Agricultural Economics and Farm Management
Agricultural economics and farm management tests how scarce land, labour, capital and management are combined to make a profit. You need to classify costs, prepare a gross margin, judge break-even and use records for decisions.
Core rules
Variable costs change with the enterprise, such as seed, fertiliser, feed and casual labour. Fixed costs remain whether or not the enterprise is run, such as land tax, insurance and depreciation on buildings. Gross margin = gross income − variable costs. It does not include fixed costs. Profit = total income − total costs. Break-even output = fixed costs ÷ (price per unit − variable cost per unit). Records support planning and loan applications.
Worked example
One hectare of maize yields 3 t, sold at N$4,000/t. Variable costs are seed N$1,200, fertiliser N$2,500, labour N$1,500 and transport N$800. Calculate the gross margin. Reasoning: gross income = 3 × 4,000 = N$12,000. Variable costs = 1,200 + 2,500 + 1,500 + 800 = N$6,000. Gross margin = 12,000 − 6,000 = N$6,000/ha. Fixed costs are excluded; subtracting them would give profit, not gross margin.
Traps that cost marks
Do not include fixed costs in a gross margin. Do not confuse cash flow with profit. Do not ignore depreciation or the opportunity cost of family labour and land.