book fao, farm_management

About the Farm Management Field Guide

About the Farm Management Field Guide The National Project Coordinator, Lamipeti Havea, and the FAO Consultant Euan Flemming developed a field manual for the use by Future Farmer Groups in the period September to November 2003. The manual is for use in the decentralized workshops for training farmers in farm management, conducting demonstrations and developing. The material presented at the Training of Trainers Workshop is being supplemented by additional material developed during the field trips we conducted in the final two weeks of my visit. The manual contains 11 modules that are closely based on material in the FAO Analytical Toolbox that is currently being prepared for publication. It also makes use of the material in the Farm Management Manual published by the Ministry of Agriculture, Forestry and Food (2000). The modules are:

1. Farming systems in Tonga; 2. Farm records; 3. Preparing background information on farm enterprises; 4. Calculating enterprise gross margin analysis; 5. Partial budgeting; 6. Scheduling labour activities; 7. Cash-flow budgeting; 8. Demonstrations; 9. Contract farming; 10. Whole-farm planning; 11. Participatory rural appraisal methods.

Each module commences with an introductory page that sets the scene and goals, prescribes expected outcomes and suggested duration of the session, and details the methods to be taught and outputs to be achieved by trainees. This page is followed by a mini lecture covering the concepts and material to be learnt and an example applying the method. The mini lecture section is kept brief and simple. The main part of the module is a set of exercises for small groups. Most exercises are based on four case studies that reflect different degrees of commercialization and intercropping arrangements in Tongan agriculture. These case studies are taken from examples of farming systems that are described in the second module of the manual:

1. Predominantly subsistence paper mulberry-based farming system, typical of smallholder agriculture in Ha’apai.

2. Semi-subsistence root crops-based farming system with some vegetables sold in the local market.

3. Predominantly commercial vanilla-based farming system intercropped with subsistence and commercial root crops and vegetables.

4. Predominantly commercial squash-based farming system, intercropped with kava and root crops.

The Farm Management Training Manual 1

Module 1: Farming Systems in Tonga

Module 1

Farming Systems in

Tonga



Trainer’s Notes

Set the scene Identifying a farming system that suits a farmer's circumstances is the crucial first step in farm management.

Aims To have knowledge of some common farming systems in Tonga, and to be aware of their attributes and relations between enterprises within each system.

Expected outcome

Farmers are expected to be able to identify and adopt farming systems that suit their particular circumstances, and to exploit complementarities and minimise competition and harmful interactions between enterprises in their adopted system.

Duration of session

3 hours.

Method Farming systems research and development. Some examples are provided of common farming systems in Tonga. In a small group exercise, trainees are to construct and describe a farming system that is different from the examples provided. Arrange for these small groups to present and discuss their results in a large group session.

Outputs that participants should achieve

Description of selected farming systems. Farm map. Seasonal calendars to show enterprise relationships.

Concluding points to make

The description of farming systems needs continual updating as new possibilities emerge for combining enterprises and using inputs.

Additional reading

MAFF (2000, pp. 69-72). Dillon and Hardaker (1993, pp. 2-4).



Mini Lecture

Intercropping in Farming Systems

According to MAFF (2000, p. 69):

The traditional agricultural systems of Tonga involve intercropping with various crop sequences, and also incorporate fallow periods. These systems developed to ensure a stable and productive environment on farms.

Advantages of intercropping cited by MAFF (2000, p. 69) include:

a) less insect and pest damage

b) more efficient utilization of sunlight

c) higher biomass production per area

d) better protection from rain and wind damage

e) more mulch and less weeds

f) high diversity of outputs

g) higher security of yields and returns.

MAFF (2000, p. 69) warned of the dangers of losing these advantages by

recent trends towards machinery use, monocropping and reduced fallow

periods. These trends are closely associated with the growing

commercialization of farming operations.

Types of Farming Systems

1. Predominantly subsistence root crops-based farming system

Length of the production cycle: 5 years, commencing in July.

A farm map for this farming system for the first year of the production cycle is

shown in Figure 1.1(a) and the seasonal calendar for the full production cycle

is presented in Figure 1.1(b). Few purchased inputs other than machinery hire

are used to produce these crops and there is a heavy reliance on family

labour. Consumption of produce is mainly within the household, with some

coconuts fed to scavenging animals.



Yam ('ufi) is initially inter-planted with either giant taro (kape) or swamp taro

(talo tonga) and some coconut palms, and with a border of plantain (hopa or

pata). The ensuing short-term crops are typically sweet potato (kumala) and

cassava (manioke), and there is quite a lengthy fallow. This farming system is

likely also to have occasional breadfruit (mei) and mango trees.

Planting of main-season yam and taro commences in July. The yam is

harvested from April to June in the next calendar year, to be followed by a

crop of sweet potato in July that is harvested in November and December.

Cassava is planted in November and December for harvesting the following

December until February. A final ratoon of the plantain border crop is made in

the fifth year of the production cycle. The ground is then left fallow for the next

two years and four months.

Figure 1.1(a) Map of a Root Crops-Based Predominantly Subsistence Farming System: First Year

Coconut palmYamTaro Plantain Mango/Breadfruit



Figure 1.1(b) Root Crops-Based Farming System with Coconut Palms and Border Crops

Mar-Apr May-JunJul-Aug Sep-Oct Nov-Dec Jan-Feb

Coconuts

Giant or swamp taro

Yr 5

Yr 3

Yr 2

Yr 1

Coconuts

Fallow

Yr 4

Yam

Sweet potatoCoconuts

Coconuts

CassavaCoconuts

Fallow

Fallow

Cassava

Border

Border

Border

Border

Border

2. Paper Mulberry-Based Farming System

2(a) Predominantly subsistence paper mulberry-based farming system with interplanted root crops and coconuts

Production cycle: 5 years, commencing in March.

A map of this farming system in the first year of the production cycle is

presented in Figure 1.2(a), with a seasonal calendar for the full production

cycle shown in Figure 1.2(b). Paper mulberry (hiapo) is the main crop, planted

in a field consisting of mature coconut palms (for home consumption and

feeding to pigs). Few purchased inputs are used in production, with the main

exception being machinery hire for the initial land preparation and planting.

Paper mulberry is planted in March and its first harvest is after 12 months. It is

ratooned for three years with further harvesting every 12 months. The length

of the production cycle can be varied according to planting density, among

other factors. Rows are planted 1.5 metres (5 feet) apart to allow the



interplanting in alternate rows of swamp taro or giant taro in the first year. This

intercrop is harvested from 9 months to 12 months. There is a border

comprising a mixture of medium-term crops such as pandanus (lou'akau),

papaya (lesi) and banana (siaine). The land is fallowed in the fifth year apart

from the coconut palms.

Figure 1.2(b) Paper Mulberry-Based Farming System with Taro and Coconuts

Mar-Apr May-Jun Jul-Aug Sep-Oct Nov-Dec Jan-Feb

Coconuts

Taro

Yr 5

Yr 3

Yr 2

Yr 1

Coconuts

Fallow

Yr 4

Paper mulberry

Paper mulberryCoconuts

Coconuts


Paper mulberry

Border

Border

Border

Border

Border

2(b) Semi-subsistence paper mulberry-based farming system with a cash intercrop

Production cycle: 5 years, commencing in March.

A seasonal calendar of the production cycle for this farming system is shown

in Figure 1.2(c). Paper mulberry is again the main crop, planted in March in a

field consisting of mature coconut palms. Again, few purchased inputs are

used other than machinery hire, although the cash crop planted early in the

production cycle is likely to require inputs such as seed, fertilizers and

fungicides.

The first harvest of paper mulberry is after 12 months and it is ratooned for

two years with further harvesting at 24 months and 36 months. Rows are

planted 5 feet (1.5 metres) apart to allow the alternate interplanting of peanuts



(pinati) (shown in Figure 1.2(c)) or pineapple (fainaä) in the first year. If

interplanted with peanuts, harvesting of the peanuts takes place four months

after planting for sale as fresh nuts in the fresh produce market. If interplanted

with pineapple, pineapple suckers are grown for three years, following the first

harvesting of pineapples 15 months after planting. There is a border

comprising a mixture of giant taro and plantain for home consumption.

Following the final harvesting of paper mulberry, cassava is planted in the

fourth year before leaving the land fallow in year 5 except for the coconut

palms.

Figure 1.2(c) Paper Mulberry-Based Farming System with Peanuts and Coconuts

Mar-Apr May-Jun Jul-Aug Sep-Oct Nov-Dec Jan-Feb

Coconuts

Peanuts

Yr 5

Yr 3

Yr 2

Yr 1

Coconuts

Fallow

Yr 4

Paper mulberry


Coconuts

Paper mulberryCoconutsCassava

FallowBorder

Border

Border

Border

Border

3. Predominantly Commercial Small Crops-Based Farming System

Production cycle: 4 years, commencing in September.

This farming system comprises three years of production of short-term small

crops for cash sale: fruit, vegetable, salad and root crops. Numerous

possibilities exist for interplanting, with block planting only of watermelon

(meleni) and root crops. A substantial reliance on purchased production and

marketing inputs can be expected, which is likely to grow with increased

commercialization of farm operations.



Planting begins in September with main-season yam, which is harvested until

the end of May in the first year shown in Figure 1.3. This timing accords with

the best period for planting main-season yam (between August and

September).

Vegetable and salad crops are planted twice in the production cycle during the

preferred dry season. They are rotated across plots, with care taken not to

relay-plant or interplant crops of the same genus. Examples of vegetable and

salad crops are tomato (temata), lettuce (letisi), carrot (kaloti), beans (piini),

capsicum (polo), zucchini (sukini), eggplant (paingani), peanuts, head and

Chinese cabbage (kapisi fua and kapisi siaina), and cucumber.

Melon is planted at the beginning of December, following the first vegetable

crop. December is the latest month of its preferred planting season. It is

followed by a short fallow before the second crop of vegetables.

Cassava is typically the last crop planted, following the second harvesting of

vegetables, towards the end of its preferred planting season (August to

November). It is followed by ten months of fallow.

Figure 1.3 Short-Term Crops

Sep-Oct Nov-Dec Jan-Feb Mar-Apr May-Jun Jul-Aug

Melon

Yr 3

Yr 2

Yr 1 Main-season yam Vegetables

Cassava

Fallow Vegetables

FallowYr 4

4. Predominantly Commercial Vanilla-Based Farming System



Vanilla is intercropped in rows of 3 metres (10 feet) in a production cycle

lasting a period that is dictated by the length of productive life of the vanilla.

This period is assumed to be 15 years but could vary significantly from this

length according to economic circumstances and the age-yield profile of the

vanilla. Various intercropping options are available but we will consider two:

small crops and kava (kava tonga).

Interplanting is considered an important risk-management strategy because

fluctuating export prices can result in periods of low prices during which

growers are tempted to pull out the vanilla plants, as has happened in recent

years. Intercropping allows the grower to continue to maintain the plants

during these periods, while concentrating cash-earning efforts on the

intercrops, and take advantage of the upturn in export prices when it occurs.

Little is needed in the way of purchased inputs in vanilla production other than

the planting material. However, management and labour inputs are very

important to ensure a good-quality product with good yields.

4(a) Vanilla interplanted with small crops

Production cycle: 15 years, beginning in February.

Combinations of vegetable, salad and root crops are interplanted with vanilla

for the first three years of the production cycle, until the vanilla begins to yield

beans. The system consists of a vanilla monocrop for the remaining 12 years

of the cycle. Candidates among the small crops include those mentioned for

the third farming system above. Root crops that could be included are yam,

American and swamp taro, giant taro, cassava and sweet potato. Fiki trees

are planted to provide support and shade three to four months before planting

the vanilla in February, as shown in Figure 1.4(a). Sweet potato is planted

with the vanilla and is followed by a crop of eggplant from August to

December. Pineapples are planted at the end of the second year and

suckered in the third year. With wide plantings, intercrops can be reintroduced

in later years if vanilla prices fall.



Figure 1.4(a) Vanilla-Based Farming System

Feb-Mar Apr-May Jun-Jul Aug-Sep Oct-Nov Dec-Jan

Vanilla

Sweet potato

Pineapple

Eggplant

Yr 4to

Yr 15

Yr 3

Yr 2

Yr 1

Vanilla

Pineapple

Vanilla

Vanilla

4(b) Vanilla-kava intercrop


The intermediate production cycle for this farming system can vary according

to the age-yield profile of kava and a farmer’s cash needs. Similarly, the full

production cycle can vary in length, as mentioned above. Kava is interplanted

with vanilla in February and can be retained in the farming system between

two and six years. We shall assume it is harvested at the end of the fourth

year.



Figure 1.4(b) Vanilla-Based Farming System


VanillaKava

Yr 5to

Yr 15

Yr 3

Yr 2

Yr 1

Vanilla

Vanilla

Vanilla

Kava

Kava

VanillaKava

Yr 4

5. Predominantly Commercial Squash-Based Farming System


The central component of this farming system is the rotational monocropping

of squash in the period from June to November in three stages. The system is

rounded off with a year of fallow. Timely farming operations, careful attention

to quality and considerable use of purchased inputs are hallmarks of squash

production.

Relay crops are planted to fit in with the squash cropping season. They are

chiefly root crops given that most other small crops, such as vegetables, tend

to compete for land during the same period. Watermelons are also avoided to

minimise the spread of pests and diseases common to both crops, such as

powdery mildew, leaf roller and cucumber beetle.

Root crops to be considered as relay crops are sweet potato, late yam and

Irish potato. Peanuts are a possible relay or interplanted crop, but the



interplanting of small crops with squash is now uncommon. Only coconut

palms, mainly for domestic use and pig feed, tend to be used as a broad

intercrop with squash.

Figure 1.5 Squash-Based Farming System


CassavaYr 3

Yr 2

Yr 1Yam Squash

Fallow

Cassava

Fallow

FallowYr 4

Yam SquashSquashYam

Yam

Yam Squash Sweet potato

Squash

SquashSquash

SquashSquash

CassavaFallow

CassavaTaro

Taro

Sweet potatoYam

Fallow

Yam

Fallow

YamYam

Sweet potato

FallowYr 5

6. Predominantly Commercial Kava and Pineapple Farming System


The seasonal calendar for this farming system is shown in Figure 1.6.

Pineapples are interplanted with kava in alternate rows during the rainy

season. Kava requires few purchased inputs in production, with machinery

hire and seedlings the major items. The major cost is crushing the kava to

produce kava powder at a conversion rate from green kava to kava powder of

around 4:1. The chief purchased inputs for pineapples are suckers for planting

in the first year and fertilizer, and possibly herbicides but interplanting should

reduce the need for weeding.

The two crops are grown together for the first three years, which means there

are two pineapple suckerings. Kava is harvested at five years after which the



land is fallowed for the final two years of the cycle. As mentioned for the fourth

farming system, the length of time that kava remains in the ground varies

according to the age-yield profile of the crop and a farmer’s cash needs.

