + 0 X 0.1 = 1,400,000 + 3,500,000 + 0 = N4,900,000
D = 8,000,000 X 0.3 + 4,000,000 X 0.1 + 1,000,000 X 0.4 + 0 X 0.2 = 2,400,000 + 400,000 +
400,000 + 0 = N2,840,000.
The choice of strategy to pursue depends on the person financial situation at the time of decision.
to some people if positive income is not achieved C is chosen. The strategy choice is not related
to the level of education. Therefore the preference for risk and uncertainty for an individual
depends on his/her pschic, some prefer high risk business, some other people low risk business.
Therefore, professions vary in their level of risk, for example car race and a secondary school
teacher.
Other Methods of Avoiding Risk
i. Insurance of crops and livestock and all other farm products and farm itself in Nigerian
Agricultural Insurance Company (NAIC):
The Nigerian Agricultural Insurance Corporation (NAIC) is a specialized insurance company
that provides insurance coverage for various agricultural products and activities in Nigeria. The
corporation offers insurance products for crops, livestock, and farm-related assets, aiming to
mitigate the financial risks associated with agricultural activities. Here are key details about
NAIC's insurance offerings:
ii. Nigerian Agricultural Cooperatives and Rural Development Bank (NACRDB):
The Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) has played a
vital role in supporting agriculture and rural development in Nigeria since its establishment in
2000. The bank was formed by merging the defunct Nigeria Agricultural and Cooperative Bank,
People's Bank of Nigeria, and the risk assets of the Family Economic Advancement Programme
(FEAP).NACRDB provides various financial services to the agricultural sector, including loans
to farmers, agricultural institutions, organizations, and cooperative societies. The bank has five
main lending channels: on-lending schemes through cooperative financing agencies, non-
governmental organizations, self-help groups, and private sector micro-credit institutions; small
holder schemes for small and medium-scale individual and group farming organizations;
livestock development programmes; special projects in collaboration with international financial
institutions and donor agencies; and investments in medium and large-scale agricultural projects.
iv. Nigerian Agricultural Credit Guarantee Scheme:
The Nigerian Agricultural Credit Guarantee Scheme (ACGS) is a crucial initiative designed to
mitigate the risks associated with agricultural lending in Nigeria. The scheme, established by the
federal government, aims to enhance farmers' access to credit by providing a guarantee to lenders
against potential losses due to non-repayment of loans by farmers. They operates by
guaranteeing loans to farmers, thereby reducing the risk for lenders.
v. Crop Diversification:
This is the method mostly preferred by small scale farmers. Crop diversification is the process
whereby farmers grow more than one crop on the same piece of land (crop mixtures). It can also
be done by Gicci system, which is not real mixture. In the real crop mixtures there must be
alternative rows of the various crops at almost equal rate, e.g. Maize and Sorghum or cowpea.
vi. Crop-Livestock Integration ( Mixed Farming):
Crop-livestock integration, or mixed farming, is a strategic agricultural strategy that involves
growing crops and raising livestock on the same land. This method increases soil fertility,
reduces the need for synthetic fertilizers, and supports agricultural productivity and long-term
soil health. Farmers can diversify their income sources by combining agricultural cultivation and
animal husbandry, reducing losses from crop failures or market changes. This strategy also
promotes efficient resource utilization, reducing soil erosion and increasing land productivity.
CONCLUSION
Comprehensive farm record-keeping and accounting are vital for modern agricultural
management, as they enable farmers to make informed decisions, efficiently allocate resources,
and evaluate their operations. Farm records serve as strategic tools for navigating the
complexities of contemporary agriculture. Key objectives include maximizing profits,
implementing sustainable practices, optimizing resources, managing risks, and improving
livelihoods.
Farm profitability analysis is critical for assessing financial performance and identifying areas
for improvement. This involves quantitatively evaluating financial success through various
metrics, ratios, and indicators. Course lectures on farm profitability analysis and agricultural
insurance equip farmers with the knowledge necessary to make informed decisions, assess
profitability, manage risks, and maximize profits while minimizing risks, ultimately contributing
to long-term success and sustainability in agricultural enterprises.
REFERENCES
De-Pablos-Heredero, C., Montes-Botella, J. L., & García-Martínez, A. (2018). Sustainability in
smart farms: Its impact on performance. Sustainability, 10(6), 1713.
Zielińska-Chmielewska, A., Kaźmierczyk, J., & Jaźwiński, I. (2021). Quantitative research on
profitability measures in the polish meat and poultry industries. Agronomy, 12(1), 92.
Morrisey, M. A. (2020). Health insurance. Chicago, IL: Health Administration Press.
Zhao, Y. (2023). Analysis of Financial Condition of Chinese Listed Real Estate Companies
Based on DuPont Analysis Method: A Case Study of China Evergrande Real Estate. Accounting,
Auditing and Finance, 4(1), 53-59.
Olukosi, J. O., & Erhabor, P. O. (1988). Introduction to farm management economics: principles
and applications. Agitab: Zaria.
