DEBRE BERHAN UNIVERSITY

COLLEGE OF AGRICULTURE & NATURAL RESOURCE

SCIENCES

DEPARTMENT OF AGRICULTURAL ECONOMICS

SHORT NOTES

FOR

THEME FOUR CORE COURSES (Farm Management; and

Farming System & Livelihood Analysis)

MARCH, 2023

DEBRE BERHAN, ETHIOPIA

 Table of Contents

1. Introduction 2
2. Farm Management 3
3. Farming System and Livelihood Analysis 29

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DBU Department of Agricultural Economics
1. Introduction
This guidebook is intended to help students prepare for the national exit exam. The guide
book includes short notes, learning outcomes, sample questions and references for such
courses as Farm Management; and Farming System & Livelihood Analysis. Students,
however, should not confine themselves to this guidebook only. To be competent for the exit
exam, students must have the detail hand-outs or reading materials for each course. After
finishing each course, students must assess their mastery of the core competencies and their
ability to respond to the sample questions that are presented at the end of the courses.

HAVE A NICE READING TIME!

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2. Farm Management
After successful completion of the course, the students are expected to gain the following
competence:

Areas of Competency Expected Competencies to be achieved

The students will be able to

 Recall the concepts of farm and management;
 Identify variable and fixed resources;
 Understand the scope of farm management;
 Describe objectives of farm management;
Knowledge  List problems of farm management problems in developing countries;
 Explain farm decision making process;
 Describe characteristics of farming as a business;
 Identify different types of farm resource valuation methods;
 Describe need for depreciation computation;
 Explain and identify different types of farm record techniques.
 Develop models of balance sheet in farm record analysis;
 Apply the income statement that has been created for realistic farm
Skill operations;
 Conduct opportunities and problem identification in farm mangement;
 Do comparisons between various farm capital position techniques.
 Categorize, describe, and evaluate the financial status of a farm firm;
Attitude  Evaluate methods of combating risk and uncertainty in agriculture;
 Analyze depreciation valuation methods.

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Concepts of Farm Management and Decision Making

Definition of Farm management

Farm management is a science that deals with the proper combination and operation of
production factors including land, labor and capital, and the choice of crop and livestock
enterprises to bring about the maximum and continuous return to the most elementary
operational units of farming. Farm management as a subject matter is the application of
agricultural science, business and economic principles in farming from the point of view of
an individual farmer. The principles may serve as a guideline for collecting and using
requisite information for rational decision making. They also provide a set of tools for the
preparation of farm budgets and production programs.
Thus, in simple words, farm management can be defined as a science which deals with
judicious decisions on the use of scarce farm resources, having alternative uses to obtain the
maximum profit and family satisfaction on a continuous basis from the farm as a whole and
under sound farming programs. Farm management seeks to help the farmer in deciding
problems like:
 What to produce? (e.g. selection of profitable enterprises)
 How much to produce? (e.g resource use level)
 How to Produce? (e.g. selection of least cost production method)
 When to buy and when to sell, and in organization and managerial problems relating to
these decisions.
The importance of Farm management
Why study farm management?
i) Farm management is the most important science in developing countries as it deals with
the behavior of farming population. It examines the environmental conditions against
which the farmer takes decisions and the consequences.
ii) Most of the sciences are mainly interested in the physical aspect with less regard to the
economic returns of farming businesses. But farm management is the only discipline in
which farm and farm life are united together as a tree and its fruits. The farmer is
essentially interested in the income flow whereas the latter is closely associated with the
farm family satisfaction.

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 Scope of Farm Management
The primary concern of farm management is the farm as a unit. It deals with the allocation of
resources at the level of an individual farm. It covers the whole aspects of individual farm
business which have bearing on the economic efficiency of the farm.
Basic Farm Management decisions making
Farm management seeks to help the farmer in deciding on economic problems like:
 What to produce? (selection of profitable enterprises)
 How much to produce? (optimum enterprise mix and resource use level)
 How to produce? (selection of least cost production method)
As a result, problems need to be recognized and defined in order to produce the most
acceptable results. Research has indicated that identifications of problems in the farm
business surprisingly difficult for farmers. Good managers will pin point more problems as a
result of systematic farm business analysis. The farm manager therefore needs to build up
plans of expected norms, which are basic in making decisions.
The process of making a decision can be formalized into a logical and orderly series of steps.
Important steps in farm decision making process are:
 Identifying and defining the problem, collect relevant data, facts and information,
identify and analyze alternative solutions, make the decision – select the best alternative,
implement the decision and observe the results and bear responsibility of the outcomes.
Some Farm Management problems under Ethiopian condition
Farm management problems may vary from place to place depending on the degree of
agricultural development and the availability of resources. The following are some of the
most common problems:
1. Small size of the farm business – obviously in Ethiopia, the average land size or holding is
fragmented and too small. Thus, excessive pressure of population creates unfavorable man-
land ratio in most parts of the country. This combined with excessive family labor, which
depends upon agriculture, and that has weakened the financial position of the farmers and
limited the scope for business expansion.
2. Farm as a household – in most parts of the country family farms perpetuate the traditional
combinations of crops and methods of cultivations. Thus, the equation between agricultural
labor and household labor becomes an identity. This makes difficult for the farmer to
introduce business content and incorporate new management idea in his/her farm operations.
Home management thus heavily gets influenced by farm decisions.

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3. Inadequate capital – capital shortage is usual feature of farming in developing countries.
Most often, peasant agriculture (i.e., mostly subsistent) is labor intensive and characterized
by serious deficiency of capital. Generally, small size of farms, problems of tenure ship and
remunerative prices have set the farmer under perpetual poverty. New technologies demand
higher inputs such as more fertilizers, protection measures, irrigation and better seeds as well
as investment in power and machines.
4. Slow adoption of innovations – small farmers usually conservative and sometime skeptical
of new technologies or methods. The rate of adoption, however, depends on the farmers‘
willingness and ability to use the new information. Since established attitudes and values do
not change overnight, the extension take time to get the research results commercially
adopted and existed on the farms. It calls for training and substantial financial requirements.
5. Inadequacy of input supplies – farmers may be willing to introduce change yet they may
face the difficulty in obtaining the required inputs of desired quality, in sufficient quantity,
and on time to sustain the introduced changes. Moreover, shortage of foreign exchange in
developing countries seriously limits importation of needed supplies and materials.
Domestic industries generally lack adequate raw materials, skills, capital or a combination of
these to manufacture the needed farm supplies.
6. Managerial skill – it is also the most prominent and difficult problem of several small-scale
farmers for many years in developing countries.
7. Communication and markets – these are also the other two important elements of
infrastructure necessary for introducing economic content in the farm organizations.
Production Relationships
Production function
A production function shows the technical relationship between factor inputs and output. It
describes the amount of output expected from different combination of input used at a given
level of technology and in a given period of time.
Production function can also be described as a technical and mathematical relationship
describing the manner and extent to which a particular product depends upon the quantities of
inputs and service of inputs used at a given level of technology and in a given period of time.
That level of output of a particular commodity depends upon the quantities of inputs used for
its production.
Forms of production function
Production functions can be expressed in three forms: tabular, graphic and algebraic forms.

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 Tabular form: Table 1: Tabular representation of factor-product relationship
Fertilizer (Kg) Grain yield (Kg/ha)
0 3394.5
23 3823.4
46 3769.5
69 4433.4
The table shows that the amount of product depends on or is a function of the kind and
quantity of inputs used in the production activity.
 Graphic form:
Production function can also be represented as a graphic form or in the form of response
curve. The same data used above can be presented in the form of a graph as shown below.

Fig: Graphical presentation factor-product relationship

 Algebraic form: Production function of factor-product relationship can be presented as an
algebraic form as represented here under:

Where:
 Y, represents dependent variable such as yield of crop, egg production, or milk
production
 X, represents independent variables such as fertilizer, labor, feed, etc., while
 f denotes function of.
In the case of single variable production function, only one variable is allowed to vary where
others are held constant.
Types of Production Relationships
There are numerous relationships between resources and farm products, both simple and
complex. What problems present themselves to the farmers in terms of choice of input and
output combinations? The answer is that these productive resources are limited (scarce) and
the pressure of scarcity makes it necessary for him to economize, i.e., to make the most of

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what he has. Hence, he has to choose such input and output combinations that would reduce
cost and maximize profit out of the scarce resources. The major production relationships fall
under three categories, namely:
1. Factor-product relationships
2. Factor-factor relationships
3. Product-product relationships
1. Factor-Product Relationships

Many times resources or capacities of technical units such as hectares of land, or cow,
buildings, machineries, etc., are fixed and a choice is based on the use of variable inputs, such
as fertilizer, labor or feed, etc. fertilizer application to a hectare of land, feed to a dairy cow,
for example, be varied, while other inputs such as land, cows, buildings, implements,
technical know-how and other fixed capitals remain the same.

2. Factor-Factor Relationships

In the factor-product relationship we saw that all other factors of production except one factor
are fixed. However, with two variable factors, the relevant production function is defined by
a set of iso-quants. This r/p deals with the resource combination and resource substitution.
The objectives of the analysis of factor-factor relationships are two-fold: Minimization of
cost at a given level of output, and optimization of output through alternative combinations of
resource use that produce a unique amount of output. Under FF-R, output is kept constant,
input is varied in quantity.

3. Product-product relationships

Instead of considering the allocation of inputs to an enterprise or among enterprises, we will

discuss enterprise combinations involving product-product relationships. The producer must
decide how to allocate the resources he owns, rented or borrowed to the alternative products
which can be produced. The choice involves whether to concentrate on the production of one,
two or a combination of many enterprises as there is a choice to be made between specialized
or diversified system of farming. The economic principle of choosing what to produce is the
principle of comparative advantage which states simply that each unit of resource should be
used where it will earn the greatest return. Some resources are limited in supply. So,
enterprises will compete with each other for some of these fixed resources. Therefore,
expansion of one enterprise will be accompanied by a reduction in the other. Algebraically,
this relationship can be written as:

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 ( )
( )
( )
Suppose a farmer has 10 hectares of land and he wants to grow wheat along with other
competitive crops like barley, sugarcane, sorghum, etc. in this, hectare under wheat will be a
function of hectare under barley, sorghum, etc.
Basic production (enterprise) relationships

We have four basic enterprise relationships. These are:

A. Joint products: are products which are results of the same production process and
production of one product without the other is impossible.

For example, cotton lint and cotton seed, beef and hides, wheat and straw, mutton and
wool, and cattle and manure, etc. quantity of one product produced decides the quantity of
the other product.