Figure 1.6 Kava and Pineapple Farming SystemFeb-Mar Apr-May Jun-Jul Aug-Sep Oct-Nov Dec-Jan

PineappleKava

Yr 5

Yr 3

Yr 2

Yr 1

Pineapple

PineappleKava

Kava

Kava

Yr 4 Kava

Yrs 6/7 Fallow

7. Predominantly Commercial Semi-Intensive Pig Farming System

Production cycle: 10 years, beginning in January.

A semi-intensive pig farming system for 10 sows would require the

construction of a shed for the pigs and a feed store. The farmer would have to

purchase gilts or sows and a one-year-old boar in the first year.

A replacement policy is needed for the sows and boar. A typical policy would

be to replace three sows each year from Year 2 onwards, and replace the

boar every 3 years.

Around 60 weaners and porkers are produced in the first year and 175 weaners and porkers in years 2 to 10. The weaners weigh about 10 kg liveweight and the porkers around 50 kg dressed weight (70 kg liveweight). Feed is the main input, at around 10 kg creep feed per piglet and 2 kg per day grower rations. Other main inputs are water, veterinary, slaughter, marketing and transport.



Small Group Exercise: Farming System

This exercise requires trainees to develop their own farming system for an 8-

acre farm, or part thereof, which is representative of Tongan agriculture. They

need to think about the complimentarily, competition and unsuitability between

enterprises.

Once the system has been defined for a production cycle, trainees are to

complete the following tasks:

1. Construct a farm map for the first year

Construct a seasonal calendar for the length of the production cycle.


Module 2: Keeping Farm Records

Module 2

Keeping Farm Records



Trainer’s Notes

Set the scene A major obstacle to the use of farm management methods by smallholders in Tonga has been an absence of records on inputs used and their cost, and outputs obtained and the prices received for them. Encouragement of record-keeping can help to remove this obstacle.

Aim Identify farm records required for modern farm management.

Expected outcome

Farmers are expected to be able to enter basic farm records, and understand the importance of these records and how they are to be used to make farm management decisions.

Duration of session

3 hours.

Method Demonstrate the main forms needed and show how they are structured. Get trainees to form small groups and enter sample data that can be used in later sessions on budgeting. Arrange for these small groups to present and discuss their results in a large group session.


Plot history form. Form containing background information on an enterprise. Labour activity form. Input use form. Non-traded output and input price information form. Crops harvested and sold form. Cash book.


Farm records enable farmers to make better decisions, particularly when they are developing commercial activities. The number and complexity of the records depends on how commercialized the farmer is.

Additional reading

MAFF (2000). FAO (2004).



Mini Lecture

Types of Information Requiring Records

A farmer needs to gather more information on becoming more involved in

commercial farming. The need to keep farm records increases as a result.

There are seven types of forms that a farmer may use to help make farm

management decisions.

Plot history form

Plot history forms are kept for each identifiable area of land owned by the

farmer. They should contain information on area, soil quality, drainage, slope,

erosion and other forms of degradation, fallow periods, crops grown and

livestock grazed on the plot, and past incidence of pests and diseases.

2. Form containing background information on an enterprise

Each of this type of form contains background information on an enterprise of

interest and use to the farmer. This information is updated for each production

cycle.

New background information is needed for new crops. Three examples follow

of background information on two new enterprises: capsicum and eggplant.

They are being considered by a farmer who, until now, has grown traditional

crops mainly for household consumption.

a) What is the export status of the two new crops?

Capsicums used to be a significant export to New Zealand prior to problems

faced by exporters some 15 years ago caused by fruit fly found in a

consignment of watermelons. The export of capsicums to New Zealand was

banned because capsicums are a potential fruit fly host. Vegetable exports

have since been reintroduced with the recent signing of a quarantine protocol

with New Zealand and the introduction of high-temperature forced-air (HTFA)

treatment of exported vegetables. However, capsicum exports have not yet

resumed because suitable HTFA treatment has not been available. Eggplant

has potential as an export crop. The farmer would need to know the export

status of products, how they should be presented for export and associated

costs, and marketing procedures needed to secure an export contract.



b) Greater use of purchased inputs

Capsicums and eggplants both require more purchased inputs than the

traditional crops that the farmer is growing. The farmer would first need to

know what these inputs are. Examples are fertilizers, insecticides and

fungicides. He would also need to know how much to use, when and what the

cost would be.

c) Prices of new outputs produced

What price is the farmer going to receive for capsicums and eggplants sold in

the local market? Information is needed on local market prices for the crops

and any marketing costs incurred in getting produce to the market.

Alternatively, if the farmer expects to sell to a buyer who comes to the farm,

the farm-gate price must be known. Both are seasonal crops and so the

farmer would need to know how their prices are going to vary over the year.

Details on types of background information and for which enterprises are

provided in Module 3.

3. Labour activity form

A labour activity form contains information on the amount of labour used and

when, type of labour (hired or family, adult or child, male or female) and in

which enterprise it is used. Labour inputs would need to be split between the

enterprises involved where they are used on a plot with intercropping or mixed

cropping,. The information needs to be completed each time labour is used in

an enterprise. The use made of this information is shown in Module 6.

4. Input use form

This form contains information on the use of inputs other than labour. It should

contain information on how much of the input is used and when. This

information needs to be recorded on the form each time an input is used. It is

used when calculating gross margins in Module 4.



5. Non-traded output and input price information form

Information on prices of non-traded outputs and inputs should be completed at

the end of each production cycle. The purpose of this form is to collect

information to value inputs and outputs for which no price information is

available. This information is also used to calculate gross margins in Module

4.

6. Crops harvested and sold form

This form contains two sets of information. The first set of information is on the

type of crop harvested, the number of units and the average weight of each

unit. The second set of information is on the number of units of the crop that

are sold, their average weight and the price received per unit for the produce

sold. Once again, this information is used to calculate gross margins in

Module 4.

7. Cash book

A seventh farm record that is important for keeping track of cash balances is a

cash book. This would contain some of the information collected on the forms

listed above. However, it also enables the farmer to estimate all non-farm

cash flows that need to be included in a cash flow budget. The preparation of

this budget is the subject of Module 7.

Examples of entries for the various forms described above are shown in the

exercise.

Source of information to be recorded

The farmer should be able to update the plot history information at the end of

each year. A map of the farm is helpful in dividing the farm into plots. MAFF

personnel should be able to help the farmer assess soil quality and identify

land problems such as erosion and pest and disease attacks that occur on

each plot.

The farmer is also the most likely source of background information on

enterprises, to be updated at the end of each year. The Farm Management

Manual (MAFF 2000) provides the farmer with general information on



enterprises that can be adapted to suit circumstances on the farm. MAFF

should be able to provide updated market prices for products sold and costs

of the main inputs used, supplemented by cash book entries. It is desirable

that one family member takes responsibility for recording cash transactions on

a regular basis. Typical sources for entries are bank accounts, receipts and

invoices.

Individual family members can record on a regular basis the hours they work

on different enterprise and the quantities of inputs they used. The farmer

would normally be the person who keeps records on hired labour.

At the end of each production period, MAFF personnel should be able to

provide information on the range of prices of inputs and outputs that are not

traded by the farmer.



Small Group Exercise: Keeping Records

This exercise requires trainees to enter a sample of different types of

information on appropriate farm record forms. First, some background

information is provided on crop production. The farm family consists of a

farmer, his wife and a son aged 16. The family has produced taro, bananas

and coconuts for a long time, and all family members know the production

practices well for these enterprises. Few purchased inputs are used on these

crops. The farmer has now decided to grow capsicum and eggplant that family

members sell in the local market and, hopefully at some stage, in the export

market.

During the year, the farmer produced 750 kg of capsicum from 0.3 acres,

1700 kg of eggplant from 0.2 acres, 2400 kg of first-ratoon bananas from 0.3

acres and 3200 kg of American taro from 0.8 acres. All of the capsicum and

eggplant, and 400 kg of bananas, were sold in the market. Coconut palms

produce 500 nuts per year. All taro and coconuts were consumed in the

household.

Labour activity form/Input use form

Examples follow of labour tasks and inputs used, to be entered on the

appropriate farm record forms. The entry for the first example needs special

consideration. There is usually a driver included with the hire of machinery but

the cost of providing the driver is included in the overall hiring cost. Therefore,

it is best to make a single entry as an input use rather than making separate

entries for input use and labour use.

• On 5 June 2003, the farmer hired machinery for two hours for

ploughing and disk harrowing to prepare half an acre for planting

capsicum and eggplant. The hire rate was T$40 per hour. (Assume that

1.2 hours are to be allocated to the capsicum enterprise and 0.8 hours

to the eggplant enterprise.)

• On 10 June, the farmer and his son took six hours between them to

broadcast 75 kg of NPK 8:33:18 and 200 kg of chicken manure over

the area to be planted to capsicum and eggplant. They lightly worked



the fertilizer into the soil before planting. The chicken manure was not

purchased but obtained from relatives in the village.

• On 17 June, the farmer and his son spent six hours each planting a 20-

gram packet of capsicum seed.

• On 18 June, the farmer and his son spent three hours each planting

half a 20-gram packet of capsicum seed.

• On 19 June, the farmer and his son spent planted 50 grams of eggplant

seed, taking five hours each.

• On 7 July, the farmer’s wife spent 2 hours collecting mature coconuts.

• On 9 July, the farmer hired 1 hour of casual labour to harvest six

bunches of bananas. The labourer was paid T$5. The farmer’s wife

sold five of the bunches at the market on the next day, taking her six

hours and costing T$7 in marketing inputs.

• On 19 July, the farmer and his son applied 25 kg of urea along the

rows of eggplant and capsicum, taking two hours each.

• On 5 September, the farmer’s son spent two hours harvesting 50 kg of

capsicum.

• On 18 September, the farmer’s son spent an hour harvesting 60 kg of

eggplant.

• On 26 September, the farmer spent an hour harvesting a basket of

American taro.

Crops harvested and sold form

Examples follow of individual crops harvested and sold, to be entered on the

appropriate farm record form:

• Five bunches of bananas were sold on 10 July for T$0.60 per kg. One

remaining bunch was kept for consumption in the household and by

relatives. (Assume each bunch weighs 13 kg on average.)



• On 7 July, four baskets of mature nuts were harvested for household

use. (Assume that one basket is equal to 15 kg and one nut is equal to

1.13 kg.)

• On 5 September, 50 kg of capsicum were harvested and sold for

T$2.30 per kg.

• An amount of 60 kg of eggplant was sold for T$1.80 per kg on 18

September.

• One basket of American taro was harvested on 26 September for home

use. (Assume that one basket weighs 15 kg.)

Non-traded input and output prices form

At year end, the following information on prices is to be recorded on the

appropriate farm record form for examples of non-traded inputs used and

outputs harvested:

• American taro prices per basket averaged T$8.55 during the year.

They varied from T$7.20 to T$10.20.

• Mature nuts had an average price of T$0.30 each during the year,

varying from a low of T$0.21 to a high of T$0.47.

• Family labour was valued at T$3.00 per hour throughout the year.

• Chicken manure was valued between T$3.50 per 50 kg bag and

T$5.00 per 50 kg bag during the year. The average price was T$4.00

per 50 kg bag.

Other cash transactions for entry in the cash book

Some cash book entries can already be made using the above information.

They are the hiring of labour for harvesting bananas, and the sales of

capsicum, eggplant and bananas. In addition, other entries are needed for the

following cash transactions:

• The following purchases of household goods were made: 6 May

T$41.50; 3 June T$54.20; 5 July T$38.60; 9 August T$31.30.

• 200 kg of NPK 8:33:18 were bought on 30 May for T$200.



• On 8 June, purchases were made of two 20-gram packets of capsicum

seed, costing T$65 each, and two 25-gram packets of eggplant seed,

costing T$65 each.

• 100 kg of urea were bought on 10 July for T$90.

• Remittances of T$70 were received on 8 August.

Tasks

Enter the examples of cash transactions, labour activities, inputs, outputs, and

input and output prices on the farm record forms.


Module 4: Preparing Background Information on Enterprise

Module 3

Preparing Background

Information on

Enterprise



Trainer’s Notes

Set the scene Emphasize that all farm management decisions depend on an accurate knowledge of the physical and technical conditions on the farm. They also depend on a good knowledge of the markets in which products are sold.

Aims To enable farmer to have a thorough understanding of what they are capable of achieving with the resources they have.

Expected outcome

Farmers are expected to develop a good knowledge of what enterprise options they have available, and the different ways in which they can use their resources in these enterprises.

Duration of session

1.5 hours.

Method Material on the preparation of enterprise background information begins with an example of the yam enterprise. Trainees are then to form small groups and prepare background information on their own choice of enterprise, based on a checklist that is provided to them. Arrange for small groups to present and discuss their results in a large group session.


A set of enterprise background notes.


Stress the fact that these background notes are necessarily general, and need to be adjusted for specific circumstances.The notes also need to be updated regularly.

Additional reading

MAFF (2000). FAO (2004).



Mini Lecture

Accurate technical information about how farmers operate their enterprises is

the basis for any form of financial analysis in farm management.

The technical and financial information needed to make commercial farm

decisions takes many different forms. The best way to demonstrate this is to

use an example, and to have some practice at completing forms for different

enterprises in Tonga.

Consider the yam enterprise as an example. The following background

information is taken from the Farm Management Manual 2000 (MAFF 2000,

pp. 8-9).

2.1 YAMS

2.1.1 Introduction

Yams are one of the most important crops in Tonga; they are an essential

feast food and are traditionally given as gifts. They are also a valuable cash

crop for the domestic and export markets. In the 1993 Land Use and Crops

Survey, it was found that yams was grown by 83 percent of households

surveyed with 1489.5 acres of yam were grown yielding about 7346 tonnes of

tubers.

There are three types of yams grown in Tonga:

(a) Early yam: Scientific name - Dioscorea alata; Tongan name - 'ufi

tokamu'a;

(b) Late yam: Scientific name - Dioscorea alata; Tongan name - 'ufi

tokamui;

(c) Sweet yam: Scientific name - Dioscorea esculenta; Tongan

name - 'ufilei.



The early yams have long, thick tubers; late yams have smaller, spherical

tubers; and sweet yams are smallest and taste sweet. Yams are normally the

first crop to be planted after a fallow period.

2.1.2 Production notes

Climate: Requirements are at least 1500 mm of well-distributed rain per year,

and for high yields temperatures of 27-30°C are best. Yam requires day

length of less than 12 hours for tuberization.

Soil: Yam requires deep, loose, well-drained, deep, fertile loamy soils. Sweet

yams grow well in sandy soils.

Fertilizers: No fertilizers are required for fallowed land. In overcropped land,

use 15g each of urea and potash per hill. Do not band fertilizer, apply evenly

around the mound.

Propagation: Cuttings of large tubers, small whole tubers and aerial tubers

for some varieties are used for propagation. For early yams the average set

size is 0.67 kg and for late yams the average is 0.25 kg.

