For Clean, Smart and Profitable Farming.
Farm Management
Principle Of Variable Proportion
It has three phases: (a) diminishing returns (b) constant returns, and (c) increasing returns.
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Principle of Factor-substitution (Least-cost Combination)
In agriculture, various inputs or practices can be substituted in varying degrees for producing a given output. A producer has to choose a particular combination of inputs, which would be most profitable.more info...
Cultivator has limited capital and his main objective is to maximise net profit. He is having several alternatives for investing this amount. He should spend the amount, in such a way that he will get maximum profit.
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Principle of combining enterprises.
A farm manager is often confronted with the problem as to what enterprise to select, and the level at which each enterprise should be taken up. How far he can go or should go in combining one enterprise with another enterprise or replacing one enterprise with another, depends partly on the inter-relationships between different enterprises and the prices of products and inputs.
Type of Product Relationships
The enterprises can have any one or combinations of the following relationships:
Independent enterprises.
Competitive enterprises.
Supplementary enterprises.
Complementary enterprises.
Join enterprises.
Independent enterprises are those which have no direct bearing on each other; an
Increase in the level of one neither helps nor hinders the level of the other. Such a relationship is rare and is possible with practically unlimited supplies of inputs. In such cases each product should be treated separately.
Joint products are those which are produced together, e.g., cotton and cotton seed, beef and hides, wheat and straw, mutton and wool, cattle and manure, etc. The quantity of one product produced decides the quantity of the other product.
In case of joint products there is no economic decision to make with respect to the combination of products and the two products can be treated as one. In the long-run, however, changes in the relative prices of the two products may necessitate a change in the product combination. For instance, a continued increase in the price of wool compared to the price of mutton may necessitate a change in the quality of the breeds, which would produce a higher proportion of wool. Once this happens, again the proportions of the two become fixed.
Competitive Enterprise
Competitive enterprises are those which compete for use of the farmer’s limited resource to produce more of one necessitates a sacrifice in the quantity of the other product.
When enterprises are competitive, three things determine the exact combination of the products which would be most profitable.
The rate at which one enterprise substitutes for the other,
The prices of the products, and
The cost of producing the products.
The rate at which one product substitutes for another is known as the marginal rate of substitution. Two products can substitute for each other at:
Constant rates of substitution,
Decreasing rates of substitution, and
Increasing rates of substitution.
Supplementary Enterprises
Two products are said to be supplementary when an increase in the level of one does not adversely affect the production of the other but adds to the total income of the farm, i.e., enterprises which do not compete with each other but add to the total income. For example, on many small farms a small dairy enterprise, or a poultry enterprise or a small bee-keeping enterprise may be supplementary to the main crop enterprise, because they utilize surplus family labour and shelter available and perhaps even some feeds which would otherwise go to waste. In the beginning, such enterprises are added in order to fully utilize the available resources but when they are expanded far, they become competitive for the inputs. When two products are supplementary, both the products should be produced upto the end of the supplementary stage. As long as the returns added by each enterprise is greater than its costs, the relative prices of two products are not important.
Sometimes enterprises are supplementary for one resource but competitive for another. In such cases, the relationship should be treated as one of competitive even though they are supplementary to one another in respect of other resource(s).
Complementary Enterprises
Complementary enterprises are those which add to the production of each other, e.g., Berseem and Maize crops. Two products are complementary when the transfer of a variable input from the production of one product to the production of the other results in an increase in the production of both products. When two crops are complementary enterprises, the use of resources for the two crops results in the increased production of both the crops.
This relationship exists only when one enterprise produces an element which is required in the production of another enterprise,e.g., legumes and grasses become complementary to gain crops when the former 1. Furnish nitrogen, 2. Control soil erosion, and/or 3.maintain or improve soil tilth to the extent that greater production of grain crops becomes possible over time on the same acreage.
Two enterprises do not remain complementary over all possible combinations. They become competitive at some stage. When both complementary and competitive relationships occur, the complementary relationship occurs first and then is followed by the competitive relationship.
When two products are complementary, both the enterprises should be produced upto the end of the complementarity stage without reference to the prices of the two products. When they enter the competitive stage, the substitution ratio and the price ratio of the two products should be considered and the optimum combination determined as in the case of competitive enterprises.