B. Complementary products: complementary relationship among enterprises exists when

with a change in the level of one product, the other also changes in the same direction.
That is these enterprises help each other and do not compete for the same resource. Crop
production and livestock raising can be an example of complementary enterprises as crop
production supplies grain and straw that can be used as an input in livestock production
activity and livestock farming also supplies manure that can be used as an input in crop
production.
C. Supplementary products: two enterprises have supplementary relationship when increase
or decrease in the production of one product doesn‘t affect the production level of the
other product. That is, these enterprises do not compete for the same resource. The base
for such relationship is that the supplementary enterprise makes use of, otherwise, unused
resources.
D. Competitive product: two enterprises are competitive when an increase in the output of
one enterprise results in a decrease in the output of the other enterprise and vice versa. The
two enterprises compete for the same resources at the same time. Therefore, when two
products are competitive, some of one product must be given up to increase the level of the
other product and, therefore, the MRPS of the PPC is negative. When two enterprises are
competitive, they may substitute at a constant rate or at an increasing rate or at a
decreasing rate.
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E. Antagonistic products: Two products may be harmful to each other because of disease or
similar factors. When this is true, only one of the products should be produced. Eg: Aqua
culture and paddy cultivation.
Theory of Cost
Basic concepts of costs
The term cost of production refers to the total amount of fund used for purchase of different
fixed and/ or variable inputs employed in the production process. Cost of production exists
because the supply of productive resources is scarce and has market value. Before moving to
the details of the principles of cost of production, let us briefly discuss about Explicit and
implicit costs and B) economic (opportunity cost).
Explicit and Implicit costs
Explicit cost: The term explicit cost refers to those expenses that are actually paid by the
producers for purchase of different inputs in the production process. In other words, any
expense or payments made to those outsiders who are supplier of labour services, raw
materials, fuel, transportation services, power etc. to the firm are called explicit cost. It is also
called cash cost. The value of purchase inputs (explicit cost) is usually determined by market
price (accounting price) of that particular input. Such costs usually appear in the accounting
records of the firm.
Implicit cost: the term implicit cost refers to the earning of those employed resources, which
belong to the owner himself in the production processes. The value of self-owned inputs
(implicit costs) should be inputted or estimated from what they could earn in their alternative
use which is called opportunity cost of that input.
Examples of those costs are:
 The salary of owner manager, depreciation cost of a building that belongs to the owner of
the farm, depreciation cost of a tractor or fixed farm equipment, which belongs to the
owner of the farm, interest forgone when the owner uses his capital in his farm, etc. The
total cost of production is the sum of explicit cost and implicit cost.
Economic (opportunity) Cost

Opportunity cost is the economist‘s concept of cost of productions that are based on the fact
that resources are scarce and have alternative uses. That means, when resources are used for
certain production activity other alternative products must be forgone. Therefore, production
of one product entails giving up so much of the opportunity to produce something else
because resources are used for production of the first product. Opportunity cost, therefore,

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means the values forgone because the resource was used for another purpose. In other words,
is the return which must be given up in the next best alternative use.

Accounting periods: In order to understand the nature of costs clearly, it is important to

consider the accounting or planning periods over which decision processes are made. On the
basis of length of period for different inputs to get transformed in to out puts, planning period
can be divided in to two categories; short run and long run. These periods are time concepts,
but are not defined as fixed time periods.

Short - run: is that a period of time which is long enough to permit desired changes in output
without altering or changing the size of the farm. In other words, it is a period of time during
which one or more of the production resources are fixed in amount and can‘t be changed.
That means in short run, we have two major categories of inputs: fixed inputs and variable
inputs. Usually capital equipment and entrepreneurship are considered as fixed inputs and
labour and raw materials can be taken as variable inputs in the short run. Consequently, costs
are of two types: fixed costs and variable costs. During this period the firm can expand or
contract its output only by varying the amounts of variable inputs.

Long - run: is that period of time over which all factors of production can be varied. That
means, in the long run, all inputs are variable and hence all costs are also variable. Suppose
the farmer may expect that wheat production is going to be more remunerative in the future
years. In this case, the farmer may try to increase land by purchasing or leasing in and he may
improve his productive capacity by installing new tractor, hiring more labour, using more
fertilizer, seed etc. in this case can get sufficient time period that is needed to change the
size/scale of the holding(business).

Production cost in the short-run

Short - run: is that a period of time which is long enough to permit desired changes in output
without altering or changing the size of the farm. In other words, it is a period of time during
which one or more of the production resources are fixed in amount and can‘t be changed.
That means in short run, we have two major categories of inputs: fixed inputs and variable
inputs.
Cost function
As it has been briefly indicated, we have two major categories of costs in the short run: fixed
costs and variable costs.
Total Fixed Cost (TFC): Is cost associated with owning fixed inputs. These are costs,
which are not changed in magnitude as the amount of output of production changes and

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incurred even when production is not undertaken. Fixed costs are costs of investment goods
used by the firm on the idea that these reflect a long term commitment that can be recovered
only by wearing them out in the production of goods and services for sale. Remember that
fixed costs exist only in the short run are equal to zero in the long run.
Total Variable Cost (TVC): are costs that are incurred in using variable inputs. Therefore,
these costs increase with the increase in the level of output of the firm. This means, the
variable costs of production are incurred by a firm only when there is an output. Cost items
such as wages paid to laborers, payments made to the raw material suppliers (like feed,
fertilizer, seed, chemicals etc.) payments made to the fuel suppliers and transportation
agencies etc. are examples of variable costs.
Total Cost (TC): is a sum of total fixed cost and total variable cost. In the short run, it will
increase only as increases as TFC is a constant value.

Average Cost: Costs may be more meaningful if they are expressed on a per-unit basis, as
average cost per unit of output Q. the average costs are:

 Average Fixed Cost (AFC), Average Variable Cost (AVC) And Average Total Cost
(ATC)

Average Fixed Cost (AFCs): are costs obtained by dividing the total fixed costs (TFCs) by
the level of output.
AFC  TFC Q
Average Variable Cost (AVCs): are obtained by dividing the total variable cost by the
respective level of output (Q).
TVC
AVC =
Q
Nature and Relations among ATC, AVC, AFC and MC
I. Since AC is the sum of AFC and AVC, so far AFC and AVC decrease ATC also
decreases.
II. When AFC decreases but AVC increases ATC changes as follows:
A. If the decrease in AFC is greater than the increase in AVC, ATC decreases.
B. If the decrease in AFC is equals the increase in AVC, ATC remains
unchanged.
C. If the decrease in AFC is less than the increase in AVC, ATC increases.

III. The ATC curve minimum point comes after the AVC curve has already reached its
minimum.

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IV. When the MC curve is below the ATC curve and AVC curve, both ATC and AVC are
falling.
V. When the MC curve is above the ATC curve and AVC curve, both ATC and AVC are
rising.
VI. ATC and AVC curves are always pierced at their minimum points by the rising MC
curve.
Marginal cost (MC): is the extra cost of producing an additional unit of output (Q). it can also
be defined as the change in total cost resulting from one unit change in output.
the change in total cos t
Marginal cost =
the change in output
d TC dTVC
MC  or
dQ dQ
Marginal cost is related to marginal product in the same manner that AVC related to AP.
dTVC PX  X   dX   1  PX
MC =   PX    PX   , because marginal product of variable
dQ dQ  dY   MP  MP
input
dQ
(MPX) =
dX
PX
MC=
MPX
Production Costs in the Long run

In the long runs all factors are variable, and thus there are no fixed costs. For the analysis of
the long-run cost of production, we use only three types of curves: Long-Run Total Cost
Curve (LTC), Long-Run Average Cost Curve (LAC), and Long-Run Marginal Cost Curve
(LMC). Here also, LAC and LMC curves are U-shaped, but they are flatter than the short-run
cost curves.

Why is the LAC Curve U-shaped?

The U-shape of the LAC curve is because of returns to scale. As we increase the scale of
operation in the initial stages, we get increasing returns to scales (IRS) as a result of
economies of scale. Increasing returns to scale means that the increase in output is more than
proportionate to the increase in factor inputs. Hence the LAC falls as output is increased (in
the output range, to M in the diagram). But then, beyond a certain point, we get decreasing
returns to scale (DRS) as a result of diseconomies of scale, and hence now LAC rises with
increase in output. This happens at output levels higher than M in the diagram. When
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economies and diseconomies of scale offset each other, it is the stage of constant returns to
scale (CRS). It happens at M level of output. Note that the LMC curve is also U-shaped, for
the same reasons, and that it cuts the LAC curve at its minimum point.

The LATC is shown to be tangent to each of five different SATCs, labeled SATC1
through SATC5. In general, there will be a large number of SATCs, each of which corresponds
to a different level of the fixed factors the firm can employ in the short-run. Because there is
such a large number of SATCs—more than just the five illustrated in the above figure. The
lower envelope of all the SATCs, which makes up the LATC, can be approximated by a
smooth, U-shaped curve. Economies of scale, followed by diseconomies of scale, cause the
curve to be U-shaped.
Economic principles applied in farm management
The principle of variable proportion
This law exhibits the short-run production functions in which one factor varies while the
others are fixed. Also, when you obtain extra output on applying an extra unit of the input,
then this output is either equal to or less than the output that you obtain from the previous
unit. The Law of Variable Proportions concerns itself with the way the output changes when
you increase the number of units of a variable factor. Hence, it refers to the effect of the
changing factor-ratio on the output.
The principle of cost
Cost of production refers to the total amount of fund used for purchase of different (fixed
and/or variable) inputs employed (used) in the production process. Cost of production exists
because the supplies of productive resources are scarce and have market value. The costs of
production usually calculated in relation to a particular amount of product (per unit of output)
in a particular time period because of the costs of production in any particular period include

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the value of the resource services transformed into a product in that single period rather than
the value of the resource itself.
The principle of comparative advantage

Certain crops can be grown in only limited areas because of specific soil and climatic
requirements. This means, even those crops and livestock which can be raised over a broad
geographical area often have production concentrated in one region. For example, why Ada
district, East Shewa Zone of Oromia Region, farmers specialize in ―teff‖ production while
Harerge farmers specialize in ―chat‖ production? There are two types of advantages in raising
the farm products on the bases of maximum net revenue per hectare. These are absolute
advantage and comparative (relative) advantage.