Planting: Three major planting times: early yams are planted from May to

July; main planting (ta’u lahi) – August to September; and late yams are

planted from October to December. Fill dug holes with topsoil. Place set on

the ground level, skin downward and the top end facing the side of the hole.

Cover set with soil to form a mound. Use one tuber piece per planting holes

for early yam. For late yam, use two sets if the using smaller size sets.

Planting density: Average planting densities for each type of yam are: Early

yam (1000-2300 plants/ac); Late yam (1300-2700 plants/ac); and sweet yam

(1700-2666 plants/ac). Orient row parallel to wind direction for quick drying to

reduce disease.

Intercropping: Yams are commonly grown as an intercrop with giant taro,

plantain or American taro.

Growth period: Early yams usually grow for 9 to 12 months and late yams

normally grow for 8 to 12 months. Sweet yams may remain in the ground for

more than one year.



Disease and pest control: Yams can be affected by insects such as the

rose beetle and caterpillars, and by land diseases such as seed piece rot,

yam tuber rot, anthracnose, and stem rot and leaf spot diseases. Nematodes:

Use fallowed land. Rose beetles and caterpillars: spray weekly with Sevin, 1

tablespoon per gallon. Anthracnose: use resistant varieties or spray fortnightly

yam either with Benlate, ½ tablespoon, or weekly with Mancozeb, 2

tablespoons, per 5 litres or spray them alternately to prevent anthracnose

developing resistance to Benlate. Tuber scales: dip for 10 minutes in

Perfekthion, 1 teaspoon per 5 litres. Tuber rots: dip sets for 10 minutes in

Benlate (½ tablespoon) or Mancozeb (1 tablespoon) plus Sevin (½

tablespoon) and Agral (1 teaspoon) per 5 litres. Sand and ash are used also.

Weeding: Hoe every two weeks. Hoeing during dry times provides a dry soil

mulch which reduces evaporation losses.

Storage: Yams store better than other root crops and can be kept for 3 to 6

months if kept in a well-ventilated cool store. Careful harvest and post-harvest

handling will also ensure longer storage life.

2.1.3 Marketing notes

Yams are the most expensive of the root crops. The average prices at Talamahu Market from 1994-1999 were early yam (T$1.97/kg); late yam (T$1.20/kg); and sweet yam (T$0.87/kg). About 361 tonnes of yams were exported annually during this period. 2.1.4 Economics of yam production

See budgets for the production of early, late and sweet yam on the following

pages.



Small Group Exercise: Preparation of Background Information for an Enterprise

The aim of the exercise on preparing background information for enterprises

is to enable trainees to understand what information they should collect in

order to make good decisions when managing the operations of that

enterprise. Arrange trainees into small groups and ask them to select a farm

enterprise. They are to provide background information on their selected

enterprise.

Separate checklists are provided below for background information on crop

and livestock enterprises. Depending on the nature of the enterprise,

additional headings might need to be added to the checklist and some of

those included might be ignored. No model answer is provided for this

exercise. Trainers can refer to MAFF (2000) for background information on

the enterprises that trainees choose.

Checklist for Background Information on a Crop Enterprise

1. Types/varieties

2. Production notes

Climatic suitability

Soil suitability

Fertilizer requirements

Propagation

Planting times

Planting methods

Planting density

Intercropping

Growth period

Disease and pest control



Weeding

Harvesting methods

Storage

Yields

3. Marketing notes

Marketing outlets

Transport needs

Packaging needs

Prices and price variability

Checklist for Livestock Enterprise Background Information

1. Reproduction

Breeds

Selection of breeding stock

Breeding/mating:

Weight of breeding stock at puberty

Age of breeding stock at puberty

Oestrus cycle

Heat period

Gestation period

Breeding interval

Offspring per breeding cycle

Birth weight of offspring

Mortality rate

Offspring weaned per breeding cycle

Offspring weaned per breeding stock per year



Average breeding life

Replacement rate of breeding stock

2. Growth

Age at weaning

Weight at weaning

Proportion sold as weaners

Non-livestock products sold

Sale weight

Age at sale

Post-weaning mortality rate

Weight of cull breeding stock

3. Feeding

Feeding requirements

Feed quality

Feed mix

Rations

Feed costs

Feed supply

4. Management

Management skills needed

Pasture management

Housing

Water supply



Hygiene

Special requirements during pregnancy

Disease and parasite control

5. Processing and Marketing

Slaughtering needs

Market outlets

Transport needs

Packaging needs


Module 4: Calculating Enterprise Gross Margins

Module 4

Calculating Enterprise

Gross Margins



Trainer’s Notes

Set the scene

Farm profit usually features strongly in the goals of most small farmers. The first step in deciding how to get the best profit from farm resources is to determine which enterprises provide the highest gross margin per unit of a resource.

Aim To find out how profitable each farm enterprise is.

Expected outcome

The farmer is able to determine whether a particular farm enterprise is profitable, and how well it ranks compared with other enterprises.

Duration of session

3 hours.

Method Gross margin planning and sensitivity analysis. Begin with the mini lecture and the example using the banana enterprise, to be followed by small group exercises. Seven exercises are included, covering a range of enterprises that are common in Tonga. Arrange for small groups to present and discuss their results in a large group session.


Estimates of gross margins for potential enterprises that the farmer can use when deciding on which enterprises are the most profitable. These gross margins may be expressed per acre, per day or hour of labour, per dollar of capital, per dollar of working capital or per dollar of fixed capital.


Gross margins are an essential ‘building block’ in preparing a farm plan. Recognize the uncertainty associated with the gross margin estimate. Yields and output prices are particularly volatile.

Additional reading

MAFF (2000). Dillon and Hardaker (1993, pp. 159-162). FAO (2004).



Mini Lecture

Definitions

The gross margin of a farm enterprise is the gross income from output

produced minus the cost of variable inputs used to produce that output.

The gross income of an enterprise is the value of all outputs produced in that

enterprise. For each output, it is calculated as the farm-gate price of the

output multiplied by the quantity produced. Valuing output can cause

problems in situations where the price paid to the farmer is not available.

However, a local market price or export price may be available. In these

cases, marketing costs must be calculated and deducted to obtain a farm-gate

price. The form of the output for which there is an available price might be

different from that which the farmer sells. In the broiler enterprise, price is

quoted in dressed weight while the output is measured before dressing takes

place. In addition, not all quantities are recorded in the same units. They may

be in kilograms, bags or baskets, for example. It is important to have a means

of converting all quantities to a common unit, usually kilograms or tonnes. The

Talamahu Market Reports provide average weights in kilograms for common

trade units.

Variable costs are the sum of costs of inputs that vary with the level of

production in the enterprise. Each variable cost is calculated by multiplying the

price the farmer pays for the input by the quantity of the input used in the

enterprise. Some common examples are seed and other planting materials,

feed, veterinary supplies, fertilizers, chemicals and biological agents to control

pests, diseases and weeds, packing material, transport and hired casual

labour.

A fixed cost is estimated by multiplying the quantity of the fixed input by the

price paid for it. Examples of fixed inputs are rents, licences and costs

associated with the upkeep of fixed assets such as buildings, plant and

machinery. A fixed input is distinguished from a variable input in that it does

not vary with the level of production of the enterprise. Repairs to machinery

are a fixed cost but machinery hire is a variable cost because the amount of

time a machine is hired varies with the level of production.



The treatment of family labour is difficult when deciding on variable and fixed

costs. It depends on how easy it is for family members to switch from farming

to other activities from one day to the next. In most cases, family labour inputs

are best treated as fixed inputs and their costs excluded from the calculation

of a gross margin even though they can be varied to some extent, according

to access to alternative income-earning possibilities. Ask trainees to calculate

gross margin per hour of family labour used, considering family labour as a

fixed cost. The solutions to the exercises also contain estimates of the value

of family labour inputs, with gross margins calculated after subtracting this

value from gross income in addition to other variable costs. A gross margin

calculated in this way would be used when it is assumed family labour is a

variable input.

Stress to the trainees that there is always some uncertainty about the

accuracy of the information used in estimating a gross margin because we are

dealing with future events. Therefore, it is always wise to do some sensitivity

analysis. This means we calculate how much a gross margin changes when

there is a change in the values used to calculate it.

Which enterprises to choose for calculating gross margins?

Most farmers in Tonga have many enterprises to choose from to include in

their farm plan. It would take a lot of work to calculate gross margins for all of

them. Fortunately, the Farm Management Manual produced by MAFF (2000)

covers the important crop and livestock enterprises in Tonga and the gross

margin budgets presented in the manual can provide a good guide. Farmers

should concentrate on calculating gross margins for those enterprises that

best suit their resources and circumstances, and use the estimates in the

manual as a starting point.

Steps in gross margin planning Explain to trainees that the main purpose of gross margins is to compare the

profitability of different enterprises to get the best profit from the resources

available. This assumes all enterprises use fixed inputs to about the same



degree. Gross margins have to be expressed in a consistent way for all

enterprises. It is usual to express them for one acre per year, as done below.

However, there is no hard-and-fast rule on which resource should be used as

the basis for getting the highest gross margin. It depends on what the farmer

thinks is the most limiting resource. In some cases, a comparison of gross

margins per acre might not be appropriate. An intensive broiler enterprise, for

example, might use little land but be a heavy user of capital. In this situation, it

would be wise to compare gross margins per dollar invested in the enterprise.

Then again, gross margins per unit of various resources can all be used,

leaving the farmer to make a choice between the different measures. In all

cases, it is good practice to calculate gross margin per labour unit (hour or

day, for example) because labour is an important input in all enterprises in

Tonga.

There is also a problem of different lengths of the production cycle of

enterprises. In the exercises that follow in which gross margins are calculated

for one acre of land, different crops are in the ground for different lengths of

time and so the gross margins for the crops cannot be directly compared. In

Module 8, trainees get experience in compiling a farm plan consisting of a

number of enterprises with different production periods. At this stage, they will

simply calculate gross margins per acre for the length of the production cycle

of each enterprise.

Assuming one acre of land, which is the most limiting resource, the method of

gross margin planning follows six steps:

1. Prepare the background information on enterprises that potentially

could be grown on the farm (discussed in Module 3).

2. Prepare an inventory of available resources on the farm that can be

used in production of the enterprises identified in Step 1.

3. Obtain data on input and output quantities and prices for each

enterprise.

4. Calculate gross income from the enterprise for one acre.



5. Identify and calculate the costs of variable inputs used to produce the

output from one acre.

6. Subtract variable costs from gross income to obtain gross margin per

acre.

Gross Margin Example: Banana Enterprise

While a banana plant remains in the ground for a few ratoons, we will ignore

the ratoons and calculate the gross margin for the first year only. Calculation

is based on one acre.

Output is estimated to be 8.5 tonnes per acre and the price received by the

farmer is forecast to be T$0.60 per kilogram. Because the price is in

kilograms, we must put output in the same units (8,500 kg). Therefore, gross

income is calculated as 8,500 kg multiplied by T$0.60, which equals T$5,100.

As there is only one output in this enterprise, the value of T$5,100 is also

gross income.

There are seven variable inputs used in the production of the bananas in their

first year:

• 3 hours of machinery hire for ploughing and slashing, costing T$40 per

hour

• 1 hour of machinery hire for disk harrowing, costing T$40 per hour

• 660 suckers used as planting material, costing T$0.10 each

• 200 kg of NPK 8:33:18, costing T$1.00 per kg

• 200 kg of urea, costing T$0.90 per kg

• 140 propping sticks, costing T$0.20 each

• Marketing cost of T$30 per tonne.

The price is multiplied by the quantity in each case to calculate the variable

costs.

The following details are provided on family labour inputs per acre. Forty

hours are spent preparing the planting material, 70 hours planting and



replanting, 40 hours weeding, 20 hours propping, 15 hours applying fertilizers

and 100 hours harvesting.

The gross margin for one acre of bananas is shown below.

Description Units Quantity Price per

unit

T$

Bananas sold Kilograms 8500 0.60 5100.00

Gross income (A) 5100.00

Variable inputs

Planting material Suckers 660 0.10 66.00

Mechanical cultivation Hours 3 40.00 120.00

Disk harrowing Hours 1 40.00 40.00

NPK fertilizer Kilograms 200 1.00 200.00

Urea fertilizer Kilograms 200 0.90 180.00

Propping sticks Number 140 0.20 28.00

Marketing Kilograms 8500 0.03 255.00

Total variable costs (B) 889.00

Gross margin per acre (A-B) 4211.00

Gross margin per hour of family labour (285 hours) 14.78

Gross margin per T$ of variable costs 4.74



Small Group Exercise: Calculating Gross Margins Seven enterprises have been chosen for calculating gross margins. Allocate

one enterprise to each group. The groups are to calculate the gross margin for

the enterprise assigned to them, using the information provided.

Task 1 Identifying variable inputs

Before they begin to calculate gross margins, each group is to suggest which

variable inputs they would include for the enterprise that they have been

assigned. There is no single correct answer for this task because farmers may

apply different inputs according to their different situations. For example, a

farmer on very fertile soils might apply no fertilizer whereas a farmer on poor

soils may need to apply several fertilizers for the same crop enterprise.

Task 2 Calculating gross margins

Trainees are to begin by calculating gross income. Gross income is the sum

of revenues obtained from all outputs in the enterprise. There will usually be

only one but, in some cases, there might be more than one. In the final

exercise, semi-intensive broiler, for example, poultry manure is sold as well as

the broilers themselves.

Explain that gross revenue is calculated by multiplying the price per unit of

output by the quantity produced. As mentioned in Module 2, all outputs should

be valued regardless of their final destination. Trainees should value unsold

output at the same price that is used for output that is sold.

Ask trainees how they would decide which values to vary when undertaking a

sensitivity analysis. Two things should influence their choice. First, ask them

to think about which factors are most critical to their profit. The most common

examples are output prices and yields, and these are the variables that tend

to get used in the exercises. Other possibilities are prices of key inputs.

Second, choose those factors whose values vary a lot and are uncertain.

Again, yields and prices of the main output are often difficult to forecast. On

the other hand, you usually have a better idea of the prices and quantities of

farm inputs used.



Calculations

Each group is to perform the following calculations, except for the semi-

intensive broiler enterprise:

• Total gross margin per acre for the production period.

• Gross margin per dollar of variable cost.

• Gross margin per hour of family labour.

An additional calculation for groups that select the kava or paper mulberry

enterprise is the gross margin in each year.

Groups choosing the semi-intensive broiler enterprise are to calculate the total

gross margin for the production period, gross margin per bird sold and gross

margin per dollar of fixed capital.

Check that all groups have managed to estimate gross income successfully

before continuing to calculate variable costs.



Enterprise 1 Sweet potato

Outputs

Five tonnes of sweet potato tubers are produced on an acre of land. Four

tonnes of tubers are sold in Talamahu market at T$0.60 per kilogram and the

farm household consumes the other tonne.

