Farm Management Flashcards
Summarise the key economic tools of analysis in farm business, planning and control, and acknowledge why they are important in animal health planning.
Economics = making rational choices/decisions in the allocation of scarce resources with competing alternatives
Economics helps in-
- Understanding why people have made animal health decisions in the past
- Predicting how people will make animal health decision in the future
- Guiding people on how to improve future animal health decisions for the benefit of individuals and society in general - the most aspect for agribusiness
Animal health economics achieves these objectives through-
- Concepts - eg: opportunity cost (what is being missed out as a sacrifice - eg: not going out with friends to study), productivity
- Theoretical frameworks - eg: marginality of decision making, institutional setting in which a decision is made
- Practical tools that simulate reality - eg: decision tree analysis
Economic analysis requires data-
- Production (output)
- Inputs (bare minimum of variable costs)
- Prices
Economic analysis of animal health and livestock production systems requires-
- Technical assessment of the system
- Epidemiological analysis of a change
- Herd-flock modelling
Commonly used enterprise tools-
- Gross margin analysis
- Partial budgets
- Investment appraisal
- Financial feasibility
- Decision tree analysis
- Cost-effectiveness analysis
To do with veterinary medicine-
- Recommendation requires account for cost effective measures
- This requires awareness of the economic situation of farmer
- Many practices do provide data analysis services
Define productivity as a measure of the efficiency of the conversion of inputs into outputs.
Understanding output:
Output is the benefit received (product) - eg: milk
There are three important aspects when calculating output from a livestock enterprise
Animals and products that move OUT
Animals and products that move IN
Change in herd or flock VALUE - a calf at the beginning of the year that grows will have higher value by the end of the year
Animals and products that:
Move out-
(+) Sale of products (milk, wool, fibre, manure, draught power)
(+) Sale of animals
(+) Value of livestock products consumed in the household
(+) Value of products and animals given to workers as a form of payment
(+) Value of animals that are gifted or loaned
Move in-
(-) Purchased animals
(-) Animals received as gifts or loans
Results:
(+) Value of the herd or flock as the end of the analysis period
(-) Value of the herd or flock at the beginning of the analysis period
Calculating output:
Productivity = a measure of the efficiency of the conversion of inputs into outputs
An example of a beef fattening unit-
At the beginning of the year a farmer has 7 young bullocks at each worth £120
During the farmer year, the farmer-
Buys 5 calves at £50/head; and
All the animals survive
At the end of the year, the animals are worth-
Bullocks - £230/head
Calves - £120/head
Understand and perform a gross margin analysis.
Gross margin analysis:
Gross margin analysis is used to assess and compare different enterprises
It is not a full measure of profitability, but of financial efficiency of conversion of variable costs into outputs
The basis of the analysis are real data
It does not take into account fixed costs nor the management time given by the owner of the enterprise
It does not take into account a change in an enterprise
Gross margin = output - variable costs
Gross margins:
- Output
- Variable costs
- Fixed costs
- Gross margin = output - variable costs
- Gross margins do not take into account fixed costs
Fixed costs are not useful in the short term when it comes to decision making and changes
Gross margins re measuring efficiency not profitability
Example:
12 piglets per litter with mortality rate of 15% → 15% of 12 = 1.8 (rounded to 2 pigs lost)
10 remaining pigs → (1.2 x 100) x 10 = £1,200 (total output)
Fixed costs → 700 + 150 + 15 = £865 (lost)
Sow value → £600-£500 = £100 (lost)
865 + 100 = £965 (lost)
Output - loss → 1200 - 965 = £235 profit
Understand what a farm budget is.
Costs for a livestock enterprise can be separated into-
Variable costs - those that vary in the short-term according to the scale of production. If there is no product produced then the variable costs will be zero
Fixed costs - those that vary in the long-term. If there is no production the fixed costs will still exist. In a farm with a mixture of enterprises, the fixed costs will be shared between the enterprises
Cost - essential definitions:
Variable costs generally are-
- Animal health inputs, such as vaccines, drugs, etc…
- Concentrate feeds
- Mineral supplement
- Forage costs
Fixed costs includes items such as-
- Salaries for permanent staff
- Maintenance of machinery and farm infrastructure
- Rent
- Administration costs
- Electricity, water, petrol, diesel
- Depreciation
- Interest
All costs are variable in the long run
Find high-quality information on livestock and livestock product prices.
Sources of price-
Farming press-
- Latest agricultural farming statistics from around the UK
- Farmers Weekly, Farmers
- Guardian, Scottish Farmer, - Farmer Week, Irish Farmers Journal
- Industry data
Quality meat Scotland - market prices
DEFRA
Influences on prices:
- Consumer demand-
— Quantity
- Quality-
—Taste
—Presentation
—Food safety
—Welfare and production standards
- Production supply-
— Cost of inputs
— Breeds
— Technology
— Disease control
— Transport
— Processing and retailing
- Media-
— Food scares-
— Salmonella 80s
— BSE 90s
— HPAI 00s
— Marketing-
— Brand image
Acknowledge the importance of understanding farm management in the value-adding of veterinary services in practices.
To do with veterinary medicine-
- Recommendation requires account for cost effective measures
- This requires awareness of the economic situation of farmer
- Many practices do provide data analysis services