Consider two regions of equal size, Region 1 and Region 2, both of which produce and
consume two agricultural products, maize and wheat. A region is said to have an absolute
advantage in the production of a commodity or a group of commodities if it can produce them
more efficiently than the other region. This means the other region has an absolute
disadvantage in the production of these products. However, if there are differences in relative
efficiencies of producing the different goods in the two regions, we can always be sure that
even the disadvantageous region can have a comparative advantage in those commodities for
which it is relatively more efficient. Therefore, regional specialization in the production of
agricultural commodities and other products is explained by the principle of comparative
advantage. The principle of comparative advantage states that individuals or regions will tend
to specialize in the production of those commodities for which their resources give them a
relative or comparative advantage. While livestock and some crops can be raised over a broad
geographical area, the yields, production costs and profit may be different in each region.
Thus, it is relative yields, costs and profits which are important for this principle.

The principle of equi-marginal returns

When resources are limited, expansion of one enterprise generally requires an equivalent
contraction in another enterprise. The question here is which enterprise or combination of
enterprises will give the greatest income? Such an optimum choice of enterprises is made
based on the principle of equi-marginal returns. The equi-marginal returns principle provides
the guideline and the rules to ensure that the allocation is done in such a way that profit is
maximized from the use of any limited input. The principle of equi-marginal returns states
that profit from the available limited resources can be maximized by using the resources in
such a way that the marginal return (the marginal value product) of the last unit of the

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resource used on each enterprise is equal. If the marginal returns in different uses are
unequal, it will clearly pay to transfer some of the resource from the use where its marginal
return is lowest to the use where it is highest. This process continues until marginal returns
are equal in all alternative uses.

Farm planning and budgeting

Farm planning
Definition: farm planning is a process to allocate the scarce resources of the farm and to
organize the farm production in such a way that to increase the resources use efficiency, the
production and the income of the farmer. In general, it is an approach which introduces
desirable changes in farm organizations and operations and makes the farm viable unit by
making rational decision regarding the organization and operation of a farm business. It tells
how best to make use opportunities to a farmer to channelize his scarce resources.
Planning is also organizing, as a plan represents a particular way of combining or organizing
resources to produce some combination and quantity of agricultural products. Land, labor and
capital do not automatically produce wheat, maize or any other products. These resources
must be organized in to the proper combinations, the proper amounts and at the proper time
for the desirable production to occur.
Objectives of farm planning
The main objective of farm planning is the improvement in the standard of living of the
farmer and its immediate goal is to get the greatest return in terms of cash and food, for his
effort both in the short and long run.
Why farm planning
 Income improvement, focuses attention on farm organization, educational, desirable
organizational change, minimizes risk and uncertainty and facilitates control
Basic Steps in Farm Planning
In developing an optimum farm plan with the following steps are generally followed.
1st. Inventory of farm resources
2nd. Analysis of the existing farm plan
3rd. Identification of the weakness of the present plan
4th. List out the risks of production on that farm
5th. Forecasting:
6th. Establishment objectives:
7th. Prepare the alternative plan
8th. Analysis and selection of the final plan:
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Farm Budgeting: Budgeting involves the preparation of advance estimates of expenses and
incomes of farm business and as such does not involve planning but generally different
alternative systems are budgeted at the same time and the latter does involve planning to help
choose the best alternative farming systems. Hence, planning and budgeting cannot be
divorced from each other. Farm budgeting is a method of analyzing plans for the use of
agricultural resources at the command of the decision maker. A farm budget is a statement
giving an estimate of all the farm receipts and expenses to be incurred for the agricultural
year. In other words, it is the expression of the farm in monetary terms by estimation of
receipts, expenses and net income of a farm or a particular enterprise.

Types of farm budgeting

Partial budgeting: A partial budget is a budget, which predicts only the changes in income
and expenditure resulting from a proposed decision. It is used to calculate the expected
change in profit for a proposed change in the farm business. It has to show only that part of
the financial information which will be affected by the change being contemplated.
A partial budget contains only those income and expense items, which will change if the
proposed modification in the farm plan is implemented.
Only the changes in income and expenses are included and not the total values. The final
result is an estimate of the increase or decrease in profit. To make this estimate, a partial
budget systematically organizes the answers to four questions relating to the proposed
change.
1. What new or additional costs will be incurred?
2. What current income will be lost or reduced?
3. What new or additional income will be received?
4. What current costs will be reduced or eliminated?
Enterprise Budgeting: is defined as a single crop or livestock commodity. Wheat, corn,
coffee, etc are examples of crop enterprises/ commodities and dairy cattle, beef cattle, pig
(swine) production, etc are examples of livestock enterprises. An Enterprise budget: is an
estimate of all income, expenses and profit/ loss associated with a specific enterprise.
Whole farm budgeting: A whole farm budget is a summary of the expected income,
expenses, and profit for a given farm plan. It considers the costs and returns of operating: the
whole farm or particular crop and livestock enterprises in order to derive the net returns.
Complete budgeting is especially useful for someone planning to enter farming to have an
idea of the profitability of the particular farm enterprise.
Steps for complete budgeting: Basically, it consists of two steps:

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1. Preparing a plan that includes the area of each crop, the number of each class of livestock
and the production methods.
2. Budgeting the expected costs, including common costs and returns to financially evaluate
each plan and find which is the best in terms of expected net farm income.
Uses of complete budgeting
 It provides a basis for comparing alternative plans for profitability. This can be particularly
useful when planning for growth and expansion.
 The cash expenses in the budget provide an estimate of the operating capital the business
will need during the year.
 A detailed whole farm budget showing the estimated profit can be used to help establish
credit and borrow the necessary operating capital.
 The worksheets use to prepare the budget contain estimates of total input requirements.
Orders for inputs such as fertilizer, seed, chemicals and feed can be placed using this
information.
 It is often used in situations where it is realized that the proposed adjustments in the
business will have an impact on several aspects of the business operations because of the
interrelationships that exists between different enterprises.
 It is useful for someone who is planning to enter in to farming business to have an idea of
the profitability of the particular farm enterprise.
 A farmer who is planning to recognize his farm or switch entirely to new forms of farming
organization may find complete budgeting useful to estimate the net return or profit of the
business.

Farm Records and Analysis

Farm Record and Account

Now a day, great emphasis is given for record keeping on the farm. This emphasis is correct.
Presently, many farmers are in financial difficulties. The purpose of keeping records is not
just to accumulate masses of information. Rather, it is to use this information to compare and
discern trends in the farm business. These trends help farmers make sensible managerial
decisions: Is this enterprise profitable? Or can I afford to purchase a new tractor/ or should I
change my enterprise mix? Records are useful only if they are used. Simply keeping them is
not sufficient. Farm business analysis is the name given to a technique based on computation
and interpretation of a variety of efficiency measures for the farm under study. The results of
the analysis are then compared with standards derived from a group of farms of similar size

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and type. This comparison is then used to highlight organizational weaknesses and strengths
of the farm business.

If farm accounts are available, this system of farm business analysis can be a useful tool. The
subject of farm business analysis is dealt under different names, i.e., Farm Accountancy,
Farm Records and Accounts or Farm Book Keeping. Their objectives are basically the same
but the difference lies in the methods of treatment or approaches. Farm accountancy is
defined as the art and as the science of recording business transactions in books in regular and
systematic manner so that their nature, extent and financial effects can be readily ascertained
at any time of the year. Farm Book Keeping is known as a system of records written to
furnish a history of the business transactions, with special reference to its financial side. Farm
accounting, on the usual sense is an application of the accounting principles to the business of
farming.

Advantages of farm records and accounts

 It is a means to higher incomes

 It is a basis for diagnosis and planning

 It is a way to improve managerial ability

 It is a basis for credit acquisition and management

 It guides to a better management and future decisions

 It is a basis for research

 Basis for policy formulation

Types of Farm Records

There are three parts of a farm record system:

1. Physical farm records;
2. Financial farm records, and
3. Supplementary farm Records.
Physical farm records: are related to the physical aspects of the operation of a farm
business. They do not indicate the financial position or the outcome of the farm business, but
simply record the physical efficiency or performance of the farm.
Financial Records: these are mainly related to the financial aspects of the operation of a
farm business. They are required to provide information regarding the profitability of the
whole farm business over a given period. In addition, financial records enable financial
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DBU Department of Agricultural Economics
analysis to be carried out to reveal the economic strengths and weaknesses of the farming
system, and to provide data to help in the preparation of revised plans and budgets. The
financial record may include the following:
 Farm cash or farm financial record , classified farm cash accounts and annual business
analysis (credit and debt accounts, capital asset and sale register, cash sale register ,
credit sale register, wage register, funds borrowed and repayments register, purchase
register, farm expenses paid in kind register, non-farm income record.
Supplementary records: supplement the two records
 Sanction register, Auction register, Hire register, Climate (weather) condition, soil type,
agro-ecological condition, etc.

Farm Inventory Valuation

Farm inventory is a list of all of the physical property and financial resources of a business
along with values at a specified date. In other words, it is the complete list of farmer‘s assets.
It is the first step in farm accounting.
Method of valuation of inventory

The choice of valuation method will depend on the type and nature of property (asset) and the
purpose of inventory. The following methods are employed to value inventory. They are:
1. Net market price 4. Farm production cost
2. Income capitalization 5. Cost less depreciation.
3. Cost or market price

Methods of Computing Depreciation

Before introducing the methods of computing depreciation, let‘s see the following basic
terms.
Useful life: is the expected number of years the item will be used in the business. It may be
the age at which the item will be completely worn out if the manager expects to own it that
long, or it may be a short period if it will be sold before then.
Salvage value: refers to the item‘s value at the end of its assigned useful life. It is also known
as terminal value, scrap value or junk value. Salvage value might be be zero if the item
owned until completely worn out and will have no junk or scrap value at that time. A positive
salvage value should be assigned to an item if it will have some value as scrap or will be sold
before completely worn out.
The major methods of computation of depreciation include the following:

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DBU Department of Agricultural Economics
1. Straight line method
2. Diminishing balance method
3. Sum-of-the-years-digits method

1. Straight line method

Straight line method of computing depreciation is the most widely used and the easiest to use.
It is easy, simple and usually very satisfactory for most purposes. This method assumes that
assets are used more or less to the same extent every year and therefore, equal amounts of
costs on account of their use can be charged every year. The formula used to compute
depreciation is:

One of the shortcomings of the straight line method of depreciation is that it underestimates
depreciation during the earlier years of useful life of the asset and overestimate depreciation
during the later years of service of the item.

