Farm Budgeting

Farm Budgeting

Farm budgeting is the process of estimating the future outcomes of a proposed farm plan.

Importance of Farm Budgeting

1. It helps the farm in decision making.
2. It helps the farmer to predict future
3. It helps the farmer to avoid incurring losses by investing in less profitable enterprises.
4. It helps the farmer to secure loans from financial institutions such as Agricultural
5. Finance Corporation and commercial banks.
6. It ensures a periodic analysis of the farm business.
7. It acts as a record which can be used for future reference.
8. It pinpoints strengths or weaknesses in farm operations.

 

Types of Budgets

Partial Budget

This type of budget is used when making minor changes on the farm.  It involves estimating the extra costs to be incurred and returns expected from the changes made.

 

Complete Budget

This type of budget is made when a complete reorganization of the farm business is to be done.  It is also needed to guide the farmer when setting up an entirely new farm or when changing from one enterprise to another.

 

Source of information for farm budgeting.

1. Farmer's own data: This is obtained from the farmer's record books.  This is possible only if the farmer has been keen to keep accurate and complete records.
2. Data from farmer group and organizations such as cooperatives.
3. Experimental data: In Uganda, such data can be obtained from research stations such as Namulonge, Kawanda, and Serere and from district farm institutes.
4. Data on prices of inputs and output, the information may be obtained from many manufacturer of agricultural products.
5. Data prepared by farm management experts.

Procedure for making a budget.

• State the objectives of the business.  This involve stating the reasons for setting up the farming business.
• Take a farm inventory.  The farmer makes a list of the available resource inputs, and if possible their monetary values.  Such inputs include machinery, farm buildings, breeding stock, size of land, inputs etc.
• Plan for the resources.  This involves indicating how the resources are to be utilized.
• Estimate the production.  The farmer calculate the expected output from the enterprise.
• Estimate the income and expenditure.  The farmer calculate what he expects to spend in the production process and the expected income when the products are sold.
• Analyze the input and output relationship.  This enables the farmer to find out if there are possibilities of exploiting supplementary in the enterprises to be undertaken.
• Analyze the existing production weakness.  The weakness may be either structural or operational.

 Structural weakness are those associated with poor utilization of resources such as land, machinery, labour, and buildings.

Operational weakness are those related to managerial efficiency of the farmer such as supervision of daily activities, purchasing inputs in time etc.