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    FAO - 2017 - Agricultural Cost of Production Statistics

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    Ye Tun
    The document provides an overview of key concepts for agricultural cost of production statistics. It discusses using an economic accounting approach to measure all costs, including cash, non-cash, and opportunity costs. Costs of production are measured up to the farm-gate and exclude transport and marketing costs. Opportunity costs consider the value of self-supplied inputs in their next best alternative use. Production, inputs, and reference periods are also addressed to standardize the measurement of costs and revenues over time for analysis.

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    FAO - 2017 - Agricultural Cost of Production Statistics

    Uploaded by

    Ye Tun
    15 views13 pages
    The document provides an overview of key concepts for agricultural cost of production statistics. It discusses using an economic accounting approach to measure all costs, including cash, non-cash, and opportunity costs. Costs of production are measured up to the farm-gate and exclude transport and marketing costs. Opportunity costs consider the value of self-supplied inputs in their next best alternative use. Production, inputs, and reference periods are also addressed to standardize the measurement of costs and revenues over time for analysis.

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    FAO_2017_Agricultural Cost of Production Statistics

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    The document provides an overview of key concepts for agricultural cost of production statistics. It discusses using an economic accounting approach to measure all costs, including cash, non-cash, and opportunity costs. Costs of production are measured up to the farm-gate and exclude transport and marketing costs. Opportunity costs consider the value of self-supplied inputs in their next best alternative use. Production, inputs, and reference periods are also addressed to standardize the measurement of costs and revenues over time for analysis.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    15 views13 pages

    FAO - 2017 - Agricultural Cost of Production Statistics

    Uploaded by

    Ye Tun
    The document provides an overview of key concepts for agricultural cost of production statistics. It discusses using an economic accounting approach to measure all costs, including cash, non-cash, and opportunity costs. Costs of production are measured up to the farm-gate and exclude transport and marketing costs. Opportunity costs consider the value of self-supplied inputs in their next best alternative use. Production, inputs, and reference periods are also addressed to standardize the measurement of costs and revenues over time for analysis.

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    © All Rights Reserved
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    Download as pdf or txt
    of 13

    Agricultural cost of production

    statistics: main concepts

    Short Training Course on


    Agricultural Cost of Production
    Statistics

    2017
    1 – Accounting approach

    • Economic accounting is used ≠ business or tax accounting


    • All costs are measured:
    o Cash costs : costs generally resulting from an economic
    transaction
    o Non-cash costs:
     inputs supplied by the farm or the farmer (including land)
     Capital or fixed inputs
    o Opportunity costs
    • This is necessary to appropriately measure the productivity of
    production factors, such as land, labor or capital
    2 – Boundaries

    • Cost of production or cultivation stops at the farm-gate. Strictly


    speaking, it excludes:
    o Transport costs : from the farm to the first selling point or to
    the transformer
    o Marketing costs : publicity, packing and conditioning going
    beyond the basic form in which the commodities are usually
    sold
    • These costs can be measured in an AgCoP program but should:
    o Be presented separately in the tables
    o Not be included in the computation of indicators such as net
    or gross returns
    3 – Opportunity costs (1/2)
    • Def: The opportunity cost of a good or service can be defined
    as its value in its next best alternative use (AAEA, 2000).
    • Used to measure the cost of an input that:
    o Has not been purchased, such as self-produced, supplied or
    exchanged inputs:
     Non-paid family labor
     Self-produced seeds
     Own agricultural land, etc.
    o Is missing or difficult to obtain
    • Opportunity cost of capital: the revenue implicitly foregone by
    the farmer by investing on the farm instead of off-farm
    3 – Opportunity costs (2/2)
    • Some examples:
    o Non-paid family labor: salary rates paid in the non-farming
    sector
    o Reused or self-produced seeds: their price if they had been
    sold on the market
    o Own agricultural land: the rental price that the farmer would
    have received had he chosen to rent his land instead of
    cultivating it himself
    • Choosing the appropriate opportunity cost is complex, because:
    o There are multiple alternative uses, depending on the context
    and environment of the farm
    o Markets may be too thin: rental markets for land, etc.
    4 – Agricultural production

