Crop inputs can generally be regarded as the costs of producing your crop. Another way to think of it is as resources used in the production or cultivation process. These resources can include things like materials, labor, machinery, fuel, land costs, etc.
In order to run your farm like a large agribusiness it’s important to understand your numbers. To dive deeper, many operations derive important insights and understanding about their organizations and cost structures by separating and dividing their costs into two distinct types:
- variable costs and
- fixed costs
Variable Input Costs
Variable Costs are costs that are readily allocated to an enterprise and which will vary in approximately direct proportion to the scale of the enterprise. In other words, costs that drive additional units of production growth directly – often in a linear fashion.
To help you understand this concept, excellent examples of variable costs from typical farm might include; seed, fertilisers, pesticides, other crop protection, food or fodder (if you are raising animals), part-time labor (like during harvest), and any home-grown compost, manure, or other soil amendment taken from on-farm inputs.
Purchased and home-grown seeds
This comprises expenditure on purchased seeds, plants and trees adjusted for changes in stocks. Home-grown seed from the previous crop is included and charged at estimated market price: any seeds from current crops and sown for a succeeding crop are excluded, but are included in the closing valuation of the crop and hence in enterprise output. This enables the value of home-grown seed used in the production of the current crop to be identified.
This includes lime, fertilisers and other manures, and is adjusted for changes in stock. If they were still in store and are included in the closing valuation, fertilisers sown for next year’s crops are treated as. Crop protection This includes costs of pre-emergent sprays, fungicides, herbicides, dusts and insecticides and other crop sprays.
Other crop costs
These comprise all crop inputs not separately specified, e.g. marketing charges, packing materials, British Potato Council levy, baling twine and wire (though not fencing wire). Total fixed costs These are the costs of labour, machinery, contract work, land and buildings, other general farming costs and depreciation. Labour (excluding farmer and spouse)
These costs include expenditure on work carried out by agricultural contractors, including the costs of materials employed, such as fertilisers, unless these can be allocated to the specific heading. Costs of hiring machines to be used by the farm’s own labour are also included. If it is associated with the hiring of a machine, expenditure on contract labour is only included here. Otherwise it is entered under (casual) labour.
Machinery running costs
These represent the cost of machinery and equipment repairs, fuel and oil and car mileage expenses. It excludes depreciation.
Fixed Input Costs
Fixed include those costs which;
- aren’t affected by moderate changes in the scale of the operation.
- can’t readily be allocated to a specific business endeavour — like administrative overhead.
Examples of Fixed Costs are full-time labourers, machinery repairs and depreciation, rent and lease payments, general expenses, interest. In order to derive a true evaluation of your farm, your fixed costs should also include even unpaid manual labour, including the time and labour put into the operation by you or members of your family.
Land and building inputs
Accurately representing your true crop input costs should also include a calculation for any rent, insurance, repairs, and costs associated with land and buildings. These need to include land not directly associated with raising crops but necessary for the operation of the farm like administrative out buildings, your shop, and parking. Frequently in order to get an apples to apples comparison between operations or opportunities it’s necessary to include land and building costs. In other words, what it would cost you if you didn’t already own it.
If you do this it’s important to remember to not just add back an imputed rental charge if you own your property, but exclude those costs associated with land ownership such as the insurance of farm buildings, and landlord-type repairs and upkeep.
Depreciation of Fixed Assets
Depreciation of machinery, glasshouses and permanent crops (perennials) should be included as an input when calculating the actual costs of raising your crop as well. Depreciation rates should be representative of the actual degree of deterioration of the assets. You should take into account not just useful life, but in the case of an orchard with declining production it should be noted what is the loss of production per year during the useful life of that asset.
General Farming Costs
All farms need to heat buildings, run equipment (fuel), turn on lights (electricity), pay bank charges, register vehicles, buy insurance and all the other administrative expenses incurred whilst running your operation. Your bookkeeper (assuming it’s not you) should be able to assist you with totaling and tabulating all of the general administrative and operational expenses.