Variable inputs

Production inputs

A total of 10,000 vine tip cuttings are planted in mounds. Each cutting is

estimated to have a value of T$0.02.

The farmer hires machinery for ploughing, slashing and ridging that costs

T$40 per hour. The first ploughing/slashing takes 1.5 hours and the second

ploughing also takes 1.5 hours. Ridging takes 1 hour.

The farmer controls for sweet potato scab by applying 1.8 kg of the fungicide,

Manzate 200 80% WP. Also, 9 litres of the insecticide, Diazinon 20% EC, are

used to prevent infestation of the sweet potato weevil. Manzate costs the

farmer T$20 per kg and Diazinon costs T$35 per litre. Mistblower operations

take place on three occasions costing T$4 each time.

The following details are provided on family labour inputs per acre. Twenty

hours are spent preparing planting material, 60 hours planting, 100 hours

weeding, 40 hours mounding, 24 hours spraying and 50 hours harvesting.

Marketing inputs

It costs T$42.50 to sell each tonne of tubers sold in Talamahu market.



Enterprise 2 Watermelon

Outputs

The output of watermelons on an acre of land is estimated to be 12 tonnes.

None is to be retained for consumption by the household. Ten tonnes are to

be sold for export to New Zealand and the remaining 2 tonnes are to be sold

in Talamahu market. The export price is T$1.00 per kg. The farmer expects to

sell watermelons destined for Talamahu market at T$0.80 per kg.

Variable inputs

Production inputs

The farmer uses 1 kg of watermelon seeds per acre, costing T$120 per

kilogram.

The farmer hires machinery for ploughing, slashing and disk harrowing that

costs T$40 per hour. The first ploughing/slashing takes 1.5 hours and the

second ploughing also takes 1.5 hours. The disk harrowing takes 1 hour.

Two fertilizer applications are recommended. The farmer applies 200 kg of

NPK 8:33:18, at a cost of T$1.00 per kg, and 80 kg of urea are applied at a

cost of T$0.90 per kg.

The farmer applies 2 kg of the fungicide, Manzate 200 80% WP, one litre each

of Afugan and Agral, and 0.4 litre of Punch. One litre each is used of the

insecticides, Malathion and Perfekthion, in addition to 1 kg of Snail Away. The

costs of the chemicals to the farmer are T$20 per kg for Manzate, T$45 per

litre for Malathion, T$42 per litre for Perfekthion, T$120 per litre for Afugan,

T$8 per litre for Agral and T$280 per litre for Punch. Snail Away costs T$13

per kg. Mistblower operations cost T$4 and take place on 10 occasions.

The following details are provided on family labour requirements. Planting

takes 40 hours; fertilizer application takes 20 hours; spraying takes 30 hours;

weeding takes 60 hours; watering and mulching take 55 hours; and harvesting

takes 60 hours.

Marketing inputs. The marketing costs charged by the exporter are T$0.35 per

kg. It costs T$0.25 to sell each tonne of watermelons in Talamahu market.



Enterprise 3 Tomato

Outputs

The output of tomatoes on an acre of land is estimated to be 7.5 tonnes. None

is to be retained for consumption by the household and all is to be sold in

Talamahu market. The farmer expects to receive T$2.00 per kg.

Variable inputs

Production inputs

The farmer uses three 20-gram packets of tomato seeds per acre. Each

packet of seed is estimated to cost T$20.

The farmer hires machinery for ploughing, slashing and disk harrowing that

costs T$40 per hour. The first ploughing/slashing takes 1.5 hours and the

second ploughing also takes 1.5 hours. The disk harrowing takes 1 hour.

Three fertilizers are applied: chicken manure (600 kg); NPK 8:33:18 (150 kg);

and urea (100 kg). Their costs are T$0.10/kg, T$1.00/kg and T$0.90/kg,

respectively.

Staking of the tomatoes requires a total of 8900 stakes per acre. Each stake is

valued at T$0.05.

The farmer applies 0.5 kg of the fungicide, Benlate 50% WP, which costs

T$85 per kg. Three kilograms of the fungicide, Manzate 200 80% WP, are

used at a cost of T$20 per kg. Two litres of the insecticide, Malathion, are

applied to control for leaf rollers, leaf miners and cucumber beetles, at a cost

of T$45 per litre. Mistblower operations cost T$4 and take place on 10

occasions.

The following family labour requirements are provided. Planting takes 106

hours; pruning takes 40 hours; fertilizing takes 12 hours; spraying takes 40

hours; weeding takes 150 hours; watering and mulching take 100 hours; and

harvesting takes 240 hours.

Marketing inputs

It costs an average of T$0.04 to sell each kilogram of tomatoes in Talamahu market.



Enterprise 4 Squash

Outputs

The output of squash on an acre of land is estimated to be 3.5 tonnes. All of

the output is to be sold for export to Japan. The price received by the farmer is

T$0.60 per kg.

Variable inputs

Production inputs

The farmer uses 0.5 kg of squash seeds per acre. Each kilogram of seed is

estimated to cost T$240.

The farmer hires machinery for ploughing, slashing, disk harrowing and

ripping that costs T$40 per hour. The first ploughing/slashing takes 3.5 hours.

The disk harrowing takes 1 hour, as does the ripping.

Nitrophoska is applied at the rate of 6 litres, costing T$5.50 per litre. A total of

200 kg of NPK 8:33:18 are applied, at a cost of T$1.00 per kg, and 80 kg of

urea are applied at a cost of T$0.90 per kg.

The farmer applies 1 kg of the fungicide, Manzate 200 80% WP, 1 litre each of

Afugan and Agral, and 0.4 litre of Punch. One litre each of the insecticides,

Malathion 50% EC, Perfekthion, is applied to control for leaf miners, leaf

rollers and cucumber beetles. The costs of the chemicals to the farmer are

T$20 per kg for Manzate, T$45 per litre for Malathion, T$42 per litre for

Perfekthion, T$120 per litre for Afugan, T$8 per litre for Agral and T$280 per

litre for Punch. Mistblower operations take place on 15 occasions and cost

T$4 per operation.

The family labour requirements are 40 hours for planting, 20 hours for

fertilizing, 50 hours for spraying, 30 hours for weeding, 50 hours for harvesting

and 15 hours for processing and packing.

Marketing inputs

The farmer spends T$40 per tonne to get the squash prepared for the

exporter.



Enterprise 5 Kava

Output

The output of green kava is 8.6 tonnes per acre. All is to be harvested in year

5 and sold in the domestic market in powder form. The conversion rate from

green kava to kava powder is 4:1.The price received for 1 kilogram of kava

powder is T$20.

Variable inputs

Production inputs

The farmer uses 1800 seedlings per acre in year 1. Each seedling is

estimated to cost T$1.50.

The farmer applies 0.5 litres of Diazinon 20% EC in each of the first three

years at a cost of T$35 per litre.

The following family labour requirements are provided. Land preparation and

planting take 130 hours in the first year. Maintenance takes 250 hours in the

first year and 400 hours in each year from the second to the fourth year. In the

fifth year, harvesting takes 230 hours, processing and packing into kava

powder takes 430 hours, and selling the kava powder takes 70 hours.

Processing inputs

Crushing costs in year 5 are T$375 per tonne of green kava.

Marketing inputs

The marketing costs are T$300 in year 5.



Enterprise 6 Paper Mulberry

Output

A farmer grows paper mulberry in Ha'apai in a four-year production cycle, with

380 bundles of sticks harvested in year 2, 500 bundles in year 3 and 500

bundles also in year 4. One bundle is equal to 20 sticks. The skin is taken off

the stick and each skin is sold in Nuku'alofa for an average price of T$4.00.

Variable inputs

Production inputs

In the first year of the production cycle, the farmer plants 2600 suckers per

acre, worth T$0.30 each, and hires machinery to cultivate the land for three

hours, costing T$40 per hour.

Only family labour is used in production, processing and marketing. Land

preparation and planting take 60 hours in the first year. Maintenance takes

100 hours in the first year and 60 hours in each year from the second to the

fourth year. Weeding takes 30 hours in each of the first three years and 20

hours in the fourth year. Harvesting takes 60 hours in year 2 and 100 hours in

each of years 3 and 4. Four hours of labour are needed to take the skins of a

bundle of 20 sticks.

Marketing inputs

The non-labour cost of marketing 100 skins is T$8.20. Marketing also requires

70 hours of family labour in each year from the second to the fourth year.



Enterprise 7 Semi-intensive broiler

Outputs

Broilers are sold for T$10.00 dressed weight. The dressing out percentage is

65 per cent. The byproduct of manure is sold for T$6 per 50 kg bag. The

amount of manure produced is an average of 2 kg per bird for the birds sold at

the end of the production period.

Variable inputs

Production inputs

The farmer purchases 110 chicks at a cost of T$1.10 each. Five chicks die in

the first few days and five more birds die before they are finished off for sale.

The production period is 8 weeks. An amount of 0.05 kg of starter feed per

day is fed to the surviving chicks for the first 4 weeks and 0.1 kg of finishing

feed per day is fed for the final four weeks to the 100 birds that survive

beyond the first four weeks. The starter mix costs T$0.80 per kg and the

finishing feed costs T$0.70 per kg.

Other production costs per bird over the production period (assume an

average of 105 birds) are estimated to be T$0.03 for electricity, T$0.02 for

water and T$0.05 for veterinary expenses. Labour inputs consist of 2 persons

working full-time throughout the production period.

Marketing inputs

There are two marketing inputs. First, plastic bags cost T$0.04 for each bird

sold. Second, two trips are made to the market at T$6 per trip.

Fixed capital

The broiler and feed sheds are the only items of fixed capital. They cost

T$200 to build.


Module 5: Partial Budgeting

Module 5

Partial Budgeting



Trainer’s Notes

Set the scene

Once a gross margin of an enterprise has been estimated, it is possible to use partial budgets see the effect on profit of small to moderate changes in the enterprise.

Aim To develop the farmer’s skill to make adjustments to the farming system to achieve a higher profit.

Expected outcome

Farmers are expected to be able to calculate the effects on net profit of minor to moderate changes to their farm plan. These effects can also be calculated as part of a demonstration or on-farm trial (see Module 9).

Duration of session

2 hours.

Method Tools used are:

• Partial budgeting.

• Break-even budgeting. Begin with the mini lecture and the example of the change in fungicide use in squash production. Trainees are to calculate changes to the same seven enterprises used to calculate gross margins in small groups. Arrange for these small groups to present and discuss their results in a large group session.


A new farm plan that can be compared for relative profitability with the existing farm plan.


Partial budgeting can be used in a variety of ways. It is useful to look at the effects on cash flow as well as profitability when examining a change in the farm plan. Also, its use is not confined to changes in gross margin. It can be used to analyse the effects of a change in fixed inputs or capital expenditure on net farm profit.

Additional reading

Dillon and Hardaker (1993, pp. 155-159). FAO (2004).



Mini Lecture The main purpose of a partial budget is to calculate the effect on profit of a

small change in the enterprise. This should help the farmer evaluate whether

a change is worthwhile making to get a higher profit from the resources

available. Partial budgeting is used mostly when compiling a farm plan.

The four possible changes that make up a partial budget are:

1. Additional costs 2. Loss of revenue 3. Costs saved 4. Additional revenue.

The first two changes reduce net farm profit while the last two changes

increase net farm profit.

Partial budgeting can also be used to assess the effect on profit of changing

the value of a key variable whose value is uncertain. Break-even budgeting is

used to find out the worst value that can occur for such a variable without

making a loss. In other words, it is the value of an output or an input that still

allows the farmer to break even in the enterprise concerned.

Example: Change in a squash enterprise

The farmer is considering the use of Systhane instead of Afugan as an

alternate spray to control powdery mildew. Application of 180 grams of

Systhane is expected to cost $91.50 and yield an extra 100 kg of export-

quality squash. The saving in application of Afugan would be $60.

Calculate the change in total gross margin for the production period as a

result of this change in chemical application. Should the farmer make the

change?

The answer is shown below in tabular form, which is a handy way to tackle the

exercises. There is a net gain in profit of T$28.50, which suggests that the

squash producer should make the change to Systhane.



Increase in profit from: T$ Decrease in profit from: T$

Additional revenue Additional costs

Higher squash output 60.00 Systhane used 91.50

Costs saved Loss of revenue

Afugan not used 60.00

Total gains 120.00 Total losses 91.50

Net gain in profit 28.50



Small Group Exercise: Calculating Partial Budgets

Form the trainees into the same small groups that calculated gross margins

and assign the same enterprise that the group chose in the gross margins

exercise. The following information on changes to the farm plan for each

enterprise is provided to calculate the partial budget.

Start by explaining to trainees the main purpose of a partial budget. Inform

them that they get experience in using them in Module 8 when compiling a

farm plan.

Normally, a farmer would evaluate the effect on the farm plan of a single

change at a time. This is the case in some exercises. In others, trainees are

asked to make two separate changes so that they have experience in

calculating all four types of effects on profit.

Ask all groups to start by identifying any additional costs and then to calculate

them. Check that all groups have managed to calculate them successfully

before continuing. Do the same for calculation of revenue lost, then costs

saved and, finally, additional revenue.



Enterprise 1 Sweet potato

Task 1

The farmer has decided no longer to apply any of the fungicide, Manzate 200

80% WP. The effect is to reduce the yield of tubers of sweet potato produced

from 5 tonnes per acre to 4.8 tonnes per acre.


result of not applying Manzate. Should the farmer make the change?

Task 2

The farmer uses hired labour for land preparation instead of hiring machinery

for ploughing, slashing and ridging. Hired labour is to be employed for 10 days

and the wage paid is T$24 per day. There is no effect on any other farm

operation or on the output of tubers.


result of changing from machinery hire to labour hire. Should the farmer make

the change?

Enterprise 2 Watermelon

Task

The farmer has decided to use a new, better-tasting variety of watermelon that

is preferred in the export market. Its seeds cost an extra T$20 per kg. Yield is

expected to be 400 kg per acre lower, which leads to a reduction in the

amount supplied to the domestic market while leaving the export volume

unchanged. On the other hand, the price of export watermelons is expected to

be 5 seniti per kg higher. The price of melons sold in the domestic market is

not expected to change. The new variety needs 50 kg NPK 8:33:18 less than

the existing variety.


result of this change in seed variety. Should the farmer make the change?



Enterprise 3 Tomato

Task 1

The farmer is thinking about an increase in the planting density that would

result in the use of one additional 20 g packet of seeds per acre. This move

would result in additional costs of T$150 for stakes, T$20 for chicken manure,

T$35 for NPK 8:33:18, T$20 for Urea, T$30 for Manzate, T$25 for Malathion,

T$12 for mistblower operation and T$10 for marketing. In addition, the farmer

would have to hire 4 days of labour at T$25 per day. Yield is expected to

increase to 7.75 tonnes per acre.


result of this change in planting density. Should the farmer make the change?

