Cost of Production: Uses and Users Short Training Course on Agricultural Cost of Production Statistics This presentation will focus on the uses and users of cop statistics. We will go over the various benefactors and some of the more common uses for cop statistics.

Uses and Benefits of CoP Statistics For Farmers and Agricultural Markets For Policy-makers and Governments For the System of National Accounts Measures how efficient the farm business uses resources; Provides data on area, yield and production, farm revenues, expenses and capital costs. Improves the effectiveness of farm extension services. Illustrates capitalization of the farm sector and its rate of growth. Distinguishes between fixed and variable costs Collects data on paid and unpaid labour. Measures total and gross net farm incomes This slide illustrates the variety of uses that cop can be put to and by the many different participants in the economy. Properly collected, COP data can improve farming efficiency, farm incomes national statistics and national agricultural policy. It can inform on many socio economic issues as well.

How do Farm Operators Benefit? Unique program because providers of information can directly benefit by it. Self-assessment; enterprise and whole farm. Benchmarking Improves efficiency, performance, productivity and returns Improved decision making Accurate financial analysis - reallocation between enterprises Knowledge of the breakeven points - short-term success Investment decisions in capital assets - long-term success COP statistics are unique in the world of official statistics because unlike many nationally produced indicators, cop data can have direct use to the persons who provide the data to the statistical agency. Respondent farmers can directly benefit from the cop data This slide lists some of the uses that farm operators can make of the data. Present examples for each point in the slide

How can Farming Practices be improved through Extension Programs? Farm extension workers are provided with evidence to support training and outreach activities - better evaluation Provision of data to support training and outreach activities. Evaluation of an individual farm’s management practices against norms for the region. Identification of where to best target changes so that largest payoffs are earned. Improves efficiency and effectiveness of the extension workers For many farmers, technical information is obtained from government agriculture extension workers who supply farmers with technical advice on farming best practices and training. CoP data can provide the extension worker with fact based information on what works and what doesn’t. If put into a model, the farm extension worker can outline such things as the proper seeding rates and fertilizer rates, assist with the preparation of farm budgets, advise on common and best local practices. The points here illustrate how farm extension delivery service can be improved through the application of CoP.

Price Setting and Support Payments: Improve the targeting and efficiency of agricultural policies (1/2) Reduced risk to government and to recipients as price determination can be empirically informed Perception and reality that decisions are based on objective sound information Better determination of price formation Reduction of the risk of overpaying or overspending by countries with respect to price support, investment aid and/or agriculture- related import or export decisions Cost of production generally is often used to set the procurement prices for products covered under the price support programs. For government policy makers, especially those in developing countries, price support and input subsidies are policy levers that can be difficult to get right. Proper CoP can greatly reduce uncertainty for this calculus. This can greatly reduce the cost of an error.

Price Setting and Support Payments: Improve the targeting and efficiency of agricultural policies (2/2) Data are used to inform on food security and poverty alleviation. Production estimates can differentiate between farm food consumption from marketable production. Illustrates the sensitivity of the food supply in response to different production practices. Time series analysis provides indications of stability of the food supply. Informs on environmental and sustainability concerns. Informs on the impact of the various farm management practices. For government policy makers, especially those in developing countries, price support and input subsidies are policy levers that can be difficult to get right. Proper CoP can greatly reduce uncertainty for this calculus. This can greatly reduce the cost of an error.

Uses and benefits of CoP Data for the System of National Accounts Improves the measurement of intermediate consumption by different agricultural activities, hence their economic Value Added Allows construction of a proper sequence of economic- accounts for agriculture Each main agricultural activity requires detailed data on input uses and costs, by activity, which is helpful for analysts to understand links between agricultural activities. The SNA requires that statistical organizations collect data on industry outputs and inputs and show how these are distributed by the participants in the economy. CoP isn’t synonymous with SNA, but it will improve the agriculture sector accounts which depending on its place in the national economy can make marked improvement to national SNA estimation

Analysis and Research Data linkage Program evaluation Time series Industry analysis and transformation Impact of technology and scale on output Regional analysis Research There are many types of analysis possible with COP data. Of course, the degree to which these are possible is a function of how the data were collected in the first instance

Environmental Current and sustainable farming practices Assess fertilizer and pesticide use, CO2 emissions, sustainable practices, GMO usage, etc. Energy and water use Measurement of variables of interest Similarly, if there is interest in environmental indicators or practices, then CoP is perhaps the best vehicle for the Agriculture sector as it combines usage data with farm process. This can be a modest “add on” to a regular cost of production survey program. Can add examples such as fertilizer and pesticide use, CO2 emissions, sustainable practices, GMO usage etc.

Using CoP estimates for determining price support   40739 1.6* This is an example of using COP data for determining price support. The blue line represents the cumulative supply curve (cost of production) for maize in Zambia . The government can target a supply response (if that is the policy target) by setting a fixed price.

CoP Structure for different products in Philippines (2012) This is an illustration of a “supply curve” that was generated by using micro data from a CoP survey conducted by the USDA. The lower the curve, the more efficient the producer.

References AAEA Task Force on Commodity Costs and Returns (2000). Commodity Costs and Returns Estimation Handbook. United States Department of Agriculture: Ames, Iowa, USA. Global Strategy to Improve Agricultural and Rural Statistics (2014), Literature review on cost of production methodologies, Technical Report Series GO-04-2014. FAO: Rome. Global Strategy to Improve Agricultural and Rural Statistics (2016), Handbook on Agricultural Cost of Production Statistics, Handbook and Guidelines, pp.13-24. FAO: Rome.