2. Diminishing balance method

Using the diminishing or declining balance method, a fixed rate of depreciation (R) is used
for every year and applied to the value of the asset at the beginning of the year. There are
several way of determining the fixed rate (R) of depreciation. However, the most common
one is the double declining balance method (DDBM). The ‗double‘ comes from using a
depreciation rate which is double the straight line rate. This percentage rate is deducted every
year from the diminishing balance till the asset reached the salvage value and no further
depreciation is possible.
Annual depreciation rate can be computed from the equation:

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DBU Department of Agricultural Economics
Where: R is equal to two times the straight line percentage rate.
The percentage rate remains constant each year, but is multiplied by the book value, which
declines each year by an amount equal to the previous year‘s depreciation. Notice also that
the percentage rate is multiplied by each year‘s book value and not cost minus salvage value
as with straight line method.
Example: A machine is purchased for 1000 Birr and has a salvage value of 50 Birr and 10
years of useful life with annual depreciation rate was 45%.

The main shortcoming of this method overestimates depreciation during the earlier years of
the useful life of the asset and underestimates depreciation during the later years of the asset.
3. Sum-of-the-years-digit method
Annual depreciation is determined by multiplying a fraction times the amount to be
depreciated (cost less the salvage value). The formula used to compute annual depreciation is:

Where: SOYD is the sum of all the numbers from 1 through the estimated useful life.
Farm Financial Analysis
A farmer cannot possibly make intelligent decisions on the allocation and use of capital
unless adequate information regarding the current financial condition and past progress of the
operation is at hand. Some smart farmers assemble considerable information from
observation coupled with income and expenses transactions involved in operating the
business. The most widely used financial statements which will be discussed in this section
are the balance sheet and income statement.
A. Balance sheet
The balance sheet is a systematic organization of everything ‗owned’(i.e., assets) and ‗owed’
(i.e., liability) by a business or individual at a given point in time (usually at the end of the
accounting month or year and this serves as opening balance sheet for the coming year). It is
a listing of assets and liabilities concluding with an estimate of net worth or owner‘s equity or
capital.
Net worth = total assets- total liabilities

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Therefore, the primary purpose (use) of balance sheet is to measure the financial strength and
position of the business..
Measuring the financial position of a business at appoint in time is done primarily through the
use of two concepts.
a. Solvency. This measures the liabilities of the business relative to the amount of owner
equity invested in the business. It also provides an indication of the ability to pay off all
financial obligations or liabilities if all assets are sold; that is, it measures the degree to
which assets are greater than liabilities.
b. Liquidity. It measures the ability of the business to meet financial obligations as they
come due without disrupting the normal operations of the business. Liquidity measures
the ability to generate cash in the amount needed at the time needed.

I. ASSETS: are physical, financial and intangible rights of a business. An asset can have
value for one or both of two reasons. First, it can be sold to generate cash. Second, it can be
used to produce other goods which can be sold to provide cash income at some future time..

1. Current Asset: the more liquid assets are listed in the current asset category. They will be
either used up or sold in the next years as a normal part of business activities, and their sale
will not disrupt future production activities. Certain items are included in current asset. 2.
Intermediate assets: as the name implies, these assets are intermediate in liquidity and useful
life. They have a useful life greater than 1 year but generally less than 7 to 10 years and are
less liquid than current assets as their sale affects the future income potential of the business.
3. Fixed Assets: real estate or land, permanent buildings are most important fixed assets on
farms and ranches. Fixed asset are the least liquid of all assets; they have a useful life greater
than 10 years, and their sale would seriously affect the ongoing nature of business. II.
Liabilities: are obligations or debt owed to someone else. It represents an outsider‘s claim
against one or more of the business assets. As with the assets, liabilities divided in to three
categories, with time or the length of the loan being the primary difference between
categories.

1. Current liability: are those financial obligations which will become due and payable with
one year from the date of the balance sheet.

2. Intermediate Liabilities: This liability represents loans where repayment is extended over
at least two years and up to as long as 7-10 years. They would typically have some principal
and interest due each year.

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DBU Department of Agricultural Economics
3. Long-Term Liabilities: loans for the purchase of real state or where land and buildings
provide the collateral for the loan would be listed as long-term liabilities. They will be in the
form of a farm mortgage loan or land purchase contract, and the repayment period will
generally be from 10 to 40 years.

III. NET WORTH: represents the amount of money left for the owner of the business. It is
found by subtracting total liabilities from total assets and is, therefore, the ―balancing‖
amount which causes total assets to be exactly equal to total liabilities plus net worth. In other
words, net worth is the owner‘s current investment or equity in the business and is properly
listed as it is money due the owner upon liquidation of the business and is properly listed as a
liability as it is money due the owner upon liquidation of the business.

B. Balance sheet analysis

A balance sheet is used to measure the liquidity and solvency of a given business.
Analyzing liquidity
An analysis of liquidity concentrates on current assets and liabilities. The latter represents the
need for cash over the next 12 months, and the former the sources of cash. Liquidity is a
relative rather than an absolute concept, because it is difficult to state that a business is or is
not liquid. Based on an analysis, however, it is possible to say that one business is more or
less liquid than another.
Current ratio
Current ratio is one of the more common measures of liquidity and is computed from the
balance sheet equation.
Working capital
Working capital is the difference between current assets and current liabilities.
The equation computes the amount of money that would remain after selling all current
assets and paying all current liabilities
Analyzing solvency
Solvency measures the relative relations among assets, liabilities and equity. Solvency is
generally discussed in relative terms by measuring the degree to which assets exceed
liabilities. Three ratios are commonly used to measure solvency.
Debt/Asset ratio, Equity/Asset ratio and Debt/ Equity ratio
Income Statement and its Analysis
The income statement is defined as a summary of income and expenses over a given time
period and is the second type of financial statement needed for control function. The income
statement is sometimes called an operating statement or profit and loss statement.
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DBU Department of Agricultural Economics
Risk and Uncertainty in Farming
Risk and Uncertainty
Risk: Is a situation where the decision maker, for a given management decision, knows both
the alternative outcomes and the probability associated with each outcome. A simple example
would be tossing a coin. In this case, all possible outcomes and the probability of appearing
head of tail for each possible outcome are known by the decision maker before tossing the
coin. Consider a farmer in risky situation with respect to crop yield for alternative fertilizer
level. In this case, the farmer would know the probability distribution of the random variable,
i.e. crop yield, for each fertilizer level that could be applied.
Uncertainty: is a situation in which the decision maker, for a given management decision,
has less information about the alternative outcomes and their probabilities of occurrence. In
other words, uncertainty is said to exist when one or both of two situations exist for a
management decision. That is, either the probabilities of the outcomes are known when the
possible outcomes can be determined, or neither the outcomes nor the probabilities are
known. The difference between risk and uncertainty indicates that most agricultural decisions
would be classified as involving uncertainty. That means, even if all possible outcomes, for a
given production activities, could be listed, the associated probabilities can seldom be
accurately determined.
Sources of Risk and Uncertainties
The most common source of risk can be described in different categories.
1. Production and technical risk
2. Marketing or price risk
3. Institutional risk
4. Technological Risk
5. Casual Risk
6. Human or personal Risk

Decision Making Under Risk

The manager must form expectation about the input and output price and somehow arrive at
an expected value of use in the decision making process.
I. Forming Expectation.
Some of the methods used to form expectation are:
 Averages (simple & weighted average).

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DBU Department of Agricultural Economics
  Most likely: - this procedure requires knowledge of the probabilities associated with
each possible outcome, either actual or subjective. The outcome with the highest
probability would be selected as the most likely to occur.
 Mathematical expectation:- when either the true or subjective probabilities of the
expected outcomes are available, it is possible to calculate the mathematical
expectation. The mathematical expectation is the average outcome of conducting the
experiment or repeating the event many times.
Reducing Risk and Uncertainty
1. Production responses: choosing low risk enterprises, growing many things
(diversification), growing crops on different plots, selecting and changing production
practices, maintaining flexibility.
2. Market- related responses: Obtaining market information, spreading sales, contact
farming, minimum price contact, marketing technique provides producers with greater
flexibility and more risk management alternatives.
3. Insurance: Formal insurance, own insurance (self- insured, property insurance, liability
insurance, crop insurance, life insurance.
Key Questions for Farm Management
Choose the best answer from the given alternatives
1. A firm should shut down in the short-run if it cannot cover its
A. Fixed cost B. Total cost
C. Time cost C. Variable cost
2. The best indication that a farmer is making financial progress year-to-year is
A. An increase in net worth on the balance sheet
B. A decrease in the value of total liabilities on the balance sheet
C. An increase in the value of total assets on the balance sheet
D. An increase of total cash flow on the cash flow statement
E. A decrease in the value of his non-current liabilities
3. When an increase in production of one enterprise causes a reduction in the production of
another enterprise, the two enterprises are said to be:
A. Independent B. Complementary
C. Supplementary D. Competitive
4. The best measure of a firm's ability to make a short-term loan payment is
A. Debt/asset ratio B. Current ratio
C. Solvency ratio D. Leverage ratio
5. A farmer is solvent
A. He has sufficient current assets to cover current debts

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DBU Department of Agricultural Economics
 B. He has sufficient equity to cover debts
C. He has sufficient assets to cover all debts
D. He can pay all debts with all equity
E. He can pay off long term obligations within 30 years
6. If the price of a commodity increases by 5% and the quantity purchased decreases by 10%,
then the demand for this commodity is:
A. Upward sloping B. Inelastic C. Elastic D. Unitary E. Unstable
7. A farmer has total assets of $400,000 of which land is $300,000. The farmer's debt: equity
ratio is 3:1. What will the farmer's debt: equity ratio be if his land goes up in value by 15%?
A. 0.75 B. 0.92 C. 1.18 D. 2.07 E. 2.45
8. To provide protection against wind damage to the farm home, a person should purchase
A. Life insurance B. Property insurance
C. Accident and health insurance D. Liability insurance
9. Which one of the following is not an object of farm management?
A. Minimization of losses and damages. C. Minimization of inefficiency
B. Maximization of profit D. Maximization of cots.
10. How to produce is the study of:
A. Factor – factor relationship. C. Resource – Resource relationship.
B. Factor – product relationship. D. All of the above are answers
11. What to produce or which enterprise to select is the subject of …. relationship
A. Factor – product relationship. C. Product – product relationship.
B. Product – resource relationship. D. None of the above
12. Which principle applies on factor – product relationship?
A. Principle of diminishing return. C. Principle of substitution.
B. Principle of opportunity cost. D. All of the above.
13. The production decision how much produce is:
A. Enterprise selection. C. Optimum level of resource use
B. Both A and C. D. None of the above.
14. The production decision how to produce is:
A. Enterprise selection. C. Optimum level of resource use.
B. Least cost method. D. None of the above.
15. Which inventory valuation method is applicable for valuing a farm building constructed 20
years ago?
A. Cost less depreciation C. Replacement cost less depreciation
B. Construction cost less depreciation D. Farm production cost method
Reference
 John, S.S. and T.R. Kapur, 2003. Fundamentals of Farm Business Management. Kalyani
Publishers, India.
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 Castel, E.N. and M.H. Becker, 1965. Farm Business Management. 4th ed. The McMillan
Company, New York.
 Key, R.D., 1981. Farm Management Planning, Controlling and Implementation. McGraw-Hill
Book Company, New York.
 David T. Johnson, 1985. The Business of Farming: A Guide to Farm Business Management in
Tropics. McMillan Publishers ltd, London.