    • Production quantity : physical quantities produced by the farm


    and expressed in standard or specific units:
    o Tons of maize, liters of milk, etc.
    o Estimated by multiplying the yield by the appropriate
    dimension unit, such as area for crops, trees for perennial
    crops and heads for animal products
    • Production value: product of physical quantities and the unit
    producer price
    • Marketable production: production quantities minus auto-
    consumption and on-farm post harvest losses (linked to storage
    for example)
    4 – Production factors (1/2)
    • Def: All factors (inputs) used by the farmer to produce
    (outputs), irrespective of their acquisition mode:
    o Purchased
    o Self-supplied by the farmer or family members
    o Produced on the farm
    • We distinguish:
    o Fixed production factors (capital), independent on the
    short to medium-term from quantities produced, such as
    infrastructures
    o Variable production factors, function of quantities
    produced, such as seasonal labor, fertilizers, custom services
    (renting of farm equipment, outsourcing,…)
    5 – Production factors (2/2)

    • Inputs can be purchased through:


    o The farm’s own savings
    o Credit, contracted from a mortgage company or other
    (cooperatives, government, other farmer, etc.) => Mortgage
    costs (interests and other) have to be accounted for
    o In accordance with the opportunity cost principle, inputs
    have to be valued at their market price at the time of use
    and not at the time of their purchase
    6 – Reference period (1/3)
    • It is important that costs and revenues be computed for a
    common reference period:
    o The cropping season for crops
    o Calendar year, semester,...: for livestock and other activities
    which are more uniformly spread throughout the year
    • Farm expenses, selling/consumption of the product and data
    collection occur at different points in time
    • Adjusting the data to the common reference period is often
    overlooked but is necessary to:
    o Account for inflation throughout the year
    o In theory, account for the opportunity costs (discounting
    factor) associated with the holding of the inputs
    6 – Reference period (2/3)

    Preparation of soils and seeding Harvest

    Reference
    December period

    June
    Fertilizers, plant protection labor, packing material, etc.
    INPUTS inputs, labor, etc.

    ADJUSTMENT:
    - Inflation
    - Opportunity costs
    6 – Reference period (3/3)
    There are in principle 3 adjustments to make:
    Period Example Cost
    A bag of 50 kg of
    Input fertilizer at 50 Euros is
    C1 = 50
    purchased
    PURCHASE

    25 kg used (not all the


    Input fertilizer purchased is C2 = (C1/2)*(1+ r1)
    USE necessarily used in the
    same cropping season)

    END OF THE
    C3 = C2*(1+ r2)
    CROPPING
    SEASON
    r1, r2 = inflation (+ if possible a discounting factor)
    7 – Different prices for different uses
    • To value production:
    o Producer prices (farm-gate prices)
    o Price at the first selling point: transport expenses and
    margins have to be deducted
    • To estimate a missing price : the price of a similar (or
    alternative) good or service on the market. Problem: if the market
    is too thin…
    • Accounting for subsidies, measuring both the prices net of
    subsidies and inclusive, to:
    o Measure the effective profitability (inclusive of subsidies)
    o Measure the economic profitability (net of subsidy)
    o Assess the economic relevance and efficiency of farm
    subsidies
    8 – References

    • AAEA Task Force on Commodity Costs and Returns (2000).


    Commodity Costs and Returns Estimation Handbook. United States
    Department of Agriculture: Ames, Iowa, USA.

    • Global Strategy to Improve Agricultural and Rural Statistics (2014),


    Literature review on cost of production methodologies, Technical
    Report Series GO-04-2014. FAO: Rome.

    • Global Strategy to Improve Agricultural and Rural Statistics (2016),


    Handbook on Agricultural Cost of Production Statistics, Handbook and
    Guidelines, pp.13-24. FAO: Rome.

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