Agricultural Science · Lesson 12

Farm management, records, accounts, finance, marketing and insurance

JAMBWAECNECO

What the syllabus asks

JAMB: D1 factors of production, D2 farm management, D3 agricultural finance, D4 marketing, D5 agricultural insurance, D6 farm records and accounts

WAEC: I Agricultural economics and extension: factors of production; basic economic principles (diminishing returns, demand and supply); farm management (functions, problems, farm planning); farm records and accounts (inventory, profit and loss, balance sheet, depreciation); agricultural finance and credit; marketing of agricultural produce (functions, channels, problems, marketing boards,…

NECO: I Agricultural economics and extension: factors of production; basic economic principles (diminishing returns, demand and supply); farm management (functions, problems, farm planning); farm records and accounts (inventory, profit and loss, balance sheet, depreciation); agricultural finance and credit; marketing of agricultural produce (functions, channels, problems, marketing boards,…

What you will learn

Describe the factors of production and their rewards in agriculture.
Explain the law of diminishing returns and the laws of demand and supply.
Define farm management and describe its functions and problems.
Keep simple farm records and prepare a profit and loss account and a balance sheet.
Calculate depreciation, gross margin, profit and simple interest.
Describe sources and problems of agricultural credit.
Explain the functions, channels and problems of agricultural marketing.
Explain agricultural insurance and its importance.

Key points

Factors: land (rent), labour (wages), capital (interest), management (profit).
Capital: fixed, working, liquid.
Diminishing returns: marginal product falls as variable input increases on fixed input; use input until value of MP equals its cost.
Demand falls as price rises; supply rises with price; farm prices fluctuate with season and perishability.
Farm management: planning, organising, directing, controlling, evaluating.
Records: inventory, diary, production, inputs, labour, breeding, health, sales, cash.
Gross margin = revenue − variable costs; net profit = revenue − total costs.
Balance sheet: net worth = assets − liabilities.
Straight-line depreciation = (cost − salvage) ÷ life; reducing balance = fixed % of book value.
Credit sources: informal, cooperatives, banks, Bank of Agriculture, ACGSF (1977), CBN schemes.
Simple interest = PRT ÷ 100.
Marketing functions: assembling, grading, processing, storage, transport, packaging, financing, risk, selling.
Marketing boards abolished 1986; cooperatives give bargaining power.
Insurance: premium, indemnity; NAIS 1987, NAIC 1993.

Start here: Factors of production in agriculture

Factor	Meaning in agriculture	Reward	Characteristics/problems in Nigeria
Land	Farmland, water, forests, minerals, climate	Rent	Fixed in supply; varies in fertility; fragmentation by inheritance; tenure problems; access by women and youth limited; Land Use Act 1978 vests land in state governors
Labour	Human effort, physical and mental: family, hired, communal (cooperative work groups)	Wages/salaries	Seasonal peaks at planting, weeding and harvest; rural–urban migration of youth; ageing farm population; low skills
Capital	Tools, machines, buildings, livestock, seeds, fertilisers, money	Interest	Scarce for smallholders; high interest rates; lack of collateral
Management (entrepreneurship)	Organising the other factors, taking decisions and bearing risks	Profit	Low literacy and training; limited records; high risk

Types of capital

Fixed capital: lasts many seasons: land improvements, buildings, tractors, tools, breeding stock.
Working (circulating) capital: used up in one production cycle: seeds, fertiliser, feed, fuel, wages.
Liquid capital: cash and bank deposits.

Ways of improving labour supply and productivity

Mechanisation, training and extension, better wages and rural amenities to keep youth on farms, labour-saving technologies (herbicides, improved tools), cooperative labour groups, and youth programmes in agriculture.

Worked example 12.1

Distinguish between fixed and working capital, giving two examples of each.

Fixed capital lasts for several production periods and is not used up quickly, e.g. a tractor and a poultry house. Working capital is used up within one production period, e.g. feed and fertiliser.

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Practice questions

1. The reward for land as a factor of production is

rent
interest
wages
profit

Show answer

A: rent
Labour earns wages; capital interest; the entrepreneur profit.

2. The law of diminishing returns applies when

all inputs increase together
prices fall
the farm is sold
more of a variable input is added to a fixed input

Show answer

D: more of a variable input is added to a fixed input
Marginal output eventually falls.

3. A list of all farm assets with their values at a date is

a farm diary
a breeding record
an inventory
a cash book

Show answer

C: an inventory
It is used in the balance sheet.

4. Gross margin equals

assets minus liabilities
total revenue minus total variable costs
total revenue minus fixed costs
total cost minus revenue

Show answer

B: total revenue minus total variable costs
It is used to compare enterprises.

5. A machine costs ₦800,000, lasts 5 years and has a scrap value of ₦100,000. Straight-line depreciation per year is

₦140,000
₦160,000
₦180,000
₦700,000

Show answer

A: ₦140,000
(800,000 − 100,000) ÷ 5 = ₦140,000.

Key words

Factors of production: Resources used to produce goods: land, labour, capital, management.
Land (economics): All natural resources, including soil, water and minerals.
Capital: Man-made resources used in production, e.g. tools, buildings, money for inputs.
Entrepreneur: The person who organises the factors of production and bears the risk.
Diminishing returns: The fall in extra output from each additional unit of a variable input applied to a fixed input.
Demand: The quantity of a good buyers are willing and able to buy at a given price and time.
Supply: The quantity producers are willing and able to offer for sale at a given price and time.
Fixed cost: A cost that does not change with output, e.g. rent, depreciation.
Variable cost: A cost that changes with output, e.g. seed, feed, fertiliser.
Gross margin: Total revenue minus total variable costs.
Profit: Total revenue minus total cost.
Inventory: A list of all assets on the farm with their values at a given date.

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