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3. Farming System and Livelihood Analysis
After successful completion of the course, the students are expected to gain the following
competence:

Areas of Competency Expected Competencies to be achieved

The students will be able to

 Recall the concepts of agriculture and society;
 Identify classification of agricultural systems;
 Compare agricultural systems versus farming systems;
 Understand farming system research (FSR)
Knowledge
 List characteristics of farming systems approach
 List types of farming systems;
 Describe sustainable livelihoods and farming systems;
 Understand concepts of sustainable livelihoods and
 Discuss components of sustainable livelihood framework;
 Develop models of livelihoods promotion;
 Undertake problem diagnosis and opportunities identification
Skill
 Apply participatory research tools and techniques
 Undertake comparison of livelihood frameworks;
 Investigate determinants of farming systems and sustainable livelihoods;
 Analyze principles of sustainable livelihood
Attitude  Classify, characterize and review farming systems;
 Evaluate methods of livelihood analysis;
 Examine smallholder, resource-poor family farms;

System perspectives and the concept of farming systems

Evolution of a system thinking and approach

The reductionist approach failed in terms of developing technologies for resource-poor

farmers in less favorable heterogeneous production environments or agricultural areas. This
led to the incorporation of a systems perspective in the identification, development, and
evaluation of relevant improved technologies. Hence in the mid to late 1970s, the farming
systems research (FSR) approach evolved, a basic principle of which was the need to create
new types of partnerships between farmers and technical and social scientists. Work done
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with farmers in various countries in the 1960's and early 1970's revealed that these limited-
resource farmers [Norman, 1993]:

System approach vs. reductionist / science approach

It is important to see the distinction between the reductionists and holistic thinkers in terms of
their approach to problem-solving.
What is system thinking?
 system thinking is a way of understanding reality that emphasizes the relationships
among system parts, rather than the parts themselves
 system thinking is ability to see the world as a complex system, that everything is
connected to everything else
 it is a new way of thinking based on ``whole`` and ``relationships``

 It allows for an information professional's work to be effective and innovative, not

isolated. System thinking facilitates a newfound awareness of the environment in
which we function.
Major System Premises

The systems thinking approach incorporates several tenets:

 Interdependence
• independent elements can never constitute a system
• Interlinking means that the elements of a system are not isolated from each
other, but related to each other
 Holism
• It shows that the world can be viewed as consisting of structured wholes, or
systems
• the whole is greater than sum of its parts
 Transformation inputs to outputs
• This shows that systems transform themselves continuously.
• This is because of a degree of openness of a system that allows flow of
energy/information for self-regulation.
 Goal seeking :systemic interaction must result in some goal or final state
 Control mechanism

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DBU Department of Agricultural Economics
 • how the behavior of the system is regulated to allow it to endure
• feedback is necessary for the system to operate predictably
 Communication
• a system‘s ability to communicate information in order to control what
happens within and without
 Hierarchy
• One way of reducing the complexity of the real world is to construct nested or
hierarchical systems
• Emergent property of system uniquely pertains to particular hierarchical
levels.
 Differentiation
• specialized units perform specialized functions
• Variation of elements
• Every system consists of a number of distinguishable and functionally
different elements
 Boundary
• Border of the system by definition of an observer
• It defines the limits in which system components and their interactions are
studied.
• separates a system from its environment

The concept of farming system

Definition

a) Farming system is a complex inter-related matrix of soils, plants, animals, implements,

labour and capital, inter-dependent farming enterprises.
b) It implies a resource management strategy involving integrated management of crops,
trees, and animals, along with labor and capital to optimize the use of land resources
c) A farming system is a farming pattern or combination of farming activities practiced on a
farm. It is a production system that provides an opportunity for farmers to exploit the full
productive potential of their farm through the optimal use of ecological and economic
resources over a longer time frame

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d) The farm consists of a production system and a management system. The different
enterprises in the production system can be further divided into subsystem, typical
organised in a hierarchy system. The production system can be modeled either as a farm
system or as part of the farm. The production is controlled by a management system,
meaning that the farm also can be seen as a human activity system, in line with the soft
system approach (Bawden, 1991).
• The farm is viewed in a holistic manner (multi-disciplinary approach)
• Focuses on the interdependencies between the components under the control of members
of the farm household

Mixed farming system

Crops Livestoc
k

Off farm

Farms are systems because several activities are closely related to each other by the common
use of the farm labor, land and capital, by risk distribution and by the joint use of the farmer‘s
management capacity. The analysis of farms is quite important to the subject of development.
Relevance of the farming systems approach: Choosing policies for agricultural development
requires the use of information about the existing farming situation.

Rationale and philosophy of Farming systems

Why it is useful to think of farms as systems?

The farming systems approach to development (FSD) has two inter-related thrusts. One is to
develop an understanding of the farm-household, the environment in which it operates, and
the constraints it faces, together with identifying and testing potential solutions to those

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constraints, the second thrust involves the dissemination of the most promising solutions to
other farm households facing similar problems.

Characteristics of a Farm System

Each individual farm has its own specific characteristics, which arise from variations in
resource endowments and family circumstances. The household, its resources, and the
resource flows and interactions at this individual farm level are together referred to as a farm
system.
a) Goal orientation: A farm is taken to be an organized decision-making unit in which crop
and/or livestock production is carried out with the purpose of satisfying the farmers goals
b) Boundaries: Every system has a ‗boundary‘, which separates it from its ‗environment‘.
E.g. farm system and its‘ economic environment. When characterizing a farm system you
must take into account the linkages and influences across and between the various
systems.
c) Activities and their relationships: Several kinds of activities in the farm system:
activity which produce crops, activities which turn grazing or crops into livestock
products, processing activities, procurement, investment, and maintenance and
marketing activities
d) External (exogenous) relations: The environment influences the farm system through
the following external relations:
• Natural condition (soil, water, light)
• State of knowledge and information about agricultural techniques
• Institutional environments (credit, land tenure, extension services, marketing facilities)
• Price of inputs and products
• The social, cultural, and political setting will influence the level of household demand for
food, fuel and other needs, and will affect the way in which the farm is organized.
• Time dimension:
e) Diversification within a Farm system
It is often rational for farm systems to diversify.
• Can make best use of given natural r resources
• Different crops and livestock activities differ in the time and nature of their requirements
for labour, equipment, etc.
• Diversified farming reduces risks.
f) Change in a Farm system
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DBU Department of Agricultural Economics
Farm and farm household systems are never unchanging.
- influenced by changes in their environment
- influenced by changes in their subsystems
-Farm and farm household systems are dynamic.

Extension agents will be much more effective if they are able to identify and understand the
dynamics of change in the systems they are trying to influence.
Major categories of farming system

The classification of the farming systems, as specified herein, has been based on a number of
key factors, including: (i) the available natural resource base; (ii) the dominant pattern of
farm activities and household livelihoods, including relationship to markets; and (iii) the
intensity of production activities. These criteria were applied to each of the six main regions
of the developing world. Based on these criteria, eight broad categories of farming system
have been distinguished:

 Irrigated farming systems, embracing a broad range of food and cash crop production;
 Wetland rice based farming systems, dependent upon seasonal rains supplemented by
irrigation;
 Rainfed farming systems in humid areas, characterized by specific dominant crops or
mixed crop-livestock systems;
 Rainfed farming systems in steep and highland areas, which are often mixed crop-
livestock systems;
 Rainfed farming systems in dry or cold low potential areas, with mixed crop-livestock
and pastoral systems merging into systems with very low current productivity or potential
because of extreme aridity or cold;
 Dualistic (mixed large commercial and small holders) farming systems, across a variety
of ecologies and with diverse production patterns;
 Coastal artisanal fishing systems, which often incorporate mixed farming elements; and
 Urban based farming systems, typically focused on horticultural and livestock production.

Farming systems research and development (FSR/D)

Concepts of farming system research (FSR)

The farming systems research (FSR) approach is aimed at designing agricultural
improvements for specific ecological zones and types of farmers. Teams of technical
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DBU Department of Agricultural Economics
and social scientists analyze major farming systems, identify production constraints,
design ways to alleviate them, test the innovations under farmers' conditions and
recommend the extension of successful innovations (Harwood 1979).

Characteristics of FSR
FSR can be summarized as being farmer-based, problem solving, comprehensive,
interdisciplinary, complementary, interactive, dynamic, and responsible to society. The
approach is:

Farmer based because teams pay attention to farmers‘ conditions & integrate farmers in the
research & development process.

Problem solving in that FSR teams seek researchable problems and opportunities to guide
research & to identify ways for making local services and national policies more attuned to
the farmer‘s needs.

Comprehensive because FSR team considers the whole farming activity (consumption as
well as production) to learn how to improve the farmers output and welfare, to identify the
flexibility for change in the environment & to evaluate the results in terms of both farmers &
society‘s interests.

Interdisciplinary in that researchers & extension staff with different disciplinary back
grounds work with farmers in identifying problems & opportunities searching for solutions
implementing the results.

Complementary: because it offers a means for using the outputs of other research and
development organizations and for giving direction to others‘ work.
Interactive in that FSR teams use the results from research to improve their understanding of
the system & to design subsequent research and implementation approaches.

Dynamic in that often team introduce relatively modest changes in the farmers‘ condition
first & the favorable results encourage more significant changes latter.

Responsible to the society in that FSR team keep the long-run interests of the general public
- both present & future in mind as well as those of the farming groups immediately affected.
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DBU Department of Agricultural Economics
Purposes of FSR

The main purpose of FSR approach is to generate more appropriate technologies for farmers
and where possible to improve policies & support services for farm production, to raise farm
families welfare and to enhance society‘s goals. Specifically FSR aims at increasing the
productivity of farming systems by generating technologies for particular groups of farmers
& by developing insight into which technologies fit where and why.

