agriculture analysis

1. METHODS FOR ECONOMIC ANALYSIS OF
DIFFERENT AGRI-ENTERPRISES: WITH SPECIAL
REFERENCE TO MAJOR CROPPING SYSTEM

2.  Agricultural productions are the function of various
inputs used in production process.
 The input used in each operation according to their
requirements for growing a crop, each operation has its
own importance and required special attention.
 A little carelessness with any of them may cause to
decrease of production.

3.  In general Cost, refers to the expenses incurred on
productive services and physical productivities are
guided by the cost of various input factors. Mainly
costs are of two types:
Fixed Cost:
It represents farming expenses of an overhead nature
and do not change with the output, e.g. interest on
fixed capital, depreciation, revenue etc.
Variable Cost:
It varies with the level of output. It includes charges
of hired labour, seed, manure and fertilizer, irrigation,
chemicals for plant protection etc.

4. There are seven type of costs :
 Total Variable Cost (TVC): This is calculated by multiplying
the amount of variable input by the price per unit of input.
 Average Variable Cost (AVC): It is obtained by dividing total
variable cost by the amount of output. AVC varies with the
level of production.
AVC= TVC .
Output
 Marginal Cost (MC): Marginal cost is the change in total cost
as related to change in output. This is calculated by dividing
the change in total cost by the corresponding change in output,
i.e., ∆TC
∆Y
 Total Fixed Cost (TFC): Total fixed cost shows the sum of
expenditures which will be incurred irrespective of the output.

5.  Cost of Cultivation
Cost of cultivation refers to the total expenses incurred in
the production of crops per hectare of the land area and is
always measured in Rupees per hectare.
 Cost of Production
Cost of production refers to the expenses incurred in
producing per quintal of crop output. It is worked out by
dividing the cost of cultivation per hectare by the yield of
crop and is always measured in Rupees per quintal.
 Cost of Production = Cost of cultivation – Value of by-product
Quantity of main product

6.  Purchased price
This is a method of valuation of item of cost on the
basis of current price as actual purchase price viz.
Fertilizers
Chemicals
Feeds
Seeds
Containers
Veterinary Medicines etc.
• Normal market value or average selling price is used
for items whose value does not change in a year. Thus
land value can be evaluated by this method.

7.  Present market value
Items, which are not purchased regularly but are
traded in the market, are evaluated on present market
value like,
 Home grown seeds
 Manures
 Value of animals
 Man labour etc
 Net selling price
It is the selling price minus cost of marketing. Used
for farm products sold.

8.  Imputed value
• There are certain items for which no money is
actually spent but they do contribute towards the
growth of a crop.
• Family labour is an important input in the
enterprise, but no money is paid by the farmer to
his family members for the work done on the farm.
• Cost assessment in respect of such items is made
by using imputed value of cost. Family labour cost
is generally imputed on the basis of prevailing
wage rate in the locality.

9.  Depreciation
It is wear and tear value of different farm assets.
Depreciation can be worked out on the basis of any of
the three methods given below:
i. Straight line method
ii. Declining balance method
iii. Sum of the year digits method

10.  Different components of variable costs may be evaluated as follows:
Animal Labour
 The animal labour may be evaluated as sum of
A).
(i). Fodder and feed (ii) Wages of the cattle attendant
(iii) Interest (iv) Depreciation
(v) Other general charges
Like, cost of veterinary charges, cost of ropes, chains etc.
B).
(i) Value of manure (ii) Work done outside the farm
(iii) Appreciation or profit due to sale of animals
Then the daily cost of animal labour is obtained as
____________A-B_____________
 Number of days worked in the year

11.  Cost of farm produced seed, fodder and feed
The cost on account of farm-produced commodities can be
obtained as per the prevailing locality prices of these
commodities.
 Farmyard manure
Farm produced manure can be evaluated as per the prevailing
locality rates. In case it is purchased, then the evaluation is to
be done on the basis of purchase price.
 Chemical fertilizer
It can be evaluated at the purchase price including the
transport charges.
 Cost of insecticides and pesticides
It can be evaluated at the purchase price.

