In recent years,
cultivators are becoming more and more conscious about the costs and returns from
agriculture in general and enterprises on one farm in particular. Cultivator relates the
price, which he receives for the produce in the market with his cost of production.
Government takes into account the cost of production in deciding the price policy and for
declaring the minimum support prices for selected important crops. The commission which
recommends the minimum support prices to government is aptly named as the
‘Agricultural’ Costs and Prices Commission.
In view of the rapid
spread of technology in agriculture, farmers are required to face a severe competition,
particularly when the farm produce is to be exported. One of the ways to survive in the
competition as also to gain better profit is to have a lower cost of production. For this
farm costing or working out the cost of production of crops/enterprises, is necessary. The
farm costing is also useful to the formers to keep watch on the expenditure which is
increasing in the modern farming. The world be interested in knowing which item is
becoming expensive. He can think of reducing the costs on such items. He can work out the
cost per unit of a particular product. Ofcourse for this, he has to maintain regular farm
records and accounts. At the end of the season/ year, he can analyse it. Farmer can
compare the profitability of different crops and enterprises (Subsidiary occupations) on
the farm. This would help him in deciding his farm plan for the next year.
Broadly, the costs are divided into 2 broad categories viz. Fixed costs and variable costs.
Fixed costs: - These are fixed. In agriculture, land in some sense is a fixed capital. The other important
items of fixed costs are implements and tools, machinery, farm buildings, work animals
etc.
Variable costs: -
These costs vary with the production. One can increase or decrease their use. In
agriculture, cost of seed, manure’s and fertilizers, irrigation, labour are the
variable costs.
The sum of fixed
costs and variable costs forms the ‘total cost’, when the total expenditure is
deducted from the total returns (income), one gets the ‘net profit’.
For scientific costing, one has to have uniformity in the concepts of costs used. They should be accepted
and adopted all over the country.
The definitions of
various costs were standardised in the ‘Seminar on Agricultural Prices policies’
organised by the F.A.O / ECAFE in New Delhi in March – April 1958, with the
co-operation of Govt. of India. These definitions have found general acceptance.
They are summarised below-
Cost –A: Actual
paid out costs for owner cultivator. This cost approximates the actual expenditure
incurred in cash and kind and includes the following items.
It does not include items like (a) rent paid, (b) estimated rental value of owned land, (c) interest on fixed
capital and (d) family human labour.
Cost –A-1: Corresponding cost for the tenant cultivator, i.e. including rent actually paid by him.
Cost –A-2: Cost A plus imputed value of own labour.
Cost – B: Cost A plus rental value of owned land and imputed interest on demand capital.
Cost – C: total
of all cost items, actual as well as imputed.
The various costs
defined above provide different measures of return to the cultivator. The difference
between gross return from sale of produce and cost A (cost A-1 in case of tenant
cultivator) represents the total return to the cultivator for his labour, investments and
entrepreneur’s profit. Cost A-2 provides a measure of return for his investments and
profit. Cost B provides an estimate of return which correspond to the holding’s own
labour and profit and any surplus on the basis of cost –C provides an astimate purely
of profit for enterprise.
The methods of evaluation of different items of cost are also laid down. However, for the sake of
convenience, one can use his own method. There are some controversies also.
Depreciation of
assets: There are different methods of depreciation. One can use the method convenient to
him.
Some of the costs
are to be allocated according to area under the crop. Procedures are also laid down for
this.
Cost of Production per unit:
A procedure has also
been laid down for this.