TRAINING MANUAL. for HOUSEHOLD ECONOMICS STUDENT VERSION

Transcription

1 Page 1 of 25 Vietnamese - German Technical Cooperation SOCIAL FORESTRY DEVELOPMENT PROJECT (SFDP) SONG DA Ministry of Agriculture and Rural Development (MARD) - GTZ TRAINING MANUAL for HOUSEHOLD ECONOMICS STUDENT VERSION Based on contributions from Ian Oxenford, Tin Hta Nu, Elke Foerster, Kim Lien Household economics Goal Objective Methodology Module 1 What is household economics? Module 2 Family food consumption Module 3 Food production Module 4 Family labour supply & demand Module 5: Gross Margin budget Module 6 Partial budgeting Module 7 Returns and risk in production Module 8 Choice of cash crops and household cash needs Module 9 Livestock economics Module 10 Annual & perennial crops and credit Household Economics Evaluation Form HOUSEHOLD ECONOMICS [additional notes for teachers are included in this format]

2 Page 2 of 25 Goal At the completion of training in household economics, participants should have an understanding of the household economy (goals, resources and constraints) and its agricultural production systems. They should also understand how economic calculations can be used to improve efficiency of resource use and to increase incomes. More efficient use of the household agricultural land should reduce pressure on existing forest and marginal lands so that they are not converted from forest to agriculture. Objective Taking a holistic or farming system approach to the household economy is important to understand and support farmers in their decision making. After this course students will have a basic idea how to use economic calculations in a farmer s decision making. Methodology The course will be organised as ten modules, each containing theoretical aspects, exercises, assignments and databanks. The first four modules show students who to analyse the priorities of a family and how to estimate surplus resources, such as land and labour, after essential food and cash requirements have been met. The final six modules of farm production economics show students how make optimal use of these unused or surplus resources to produce surplus food for sale or for cash crop or livestock production. The course will give students experience in financial calculations and budgeting and the ability to analyse the economy of a household. Students will be given some technical and economic information in the form of databanks, but it is expected that students will also learn how to collect information and build their own personal databank of household information. MODULE 1 WHAT IS HOUSEHOLD ECONOMICS? Outcome In this module students will learn the basics of household economics including goals of the family, assess family structures and how this affects consumption and production patterns, and will begin the exercise to assess how family resources are used in meeting the required food production. Introduction Household economics deals with the economic behaviour of households in managing their resources to attempt to achieve their goals. It includes food production and consumption and food security; collection/production and consumption of other household necessities such as potable water and fuelwood; and cash to meet the families needs. Cash may be earned through on-farm and/or off-farm activities. Flipchart 1/1 Households are: Complex Efficient in resource use even though they may be poor (Shultz/Hopper theory) Flipchart 1/2 Goals, resources and constraints of the household. Goals can be shown as a hierarchy of needs

3 Page 3 of 25 basic needs food, shelter, potable water, good health, basic clothing and household goods higher levels education, travel, bia hoi & gambling, semi- luxury goods (radio, TV, better clothing etc), social & religious needs fill all levels Resources include land, labour, capital, knowledge (especially technology) and constraints are mainly the limited nature of these resources Family structure Family structure varies by age and gender. The family can provide a labour source and also has consumption requirements such as food, fuelwood and many goods and services which require cash. The dependency ratio is the ratio of consumption units to labour units. The higher this ratio, the more difficult it will be for the family to meet its own food and cash crop needs. Exercise You will complete the classroom household model table while studying Modules 1 to 4. Start on Module 1 by using the databank information below and the structure of your sample family. Calculate the labour units, consumption units and dependency ratio of your household model. Compare with other sample families and discuss in class. [teachers use question and answer technique, discuss the effect of higher dependency ratio on the family in meeting food production, cash and other needs, health costs of elderly, education costs of children] Flipchart 1/3 Classroom household model Family 1 Family 2 Family 3 2 Number of adults Number of elders Number of children 9-15 years Number of children <9 years Labour units 7 Consumption units 8 Dependency ratio [7/6] 9 Land irrigated hectares Land - upland hectares Databank Labour / consumption unit conversion factors Labour unit Consumption unit Male / female adult 1 1 Elders 0 1 Children 9-15 years

