FARM BUDGETING

DR. SAKA J. OLAIDE

INSTITUTE OF AGRICULTURAL RESEARCH AND
TRAINING, IBADAN

A PRESENTATION AT THE 2017 PRE-SEASON

TRAINING, SOUTHWEST REFILS HELD AT
IAR&T TRAINING HALL.
APRIL 27TH, 2017
 Budgeting and Planning
 An Agric. Entrepreneur identifies, organizes,
managing and explore opportunities to either make or
maximize profit.
 Develops blue print (Plan)
 Planning: foreword thinking about informed course of
actions towards attaining stated goals.
 Planning is the foundation of budgeting.
 Farm plan can exist without budgeting but budgeting
cannot without plan
 FARM BUDGETING
Farm budgeting: Preparation of a quantitative
statement of a farm plan or a change in farm plan
both in physical and financial terms.

Farm Budget: A statement of physical quantities of

resources required in the execution of a farm plan
and the associated expenses, income and net
returns.
(a) Physical aspect of the plan
(b) Financial aspect: Cost returns and profit.
 Advantages of Farm Budgeting
Guide to policy and plans for economic gains
Facilitates efficient use of resources
Offers indicators for measuring subsequent
performance
Framework for extension and advisory services
Helpful to draw alternate plans of quick
improvement on the existing plan.
 Steps in Farm Budgeting
1. Determine farming goals and farmers preferences
2. List the farm resources available to the farmer.
3. Determine which of the resources are currently
being used.
4. List the physical quantities of inputs/resources
required and expected outputs
5. Prepare a statement of expenditure and income
for the farm on the basis of the intended and
current use of the resources (prices, variable costs,
fixed costs and income).
 Steps Contd.
6. Analyze the input-output relationship comparing
with standards available in other farms around the
area.
7. Diagnose weaknesses: structural and operational.
8. Determine priorities in correcting the structural and
operational weakness.
9. Prepare a number of alternative farm plans and
evaluate your projections.
 Types of Farm Budget
(i) Fixed Capital Budget: list of structures, equipment and
machineries required in the implementation of the
production plan of a farm enterprise.
Table 1: Hypothetical Fixed Asset Budget

Depreciation
Quantity Unit cost Cost (N) Life span Charges (F)
Fixed Assets (A) (B) (C) (D) (E) = (D) / (E)
Land Rent (10 ha) 10 50,000 500,000
Soybean Processing Shed 1 1,000,000 1,000,000 20 50,000
Farm Store 1 2,000,000 2,000,000 20 100,000
Wheel Barrow 20 4,500 90,000 5 18,000
Cutlasses 50 300 15,000 1 15,000
Hoe 50 200 10,000 1 10,000
Shovel 50 2,000 100,000 10 10,000
Farm Truck 1 2,000,000 2,000,000 15 133,333
Soybean Thresher 1 450,000 450,000 15 30,000
Total 6,165,000 366,333
 (ii) Physical Quantities Budget
Table 2: Hypothetical Physical Quantity Budget for a Soybean Farm