FSR activities
The basic FSR activities are target and research area selection, problem identification and
development of research base, planning on-farm research, on-farm research analysis and
extension of results.
a) Target and Research area selection
Using national & regional objectives, FSR team selects one or more target areas, then the
team divides the target area into sub areas with relatively uniform characteristics & selects a
research area representative of the selected areas. The team continues by choosing the target
group farmers who have common environments & common production patterns & farming
practices.
b) Problem identification & development of research base
The team identifies and ranks problems & opportunities according to such criteria as short-
run & long-run significance to farmers & society, availability of suitable technologies & ease
of implementation. Besides, the team commonly identifies problems & opportunities through
quick reconnaissance surveys of the area.
In the process of identifying problems & opportunities the team gains considerable
knowledge about the area. This knowledge & the collected data from the initial research base
for developing improved technologies.
c) Planning On-farm Research
For most part the team takes resource availability, support services, and government policy
about as they are.
On farm research emphasizes alternative cropping & livestock patterns, management
practices, and other activities of the farm household. The team incorporates the farmers‘
condition into the design procedure by working closely with them.
d) On-farm research and analysis

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DBU Department of Agricultural Economics
The researchers initiate experiments, studies and other activities, and gather data. Then, they
analyze the results in terms of statistical meaning of biological performance, actual resource
requirements, economic feasibility, and socio-cultural acceptability. Researchers study the
acceptability of the experiments to farmers through observations of farmer‘s action talking
with farmers, and other ways. Finally, the researchers examine the opportunities for
improving support services and government policies.

e) Extension of results
Input from extension should occur at all levels to FSR from initially identifying areas to
broad implementation results. Extending the results involves multi-locational testing an
activity that spreads the improved technologies more broadly than the previous on farm trials
and tests. In this process they learn the details of the technologies and how to apply them.

2.4 Steps for Implementing FSR/D

a) The descriptive, diagnostic stage

An interdisciplinary team of expert (agronomists, sociologist, economist, ethnologists)
identifies as quickly as possible the voiced needs of the farming families, the limits and
constraints to which the families are subject and the level of flexibility which the existing
farming system permit.
b) The design or planning stage
A group of experts identifies a set of strategies for solving the identified problems. The
proposed solutions can come from knowledge obtained at experiment stations; they can also
be developed from the results of field trials or from the farmer‘s own knowledge and
experience.
c) The testing stage
The most promising strategies are chosen by discussing with the farming families and then
tested under conditions comparable to those existing on the local farms. On farm research in
its different forms may also be part of this stage:

d) The recommendation and dissemination stage

This stage also contains a research element. The innovations under trial observed and
analyzed by the farmer and the researcher.

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DBU Department of Agricultural Economics
Challenges of FSR/D

A number of challenges face FSD if it is to continue playing a significant role in facilitating

the process of agricultural development. Some of these are:

 Better Incorporation of Farmers, Incorporating farmers into the research process was
one of the most important principles underlying the evolution of the farming systems
approach. The basic justification for this was that farmers could improve the efficiency of
the research process. Unfortunately, farming systems workers often have not sufficiently
recognized this positive and interactive contribution of farmers.
 Continued Evolution of FSD. FSD is relatively new- the methodology is still evolving.
 Greater Incorporation of the Policy/Support System Perspective. As has been
stressed already' the farming systems approaches implemented to date have focused
mainly on the technology dimension (i.e., FSR). However, a basic principle of the FSD
approach is that the farming systems perspective is critically important in formulating and
adapting policy/support systems in ways that will facilitate and accelerate the agricultural
development process.
 Incorporating Equity Issues -- Intra and lnter-Generational. FSD tries to help the
farmer with the problems he or she has identified. Of course, the reason for this is the
necessity to introduce an intervention in which they are interested; it‘s likely that these
'felt, problems of farmers are likely to have a short-run focus. But; future needs should be
focused as well.
 Assessing Agricultural Research Impact. Related to the research resource issue is the
importance of devoting some effort to assessing the impact of the research process -
something that often has been done inadequately. More attention needs to be paid to
adoption/diffusion studies.
 Improving Credibility of FSD. Establishing credibility for FSD-related activities is a
major challenge and is necessary to ensure that some of the limited research resources
always will be allocated to them.

Development of farming systems and reduction of hunger and poverty

In broad terms, five main household strategies were defined that could contribute to improved
farm household livelihoods and escape from poverty. These strategic options are not mutually
exclusive, even at the individual household level; any particular household will often pursue a
mixed set of strategies. The options can be summarized as:
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DBU Department of Agricultural Economics
 intensification of existing production patterns;
 diversification of agricultural activities;
 expanded operated farm or herd size;
 increased off-farm income, both agricultural and non-agricultural; and
 Complete exit from the agricultural sector within a particular farming system.

Intensification is defined as increased physical or financial productivity of existing patterns

of production; including food and cash crops, livestock and other productive activities.

Diversification is defined as changes to existing farm enterprise patterns in order to increase

farm income, or to reduce income variability. Diversification will often take the form of
completely new enterprises, but may also simply involve the expansion of existing, high
value, enterprises, and will be driven by market opportunities.

Expansion of enterprises refers not only to production, but also to on-farm processing and
other farm-based, income generating activity.

Some households escape poverty by expanding farm size - in this context size refers to
managed rather than to owned resources. Beneficiaries of land reform are the most obvious
examples of this source of poverty reduction. Increased farm size may also arise through
incursion into previously non-agricultural areas, such as forest - often termed expansion of
the agricultural frontier. Although this option is not available within many systems, it is of
particular relevance in parts of Latin America and sub-Saharan Africa. Increasingly, however,
such `new' lands are marginal for agricultural purposes, and may not offer sustainable
pathways to poverty reduction.

Off-farm income represents an important source of livelihood for many poor farmers.
Seasonal migration has been one traditional household strategy for escaping poverty and
remittances are often invested in land or livestock purchases. In locations where there is a
vigorous non-farm economy, many poor households augment their incomes with part-time or
full-time off-farm employment by some household members. Where few opportunities exist
for improved rural livelihoods, farm households may abandon their land altogether, and move
to other farming systems, or into non-farming occupations in rural or urban locations. This
means of escaping agricultural poverty is referred to in the following chapters as exit from
agriculture.

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DBU Department of Agricultural Economics
Determinants of Farming Systems
The key categories of determinants influencing farming system are as follows:
(i) Natural Resources and Climate: The interaction of natural resources, climate and population
determines the physical basis for farming systems. The increased variability of climate, and thus
agricultural productivity, substantially increases the risk faced by farmers, with the concomitant
reduction in investment and input use.

(ii) Science and Technology: Investment in agricultural science and technology has expanded
rapidly during the last four decades. During this period, major technical and institutional reforms
occurred, which shaped the pattern of technology development and dissemination.

(iii) Trade Liberalization and Market Development: Markets have a critical role to play in
agricultural development as they form the linkages between farm, rural and urban economics
upon which the development processes depend. As a result of the reduction of impediments to
international trade and investment, the process of trade liberalization is already generating
changes in the structure of production at all levels-including small holder-farming systems in
many developing countries.
(iv) Policies, Institutions and Public goods: The development of dynamic farming systems
requires a conducive policy environment. Moreover, the establishment of the farm-rural-urban
linkages requires effective demand. Policy makers have increasingly shifted their attention to the
potential to increase the efficiency of service delivery through the restructuring of institutions.
The production incentives have dramatic effect on farming systems. Policies on land ownership,
water management and taxation reform etc have a great bearing on types of farming system in a
region or area.

(v) Information and Human Capital: The need for better information and enhanced human
capital has also increased, as production systems have become more integrated with regional,
national and international market systems. Lack of education, information and training is
frequently a key limiting factor to smallholder development. Many observers anticipated an
information revolution i.e. bridge gap of knowledge between scientists and farmers will be very
key factor for agricultural growth of these small farmers.

(vi) Indigenous Technological Knowledge: Indigenous technical knowledge is the knowledge

that people in a given community has developed over times, and continues to develop. It is based
on experience, often tested over long period of use, adapted to local culture and environment,
dynamic and changing, and lays emphasis on minimizing risks rather than maximizing profits.

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DBU Department of Agricultural Economics
The ITK covers a wide spectrum – soil water and nutrient management; pasture and fodder
management; crop cultivation; plant protection; farm equipment, farm power, post-harvest
preservation and management; agro-forestry; bio-diversity conservation and also exploitation;
animal rearing and health care; animal products preservation and management; fisheries and fish
preservation; and ethnic foods and homestead management. Thus, the ITK of a farmer has a great
influence in managing the farm and farming system.

Classification of farming systems in Ethiopia

Major farming systems in the country

The main characteristics of the major farming systems, including the land area and
agricultural population as a proportion of regional totals are shown.

1. Irrigated Farming System

Ethiopia has an important opportunity in water-led development. This farming system

comprises large and scale irrigation schemes such in the country. Some the large scales
include the awash, Tenaha irrigation schemes. Whereas, many small scale irrigations in the
rift valley and numerous traditionally managed schemes are examples. The country has 12
river basins and numerous small scale irrigation potentials. The importance of intervening
irrigated agriculture in the economy of developing countries results from the fact that rain fed
agricultural system is not capable of supplying the desired amount of production to feed the
increasing population.

The main household strategies to escape poverty in this system are intensification of existing
patterns of production, diversification to higher value products and expanded farm size. An
important consideration is to reduce risks of drought-induced crop failure by promoting,
where feasible and environmentally compatible, extension of the irrigated or water harvesting
area through low-cost techniques - such as flood recession and run of river - that build on
indigenous technical knowledge.

2. Enset Crop Farming System

These systems are based to a greater or lesser degree on the production of enset from suckers
taken from an old corm, which has been planted specially for the purpose. The suckers are
separated from the corm at 1 to 3 years, depending on the altitude. After separation, the

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DBU Department of Agricultural Economics
suckers are transplanted and left for 1 to 2 years. They are then transplanted a second time 2
to 3 meters apart into a permanent field, where maturation requires three to five years
depending on altitude. Manure is regularly applied throughout the year.

It is mainly located in south, south western parts of Ethiopia. These systems are found in
parts of Jimma Zone, East and West Shewa, Guragie Zone, some parts of Wolayta, in the
highlands of Borena Zone. The topography generally comprises hills and rolling plateaus,
with deep reddish clay loams (Nitosols) of good fertility. Livestock densities are very high.
Cattle are important for draught, milk and manure Tree planting is becoming important.
Eucalyptus is being planted around homesteads and on field boundaries for building poles
and for sale. Many scattered trees remain in the fields and remnant forest or woodland on
hillsides. Coffee may be planted under large trees (e.g. Ficus) for shade.