4 Page 4 of 25 Children <9 years Assignment Identify two to three families of different structures and complete your chosen family structures and calculate labour units, consumption units and dependency ratio in your assignment household model. A blank worksheet follows to assist you with this assignment. [The purpose of this assignment is to encourage students to interview actual farm families and give them experience in data collection methods. They will then follow the methodology given in modules 1 to 4 and modules 7 and 8 to analyse the situation of their chosen families][the purpose of this assignment is to encourage students to interview actual farm families and give them experience in data collection methods. They will then follow the methodology given in Modules 1 to 4 and Modules 7 and 8 to analyse the situation of their chosen families.] Assignment household model 1 Module 1 Family & resources Family 1 Family 2 Family 3 2 Number of adults 3 Number of elders 4 Number of children 9-15 years 5 Number of children <9 years 6 Labour units 7 Consumption units 8 Dependency ratio 9 Land - irrigated hectares 10 Land - upland hectares 11 Module 2 food needs 12 food as Kgs paddy/yr. 13 storage recovery % 14 paddy production required (Kgs) 15 Module 3 Food production 16 crop 1 17 no crops /year 18 yield/crop (Kgs/hectare) 19 area planted 20 production Kgs 21 deficit to be met by Crop 2 22 crop 2 23 conversion factor -paddy to Crop 2 24 Kgs of Crop 2 required 25 no crops /year 26 yield/crop (Kgs/hectare)

5 Page 5 of hectares required 28 Module 4 Labour supply & demand 29 Crop1 30 Crop 1 labour days/hectare 31 labour days used 32 Crop 2 33 Crop 2 labour days/hectare 34 labour days used 35 food production labour 36 fuelwood & water collection labour needs (per consumption unit) 37 fuelwood & water labour needs per family 38 food + fuel /water labour needs per family 39 Labour days available (labour units X 300 days/year) 40 Surplus/deficit labour for cash crops and off-farm employment [39-38] 41 Module 8 Choice of cash crops and household cash needs 42 residual land for cash crops [10-27] 43 Cash crop1 - labour / hectare 44 Cash crop 1 -area planted 45 labour used [44x43] 46 gross margin/hectare vnd000's 47 gross margin / labour day vnd000s[46/43] 48 net income vnd000's[44 x 46] 49 Cash crop 2 - labour / hectare 50 area planted 51 labour used[49x50] 52 gross margin vnd000's 53 gross margin / labour day vnd000s[52/49] 54 net income [50x52] 55 off-farm income vnd000's 56 total income vnd000's [ ] 57 residual labour[ ] 58 residual land [ ] 59 Essential family cash needs (vnd000's)

6 Page 6 of education (vnd300,000/child) [(4+5)x300,000] 61 health (vnd500,000/consumption unit) [7x500,000] 62 other-clothing, house, travel, some foods (vnd500,000/consumption unit)[7x500,000] 63 Total family cash need[ ] 64 Net cash after essentials[56-63] MODULE 2 FAMILY FOOD CONSUMPTION Outcome In this module, students will continue with their household model and determine the food needs of the household using the food energy needs. Introduction The prime goal for households has been identified as self-sufficiency in food. Food involves not only energy requirements, but also protein, particularly for growing children. Also vitamins, minerals and essential amino acids are required. For our exercise we will concentrate on just energy requirements. Exercise In this module you will calculate the family food requirements using the databank information given below and your classroom household model. Flipchart 2/1 Classroom household model (continued) Family 1 Family 2 Family 3 Consumption units (from Module 1) 12 Food as Kgs paddy/yr. 13 Process/storage recovery % 90% 85% 85% 14 Paddy production required (Kgs) Assignment Using your identified families calculate their food energy requirements expressed in paddy equivalents in your assignment household model (lines 12 to 14). Databank Food requirement for one labour unit is 1.2 kgs paddy per day (450Kgs/year) for light work and 1.4Kgs per day (500Kgs/year) for heavy work.