Item Quantity
Land Area 50
Materials
Soybean Seed @ 50 kg/ha 2,500
Fertilizer @ kg/ha
Herbicides: Stompcodel:3lit/ha 150
Herbicides: Gramozone: 2lit/ha 100
Bags: 10 bags/ha 500
Fuel for land preparation @ 40L/ha 2,000
Fuel for planting @ 40L/ha 2,000
Fuel for chemical application 40/ha 2,000
Labour
Supplementary weeding (25mandays/ha) 1,250
Harvesting (20mandays/ha 1,000
Packing and processing (16mandays/ha 800
Sowing of bags (1 manday/ha) 50
Output
Soybean grain Output @ 1.2ton/ha 60
(iii) Enterprise Budget: Budget prepared for a single
unit of a farm investment (e.g. Poultry Enterprise)
Table 3: Hypothetical Budget of a Poultry Layer Enterprise
Amount
Item (N)
Farm Income
1 Value of Table Eggs @ N500/tray 11,649,469
2 Value of culled layers @ N800/bird 1,029,600
3 Total Value of products (1+2) 12,679,069
4 Working Capital
5 Cost of layers stock 340,000
6 Cost of feed poultry 2,367,000
7 Drugs and medications 100,000
8 Veterinary consultancy services per year (20% of medication 10,000
9 Cost of table animals produced (5+6+7+8) 5,184,000
10 Gross Profit (3 – 9) 7,495,069
Table 3: Contd
11 Operating Expenses
12 Repairs and Maintenance of equip (10% of cost of equip) 378,080
13 1 Farm Manager @ N25,000/month 300,000
14 Wages: 1 farm supervisor @ N20000/month 240,000
15 2 Farm Attendants @ N15000/month/labourer 300,000
16 Night guards (1) and 1 Driver @ N15,000 each 360,000
17 Administrative Expenses (N3000/month) 36,000
18 Total Cash expenses or Total Variable Cost
(12+13+14+15+16+17) 1,614,080
Table 3:
19 Net Cash Income (10-18) 5,880,989
20 Interest On Loan (21%) 555,850
21 Depreciation charges for fixed asset 650,700
22 Total Fixed Cost (20+21) 1,206,550
22 Net Farm Profit (19 – 22) 4,674,438
 Table 3: Hypothetical Budget of a Poultry Layer Enterprise

Amount
Item (N)
Farm Income
1 Value of Table Eggs @ N500/tray 11,649,469
2 Value of culled layers @ N800/bird 1,029,600
3 Total Value of products (1+2) 12,679,069
4 Working Capital
5 Cost of layers stock 340,000
6 Cost of feed poultry 2,367,000
7 Drugs and medications 100,000
8 Veterinary consultancy services per year (20% of medication 10,000
9 Cost of table animals produced (5+6+7+8) 5,184,000
10 Gross Profit (3 – 9) 7,495,069
11 Operating Expenses
12 Repairs and Maintenance of equip (10% of cost of equip) 378,080
13 1 Farm Manager @ N25,000/month 300,000
14 Wages: 1 farm supervisor @ N20000/month 240,000
15 2 Farm Attendants @ N15000/month/labourer 300,000
16 Night guards (1) and 1 Driver @ N15,000 each 360,000
17 Administrative Expenses (N3000/month) 36,000
18 Total Cash expenses or Total Variable Cost
(12+13+14+15+16+17) 1,614,080
19 Net Cash Income (10-18) 5,880,989
20 Interest On Loan (21%) 555,850
21 Depreciation charges for fixed asset 650,700
22 Total Fixed Cost (20+21) 1,206,550
22 Net Farm Profit (19 – 22) 4,674,438
(iv) Whole Farm Budget
Detailed summary of the major physical and
financial features of the different components of
the total farm business.

It considers the relationships among the different

parts or enterprises both individually and as a
whole.
Table 4: An Hypothetical Whole Farm Budget of a Livestock Farm

S/n Item Amount (N)

1 Value of Table Eggs @ N500/tray 8,321,049
2 Value of culled layers @ N800/bird 1,029,600
3 Value of Table Pig (live weight) @ N200/kg 4,043,200
4 Value of table fish @ N400/kg 2,304,000
5 Total Value of products (Total Income) 1+2+3+4 15,697,849
6 Production Cost
7 Cost of layers stock 340,000
8 Cost of Breeding Stock (Sow) 280,000
9 Cost of Breeding stock (Boar) 28,000
10 Cost of Fingerlings @ N25/juvenile 200,000
11 Total cost of Breeding Stock (7+8+9+10) 848,000
12 Cost of feed poultry 5,670,000
13 Cost of feed Piggery 2,882,250
14 Cost of feed Fishery 406,080
15 Drugs and medications 53,200
16 Veterinary consultancy services per year (20% of medication 10,640
17 Total Cost of Feed and medications (12+13+14+15+16) 9,022,170
18 Total cost of Animals Produced (11 + 17) 9,870,170
19 Operating Expenses
20 Repairs and Maintenance of equip (10% of cost of equip) 378,080
21 1 Farm Manager @ N25,000/month 300,000
22 Wages: 2 farm supervisor @ N20000/month 240,000
23 10 Farm Attendants @ N15000/month/labourer 360,000
24 Night guards (2) and 1 Driver @ N15,000 each 360,000
25 Administrative Expenses (N3000/month) 36,000
26 Total Cash expenses (20+21+22+23+24+25) 1,674,080
27 Total Variable Cost (18 +26) 11,544,250
28 Net Cash Income (5 -27) 4,153,599
29 Interest On Loan (21%) 555,850
30 Depreciation charges for fixed asset 650,700
31 Total Fixed Cost (29 + 30) 1,206,550
32 Net Farm Profit (28 - 31) 2,947,049
(v) Partial Budget: A budget prepared for evaluation of a
proposed change in original plan or practice. It focuses
the analysis of a defined change to see if it improves the
total farm budget or not. Very common in economic
analysis of OFAR trials.

