Everything about Farm budgeting in agriculture
Farm budgeting in agriculture
Farm budget is a detail written plan which is prepared in advance for using the resources of a farming business. It shows the intended use of all resources and the estimated results expected from their use. The process of preparing the farm budget is termed as farm budgeting. Or, the expression of farm plan in monetary terms is called farm budgeting.
In other words, farm budgeting may be defined as the detailed Quantitative statement of a farm plan. It sets out (i) the physical aspects of the plan, what to produce, how much the resources to use (ii) the financial aspects of the plan, the expected cost and return and therefore the profit.
Why farm budgeting is necessary?
The necessities of farm g are given below:
a. To choose different farm activities which are suited to the given farm conditions.
b. To look into the future and decide on suitable course of action.
c. To select appropriate enterprise combinations that results in the better use of resources.
d. To help the farmers in timing various jobs and operations for smooth conduct of operations without competition. To determine the amount of loan for farm management if necessary.
c. To avoid wastages that occurs in the resource use. Budget is also necessary at the change of site of the farm in terms of area.
f. To provide guidance and flexibility to the farmers for ensuring, better use and growth of the farm.
g. To provide allocation of resources for producing the requisite products for marketing and household consumption.
h. Budget is necessary when a farmer accumulate capital and wishes to change his farming operations to meet his new financial situation.
i. Budgeting is needed before the beginning of new financial year to know in advance the amount of money to be required for that particular year.
Types of farm budget
A. On the basis of extent of time, the farm budget is two types:
i) Long run budget
ii) Short run budget
i) Long run budget: By a long run budget, we mean budget prepared for several years for the future. Usually a long run budget varies from 5-25 years. It is estimated as an average year over some period of time.
ii) Short run budget: Budget formed for a unit time usually a year or less is termed as short run budget. Once a long run budget for 5-25 years has been prepared, it is needed to make short run budget for each year. Annual budget is made to fit the individual year. Cropping scheme is a short run budget.
B. On the basis of content of budget:
i) Partial budget
ii) Complete budget
i) Partial budget: Partial budgeting is a statement of anticipated changes in cost, returns and profitability for a minor modification or change. When a farmer considers few modifications or minor changes in the existing organization of the farm business, partial budgeting technique is employed. Only some changes such as adding to an enterprise; introducing a new enterprise, purchasing a new machine, etc. are adjusted by partial budgeting. Partial budgeting consists of four important elements viz., i) added costs ii) added returns iii) reduced returns iv) reduced costs. Partial budgeting technique is generally used to evaluate the profitability of input substitution, enterprise substitution and scale operation.
Example of partial budget 1:
Proposed modification to control Tikka leaf spot in groundnut.
Items
|
Items
|
Added costs (200 gm Carbendazim 500gm Mancozem)
|
Tk.628.00.
|
Added returns (Yield 187 kg @ Tk12.50)
|
Tk.2348.72
|
Reduced returns
|
Nil
|
Reduced costs
|
Nil
|
Total of added costs and reduced returns
|
Tk.628.00
|
Total of added returns and reduced costs
|
Tk.2348.72
|
Net change = Tk.2348.72 — Tk.628.00= Tk.1720.72 (Profit)
|
Example of partial budget 2:
Substitution of sunflower for groundnut:
SL.
|
Particulars
|
Existing situation groundnut (Tk.)
|
Alternate situation of sunflower (Tk.)