Task 2

The farmer has decided to hire labour to supply tomatoes to Talamahu market

rather than pay the current marketing costs. She estimates that she would

need to pay wages of T$25 per day for 12 days.


result of this change in marketing practice. Should the farmer make the

change?

Enterprise 4 Squash

Task

The farmer is concerned that monocropping squash is making the enterprise

more prone to pests and diseases. Rather than apply more chemicals, he is

deciding whether to plant a mix of crops on an acre of land currently planted

to squash, with 0.3 acres planted to sweet potato and 0.2 acres planted to

cassava leaving the remaining 0.5 acres in squash. The land used for squash

production is to remain in fallow for the rest of the year. This change would

lead to a decline in the squash yield to 3.0 tonnes per acre. The additional

revenue earned from sweet potato would be T$700 and the additional costs

would be T$300. The additional revenue earned from cassava would be

T$550 and the additional costs would be T$140.




result of the move to mixed cropping. Should the farmer make the change?

Enterprise 5 Kava

Task 1

The farmer decides to harvest the acre of kava at the end of Year 4 rather

than Year 5. The yield is expected to be 2 tonnes of kava powder. Crushing

costs are expected to fall by T$225, Diazinon will not be applied in Year 3 and

marketing costs should decline by T$20. In the fifth year, he plants bananas

on the acre previously planted to kava, earning a gross margin after family

labour cost of $3227.


result of the earlier harvesting date. Should the farmer make the change?

Task 2

Return to the original gross margin budget. Now, the farmer is thinking about

applying NPK fertilizer at a cost of T$100 in each of the first four years. Yield

is anticipated to increase to 2175 kg of kava powder per acre when the kava

is harvested in Year 5. No other changes are expected.


result of applying NPK. Should the farmer make the change?

Enterprise 6 Paper mulberry

Task 1

The farmer decides to sell the paper mulberry sticks to a local wholesaler in

Pangai prior to removing the skins, rather than do the processing herself and

travel to Nuku’alofa to sell the skins. A bundle of 20 sticks are to be sold for

T$40. The farmer gets a job in town working the same number of hours she

previously took to remove and market the skins. The wage is T$4 per hour.


result of not processing and marketing the final product. Should the farmer

make the change?



Task 2

The farmer is thinking about interplanting swamp taro in alternate rows with

paper mulberry in the first year of production. The additional revenue from

swamp taro is expected to be T$2380 per acre and the additional production

and marketing costs are expected to be T$580 per acre. Paper mulberry

output is expected to decline by 400 skins and T$50 of marketing costs would

be saved. There would be a net reduction of 1500 hours worked by family

labour. One-third of this time is to be spent in casual labour employment at

T$3.40 per hour.


result of interplanting swamp taro in the first year. Should the farmer make the

change?

Enterprise 7 Semi-intensive broiler

Task 1

The farmer decides to change to a new finishing feed mix. It costs an

additional 20 seniti per kg but each bird is expected to sell for 50 seniti more.


result of using the new feed mix. Should the farmer make the change?

Task 2

The farmer is thinking about not using veterinary inputs. As a result, she

expects two more birds to die: one in the first few days after purchase and one

during the finishing period. Assume there are no changes in marketing costs

or the amount of manure produced.


result of not using veterinary inputs. Should the farmer make the change?


Module 6: Scheduling Labour Activities

Module 6

Scheduling Labour

Activities



Trainer’s Notes

Set the scene Stress the continuing importance of family labour in agriculture in Tonga. This fact means it is very important to make best use possible of this resource by scheduling farm activities so there is a minimum of unused labour during the year and as few bottlenecks as possible during busy seasons that might disrupt production or require the farmer to spend cash on hired labour.

Aim To make sure that full and effective use is made of farm family labour.

Expected outcome

Identification of periods of potential labour shortages and surpluses, and the need to employ casual hired labour to avoid bottlenecks in production.

Duration of session

2.5 hours.

Method Labour scheduling. Outline the steps involved in scheduling labour activities, using the material in the mini lecture. This is followed by an example of a farm producing vanilla and small crops. Trainees are then to attempt exercises on two types of mixed-cropping farms. Arrange for small groups to present and discuss their results in a large group session.


Labour profiles (or schedules) by enterprise and for the whole farm.


Labour scheduling need not involve only family members. It can be done for all types of labour – hired, family and communal. Indeed, it might be very helpful in planning the activities of communal labour tasks for youth groups.

Additional reading




Mini Lecture The scheduling of labour among enterprises is important for smallholders wishing

to increase their profits because labour, especially family labour, is one of the two

most important resources available to the farmer (the other being the land itself).

For effective labour scheduling, it helps to prepare a labour profile. A labour

profile shows the seasonal labour requirements of each enterprise and of the

farm as a whole. The time interval chosen can vary from days to years but for

most purposes a month or a quarter is sufficient. Labour requirements and

availability are usually measured in hours or days. Monthly profiles of hours of

labour required and available are used in the example and exercises that follow.

There are five steps to follow to construct a labour profile:

1. Calculate the total number of hours or days required to conduct each

enterprise.

2. Divide the total number of hours/days required for each enterprise into

monthly or quarterly intervals.

3. Calculate the total number of hours/days required by all enterprises in

each month/quarter.

4. Calculate the number of hours/days that household members are available

during each month/quarter.

5. Subtract the required number of hours from the number of hours of

available labour. For any month/quarter, there is a labour surplus if the

figure is positive and a labour deficit if the figure is negative.

Example: Vanilla-Based Mixed Cropping Farm

Consider a smallholder who is growing 1 acre of vanilla, now in its fifth year, and

plans to grow 1 acre of early yams, to be planted in June and July, and half an

acre of pineapples, to be planted in March. There are 3 acres in fallow. Labour

requirements for each enterprise are shown in hours on a monthly basis in the

third to fifth columns of the labour profile presented in the Table 6.1. The total

monthly labour requirement is shown in the sixth column. Total labour availability

is shown in the second last column and the balance between labour requirement

and availability is shown as a surplus (+) or deficit (-) in the final column.



Table 6.1 Labour Profile for a Small Crop Farm

Labour requirement (hours) Surplus (Deficit) in hours Month

Vanilla

Early

yam Pineapple Required Available Balance

January 20 15 10 40 50 5

February 20 15 10 50 150 105

March 15 10 45 290 200 130

April 14 10 10 79 150 116

May 10 10 10 75 140 110

June 14 145 10 69 90 -79

July 10 140 10 60 80 -80

August 14 55 10 39 120 41

September 20 45 10 40 150 75

October 54 35 10 74 150 51

November 55 15 10 75 150 70

December 24 15 10 44 30 -19

Total 270 510 155 935 1420 485

Figure 6.1 shows the total labour demanded per month and the amount of labour

available. This graph clearly shows the labour deficits in the months of June, July

and December (the shaded cells in the last column of Table 6.1). There is surplus

labour in the other nine months of the year.



Figure 6.1 Labour demand and supply in a vanilla-based farming system

0

50

100

150

200

250

1 2 3 4 5 6 7 8 9 10 11 12

Month

Day

s

Labour demand Labour available

The main deficits are in June and July when there is a heavy labour demand for

planting early yam and when yam harvesting is planned to start. Labour

availability in these months is limited by the need by family members to attend to

matters off the farm. There is also a small deficit in December when, once again,

family members have off-farm responsibilities that reduce the amount of time they

can devote to farming.

There are four ways for the farmer to deal with the labour shortages. A partial

solution to the labour shortage of 159 hours over the two months, June and July,

is to move the planting of yam forward to May when there are 110 hours surplus.

Second, harvesting could begin earlier than the planned 12 months from planting

as it is possible to begin harvesting early yam 9 months after planting. A third

solution is to see if it is possible to rearrange the labour activity schedule for the

other two crops of vanilla and pineapple. Unfortunately, there appears to be little

scope for this as these two crops already have low labour demands in the deficit

months. A final option is to increase labour availability in the months of labour

shortage by calling on other family members to provide labour or to engage in

communal labour tasks in other months and call upon group members who have

spare time during June and July.



Note that there is a lot of surplus labour in February, March, April and May. If

labour is obtained to cover the shortfalls in June and July, it might be possible to

plant extra crops on the fallow land from February to May providing the

enterprises require only small amounts of labour in the period from June to

August and in December. Unfortunately, the planting time for most vegetables in

Tonga is from June to October. But other crops can be planted year-round or are

best planted during periods that overlap with the time that surplus labour is

available. For example, the recommended planting period is from January to April

for kava, year-round but best from November to March for bananas, and year-

round but best from March to July for sweet potato (MAFF 2000).



Small Group Exercises: Scheduling Labour

Exercise 1: Case Study Mixed Cropping Farm with Squash, Kava, Tomato and Root Crops

A farmer is producing five crops on 8.25 acres of land: squash; kava; sweet

potato; cassava; and tomatoes. You are provided with the following information

on labour availability in the farm household and the labour requirements of each

enterprise.

Labour availability

The amount of family labour available in hours each month is as follows:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

140 230 230 230 230 190 190 230 230 230 220 60

Labour requirements

Three acres will be left fallow over the next year, and will be grazed by a few

animals. Tending the animals is expected to require 5 hours of labour every

month. There will be some general farming demands on the farmer’s time, as

follows (in hours):


10 10 60 40 20 10 10 10 10 50 15 10

Five crops are to be grown during the year. One acre of squash will be planted in

August. It will require 55 hours of labour in August, 50 hours in September and 85

hours in October.

Half an acre of kava is to be planted in March while 1.5 acres have been planted

in the past. Of these 1.5 acres, half an acre is 2 years old, half an acre is 4 years

old and half an acre is in its sixth year and is about to be harvested. Total labour

requirements in hours for the 2 acres are as follows:


110 110 155 65 80 80 70 55 70 80 110 110



The preparation of sweet potato cuttings is to begin for planting 1.5 acres in

March and April. Harvesting is to take place in September. The schedule for

labour requirements in hours is as follows:


0 0 50 110 60 60 40 16 110 0 0 0 One-quarter of an acre is to be allotted to tomato plants in July, and the tomatoes

are to be harvested in October. The labour requirements are 31 hours in July, 30

hours each in August and September, and 80 hours in October.

Cassava is to be planted in November on 0.5 acres of the land that was planted

to sweet potato earlier in the year. There is also 0.5 acres already in the ground

at the start of the year that will be harvested towards the end of the year. The

schedule for labour requirements in hours is as follows:


15 10 10 8 6 4 4 5 6 10 40 42

Tasks

1. Prepare a labour profile for the year.

2. Identify the main periods of labour surplus and labour shortage.

3. Describe how the farmer can make better use of family labour, assuming it is

impossible to get family members to work any more hours or to get any hired

labour in December.



Exercise 2: Case Study Mixed Cropping Farm with Vanilla, Carrots, Root Crops and Coconuts

Background

A farmer has five acres of land available for farming, and is preparing a farm plan

for the following year. Four crop enterprises have been selected for planting. An

area of 0.7 acres is to be planted to swamp taro in May, in addition to the same

area planted in the previous May. Half an acre is to be planted to late yams in

August-September, in addition to the same area planted in the previous August.

An area of 0.3 acres will be planted to carrots in June-July, and 0.2 acres to

sweet potato in April. In addition, there is half an acre planted to mature coconut

palms and one acre of 12-year old vanilla. The remaining 0.6 acres will be left

fallow.

Harvesting of swamp taro is to begin in June and be completed by October to

avoid the danger of tubers rotting in wet soils. Late yams are to be harvested

from May onwards, with some cash sales to the local market from May to July.

Carrots will be harvested in October and November. Harvesting of vanilla beans

takes place from May to September. Sweet potato will be harvested from October

to December solely for consumption in the home or given to relatives. The

coconut palms are consumed in the home and some are sold locally as green

nuts regularly throughout the year.

Labour requirements

General farm labour requirements are 20 hours per month in March, August and

September, zero in December and January, and 10 hours per month in all other

months.

Monthly vanilla labour requirements in hours are as follows.


15 15 15 10 22 29 33 66 35 10 15 15

The carrot crop requires 27 hours in June, 30 hours in July, 10 hours in August,

12 hours in September, 29 hours in October and 22 hours in November.

Monthly labour requirements in hours for swamp taro are as follows.




20 20 15 20 40 27 30 30 30 28 20 20

Monthly labour requirements in hours for late yams are as follows.


16 12 5 5 13 10 10 70 60 20 15 20

Sweet potato has no labour requirements in January or February, but needs 4

hours in March and 12 hours in April. Requirements are 7 hours in each of the

next 4 months, then 6 hours in September, 3 hours in each of October and

November, and 4 hours in December.

Labour requirements for the coconuts enterprise are 4 hours per month

throughout the year. For breadfruit, they are 2 hours per month from May to

September.

Tasks

1. Prepare a labour profile for the year.

2. Identify the main periods of labour surplus and labour shortage.

3. Describe how the farmer can make better use of family labour, assuming it is

impossible to get family members to work any more hours or to get any hired

labour in December.


Module 7: Cash-Flow Budgeting

Module 7

Cash-Flow Budgeting



Trainer’s Notes

Set the scene Start the session by describing how greater participation in commercial agriculture means that farmers have to pay more attention to cash flows. Preparing cash flow budgets is also important for going to the bank to ask for a loan to finance farming operations. This means keeping track of how much cash is available for farming and other activities from one period to the next.

Aim Identify possible future cash deficits and surpluses.

Expected outcome

Farmers should know how to calculate their net cash flow position for any period in which they are interested, and be able to present a cash flow budget when applying for a loan.

Duration of session

3 hours.

Method Start by identifying the different components of a cash flow budget, outlined in the mini lecture. The cash transactions reported in Module 2 are then entered in an exercise. Get trainees to prepare three cash flow budgets. The first exercise involves the preparation of an annual farm plan for which quarterly cash flows are calculated. In the second exercise, the farmer is building a semi-intensive broiler operation and is preparing an annual cash flow budget on a monthly basis. In the third exercise, time intervals are in years for a long-term piggery development. Arrange for small groups to present and discuss their results in a large group session.


A detailed cash book, with summaries of cash receipts and payments for each period.


The length of the selected time interval depends on the purpose of the budget. Cash flow budgets are an integral part of development budgets used for making major changes to the farm plan.

Additional reading




Mini Lecture Cash flow analysis is important in farm management for two main reasons:

• It provides information on income and expenditure that can be used to

assess how profitable a farm has been (or is expected to be) in a given

period.

• It enables sound management of the financial side of the farm business,

ensuring that the farmer has sufficient liquidity to meet his or her

obligations.

The concept of cash flow is best described through various cash flow measures,

represented in four rows in Figure 7.1. The first row shows how to derive the net

cash flow of the farm as the total receipts from farming operations minus the total

payments made to undertake these operations. This equation can be expressed

for different periods, from a week to many years. The choice of period depends

on what information the farmer wants from the analysis. A farm plan for the next

year might need a cash flow budget with quarterly intervals. Annual intervals are

likely to be used to plan the introduction of a new long-term enterprise, such as a

tree crop or intensive livestock enterprise.