Steps
1) State the proposed alternative or change that will be
analyzed.
2) Collect data on all aspects of the business that will be
affected by the change.
3) Classify or group the types of impacts that will occur by
including expenses increased or reduced and receipts
increased or reduced.
Table 5: Hypothetical Partial Budget

CUBA 108

Benefits Treatment 1 Treatment 2

Fibre Yield 1.09 2.29
Adjusted Yield 0.981 2.061
Fibre Value at N100'000/ton 98100 206100

Cost that vary

Material Cost
Cost of Fertilizer at N50/kg 0 15000
Cost of Furadan at N585 0 29250
Cost of Nuvacron N1600/Lit 0 96
Total Material Cost 0 44346
Labour Cost
Fertilizer Application 4 manday @
N500/manday 0 2000
Furadan Application N500/Manday 0 2000
Nuvacron Appllication
N500/manday/application 0 4000
Total Labour Cost 0 8000
Total Cost 0 52346
Net Benefit 98100 153754
Cash Flow Budget
• It shows the sources and application of funds.
• It shows the likely period of limited or
abundant cash over a planning horizon for
remedial actions
• Prominent in preparation of feasibility reports
Table 6: Hypothetical Cash Flow Budget for a 5 year Planning Horizon

Year 1 2 3 4 5
Sources of fund
Opening Balance 0 18,089,447 24,431,773 32,190,984 43,781,882
Term Loan 3,000,000
Equity 14,778,172
Depreciation 650,700 650,700 650,700 650,700
Total Sales 15,697,849 25,352,188 27,427,529 31,657,942 34,212,393
Total 33,476,021 44,092,334 52,510,002 64,499,626 78,644,974
Application of fund
Working capital 9,870,170 14,766,219 15,422,223 16,369,977 17,121,187
Operating Expenses 3,534,080 3,538,040 3,542,436 3,547,315 3,552,731
Renovation 300,000
Loan Repayment 800,452.08 985,708.16 1,211,895.85 800,452.08 800,452.08
Interest on loan 555,850.34 370,594 142,463
Contingency 326,021.50
Total fund used 15,386,574 19,660,562 20,319,017 20,717,744 21,474,370
Closing Balance 18,089,447 24,431,773 32,190,984 43,781,882 57,170,604
 Balance Sheet Budget
A statement of the projected asset and liabilities
of the farm. Useful in assessing overall
performance of the farm especially as regards
solvency
(i) Current Ratio: Comparism of the current
asset with current liability
(ii) Liquidity Ratio: Comparism of cash current
asset with current liability i.e. immediate
solvency of the farm
Table 7: Hypothetical Balance Sheet of a Livestock Farm

Liabilities Asset
Owners Equity 100,000,000 Land 10,000,000
Preference Shares 50,000,000 Buildings 60,000,000
Machineries &
Revenue Reserce 30,000,000 equipment 30,000,000
180,000,000 Breeding stock 62,000,000
Debenture stock 20,000,000 Total Fixed Asset 162,000,000
Total Fixed Asset 200,000,000

Current Liabilities Current Asset

Creditors 49,000,000 Stock of weaners 22,000,000
Debtors 51,000,000
Bank 14,000,000
Total Current Asset 87,000,000
249,000,000 249,000,000
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