|
a
|
Human labour
|
1474.00
|
1017.00
|
b
|
Bullock labour
|
872.00
|
831.00
|
c
|
Manures
|
864.00
|
902.00
|
d
|
Fertilizers
|
1164.00
|
1023.00
|
e
|
Seed
|
2200.00
|
800.00
|
Total operation costs/ha
|
65741.00
|
4573.00
|
Gross income/ha
|
9.20 quintal @Tk.1212.82=Tk.11158.00
|
9.86 quintal @Tk.1114 .01 = 11280.00
|
Items
|
Items
|
Added costs Manures
|
Tk.38.00
|
Added returns
|
Tk.122.00
|
Reduced returns
|
Nil
|
Reduced costs
|
|
|
|
Human labour
|
Tk.457.00
|
Bullock labour
|
Tk.41.00
|
Fertilizers
|
Tk.141.00
|
Seed
|
Tk.1400.00
|
Total added costs
|
Tk.38.00
|
Total reduced costs
|
Tk.2039.00
|
Total of added costs and reduced returns
|
Tk.38.00
|
Total of added returns and reduced costs(Tk.122.00 + Tk.2039.00)
|
Tk.2161.00
|
Net change = Tk.2161.00 —Tk.38.00 = Tk.2123.00 (Profit)
|
ii) Complete budget:
It refers to the preparing of a plan for the whole farm business activities or for all decisions of an enterprise. It is a method of estimating expected income, expenses and profits for the farm as a whole. It is also used when a plan for a new farm or a new farmer is required. A complete budget goes into details on the following aspects:
a. Use of specific farm land (area)
b. Area of each crop to be grown
c. Details of inputs such as, seed, fertilizer, labour, marketing cost etc.
d. Dispersion of production for faun uses and sales
e. Details of the livestock, fisheries, poultry programs
f. Machineries and equipment with their cost.
g. Summary of production rates
h. Consumption, expenditure, saving and investment.
Example of a complete budget
Preparation of a complete yearly budget of an agricultural farm having an area of 50 ha land.
Procedure of budgeting:
1. Available resources:
a) Human resource:
i. Farmers goal
ii. Farmers skill
iii. Labours availability at the surrounding area of the farm
b) Physical resources:
i. Land topography-medium high land, more or less plane land ‘
ii. Soil type — clay loam
iii. Crop — Suitable for the cultivation
iv. Machineries — 2 deep tube-well, 2 power tiller, 30 country plough
c) Financial facilities:
i) Cash in hand — Tk.150000.00
ii) Cash in bank — Tk.500000.00
2. Farming type:
i) Single cropped farm (paddy)
3. Office, other buildings and cultivable land
i) Cropped area = 40 ha
ii) Road, building and threshing floor = 7 ha
iii) Pasture land = 3 ha
The total land = 50 ha
4. Man power
i. Permanent employee (officer) 2
ii. Permanent employee (staff) 5
iii. Permanent labours 40
iv. Temporary labours 1000
5. Fixed cost:
i. Salary for officer Tk.1,15,000.00
ii. Salary for staff Tk.1,40,000.00
iii. Salary for permanent labours Tk.800000.00
iv. Taxes Tk.5000.00
v. Miscellaneous cost Tk.10,000.00
vi. Repairing cost of machineries Tk.40000.00
vii. Repairing cost or building and houses Tk.5000.00
viii. Electricity, fuel and telephone cost Tk.200000.00
The total fixed cost = Tk.13, 15,000.00
6. Variable cost
i. Payment for temporary labours (8,000) Tk.3,00000.00
ii. Fertilizers Tk.1,60000.00
iii. Seeds Tk.24,000.00
iv. Pesticides Tk.24,000.00
v. Miscellaneous (fence, fodder, fuel) Tk.5000.00
The total variable cost = Tk.5, 13,000.00
So, the total cost= Fixed cost + Variable cost
= Tk.13, 15, 000.00 +Tk.5, 13,000.00
= Tk.18, 28,000.00
7. Gross income
SI.
|
Products
|
Yield (ton)
|
Value(Tk.)
|
1
|
Rice grain
|
400
|
24,00,000.00
|
2
|
Straw
|
400
|
1,50,000.00
|
The total income
|
25,50,000.00
|
Net income/Profit = Tk.25, 50,000.00 — Tk18, 28,000.00
=Tk. 7, 22,000.00
Signature of farm manager