Where a farmer has borrowed money to conduct these farming operations,

details are needed on how much has been borrowed during the period of analysis

and how much has been paid to the lender in interest and principal repaid. These

transactions are shown in the second row. The result is called farm cash surplus.

The net receipts from other (non-farm) household cash transactions are added to

the farm cash surplus to obtain household net cash income. We include

household receipts and payments in addition to farm cash flows in the third row of

the diagram to reflect the fact that the household and the farm business are

usually highly integrated in Tonga.

The household net cash income is added to the opening cash balance for the

period to calculate the closing cash balance for that period. This is shown in the

final row of Figure 7.1.



Figure 7.1 Cash-Flow Measures

Farm receipts

Interest and principal

Farm net cash flow

Farm payments

Farm cash loans received

Household net cash income

Farm net cash flow

Opening cash balance

Farm cash surplus

Closing cash balance

-

-

=

=

=

+

+

Farm cash surplus + Net non-farm

receipts = Household net cash income

Source: Adapted from Dillon and Hardaker (1993, p. 83).



Example: Preparing a Cash-Flow Budget

Consider the following cash transactions reported in Module 2, and assume that

the opening balance on 1 May is T$560. Prepare a monthly cash flow profile from

May to September:

• Household goods are purchased as follows (rounded to whole dollars for

convenience): 6 May T$42; 3 June T$54; 5 July T$39; 9 August T$31.

• 200 kg of NPK 8:33:18 are bought on 30 May for T1.00 per kg.

• Two 20-gram packets of capsicum seed are purchased on 8 June for

T$65.

• Two 25-gram packets of eggplant seed are purchased on 8 June for T$65.

• 100 kg of urea are bought on 10 July for T$0.90 per kg.

• Remittances of T$70 were received on 8 August.

• On 5 June 2003, the farmer hired machinery for 1 hour at a rate of T$40

per hour.

• On 9 July, the farmer hired 1 hour of casual labour to harvest 83 kg of

bananas. The labourer was paid T$5. The farmer’s wife sold 5 bunches at

T$7.80 per bunch on the next day, incurring marketing costs of T$7.

• On 5 September, 50 kg of capsicum were harvested and sold for T$2.30

per kg.

• An amount of 60 kg of eggplant was sold on 18 September for T$1.80 per

kg.

Begin by entering the opening balance of T$560 at the top of the column for May.

There are no farm receipts for May but there are some NPK fertilizer costs of

T$200 (200 kg at T$1.00 per kg). This figure is entered in the May column of the

fertilizer row. The only other cash transaction in May is for living expenses of

T$42. This amount is entered in the May column and living expenses row.

It is now possible to calculate the rows for the various totals for May. Total farm

receipts are zero; total farm payments are T$200; and net farm receipts are

therefore -T$200 (T$0 minus T$200). Total non-farm receipts are zero; total non-



farm payments are T$42; and therefore net non-farm receipts are –T$42 (T$0

minus T$42). The closing cash balance is the sum of the opening cash balance

(T$560), the net farm receipts (-T$200) and the net non-farm receipts (-T$42),

which equals T$318. Household net cash income is the sum of net farm receipts

(-T$200) and net non-farm receipts (-T$42), which equals –T$242.

The same procedure is followed for the next four months, with the closing cash

balance of T$318 from May carried forward as the opening cash balance in June.

Note that a cash deficit occurs from June to August, signaling to the farmer that

action has to be taken to make changes to the farm business or obtain a loan in

order to avoid this situation occurring.



Table 7.1 Monthly Cash Flow Budget from May to September

Month May June July August September

OPENING CASH BALANCE 560 318 -36 -138 -99

Farm receipts

Sales of bananas 0 0 39 0 0

Sales of capsicum 0 0 0 0 115

Sales of eggplant 0 0 0 0 108

Total farm receipts 0 0 39 0 223

Farm payments

Seed 0 260 0 0 0

Machinery hire for cultivation 0 40 0 0 0

Fertilizer 200 0 90 0 0

Hired labour 0 0 5 0 0

Marketing costs 0 0 7 0 0

Total farm payments 200 300 102 0 0

NET FARM RECEIPTS -200 -300 -63 0 223

Non-farm receipts

Remittances 0 0 0 70 0

Total non-farm receipts 0 0 0 70 0

Non-farm payments

Living expenses 42 54 39 31 0

Total non-farm payments 42 54 39 31 0

NET NON-FARM RECEIPTS -42 -54 -39 39 0

CLOSING CASH BALANCE 318 -36 -138 -99 124

HOUSEHOLD NET CASH INCOME -242 -354 -102 39 223



Small Group Exercises: Cash Flow Budgeting

Exercise 1: Case Study Mixed Cropping Farm with Vanilla, Carrots, Root Crops and Coconuts

The farmer grows six crops covering five acres on his eight-acre farm: taro,

yams, sweet potato, carrots, coconuts and vanilla. He also has a breadfruit tree.

Carrots and vanilla are solely cash crops while some taro, yams and coconuts in

excess of family needs are sold in the local market. Sweet potato and breadfruit

are only for home consumption by the family and relatives.

The farmer makes the following cash sales during the year:

Vanilla: T$350 in May; T$450 in June; T$500 in July; T$600 in August;

T$200 in September.

Carrots: September T$80; October T$500; November T$700; December T$750. Taro: July T$130; August T$220; September T$150

Yams: June T$150; July T$50.

Green nuts: T$15 per month.

The farmer has to pay T$165 in February for his share of extensions to the

cooperatively owned shed for curing vanilla. He receives T$40 in the second

quarter and T$60 in the third quarter from the sale of vanilla beans by the

cooperative.



Quarterly cash payments for crop enterprises are as follows.

Cost

item/Quarter

January-

March

April-June July-

September

October-

December

Planting

materials

0 246 195 0

Cultivation 0 240 310 0

Fertilizer 10 20 30 20

Chemicals 30 30 20 30

Hired labour 0 50 330 0

Processing and

marketing

10 32 256 100

In addition to cash receipts and payments from the crop enterprises, the farmer

expects to receive T$600 in remittances, one-half in the second quarter and one-

half in the fourth quarter. Family cash payments for living expenses and social

obligations are expected to total T$2,000 per year, T$600 in each of the second

and fourth quarters and T$400 in the other two quarters. At the beginning of year

1, the farmer has T$320 cash in the bank.

Tasks

Prepare a quarterly cash flow budget.

Calculate household net cash income for the year.

Would you advise the farmer to make an appointment with the loans officer at the

Tonga Development Bank? Why/why not?

Exercise 2: Case Study of a Semi-Intensive Broiler Enterprise Consider the seventh exercise for estimating gross margins: a semi-

intensive broiler enterprise that is repeated six times a year for



production cycles of two months, beginning on 1 January. The

opening cash balance is T$800. The farmer has to spend $450 in

June to replace the poultry shed.

One hundred broilers are each sold for T$10.00 dressed weight at the

end of each production cycle. The byproduct of manure is sold for

T$6 per 50 kg bag at the end of each cycle. An average of 2 kg of

manure is produced per bird sold.

At the beginning of each production cycle, the farmer purchases 110 chicks at a

cost of T$1.10 each. Six 25-kg bags of starter feed are purchased at the start of

each cycle at a cost of T$20.00 per bag. At the beginning of the second month of

the production cycle, 14 20-kg bags of finishing feed are purchased at a cost of

T$14.00 per bag.

Other production cash costs per month are estimated to be T$3 for electricity,

T$2 for water and T$5 for veterinary expenses. All labour inputs are provided by

family members who are unpaid. Marketing costs comprise plastic bags costing

T$4 in every second month and transport costs of T$12 in every second month.

Family members earn the following cash wages on neighbouring farms during the

vegetable-growing season: T$75 in July; T$64 in August; and T$102 in

September. Cash living expenses are T$250 in January, T$120 per month from

February to June and August to October, T$270 in July, T$180 in November and

T$370 in December.

Tasks

Prepare an annual cash flow budget using monthly time intervals.

Would you advise the farmer to make an appointment with the loans officer at the

Tongan Development Bank or the savings officer at the Credit Union? Why/why

not?

Exercise 3: Case Study Development of a Semi-Intensive Piggery

This exercise is based on a 10-year planning period for a farmer who plans to

build a piggery for 10 sows. The cost of the shed is estimated to be T$6000 and



the feed store is expected to cost T$800. Construction should take six months,

and production is planned to begin immediately the piggery is completed.

The farmer already has 7 sows and will purchase 3 gilts that cost T$160 each in

the first year. He will also purchase a one-year old boar that costs T$160 in Year

1.

Three sows are to be replaced each year from Year 2 onwards, fetching T$500

each. The boar is to be replaced every 3 years, and so is replaced halfway

through Years 4, 7 and 10. The replacement boar costs T$160.

In the first year, 32 weaners and 30 porkers are sold. In Years 2 to 10, 90

weaners and 84 porkers are sold. The weaners weigh 10 kg liveweight and fetch

T$4.50 per kg. The porkers weigh 50 kg dressed weight and fetch T$5.50 per kg.

Assume these sale weights and prices stay the same in all years.

Other cash payments for operating the piggery are as follows.

Cash payment item Year 1 ($) Years 2 to 10 ($)

Feed 11,000 22,000

Slaughter 220 440

Marketing and transport 110 220

Water 70 140

Veterinary 125 250

In addition to cash receipts from the piggery, the farmer expects to receive T$800

in remittances. Household cash payments for living expenses and to meet social

obligations are expected to total T$4,000 per year. At the beginning of Year 1, the

farmer has T$1500 cash in the bank.

Tasks 1. Prepare a 10-year cash flow budget using one-year time intervals. 2. Assume that the farmer takes a loan of $10,000 from the Tonga

Development Bank at 10 per cent interest rate on the first day of the first

year. Interest is charged on the opening loan balance in each year,

including full interest payment in the first year. Revise the 10-year cash

flow budget prepared for Task 1.


Module 8: Whole –Farm Planning

Module 8

Whole-Farm Planning



Trainer’s Notes

Set the scene Whole-farm planning brings together the information contained in previous modules and the decisions made about resource use.

Aim To enable farmers to select from their toolkit a set of tools that enable them to choose their enterprises and inputs for the next planning period.

Expected outcome

A strategy to develop the farm to its fullest potential.

Duration of session

6 hours.

Method Farm planning, using budgets, schedules and gross margins developed in previous sessions. Begin by outlining the steps in whole-farm planning and the structure of a whole-farm budget. Field trips are used to reinforce exercises.


A farm plan of enterprises that maximizes net farm profit.


The case study done in the ‘training the trainers’ course is not to be repeated in the decentralized training courses. Instead, individual farmers will be able to monitor their own farm performance. In doing so, they will be able to observe how the prices they receive and the yields they achieve do not always correspond with the figures in their farm plans. These variations indicate the risky environment in which they operate, and require them to adopt risk-management strategies.

Additional reading

Dillon and Hardaker (1993, pages 134-136). FAO (2004).



Mini Lecture Farm planning is a process of working out in advance how many farm resources

are going to be used in which enterprises for the whole farm over a specified

period of time. A farm plan is the result of the farm planning process. It is a

statement of the enterprises to be undertaken over this time period.

Preparing a whole-farm plan requires five steps, shown in Figure 10.1.

Figure 10.1 Procedure for Developing a Whole-Farm Plan

Formulate farm goals

Choose enterprises

Assess available resources

Identify possible enterprises

Prepare whole-farm budget

Step 1

Step 2

Step 3

Step 4

Step 5

Step 1 Formulate farm goals

The goals of the farmer will affect the whole-farm plan if, as is common,

maximizing profit is not the sole goal. Other goals might relate to security, status,

fulfilling social and family obligations, spending time in activities off the farm and

so on.

Step 2 Inventory of available resources

This is a necessary first step in assessing the farm potential before calculating

gross margins (see Module 4). The inventory should include the amount and

quality of land and its related resources (for example, soils and vegetation),

standing crops (including useful trees), family labour, livestock, machinery,



buildings, off-farm financial investments, cash on hand and in the bank, and

financial liabilities.

Step 3 Identify possible enterprises

This step has been discussed in Module 4.

Step 4 Estimate gross margins and choose enterprises

The first part of this step has also been discussed in Module 4. The second part

requires the farmer first to choose the enterprise that gives the highest benefits.

Enter as much of this enterprise in the farm plan as resources or other

constraints allow. For example, presume that squash is the most desirable

enterprise from the farmer’s point of view. However, he might only get an export

contract for 12 tonnes and is therefore restricted to putting a limit of 1 acre on this

enterprise. Enterprises would be added to the farm plan until it is not possible to

add any more without reducing the total benefits that the farmer receives from

production. Partial budgeting, labour scheduling and cash flow budgeting help the

farmer to change the enterprise mix until maximum benefits are obtained.

Step 5 Prepare the whole-farm budget

In this last planning step, information on the chosen enterprises is put into the

budget to calculate net farm earnings. This information is in two parts.

The first part is the information on the areas and gross margins per acre of the

enterprises. They are multiplied by each other to obtain the total gross margin for

the farm. This means information on variable costs is automatically included.

Note that the budgets for crop enterprises are expressed on a per acre basis.

Budgets for livestock enterprises may be expressed on a per animal basis or per

pen of animals.

The second part is the information on fixed costs, which has not been included in

the gross margins. Fixed costs are added to obtain total fixed costs. This amount

is then subtracted from the aggregate of the enterprise gross margins to obtain

net farm earnings.



Whole-Farm Planning Example: A Mixed-Enterprise Farm

Consider a farmer producing capsicum, eggplant, bananas and American taro,

similar to the situation described in the cash flow budgeting exercise in Module 7.

During the year, the farmer intends to grow and sell 750 kg of capsicum from 0.3

acres, 1700 kg of eggplant from 0.2 acres and 3200 kg of American taro corms

from 0.8 acres. In addition to the taro corms, 500 bundles of taro leaves are

produced and sold.

The capsicum and eggplant are to be sold at the farm gate for T$2.30 and T$1.80

per kg, respectively. The taro corms are valued at T$0.85 and the leaves are

valued at T$1.20 per bundle. An established area of 0.3 acres of bananas is now

in its second year and first ratoon. It is expected to produce 2400 kilograms

during the year that is sold in the market or consumed at home. All bananas are

to be valued at T$0.60.

Now to the inputs. All quantities are expressed on a per acre basis. Inputs per

acre to be used in capsicum production are: one and a half 20-gram packets of

seed, costing T$65 per packet; four hours of machinery hire, costing T$40 per

hour; 150 kg of NPK 8:33:18, costing T1.00 per kg; 50 kg of urea, costing T$0.90

per kg; 400 kg of chicken manure, costing T$0.08 per kg; 5 kg of manzate costing

T$25 per kg; one and a half litres of Perfekthion, costing T$40 per litre; and one

and a half kilograms of copper oxychloride, costing T$30 per kg. The cost of

mistblower operations is T$30 per acre.