3. Forest Based Farming System

This farming system is found in the humid forest zone of the south west Ethiopia. Farmer‘s
practice shifting cultivation; clearing a new field from the forest every year, cropping it for 2
to 5 years (first cereals or groundnuts, then cassava) and then abandoning it to bush fallow for
7 to 20 years. Cassava is the main staple, complemented by maize, sorghum, beans and
cocoyams. Cattle and small ruminant populations are low, as is human population density.
Forest products and wild game are the main source of cash, which is in very short supply
because few households have cash crops and market outlets are distant.

4. Highland Perennial Farming System

This farming system, found mostly in the sub humid and humid agro-ecological zones of the
country. This system supports the highest rural population density (more than one person per
ha of land) in the region. Land use is intense and holdings are very small. The farming system
is based on perennial crops such as banana, plantain, enset and coffee, complemented by
cassava, sweet potato, beans and cereals. Cattle are also kept, for milk, manure, savings and
social security. The main trends are diminishing farm size, declining soil fertility, and
increasing poverty and hunger. People cope by working the land more intensively, but returns
to labour are low.

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DBU Department of Agricultural Economics
5. Highland Temperate Mixed Farming System

This farming system is located at altitudes between 1800 and 3000 metres in the highlands
and mountains of Ethiopia, generally in sub-humid or humid agro-ecological zones. Average
population density is high and average farm size is small. Cattle are numerous and are kept
for ploughing, milk, manure, savings and emergency sale. Small grains such as wheat and
barley are the main staples, complemented by peas, lentils, broad beans, rape, teff (in
Ethiopia) and Irish potatoes. The main sources of cash are from the sale of sheep and goats,
wool, local barley beer, Irish potatoes, pulses and oilseeds.

6. Cereal-Root Crop Mixed Farming System

The main distinguishing feature of the cereal systems is that nearly all crops are produced
from seed. The crops are mainly cereals, pulses and oil crops, with root crops generally being
of minor importance. Livestock play many roles in such systems: a store of wealth, draught
power, dung fuel, manure, food and transport. Perennial crops, such as coffee, chat and gesho
are important in some systems. This farming systems is located in Arsi –Bale high lands,
Gojam,

There is potential for poverty reduction through - in order of importance - the following
household strategies: (i) intensification of production; (ii) expansion of farm size; and (iii)
diversification to high value products and processing. Some improvement in livelihoods will
also be derived from off-farm income.

7. Pastoral/ Agro-Pastoral Millet/Sorghum Farming System

Ethiopia is home for more than 12-15 million pastoralists who reside in 61% of the nation's
landmass. Pastoralists in Ethiopia are mainly found in four lowland regions, Afar, Oromiya,
Somali and the Southern Nations, Nationalities and People‘s (SNNP) regional states. They
are also found in Gambella and Benishangul areas. The main livelihood systems include
pastoralism, Agro-pastoralism and ex-pastoralism. Pastoral groups typically inhabit areas
where scarce resources and extreme climatic conditions limit options for alternative land use
and livelihood systems. Its capacity to adapt to change is facing many challenges, including
those posed by climate change.

Livestock are kept for subsistence (milk and milk products), offspring, transportation
(camels, donkeys), land preparation (oxen, camels), sale or exchange, savings, bride-wealth
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DBU Department of Agricultural Economics
and insurance against crop failure. The population generally lives permanently in villages,
although part of their herds may continue to migrate seasonally in the care of herd-boys.

8. Mixed crop–livestock systems

These systems are based on cropping associated with livestock husbandry. This system is
generally found in areas where the altitude ranges between 1500 and 3000 m.a.s.l. The area
has adequate rainfall and moderate temperature and is thus suitable for grain production. The
integration of crops and livestock is high in most areas. The integration is lower in the
perennial crop–livestock system (coffee growing areas) in southern Ethiopia where animals
are of minor importance.

Livestock in general and small ruminants in particular play an important role in food security
and food selfsufficiency in this production system. In the grain-based mixed production
system, livestock are the main cash source for the purchase of agricultural inputs. Livestock
are used as a savings and insurance mechanism. Cattle are the dominant livestock species and
are kept mainly for draft power. Sheep and goats are kept to meet small and immediate cash
needs.

Sustainable Livelihood Approaches

Concepts of sustainable livelihoods Approaches

The sustainable livelihoods idea was first introduced by the Brundtland Commission on
Environment and Development, and the 1992 United Nations Conference on Environment
and Development expanded the concept, advocating for the achievement of sustainable
livelihoods as a broad goal for poverty eradication.

Thus, the livelihoods approach is a way of thinking about the objectives, scope and priorities
for development, particularly poverty elimination. A specific livelihoods framework and
objectives have been developed to assist with implementation. In essence it is a way of
putting people at the centre of development, thereby increasing the effectiveness of
development assistance. It is now recognized that more attention must be paid to the various
factors and processes which either constrain or enhance poor people‘s ability to make a living
in an economically, ecologically, and socially sustainable manner

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Definition of livelihood

A livelihood comprises the capabilities, assets (including both material and social resources)
and activities required for a means of living (Chambers and Conway, 1992)

A livelihood is sustainable when it can:

Cope with, and recover from stress and shocks (drought, flood, war, etc.),
Maintain or enhance its capabilities and assets, while not undermining the natural
resource base‖.

Five key elements of the definition can be recognized. The first three focus on livelihoods,
linking concerns over work and employment with poverty reduction with broader issues of
adequacy, security, well-being and capability. The last two elements add the sustainability
dimension, looking, in turn, at the resilience of livelihoods and the natural resource base on
which, in part, they depend.

i) Creation of working days – This relates to the ability of a particular combination of

livelihood strategies to create gainful employment for a certain portion of the year. This may be
on or off-farm, part of a wage labour system or subsistence production.

ii) Poverty reduction – The poverty level is a key criterion in the assessment of livelihoods.

iii) Well-being and capabilities –Capabilities as ‗what people can do or be with their
entitlements‘, a concept which encompasses far more than the material concerns of food intake or
income. Such ideas represent more than the human capital which allows people to do things, but
also the intrinsically valued elements of ‗capability‘ or ‗well-being‘.

iv) Livelihood adaptation, vulnerability and resilience – The ability of a livelihood to be able
to cope with and recover from stresses and shocks is central to the definition of sustainable
livelihoods. Such resilience in the face of stresses and shocks is key to both livelihood adaptation
and coping (Davies 1996).

v) Natural resource base sustainability – Most rural livelihoods are reliant on the natural
resource base at least to some extent. Following Conway (1985), Holling (1993) and others,

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natural resource base sustainability refers to the ability of a system to maintain productivity when
subject to disturbing forces.

Sustainable livelihoods objectives

The sustainable livelihoods approach is broad and encompassing. It can, however, be
distilled to six core objectives. It aims to increase the sustainability of poor people‘s
livelihoods through promoting:
• Improved access to high-quality education, information, technologies and training and
better nutrition and health;
• A more supportive and cohesive social environment;
• More secure access to, and better management of, natural resources;
• Better access to basic and facilitating infrastructure;
• More secure access to financial resources; and
• A policy and institutional environment that supports multiple livelihood strategies and
promotes equitable access to competitive markets for all.

Core principles of sustainable livelihoods

1. People-centered
2. Holistic
3. Dynamic
4. Building on strengths
5. Macro-micro links
6. Sustainability

Environmental sustainability is achieved when the productivity of life-supporting natural

resources is conserved or enhanced for use by future generations.

Economic sustainability is achieved when a given level of expenditure can be maintained

over time. In the context of the livelihoods of the poor, economic sustainability is achieved
if a baseline level of economic welfare can be achieved and sustained. (The economic
baseline is likely to be situation-specific, though it can be thought of in terms of the `dollar-
a-day‘ of the International Development Targets.)

Social sustainability is achieved when social exclusion is minimized and social equity
maximized.
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DBU Department of Agricultural Economics
Institutional sustainability is achieved when prevailing structures and processes have the
capacity to be achieved it is important to continue to perform their functions over the long
term have in place: well-defined Very few livelihoods qualify as sustainable across all these
dimensions. Nevertheless sustainability is a key goal and its pursuit should influence all
support activities. Progress towards sustainability can then be assessed, even if ‗full‘
sustainability is never achieved.

Why is sustainability important?

Sustainability is an important concern of livelihoods because it implies that progress in
poverty reduction is lasting, rather than fleeting. This does not mean that any given resource
or institution must survive in exactly the same form. Rather it implies accumulation in the
broad capital base that provides the basis for improved livelihoods, especially for poor
people.

Determinants of livelihoods
The nature of human livelihoods
For the sake of clarity, we will here use the household as the unit of analysis.
Stores and resources: These are tangible assets commanded by a household. Stores
include food stocks, stores of value such as gold, jewellery and woven textiles, and
cash savings in banks of thrift and credit schemes.

Figure 2.1 Components and Flows in a Livelihood

Resources include land, water, trees, and livestock; and farm equipment, tools, and
domestic utensils. Assets are often both stores and resources, as with livestock, trees
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and savings.

Claims and access: These are intangible assets of a household. Claims are demands
and appeals which can be made for material, moral or other practical support or
access. The support may take many forms, such as food, implements, loans, gifts, or
work. Claims are often made at times of stress or shock, or when other contingencies
arise.

Sustainable Livelihoods fundamentals: capability, equity and sustainability

Capability
The word capability has been used by Amartya Sen (Sen 1984, 1987; Dreze and Sen
1989) to refer to being able to perform certain basic functionings, to what a person is
capable of doing and being. It includes, for example, to be adequately nourished, to be
comfortably clothed, to avoid escapable morbidity and preventable mortality, to lead a
life without shame, to be able to visit and entertain one's friends, to keep track of what
is going on and what others are talking about (Sen 1987:18; Dreze and Sen 1990: 11).
Quality of life is seen in terms of valued activities and the ability to choose and
perform those activities. The word capability has, thus a wide span, and being
democratically defined, has diverse specific meanings for different people in different
places, including the many criteria of wellbeing of poor people themselves (for
examples of which see J odha 1988).

Equity
In conventional terms, equity can be measured in terms of relative income distribution.
But we use the word more broadly, to imply a less unequal distribution of assets,
capabilities and opportunities and especially enhancement of those of the most
deprived. It includes an end to discrimination against women, against minorities, and
against all who are weak, and an end to urban and rural poverty and deprivation.

