At the end of this session the participants shall have: 1. Explained some of the important aspects of farm business in preparation for writing a farm business plan; 2. Appreciated the concept of profit as related to a farm business; 3. Differentiated farm business and farm enterprise;

4. Compared variable costs from fixed costs and its application to farm profitability; and 5. Identified the factors that affect the profitability of a farm business.

Materials: Metacards Pentel Pen Tape Question:  What are the most important things that you believe you need to know and be able to do to make your farm business a success?

 What to produce?  How to produce it?  Is it possible to produce it in your land?  What resources or inputs are needed and where to get them?  What labor do you need?

 What is the best market for the product?  What price can the product get in the market?  Is it profitable?  Do you need have enough cash?  What are the risks and what to do about them?

InputsProductionMarkets The aspects that affect the business viability are linked to: A business is meant to be viable and successful General Commercial Environment These aspects or key success factors should be favorable and the farmer should always be able to cope with issues of risks in the farm business

 It is important to separate farm income and profit from household income ; the farm business is separate from the household.  Household income relies on income from farm and other sources while the profitability of the farm is based on the income and costs related to the farm only, and not the household

 Farm income is calculated by multiplying the quantity of the product sold, eaten, used or given away with the price of the produce in the market.  If income is < than costs then it is a loss  If income is > than costs then it is making profit  The larger the resulting total, the greater the profit

 Describe your own farm.  Do you produce only one product? More than one product?  Do you produce crops and animals?  How many type of animals do you produce?

Farm Business FARM BUSINESS Farm business refers to the whole farm as a business. Together all enterprises make up the farm business as a whole Farm Enterprise FARM ENTERPRISE Farm enterprises refers to the individual enterprises of the farm. Each crop or kind of livestock produced is an enterprise. A farmer may produce corn, beans, and eggs. Each of these products is an enterprise. Corn is an enterprise. Beans is an enterprise. Egg is an enterprise.

 Each enterprise on a farm makes a unique contribution to the profitability of the whole farm.  Will identify which enterprise are profitable or not. Then, he will be able to decide what to do about the unprofitable enterprise; he can take steps to make it profitable or he can stop producing that enterprise.

 To maximize profit, the farmer needs to know exactly how each enterprise is performing.  Must study the enterprise individually by looking at the costs associated with inputs and production of each enterprise and with the income generated by marketing that enterprise.

Materials Needed: Metacards Pentel pen Tape Question: 1. Ideas regarding variable and fixed costs. 2. List down examples of farm costs.

A. Variable Costs  The cost of actual production.  They apply to specific enterprises on the farm.  These costs vary as output changes.  The costs occur only if something is produced. They do not occur if nothing is produced.  Variable costs can be allocated to specific enterprise.

SeedsFertilizersFuel Hired labor Livestock feed Veterinary

B. Fixed Costs  It apply to the farm as a whole.  Costs that do not vary with changes in production output of a specific product.  It remains the same regardless of the output. Even if there is no output, there will be fixed costs.

Farm equipment (e.g. tractor)Implements and tools Packing shed Farm infrastructure (e.g. fencing)

Farm Profit Home Consu mption Market Demand Market Price Comp etitor Techn ology Credit Input Supplier Cost of Inputs

 Inputs- the right ones being available when needed  Input Costs  Input Supplier- reliability and trustworthiness  Market – location, distance, accessibility  Market Demand – what, when and how much buyers want

 Market Prices  Credit- accessibility, affordability  Competitors  Technology – for production and marketing  Policy