Inputs used per acre of eggplant production are expected to be: two 25-gram

packets of seed, costing T$65 per packet; three hours of machinery hire, costing

T$40 per hour; 150 kg of NPK 8:33:18, costing T1.00 per kg; 50 kg of urea,

costing T$0.90 per kg; 400 kg of chicken manure, costing T$0.08; and 4 kg of

manzate costing, T$25 per kg. The cost of mistblower operations is T$30 per

acre.

Inputs per acre of banana production are estimated as: 100 kg of NPK 8:33:18,

costing T1.00 per kg; 100 kg of urea, costing T$0.90 per kg; 60 kg of muriate of



potash, costing T$1.00 per kg; 140 propping sticks at T0.20 each; and marketing

costs of T$100.

Inputs per acre of American taro production are estimated as four hours of

machinery hire, costing T$40 per hour, 50 kg of NPK 8:33:18, costing T1.00 per

kg, and marketing costs of T$130.

Family labour is the only fixed cost, valued at T$3 per hour. Per acre labour

requirements are 240 hours for capsicum, 330 hours for eggplant, 170 hours for

banana and 340 hours for American taro.

The whole-farm budget is presented in Table 8.1, with amounts rounded to the

nearest dollar. The gross income of T$4150 for American taro comprises T$3400

for corms and T$750 for leaves. Family labour used of 461 hours is calculated as

follows: 240 hours multiplied by 0.3 acre, equals 72 hours for capsicum; 330

hours times 0.2 acre, equals 66 hours for eggplant; 170 hours times 0.3 acre,

equals 51 hours for banana; and 340 hours times 0.8 acre, equals 272 hours for

American taro.

Table 8.1 Whole-Farm Budget: Capsicum and Eggplant-Based Mixed

Cropping Farm

Area grown

Gross income

Variable costs

Gross margin

Total gross

margin Enterprise

Acres T$ per acre

T$ per acre

T$ per acre

T$

Capsicum 0.3 5750 745 5005 1502

Eggplant 0.2 15300 607 14693 2939

American taro 0.8 4150 340 3810 3048

Bananas 0.3 4800 378 4422 1327

Aggregate enterprise gross margins 8816

Fixed costs:

Family labour (461 hours at T$3.00 per hour) 1383

Total fixed costs 1383

Net farm earnings 7433



Small Group Exercise 1: Mixed Cropping Farm Based on Vanilla

Trainees are to reconsider the example of the case study mixed cropping farm

used in the labour scheduling and cash flow budgeting exercises. The farmer has

selected six crop enterprises: swamp taro, late yams, sweet potato, carrots,

coconuts and vanilla. He also has one mature breadfruit tree. Carrots and vanilla

are solely cash crops while some taro, yams and coconuts in excess of family

needs are sold in the local market. Breadfruit and sweet potato are only for home

consumption by the family and relatives.

The farmer already has allotted 1 acre to 12-year-old vanilla from which he

produces 262 kg of green beans that are sold to the village cooperative, earning

T$2100 per acre. He expects to spend 16 seniti per kilogram on marketing costs,

the only variable input, amounting to T$42.

The farmer plans to grow one-third of an acre of carrots, yielding 1.2 tonnes and

earning T$6090 per acre. Variable costs are estimated to be T$1290 per acre.

Two-thirds of an acre is to be assigned to swamp taro, earning T$3600 per acre.

Out of the total production of taro, T$500 worth is to be sold in the local market

and the rest is consumed by the family and in feasts. Variable costs are an

estimated T$580.

Half an acre is to be planted to yams, worth T$7000 in output per acre. Cash

sales are expected to be T$200 and the rest is consumed or given away to

relatives. Variable costs are an estimated T$760 per acre.

There is half an acre of coconuts that yields 500 nuts per year of which T$180 of

nuts are sold regularly throughout the year from the half-acre. The remaining

nuts, worth T$45, are consumed in the household. Variable costs (mainly

marketing costs) are estimated at T$80 per acre for the year. (Note that the

output figures refer to the yield of nuts from half an acre but the variable costs are

for an acre!)

Sweet potato occupies just 0.2 acres of land, producing 1 tonne. An acre of

sweet potato is estimated to have a value of T$2800 with variable costs per acre

of T$700.



Finally, the breadfruit tree yields 100 fruit between December and April that have

an average weight of 2.5 kg. The average value is estimated at T$0.50 per kg.

The farmer has to pay of T$165 in April for his share of extensions to the

cooperatively owned shed for curing vanilla. An amount of T$8 is to be included

for depreciation of the shed in the current year. Depreciation of existing farm

assets is calculated to be T$32 per year. Interest is expected to be incurred on a

small loan at T$12 for the year.

Family labour is treated as a fixed cost. A total of 1213 hours of family labour are

used during the year. All family labour is to be valued at T$3 per hour.

The farmer is concerned about signs of degradation to his land and plans to

leave 1.8 acres fallow in the coming year.

Task

Prepare a whole-farm budget for the coming year using the above information.



Small Group Exercise 2: Kava and Pineapple Farm

This exercise shows how net farm profit can vary from year to year as the farmer

goes through different phases in the production cycle of medium-term crops. In

this case, it is useful to look at the whole-farm budgets for individual years as well

as for the whole production cycle. Because there is very little income in the first

year of the cycle, it makes more sense to combine the whole-farm budget for the

first two years.

Pineapples are interplanted with kava in alternate rows on two acres for four

years. The output of green kava is 7.2 tonnes per acre. All is to be harvested in

Year 4 and sold to a wholesaler/processor for T$3.50 per kilogram of green kava.

Pineapples are first harvested 15 months after planting, and again at 27 months

and 49 months. Yields are 2.6 tonnes per acre for the first harvesting, 5 tonnes

per acre for the second harvesting and 3.6 tonnes per acre for the final

harvesting. All sales are to the domestic market at a price of T$2 per kilogram.

The costs of marketing the pineapples are T$280 in Year 2, T$550 in Year 2 and

T$390 in Year 4.

A total of 430 hours of family labour are used for kava and pineapple production

during the first year. The hours used in later years are 320 hours in Year 2, 390

hours in Year 3 and 510 hours in Year 4. All family labour is to be valued at

T$3.20 per hour and treated as a fixed cost. It is the only fixed cost.

Machinery is hired in the first year for three hours per acre at T$40 per hour to

prepare the land for planting kava seedlings that cost T$2600 per acre and

pineapple suckers that cost T$450 per acre. The cost of the machinery hire is to

be split evenly between kava and pineapple production. There is no other

variable input applied to kava. The inputs for pineapple production are 40 kg of

NPK8:33:18 per acre each year, costing T$1.00 per kg, and 5 litres of hormone

spray applied per acre in each of the first three years, costing T$50 per litre.

Mature coconut palms are on another three acres of land that is otherwise fallow

throughout the period. The average yield is 500 nuts per acre valued at T$0.38

each. Ten hours of family labour is the only input each year, valued at T3.20 per

hour.



Tasks

Prepare the following whole-farm budgets using the above information:

• a combined budget for the first two years;

• a budget for Year 3;

• a budget for Year 4; and

• a budget for the whole four years.


Module 9: Demonstrations

Module 9

Demonstrations



Trainer’s Notes

Set the scene Begin by outlining the approach to be followed in this session, explaining that there is a classroom session but the main action with demonstrations occurs on the farm or in the market.

Aims Identify innovations that may enable farmers to achieve their goals more easily.

Expected outcome

Farmers develop knowledge of new commercial options made available by the introduction of new enterprises, improved production technologies or new marketing opportunities. By the end of a demonstration, farmers will be able to use successfully the innovation that was demonstrated.

Duration of session

3 hours for classroom material. 4 hours for on-farm demonstration.

Method An on-farm demonstration is to be conducted in the field. A format is provided for the effective conduct of farm demonstrations and a list of recommendations is provided for the adoption and adaptation of improved technologies and other innovations. Trainees are to undertake an exercise on questions about farmer adoption prior to an on-farm demonstration. They are also required to think about what sorts of changes they would be able to advise farmers to expect on adopting a particular innovation. Finally, form trainees into teams to imagine that they have to design and conduct a demonstration of their own choice. They are asked to perform a number of tasks. Arrange for small groups to present and discuss their results in large group sessions.


Higher rates of adoption of innovations that can improve incomes of farmers. Adoption is also expected to be more rapid.


Stress that demonstrations need not be confined to farmers’ fields. They can take place wherever there is something new to show farmers that may help them improve the operations and profits.



Mini Lecture

Definition

A demonstration is a training method used in agriculture in which their

participation is used to enable farmers to learn about an innovation. An

innovation is a new (hopefully improved) way of doing things or new product. The

demonstrator and the farmer share experiences during the demonstration. Most

demonstrations involve a number of steps that are first shown and performed by

the demonstrator and then followed by the farmers under the guidance of the

demonstrator. Getting farmers to perform these steps is important in making

them open to considering and taking up the innovation being demonstrated.

Demonstrations need not be a one-off event. A number of demonstrations may

be mounted over time as conditions change. Demonstration effects can be

present for years.

The most usual formal source of a demonstration is new information that comes

from an on-farm trial. However, there are many possible sources of material for

demonstrations.

Checklist Details for Demonstrations

This checklist for demonstration is based on the assumption that the target

farmers are members of youth groups in Tonga.

1. The aim of the demonstration and the target farmers

The aim of an on-farm demonstration should be formulated as the first step in

undertaking it. In general terms, it is to make known to interested members of a

young farmers group the opportunity to benefit from an innovation, and the likely

impacts on their farming operations.

Which members of a young farmers group should attend a demonstration? It

depends on the nature of the innovation and the farming interests of individual

members. A clear description of the planned demonstration to farmers in advance

would enable them to make up their minds whether it is something in which they

would be interested.

2. Details from on-farm trials



The demonstrator should be aware of any on-farm trials to which the innovation

has been subjected. Control plots and trial plots prepared in the trial are a

common source of material for a demonstration, providing information on the

innovation that needs to be disseminated to farmers. The control plot in an on-

farm trial refers to an existing way of doing things against which an innovation

can be compared through a trial plot.

Note that the control might not be a plot but some other existing arrangement.

For example, the demonstration of a new crop might involve an economic

comparison with an existing crop in the farming system. In this case, the

demonstration could be a comparison of gross margins, or it might be a

comparison between an existing domestic marketing channel and a new export

marketing channel.

3. The technical work plan for implementing the demonstration

A technical work plan is critical to the success of a demonstration and should

include a test run. Information is to be provided in the plan on labour and

materials to be used, activities to be undertaken, and timing of the various steps

to be followed.



4. Cooperating farmers

A demonstration can be demanding of the demonstrator’s time during certain

phases. Farmers already familiar with the innovation being demonstrated (they

may have participated in an on-farm trial) could be co-opted to help out during

busy periods.

5. Selection of suitable sites for the demonstration.

In some situations, the resources of farmers attending the demonstration might

be quite different. For example, farmers on atoll soils are likely to have production

conditions different from those of farmers on fertile volcanic soils. It would be

wise the select individual sites for, say, a fertilizer demonstration that reflect these

different production conditions.

6. Installation of measuring equipment

Measuring equipment is often needed to carry out the steps in a demonstration. It

enables demonstrators to show the results of applying an innovation or to

compare effects of an innovation with those of the control. It should be tested

beforehand to ensure it is in good working order and easily accessed by farmers.

7. Training

Training material should be prepared before a demonstration to explain to

farmers how to apply the improvement on their farms. Also, steps should be

taken to ensure that assistance is available after the demonstration for farmers

who wish to apply the innovation. MAFF personnel have an important role to play

here.

8. Provision of information before, during and after on-farm testing

Information on tests of the innovation should be made available at the

demonstration. In particular, data are needed before, during and after on-farm

trials that were previously conducted, to show the effects of a change in the way

of doing things on the farm. Information is needed on the effects on labour use

and cash flow, social, cultural and environmental effects, and especially to carry

out step 11 below.

9. Financial analysis



Demonstrators should make available to farmers a summary of any analysis of

the effects of the innovation on farm profit (such as gross margin analyses and

partial profit budgets). Where relevant, profit analyses should be available from

on-farm trials or market testing that is completed prior to the demonstration.

10. Implementation

Begin the demonstration by briefly setting the scene. Check if any farmers have

previously applied the innovation, and find out what the results were.

Get each farmer to undertake all the steps in the demonstration successfully. An

interactive approach is often crucial to the success of a demonstration.

11. Evaluation of problems encountered

The outcome of this step could be to repeat the demonstration in a more effective

manner or to identify new demonstrations that need to be planned for the future.

It is also crucial to the final step.

12. Revision

In many instances, a demonstration shows the need for revision. This revision

could be of the innovation itself, or of the technology underlying the innovation. A

revised budget might be needed, reflecting changes that need to be made when

undertaking future demonstrations. Finally, farmers might need to make

adjustments to their farm plans in light of what they have learnt from the

demonstration.

Types of Innovations

The different types of innovations that could be demonstrated are listed below.

The source of these innovations could be on the farm, from research and

extension activities, or from advances made in the private sector.

1. Improve the way of producing an existing output with existing inputs.

Example: Use hedgerows on slopes to conserve land resources.

2. Use a new input. Example: Hire machinery to replace labour cultivating

land.

3. Modify an existing input. Example: New watermelon seed variety.

4. Introduce a new enterprise. Example: Vanilla, Japanese taro.



5. Change the mix of existing enterprises. Example: New intercropping, alley

cropping.

6. Change the timing of a farming operation. Example: Integrated pest

management.

7. Improve the quality of an existing product. Example: Squash exports to

Japan.

8. Use a new marketing opportunity for an existing product. Example: Export of

nonu leaves and fruit.

9. Use a new way of promoting an existing product. Example: Get an organic

product certificate, use HTFA for disease-free exports.

10. Use by the farmer of a new processing method before selling an output.

Example: Replace smoke-drying of copra with solar drying.

11. Use a new way of extending the shelf life of an output. Example: Packaging

of vegetables.

12. Change market relations. Example: contract farming.

These examples are ‘looking back’. The key to future successful innovation is to

‘look forward’ - to anticipate profitable new innovations. Ask trainees what current

and likely future innovations can be added to the above list?



Small Group Exercise on the Implications of an Innovation for Farmers: A Case Study of Squash

Consider the situation in the late 1980s when squash was first introduced to

smallholders as a potentially profitable export crop. An on-farm demonstration is

to be conducted for potential growers and you have the benefit of hindsight! You

are to provide growers with information on how squash production would affect

their farming system if they were to adopt the crop. How would you answer the

following questions?

1. What change can I expect in my net farm profit?

2. Will there be any change to my labour schedule during the squash-growing

season?

