MB TRXE

GAUTENG DEPARTMENT OF EDUCATION

Agricultural Production factors

Capital and Management
Agricultural Sciences: Gr 12

1
Capital : The Concepts
• Capital is not ONLY money . It is also
assets, goods, buildings and vehicles which
are used to generate an income
• THREE types of capital:

• Fixed capital : Invested in durable ( long

term) assets such as buildings, dams and
land

• Movable capital : Invested in medium

term assets such as livestock, vehicles and
equipment ( used for more than one season)

• Working / short term/ floating/

production capital : Short term to assets
needed for production on a short time scale
such as payment of wages, fertlizers, seeds
fuel and animal feeds.
Creating capital :
( Where does it come
from?
• Savings: A farmer might have
some savings in the bank, which
he can use as production capital
• Credit : Money borrowed form
the bank or other financial
institution
• Business partners: The
involvement of an outside
partner who can provide capital
• Agricultural cooperatives and
agribusiness: will provide goods
on credit
Challenges with Capital
 It is expensive:
• Credit and loans must be paid back with interest ( Interest is the
additional fee which you pay for borrowing money. It is normally
calculated as a percentage of the borrowed money and is called
interest rate)
 Some landers requires collateral – that is some assets that you pledge
or offer to secure the loan ( You can use your farm as collateral)
 It is scarce : Some capital good must be imported. Capital to invest
can also be scarce.
 Subject to depreciation: Some capital goods lose value over time
because of wear and tear and must be replaced with time e.g tractors
 Over capitalization : too much capital is invested in the enterprise in
relation to available land and labour.
 Under capitalization: That is when not enough capital is spent to
spent realize to potential of the farm
Credit : ( When you
borrow money / loans)

3 Types of Credit:
• Long term credit : It is credit
given over a long time and
mainly used for expanding
fixed capital such as buildings
and buying new land
Repayment time are longer
than 10 years.

• Medium term credit: Money

lent for a shorter time –
medium term of less than 10
years ( normally 1-5 years)
Used to by movable assets such
as tractors and equipment

• Short term credit :Money

borrowed that must be paid
back over a short time ( 12
months or less) to cover
production and operating
costs.
Financial management systems : Keeping Records
 Keeping record on the farm is EXTREMELY important : It allows the
farmer to :
• manage the capital on the farm
• analyse past and current performance of the farm business (profit and
loss)
• plan for the future
• draw up a budget
• apply for a loan from a bank or other institution
• provide proof of payments
• provide information for tax purposes
 This includes keeping the following documents:
• Inventory of assets
• Cash analysis books
• Key financial statements e.g : balance sheets,
income statement and cash flow statements
• Budgets
• Analysing & Comparing results
F Financial management systems : Important Records
 Inventory: It is a record of all assets
• Assets can be divided the same as capital into :
• Current Asstes: ( short term use)e.g available stock at hand
• Movable assets: ( 1-10 years)e.g breeding live stock,& machinery
• Fixed assets: Long term e.g land & buildings
 Cash analysis book : Keeps records of receipts ( money coming in)
and payments ( money going out). Must be kept daily and
consolidated at the end of each month
 Balance sheet : Keeps records of assets and liabilities. Indicates the
farmbussiness’ Net worth ( Assets – liabilities = Net worth)
 Income statement: Summary of all income and expenditure. Indicates
the net profit or loss for a financial year.
 Budget :This indicates the amount of money that you think you will
earn and spend – It is part of planning : 3 Types
• Enterprize budget for a specific enterprize e.g maize production
• Whole farm budget : Includes ALL production enterprizes
• Partial budget : To see the effect on profitability of a specific
action e.g When you buy a new tractor
Management : 3 Principles:
 Planning:
• The process of developing short term plans (day to day) as well
as long term strategic planning
 Implementation : The process of setting the plan into motion
 Control : This is the feed back function and reaction must be taken
upon the results.

Skills needed by the farmer :

The Management Cycle :
 The Management Cycle : Continue
Back to
planning
 Strategic Management :
The concept
• Components of strategic
management:

• Developing a vision:
The long term aim of your business; Reflect
your values:
Eg “ The healthiest fruit juice in the country”
• Develop a mission:
Support you vision, more specific and
focused, help you to make decisions
e.g The purpose of your business( Sugar and
additive free fruit juice ) and how to do it
• Setting goal and objectives
Attach time frames to the how
Developing business strategies : SWOT Analysis
• A SWOT analysis is one of the most important business strategies that
a farmer must consider

• S = Strengths CAN BE CONTROLLED

• W = Weaknesses

• O = Opportunities CAN NOT BE CONTROLLED BUT NEED TO BE

MANAGED
• T = Threats
F Forces affecting Farm bussiness
 Internal forces : It is forces directly linked to the farm and the business:
• Available resources
• Management skills
• A Farmers financial position
• Production and operations
These can be within the farmers ability to manage and manipulate.
 External forces : Come from outside and is beyond the direct control of
the farmer :
• Economic forces
• Political forces
• Ethical forces
• Legal forces
• Socio- cultural forces
• Competitive forces
• Environmental forces
F Risks : Sources and Management
Definition: Risk is the treat of a negative occurrence such as damage,
injury or loss
Sources:
• Technical Risks such as adverse weather conditions, pests and diseases
and insect infestations
• Marketing and price risks- change in profitability influenced by supply and
demand
• Financial risks – Change in interest rate
Management of risk:
• Insurance against adverse weather conditions
• Diversification – produce more than one crop / animal enterprise
• Processing and value adding
• Ensuring flexibility
• Contract production
• Hedging- eliminate fluctuation in future pricing

The End