Sustainability
In development prose, 'sustainable' has replaced 'integrated' as a versatile synonym for
'good'. Few, if any, dissent from the view that development should now be sustainable.
There are, though, many meanings and interpretations of the term (Lele 1991).
Environmentally, sustainability refers to the new global concerns with pollution, global

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warming, deforestation, the overexploitation of non-renewable resources and physical
degradation. It has become orthodox, verbally if not in behaviour, to take a long-term
view, to have a sense of the global village with finite resources threatened by wasteful
and polluting consumption on the one hand, and by rapid growth of population on the
other. In common parlance, sustainability connotes self-sufficiency and an implicit
ideology of long-term self-restraint and self-reliance. It is used to refer to life styles
which touch the earth lightly; to organic agriculture with low external inputs; to
institutions which can raise their own revenue; to processes which are self-supporting
without subsidy. Socially, in the livelihood context, we will use sustainability in a more
focused manner to mean the ability to maintain and improve livelihoods while
maintaining or enhancing the local and global assets and capabilities on which
livelihoods depend.

Sustainable Livelihood Framework

Why need for framework

It helps understand and analyze the livelihoods of the poor. It is also useful in assessing the
effectiveness of existing efforts to reduce poverty. Like all frameworks, it is a simplification;
the full diversity and richness of livelihoods can be understood only by qualitative and
participatory analysis at a local level. Structure and analyze the development situation, how
policies and services are affecting it; provide a holistic overview of how different elements in
development are being addressed.

6.2. Components of the SL framework

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DBU Department of Agricultural Economics
Vulnerability context
What is vulnerability?
The Vulnerability Context refers to the seasonality, trends, and shocks that affect people‘s
livelihoods.
Vulnerability is characterized as insecurity in the well-being of individuals, households, and
communities in the face of changes in their external environment

The vulnerability context includes:

i) Trends: increasing/decreasing population, soil erosion, severity and frequency of droughts,
technology, prices of commodities such as tea and coffee, oil prices, stock markets,
increasing incidence of HIV/AIDS.
ii) Shocks: earthquake, flood, drought, disease, crash of the stock market, loss of job, war,
death of a family member.

It is supposedly a way of conceptualizing what may happen to an identifiable population

under conditions of particular risks and hazards.

iii) Seasonality: crop and livestock prices fluctuate between harvests, crop production,
diseases/health, availability of casual work, availability of food. Prices fluctuations may also
make growing certain crops attractive livelihood strategy

Poor people are less able to cope with shocks, trends and seasonality. The vulnerability
context has a direct bearing on the hardships that poor people face. The fragility of poor
people‘s livelihoods leaves them less able to cope with trends and shocks.

Vulnerability” Context
Shocks: Floods, droughts, cyclones, war, Deaths in the family, Violence or civil unrest and loss of
job
Seasonality: seasonal fluctuations access to food between harvests, crop and livestock,
diseases/health risks linked to season and availability of casual work, seasonality of prices
Trends and changes: Population, Environmental change, Technology, Markets and trade,
Globalisation

Livelihood assets

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Human Natural Social Capital Physical Capital Financial
Capital Capital Capital

Health Land Water Networks and Infrastructure Savings

& aquatic connections • Transport -
Nutrition resources, o patronage roads, vehicles, Credit/debt -
Trees and o neighbourhood etc.
Education forests s • secure shelter & Remittances
Wildlife
o kinship buildings
Knowledge Wild foods & Relations of trust and Pensions
• water supply &
and skills fibres
mutual support sanitation
Biodiversity Wages
Formal and informal • energy
Capacity to Environmenta
groups • communications
work l services Common rules and
• Tools and
sanctions techology
Capacity to Collective
• tools and
adapt
representation
equipment for
Mechanisms for
production
participation in
• seed, fertiliser,
decision-making
pesticides
Leadership
• traditional
technology

Policies, Institutions & Processes

Policies, Institutions & Processes

Policies • of government (land, economic policies)
• of different LEVELS of government
• of NGOs
• of interational bodies
Institutions • political, legislative & representative bodies
• executive agencies

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 • judicial bodies
• civil society & membership organisations
• NGOs
• law, money
• political parties
• commercial enterprises & corporations
Processes • Decision making process for collective action
• the ―rules of the game‖
• decision-making processes
• social norms & customs
• gender, caste, class
• language

Livelihood strategies: portfolios and pathways

Livelihood strategies are: the range and combination of activities and choices that people
make or undertake in stable times to achieve their livelihood goals

The choice of strategies is a dynamic process in which people combine activities to meet their
changing needs. For example, in farming households, activities are not necessarily confined
to agriculture but often include non-farm activities in order to diversify income and meet
household needs. Migration, whether seasonal or permanent, is one common livelihood
strategy. Livelihoods are diverse and change over time. Livelihood strategies can be divided
into
i) Natural resource-based activities (e.g. cultivation, livestock-keeping, weaving,
collection and gathering)
ii) Non-natural resource-based activities (e.g. trade, services, remittances).

Within the sustainable livelihoods framework, livelihood strategies can also be classified
according to different criteria. Scoones (1998) divided rural livelihood strategies into three
broad types according to the nature of activities undertaken three broad clusters of livelihood
strategies are identified. These are: agricultural intensification/extensification, livelihood
diversification and migration.

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Livelihoods outcomes
Livelihood outcomes are the achievements of livelihood strategies, such as more income (e.g.
cash), increased well-being (e.g. non material goods, like self-esteem, health status, access to
services, sense of inclusion), reduced vulnerability (e.g. better resilience through increase in
asset status), improved food security (e.g. increase in financial capital in order to buy food)
and a more sustainable use of natural resources (e.g. appropriate property rights). Outcomes
help us to understand the 'output' of the current configuration of factors within the livelihood
framework; they demonstrate what motivates stakeholders to act as they do and what their
priorities are. They might give us an idea of how people are likely to respond to new
opportunities and which performance indicators should be used to assess support activity.
Livelihood Outcomes directly influence the assets and change dynamically their level - the
form of the pentagon -, offering a new starting point for other strategies and outcomes (DFID,
1999: 2000).

Methods for investigating livelihood

1) Participatory methods (PRA): Social maps, Timelines, Matrix/preference ranking, Venn
diagrams Transect walks, mapping ranking and key informant interview (including external
experts), Focus group discussion, Timelines Seasonal diagrams,, Preference ranking
2) Sample survey
3) Secondary sources on meteorological-(price, economic- demographic- resource stocks-
health)
Key Questions for Farming System and Livelihood Analysis
Choose the best answer from the given alternatives

1. Point out the one that is under major system premises;

A. Interdependence
B. Input seeker
C. Individualistic
D. Separate entity
2. Why sustainability is important?
A. Progress in poverty reduction is lasting, rather than fleeting.
B. Provides the basis for poor livelihoods.
C. It is advantageous especially for the rich people
D. For the sake of scientific study

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 3. What defines people indigenous knowledge, skill that people acquire over long period
of time of their livelihood?
A. Human capital
B. Social capital
C. Financial capital
D. Natural capital
4. What defines the infrastructural facilities that people access in their locality?
A. Human capital
B. Social capital
C. Physical capital
D. Natural capital
5. Which asset classifies endowments like land, water resources, and climatic conditions
of a given area?
A. Social capital
B. Physical capital
C. Financial capital
D. Natural capital
6. Identify the one that does not effectively determine policy institutions and processes;
A. Access to various types of capital, to livelihood strategies and to decision-
making bodies and sources of influence
B. The terms of exchange between different types of capital
C. Returns (economic and otherwise) to any given livelihood strategy
D. Operations at single level, from the household to the household arena
7. Which one is correct?
A. Reductionist approach failed in technology adoption for poor farmers
B. Green revolution had major impact on crop production in Sub Saharan
Africa
C. Limited resource farmers cannot be involved in farming system research
approach
D. System thinking emphasis on breaking a problem and solving each
individually
8. Identify the one that is under major categories of farming system;
A. Scientific farming system
B. Traditional farming system

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 C. Single farming system
D. Urban based farming system
9. What is the purpose of farming system research
A. To generate more appropriate technologies for farmers
B. Reduce farm family welfare
C. Enhance government goal
D. To focus on traditional agriculture
10. Which one is not the major activity of farming system research?
A. Increasing productivity
B. Problem identification and development of research base
C. Achieving objective
D. Communication technologies
11. Which one is not the feature of livelihood strategy?
A. The livelihoods approach seeks to promote choice, opportunity and diversity
B. It is the range and combination of activities and choices that people
make/undertake in order to achieve their livelihood goals
C. livelihood strategies for rural communities could only be migration
D. Strategies are intimately connected with people‘s objectives
12. Select the one that is a challenge of FSR/D
A. Good participation of farmers
B. Static nature of farming system research
C. Organized policy/support
D. Inequity issues
13. What measures are needed to develop farming system and reduction of hunger and
poverty?
A. Increasing migration
B. Diversification of agricultural activities
C. Decreasing off farm income
D. Minimize farm or herd size
14. Identify main determinant of farming system;
A. Natural resource & climate
B. Rain fed agriculture
C. Subsistence farming
D. Crop production

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 15. What does a livelihood comprises?
A. Scientific research
B. Conventional research
C. Well-being & capability
D. Information technology
16. It is included under determinants of livelihoods; which one?
A. Farming system
B. Social setting
C. Urban agriculture
D. Irrigated agriculture
17. Which one can be categorized under components of livelihood analytical framework?
A. Vulnerability
B. System thinking
C. Reductionist theory
D. Gender equity
REFERENCES

Farming Systems and Rural Livelihoods; reviewed by: Prof. Malongo R.S. Mlozi Sokoine
Unniversity of Agriculture

Farming Systems and Livelihoods Analysis; Course material Woliso University, Ethiopia.

Farming Systems Research, A Review Norman W. Simmonds; The World Bank Washington,
D.C, U.S.A.

Farming Systems Research and Development Guidelines for Developing Countries W. W.

Shaner, P. F. Philipp, W. R. Schmehl Westview Press.

Beyan Ahmed and Hiwot mokonen.2014. Farming Systems and Livelihoods analysis. Course
Modue Haramaya university Ethiopia

Hildebrand, P.E. 1986. Perspectives in Farming Systems Research. Boulder, CO: Lynne
Rienner Publishers. Cambridge.

Jemal yusouf and Alemu sokora.2014. Farming Systems and Rural Livelihoods. Course
modue haramaya university Ethiopia.

Norman, D.W., J.D. Siebert, E. Modiakgotla, and F.D. Worman 1995. The Farming Systems
Approach to Development and Appropriate Technology Generation. Rome:
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Food and Agricultural Organization (FAO). Ruthenberg, H. 1980. Farming Systems in The
tropics (3rd edition). Oxford, UK: Clarendon Press.

END!

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