UNIT 4: Agricultural economic and financial concepts

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UNIT 4 Agricultural economic and financial
concepts

• Theme 1 Introduction to terms

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MAIN ELEMENT FOR ECONOMIC ANALYSIS

• Output
• Input
• Surplus

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OUTPUT TERMS

• Gross value of production
• Gross income

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Gross value of production

• The total value of all the marketable production
  or yield of a specific farming enterprise.
• Three major sources
• Livestock enterprise
• Cash crop enterprise
• Pasture/fodder enterprise
• Sundry income

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GROSS VALUE OF PRODUCTION FOR A LIVESTOCK
ENTERPRISE

• Product income
• Trading income
• Inventory change

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Product income

• Gross sales
• Insurance
• Household use donations
• Labour consumption
• Internal transfers
• Stock adjustment

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Trading income

• Livestock sales
• Home consumption
• Insurance
• Other direct receipts
• Internal transfers (In-out)
• Purchases (minus)

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Inventory change

• Closing value opening value

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GROSS VALUE OF PRODUCTION FOR A CASH CROP
ENTERPRISE

• Gross sales
• Insurance
• Household use donations
• Labour consumption
• Internal transfers
• Stock adjustment

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GROSS VALUE OF PRODUCTION FOR A PASTURE CROP
ENTERPRISE

• Reflected as the input of the livestock
  enterprise that consumes the product

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SUNDRY FARM INCOME

• Income derived from a farming activity which
  cannot be directly allocated to a specific
  enterprise. E.g.
• Contract work
• Hired veld
• Fodder crop

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Gross income vs Gross value of production

• Gross income does not take into account internal
  transfers of products from one enterprise to
  another

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INPUT TERMS

• Accounting input terms
• General cost terms

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Accounting input terms

• Imputed charges no real expenditure incurred.
  Eg. Estimated rental value of land, interest on
  own capital, unpaid labour, own management
• Depreciation cost recovery for replacement of
  equipment

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General costs terms

• Total costs Fixed variable costs
• Variable costs vary with the scale of production
• Fixed costs Fixed in the short-term irrespective
  of the scale of production
• Total factor costs interest, rent/lease, wages
  salary
• External hired production factors
• Internal own production factors

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General costs terms

• Directly allocatable costs fixed/variable costs
  that can be directly allocated to an enterprise
  without detailed records
• Not directly allocatable costs Requires detailed
  record-keeping for allocation
• Unallocatable costs cannot be logically
  allocated to a particular enterprise

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General costs terms

• Overhead costs not allocated to any particular
  enterprise
• Financing costs costs payable on loans, debt
  overdraft (excluding capital)
• Marketing costs direct indirect costs incurred
  in marketing products

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SURPLUS TERMS

• Enterprise gross margin GVP-directly allocatable
  costs
• Total gross margin sum of all enterprises gross
  margins
• Total farm gross margin total gross margin
  sundry farm income
• Margin above specified costs deductions of
  specific costs from the GVP

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SURPLUS TERMS.

• Net farm income
• Gross farm income total farm costs
• Total farm gross margin overhead costs
  (excluding remuneration to foreign capital)
• Farm profit
• NFI remuneration to foreign capital
• Return to total capital
• NFI hired own management
• Return to Own capital
• Farm profit own management

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SURPLUS TERMS.

• Disposable income cash available for further
  investment
• Net disposable income
• Disposable income family expenditure current
  investment