3. If I grow squash, will it change my net cash flow?

4. Do I need to learn any new management skills to grow squash?

5. Will I have to reorganize my farming operations?

6. Will it cause any changes in the structure of my farm?

7. Will it have any social or cultural impacts on me and my family?



Pre-Demonstration Exercise A number of farmers are not adopting an improved production method that you

think they should. Prior a field demonstration for this method, you have been

asked to determine why this is so. Eight issues have been identified and you are

asked to prepare a checklist of questions that could be asked. The numbers

shown in the table below indicate the number of questions you have to construct

for each issue.

Key issues: Current problems with farm performance experienced by the farmers

Questions that could be asked: 1. 2. 3.

Importance of the adoption opportunity to the farmers in achieving their goals

1. 2. 3.

Lack of skills possessed by the farmers, causing failure to adopt

1. 2.

Frequency of use of the skill by the farmers

1. 2. 3.

Alternative simpler solutions to adoption available to the farmers

1. 2.

Difficulty of adoption experienced by the farmers

1. 2. 3.

Obstacles to adoption 1. 2. 3. 4.

Deciding on the best solution 1. 2. 3. 4.

Source: These issues are adapted from WARDA (1991).



Group Practical Demonstration of an Improved Technology

Arrange for trainees to undertake a demonstration. The demonstration is to be

undertaken by them in two phases:

1. Conduct of the demonstration in the field by the trainees.

2. Evaluation of the demonstration.

The following guidelines are provided.

Phase 1 Demonstration in the field

Arrange the materials needed.

Set the scene (5 minutes).

Describe the innovation (10 minutes).

Ask the following questions:

• Has anybody used this innovation before?

• What were the results? Why?

• How many others would like to use the innovation?

Performance of demonstration (about 2 hours, but varies according to the nature

of the demonstration).

Demonstrate the task, which all farmers should perform.

[Detail here the steps involved in the demonstration]

Phase 2 Evaluation

Did the farmers perform the tasks correctly?

Questions to ask a sample of farmers:

• Was it easy to perform the tasks?

• Can you recall all the steps you undertook?

• Was there any task you found difficult to perform?

• Is the innovation something you could learn to apply?



• Do you think you will try to learn and apply the innovation?

• How will you [insert some difficult task] on your own farm?

• What will you use to help you do this task?

• Where will you obtain this innovation?

Questions for the demonstrator:

• What was the most difficult task to perform?

• How did you find the interactive part of the demonstration?

• Would you do anything differently next time you conduct a demonstration?

• How much time do you think you would take to conduct a similar

demonstration in the future?

Questions for the extension officer supervising the demonstration:

• How different was this demonstration from previous demonstrations you

have conducted?

• Did the demonstrator stick to the outline of the demonstration?

• Did the demonstrator make the demonstration interactive?



Small Group Discussion on Demonstration Tasks Form trainees into small teams. Each team is to imagine that they have to design

and conduct a demonstration of their own choice. They are to perform the

following tasks.

Tasks

Outline the tasks of the demonstration.

State the goal or goals of the demonstration.

Write down how you would perform the preliminary steps.

Write down how you would perform the operational steps.

Write down how you would evaluate the demonstration. What questions would

you want answered?


Module 11: Contract Farming

Module 10

Contract Farming



Trainer’s Notes

Set the scene Begin by giving brief notes on contract farming. Use an example in Tonga (e.g. vanilla and squash production).

Aim To acquaint trainees with the nature of contract farming, and show the potential advantages and pitfalls for small farmers.

Expected outcome

An understanding of how contract farming can make smallholder farming more profitable.

Duration of session

1.5 hours.

Method Describe contract farming and the different forms it can take in a mini lecture. Organize a small group discussion on the advantages of contract farming and obstacles to its success. Ask trainees to consider how farmer groups can be used to avoid some of the obstacles. Trainees should be asked if they know of any examples of contract farming in Tonga other than the example used in the lecture (e.g. vanilla and squash production). Use prompts if groups are struggling to identify points, basing these prompts on the words emphasized in the model answer. Arrange for small groups to present and discuss their results in a large group session.


Trainees should be able identify and appreciate several advantages of contract farming, obstacles to successful contract farming, and useful attributes of farmer groups in overcoming these obstacles.


A study of contract farming has benefits for trainees even if they never engage in it. The requirements for good contract farming are similar to those that enable a smallholding to expand its commercial farming operations.

Additional reading

Eaton and Shepherd (2001).



Mini Lecture

Definition

Contract farming is defined by FAO (1998, p. 1) as:

… an agreement between farmers and processing and/or marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices. The arrangement also invariably involves the purchaser in providing a degree of production support. The basis of such an arrangement is to provide a specific commodity in quantities and at quality standards determined by the purchaser and a commitment on the part of the company to support the farmer’s production and to purchase the commodity.

Types of contract farming

Eaton and Shepherd (2001) outline a number of different types of contract

farming. Contracts can vary in terms of the parties to them, the requirements

stipulated in them, and the practical arrangements that are followed in their

implementation.



Small Group Exercise

Form trainees into small discussion groups to complete the following

three tasks.

Tasks

1. Ask trainees to identify the advantages of contract farming.

2. Ask trainees to identify obstacles to contract farming

3. Now, ask trainees how farmer groups could help to overcome the

obstacles identified above.

As a guide to the number of points that could be expected, the model answer

contains seven, eight and ten points for Tasks 1, 2 and 3, respectively.


Module 11: Participatory Rural Appraisal Methods

Module 11

Participatory Rural Appraisal Methods



Trainer’s Notes Set the scene There is a wide variety of techniques that could be included under

the heading of participatory rural appraisal methods. Some, such as seasonal diagramming, are incorporated in other modules. A couple of others are described here to give a flavour of what is available. Mention the orientation of training towards helping farmers deal more effectively with the demands of commercialization of their farm business.

Aims To identify training needs of farmers, and to help them improve their knowledge of farm operations and the environment in which they farm.

Expected outcome

Trainers develop a better understanding of training priorities in farm management. This training improves the ability of farmers to develop a better strategic plan by improving their understanding of the circumstances in which they farm and the nature of their farming system.

Duration of session

2 hours for each method.

Method The use made of participatory rural appraisal methods varies according to farmers’ needs. Some of the methods are useful mainly to development/extension workers, rather than farmers, gaining a better understanding of the farming system. Examples used here are:

• Matrix ranking

• SWOT analysis

• Mapping.

Outputs that participants achieve

Lists of preferences, courses of action and training needs in order of priority for a group of young farmers. Some may conflict while other needs reinforce each other, reflecting differences of opinion and need among group members. SWOT report. Calculations of plot areas. Calculations of crop yields.


It is not unusual for individual farmers to differ in terms of the training needs they have. Understanding these needs can help trainers to target training courses more accurately.

Additional reading

FAO (2004).



Mini Lecture

The material covered in this lecture is on the use of participatory rural appraisal

methods for two purposes. The first purpose is to:

• understand current attitudes to the adoption of innovations and farm

record-keeping and use of farm management methods by young farmers

• identify and prioritize the training needs of future farming groups.

The second purpose is to give examples of participatory rural appraisal methods

that young farmers can use when planning their production activities. One such

useful method is direct measurement. Examples include measuring the area of a

plot of land or indirectly measuring output from a plot of land.

A plot can be divided into right-angle triangles and trapeziums.1 The areas of

these shapes are then measured in a straightforward manner. To measure the

area of a plot with an unusual shape, draw the longest diagonal of the plot. Divide

the area into right-angled triangles and trapeziums. The area of the triangle is its

height multiplied by its length divided by 2. The area of the trapezium is its

height multiplied by the sum of its two lengths divided by 2. Add together all the

areas of the triangles and trapeziums to obtain the total area of the plot.

Draw the longest diagonal of the plot and use pegs to mark out square areas at

equal distance along the diagonal. The size of the squares should be 4m x 4m for

root crops other than sweet potato and 2m x 2m for sweet potato and non-root

crops. The number of squares depends on plot size: 5 squares for areas a

quarter acre or more; 4 squares for areas an eighth of an acre but less than a

quarter of an acre; and 3 squares for areas below an eighth of an acre.

For each of the crops, count the number of plants in the squares and find the

average number per square. Use the figure for each crop to calculate the number

of its plants. From each square, select two plants of the main crop closest to each

of the diagonals of the square. Harvest the two plants and calculate the average

weight of each of them. Calculate the total weight of the main crop by multiplying

1 This section draws heavily on FAO (2004).



the number of plants for each plot by the average weight per plant from that plot,

and express it per acre. Repeat for other crops if desired.

Another useful method is SWOT analysis, which helps farmers understand:

• their strengths and weaknesses

• the farming opportunities available, especially those that enable them to

commercialize their activities

• the threats they face to the viability of their farming activities, and the

implications of these threats for the farm household.



Group Matrix Ranking and Scoring Methods

Participatory rural appraisal methods can help trainers to:

• determine priorities in innovation adoption and training needs of groups

and sub-groups of young farmers

• design training programs that enable farmers to understand better the

institutions that support their activities

• design training programs that enable farmers to understand better the

markets in which they sell their outputs.

The matrix ranking and scoring methods can be used in circumstances such as

those described above to help trainers and member of young farmer groups. The

first exercise requires the trainees to use matrix ranking and scoring methods to

help determine their priorities in the adoption of an innovation.

Vaini Research Station is currently testing a number of new varieties of sweet

potato. In this practical session, trainees are to be presented with three of these

varieties that are to be distributed to farmers. If possible, arrange for these

varieties to be available for this session and for MAFF personnel to provide

information on the on-farm trials conducted on the three new varieties. Assume

that a series of demonstrations have been undertaken on these new varieties.

Five young farmers who grow the currently preferred variety have been selected

for testing preferences between the existing and new varieties.

Tasks

Ask trainees to apply matrix ranking and scoring methods to test farmers’

preferences. In their example, they should choose at least four criteria that they

think the farmers would consider when deciding whether or not to replace the

existing variety they use with one or more of the new varieties. Get them to list

the steps they would follow in carrying out the test.

Ask trainees to consider whether the criteria chosen by the farmers might differ

from the ones they choose.



Small Group Exercises In the first exercise, trainees are required to estimate the area of a plot. In the

second exercise, they are asked to estimate the numbers of plants of three crops

that grow in a plot of land, and use the results to estimate crop yields.

1. Measuring plot area

Consider the following example of an irregularly shaped plot of land on a tax

allotment, shown in Figure 10.1. There are six areas to be measured: triangle

Abb; trapezium BCcb; trapezium CDdc; triangle Ded; triangle AfF; and triangle

FfE.

Present trainees with the following map of a plot of land. They should measure

the area using trapeziums and right-angle triangles.

Triangle Abb = (Ab/2)*(Bb)

Trapezium BCcb = (cb/2)*(Bb+Cc)

Trapezium CDdc = (cd/2)*(Cc+Dd)

Triangle Ded = (dE/2)*(Dd)

Triangle AfF = (Af/2)*(Ff)

Triangle FfE = (fE/2)*(Ff).

The lengths of the different lines on the map are: AE 50 m; AB 33.3 m; BC 14.2

m; CD 11.0 m; DE 6.0 m; EF 41.1m; FA 23.0m; Bb 18.8 m; Cc 8.9 m; Dd 3.5 m;

Af 15.2 m; Ff 20.0 m; fb 11.7 m; bc 9.6 m; cd 10.3 m; and dE 3.2 m.



Figure 10.1 Plot of Land to Be Measured

AB

C

D

EF

d

c

f

b

G

2. Measuring numbers of plants and weights per plot and acre

Consider a plot of 0.125 ha (a little more than 0.3 acre).2 The three crops grown

on it are cassava, taro and sweet potato. The main crop is cassava.

The following tables show the number of plants in five squares, and the weights

of the plants in each square. Each square is 4m x 4m, which is equal to 16

square metres.

2 This exercise is taken from FAO (2004).



Number of plants in the square by crop

Square number/Crop Cassava Taro Sweet potato

1 20 1 1

2 18 2 2

3 20 0 1

4 15 1 3

5 17 1 3

Total number of plants

Average plants per square

Total plants in the plot

Total plants per hectare

Total plants per acre

Trainees are to use the information on the number of cassava plants in the plot to

calculate cassava output. Obtain the weights of each of the two cassava plants

selected for each square. The following table has the weights of the plants in

each square.



Weight of main crop (kilograms)

Square number Plant 1 Plant 2

1 3 4

2 2 2

3 3 2

4 2 3

5 2 2

Total weight of both plants for all squares (kg)

Average weight per plant (kg) (total weight divided by 10)

Total plants in the plot (from Table 1)

Total output from the plot (kg) (total plants x average weight)

Total plants in the plot per acre (from Table 1)

Total output from the plot per acre (kg)

Calculate the average weight per plant as the sum of the weight of the 10 plants

divided by 10. Multiply by the number of cassava plants in the plot, estimated in

the first table. Convert this number to a standard area basis (acre or hectare) by

multiplying by the standard area and dividing by the plot area. Continue and

complete the exercise by entering the appropriate values in the final six rows.

Tasks

Calculate the number of plants in the plot and per acre.

Calculate cassava output for the plot and per acre.



Small Group Discussion: SWOT Analysis Consider a group of 30 young farmers, where each member has access to 5

acres (2 hectares) of land and a labour force of himself or herself, a brother aged

16 and a younger child who goes to school and helps on the farm occasionally.

Each farmer currently grows crops mainly for household consumption and sells

small surpluses in the market. The group is thinking about growing one of two

commercial crops new to Tonga that the extension officers have been

recommending.

The first crop is a new variety of taro that has a higher yield than existing varieties

but which was found to be more susceptible to pests in on-farm trials conducted

in a nearby village. In market trials conducted in New Zealand, the variety was

found to be preferred to existing varieties by some Polynesian consumers there.

The second is a perennial food export crop that a few large farmers have just

started to grow for export to Europe. It takes four years before any substantial

yields are achieved. The large farmers are growing the crop organically and plan

to get a certificate to sell the crop in Europe as an organic food.

Outline the items that you would include in a SWOT analysis for the group, under

the headings of strengths, weaknesses, opportunities and threats.



References

Dillon, J.L. and Hardaker, J.B. (1993), Farm Management Research for Small

Farmer Development, Food and Agriculture Organization of the United

Nations, Rome.

Eaton. C. and Shepherd, A.W. (2001), Contract Farming, Agricultural Services

Bulletin 145, Food and Agriculture Organization of the United Nations,

Rome.

FAO (2004), “No Gud Bisnes Bagarup”: Helping Small Farmers in the Pacific to

Make Wise Farm Management Decisions—An Analytical Tool Box, Food

and Agriculture Organization of the United Nations, Apia.

MAFF (2000), Farm Management Manual 2000, Ministry of Agriculture, Forestry

and Food, Nuku’alofa.

WARDA (1991), Training the Trainers Manual, West African Rice Development

Association, Abidjan.


book fao, farm_management

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