Agriculture notes prepared by IAS Topper for all agriculture based competitive exams-Agricutural Economics-Types of Farm Budgeting

Types of Farm Budgeting

a). Partial budgeting: “Estimation of possible outcome/return for a part of business”. It is a mathod of making a comparative study of cost and return analysis from a change in a part of business organization. Here additional cost due to seeds, manures, irrigation etc, needs to be estimated compared with additional expected return.

Ex. Growing of one acre of hybrid maize in place of local maize.

Simple analysis of a partial budgeting is given below

Debit                                                               Credit

Increase in cost…………….                        Decrease in cost……………..

Decrease in returns…………                      Increase in return……………

Gains……….                                     Gains………………..

Total.……….                                      Total…………………

Credit-Debit = Decision Making

Advantages:

·        Analysis is very simple, quick and easy

·        It helps to provide an idea of how to improve the profit of a farm with a very small change in the allocation or resource of marketi9ng decisions

·        Change in organization can be worked out without complete resorting of the whole plan

Disadvantages:

·        Most important drawback of partial budgeting is that it fails to recognize all relevant factors in maximizing net return of a farm

·        It does not allow substitution between resources

·        It overlook the complimentarity and competition between different enterprises

It differs from complete budgeting in two respects,

·        It considers only few alternatives to improve the efficiency of farm business. Mostly the factors do not affect organization drastically, however, the complete budgeting takes care of all the alternatives, complimentarity and competition between them.

·        Partial budgeting does not indicate the breakeven point as to when to start one practice and when to abandon another.

Total/complete budgeting: “making out a plan for a farm as a whole, which involves complete reorganization of farm business. It considers all the enterprises, resources and their substitutes/alternatives. In this respect farmer has to make two plans, one is called long term plan giving emphasis on structural improvement of the farm business and another called short term/annual plan emphasizing on operational improvement of the farm.

Advantages:

·        It increases the overall net income of the farm as it considers all the options available to the farmer

·        It takes care off all the enterprises, resources and their substitutes

·        It also takes care off complementary, supplementary and competitive relationship between the enterprises and resources.

·        It allows substitution of resources

Disadvantages:

·        Needs voluminous basic data on the farm business for a effective budgeting

·        It requires more time and effort to prepare the plan and budgeting

Enterprise budgeting

·        It is a budgeting for input-output relationship for individual enterprise in a farm. It provides information regarding resource requirement and relative profitability of different enterprises

·        It also helps to compare different enterprises and choosing of a profitable one

·        Since it is directed for a single enterprise at a time, it lacks from not giving importance to complementary and supplementary relationships between enterprises and resources. Therefore, it is not a comprehensive budgeting like a total/complete budgeting.

Steps in farm planning and budgeting

Collection of information regarding improved farming methods and practices and various input-output combinations.  They are normally collected from the research trials, demonstrations and farm management surveys.

Specification of appropriate prices of different inputs and commodities used for the farm production

Preparation of enterprise profitability chart

Preparation of farm map with appropriate indications of different components

             Preparation of Inventory of limited resource

Examination of the existing farm plan

Analysis of weakness in the present farm plan

Listing of the risks associated with the agricultural production under current plan

Preparation of an alternative farm plan with different combination of resources

Analysis of alternative plan for its profitability and practicability

Implementing the final farm plan

Evaluation of the farm plan for further refinement