12.  Owned/hired, bullock and tractor labour
It may be evaluated at the rate of hire charges for bullock / tractor.
The own/bullock / tractor labour can be charged on the basis of
operational expenditure per hour.
 Hired and permanent labour charges
These may be evaluated on the basis of hours worked on the field
and wages paid for such work.
 Cost of owned/hired irrigation
It may be evaluated on the basis of actual amount paid. In case of
own irrigation the cost estimates can be based on operational cost
per hour.
 Interest on working capital
The paid out cost constitutes the working capital. The prevailing
bank rate of interest can be taken to work out the interest on
working capital for the duration of the crop.

13.  Different components of fixed costs may be evaluated as
follows:
 Family labour
The value of family labour can be imputed on the basis of
wages of attached farm labour and number of men hours used.
 Interest on fixed capital
The present value of assets, equipments form the fixed capital.
Interest on this can be calculated in the same way as in case of
interest on working capital.

14.  Owned machine charges
Calculated on the basis of cost of maintenance of farm machinery, which
may include
a) Diesel b) Power
c) Lubricants d) Depreciation
e) Repair and f) Other expenses, if any
 Rent on lease-in land
It can be calculated on the basis of actual rent paid.
 Rental value of own land
It can be evaluated on the basis of interest on the value of land for the
period of the crop. Or else, it can be taken as rent paid for a similar land in
a given area.
 Management cost
The management cost can be taken as a certain percentage of the total paid
out cost. (Generally, taken as 10%).

15. A. Direct Costs:
Direct costs or Operational costs (OC) are the variable costs
which vary with the level of production and include:
1. Human labour – (a) Family labour (b) Exchange labour
2. Bullock labour – (a) Owned bullock labour and exchange
bullock labour (b) Hired bullock labour.
3. Machinery Equipment and implement charges: Hired
charges
4. Costing material used - (a) Seed, (b) Manures &
fertilizers, (c) Pesticides etc (d) Miscellaneous.
5. Land revenue
6. Irrigation
7. Marketing Cost
Operational cost (OC) = Cost A1 – land revenue –
Depreciation + wages of family labour

16. B. Indirect Costs:
Indirect Costs or overhead costs are the fixed costs
which are incurred irrespective of the size of production
and include:
1. Land improvements
2. Farm buildings, fencing, wells
3. Indirect labour
4. Depreciation on machinery and equipment
5. Interest
6. Rent
Overhead cost (OHC) = Cost C2 - OC

17. Cost A1: It includes the value of
1. Value of hired human labour
2. Value of hired bullock labour
3. Value of owned bullock labour
4. Value of owned machine labour
5. Value of hired machine labour
6. Hired machinery charges
7. Value of seed (both farm produced & purchased)
8. Value of insecticides and pesticides
9. Value of manure (owned and purchased)
10. Value of fertilizers
11. Irrigation charges

18.  Cost A2 = Cost A1 + Rent paid for leased in land
 Cost B1 = Cost A1 + Interest on fixed capital
 Cost B2 = Cost B1 + rent paid for leased in land +
rental value of own land
 Cost C1 = Cost B1 + Value of family labour
 Cost C2 = Cost B2 + value of family labour
 Cost C3 = Cost C2 + Cost of management (10% of
cost C2)

19.  The profits at different cost levels provide different
measure of returns to the cultivator.
 Profit at Cost A: It is also known as farm business
income. It provides an estimate of returns to the farmer
for his investment and profit.
Farm Business Income = Gross Returns – Cost A2
 Profit at Cost B: It is also termed as family labour
income. It provides an estimate of returns to the farmer
for his labour and profit.
Family labour Income= Gross returns - Cost B2

20.  Profit as Cost C: It is also known as net income. It
provides an estimate of returns to the farmer purely
of profit.
Net Income = Gross returns - Cost C3 (Total Cost)
Gross returns or gross income is the total of the
values of both the main and by products.
 Cost benefit Ratio (return per rupee) = Gross income
/ Cost C3 (Total Cost)
 Cropping Intensity (%) = Gross Cropped area/Net
Area x 100
 Return over variable cost = Gross income – Total
variable cost