7 Page 7 of 25 MODULE 3 FOOD PRODUCTION Outcome In this module, students will continue with their household model and determine the food production needed to meet the needs identified in Module 2. They will also estimate the land and labour required for this food production. Introduction In the mountain region of Vietnam, food energy for the family can be met from several crops. They are: Flipchart 3/1 Irrigated paddy Upland rice Secondary crops maize and cassava Each of your sample families has been allocated a mix of crops which they must grow. The families have different land use systems and this determines their main food crops. Family 1 is located in the valley and lower hill area and has some irrigated land and some upland area. Families 2 and 3 both have only upland areas. Exercise Flipchart 3/2 16 Crop 1 Irrigated paddy upland rice upland rice 17 No crops /year Yield/crop (Kgs/hectare) 19 Area planted [given, not calculated] Production Kgs [18 x 19] 21 Deficit to be met by Crop 2 [14 20] 22 Crop 2 Upland rice maize cassava 23 Conversion factor -paddy to Crop 2 24 Kgs of Crop 2 required [23 x21] 25 No crops /year Yield/crop (Kgs/hectare) 27 Hectares required [24 / 26] Assignment Using the Databank below and information from Module 2, calculate the areas of crops required to meet the family food needs. Databank Food Kgs food equivalent to energy Yield kgs/hectare Post-harvest &

8 Page 8 of 25 content of one kg paddy storage loss % Irrigated paddy /crop (2 crops/yr.) 35 Upland rice Maize Sweet potato Cassava MODULE 4 FAMILY LABOUR SUPPLY & DEMAND Outcome In this module, students will continue with their household model and determine the labour supply and demand of the household in meeting its food and other needs. Introduction Family labour supply has been assessed in Module 1 in calculating the number of labour units. The supply of labour available for economic activities is based on family structure of age and gender. Using children for labour will reduce their time to attend school and so have long term negative impacts on the family. Assess the demands on labour for food production, fuelwood gathering, water collection and non-economic activities such as social and communal commitments. Estimate the surplus labour available to grow surplus food for sale or for the production of cash crops or off-farm employment. Flipchart 4/1 Exercise Family labour 29 Crop1 Irrigated paddy upland rice Upland rice 30 Crop 1 labour days/hectare labour days used [17 x 19 x 30] 32 Crop 2 Upland rice Maize Cassava 33 Crop 2 labour days/hectare 34 labour days used [27 /33] 35 food production labour [ ] 36 fuelwood & water collection labour needs (per consumption unit) fuelwood & water labour needs per family [7 x 36] 38 food + fuel /water labour needs per family [ ] 39 Labour days available (labour units X 300days/year)

9 Page 9 of Surplus/deficit labour available for cash crops and off-farm employment [39 38] Assignment Using your identified families calculate the family labour supply and labour demands for food production, fuelwood gathering and non-economic activities (complete lines 29 to 40 of your assignment household model ) MODULE 5 GROSS MARGIN BUDGET Outcome At the conclusion of this module students will have an understanding of budgeting techniques and the importance they can play in analysing various enterprise options that a household can face. Budgeting can allow optimal returns to be made on scarce household resources such as land, labour, water, cash or other resources. Definition Budgeting: a BUDGET is a quantitative assessment of future needs and outcomes. Generally a budget is i. a financial statement of the expected performance of an economic activity, ii. a farm's expected expenditures and revenue, iii. A budget also can be in physical units such as labour budget, livestock feed budget and water balance budget for each of the activities. Gross Margin Budgets With the existing resources (for example land and labour) farm households provide certain products. In order to find out whether these products are beneficial (or profitable) for the household the first thing is to calculate a gross margin budget. Gross margin budgets are calculated to be able to compare the profitability among different products, (or production activities) to find out the profitability of a new variety, to be able to compare profitability of same production activities among different households (which can be due to poor management, old fashioned technology, lack of capital or labour). Gross margin budget can be calculated per unit of land or head of livestock. In its simplest form, a gross margin budget can be written as follows: Gross margin = revenues - expenditures It can also be understood as the net cash contribution of this activity to the household. Flipchart 5/1 For calculating gross margin for 1 ha of an old rice variety we find the information as follows in table (1) Table (1) Expenditures and revenues for an old rice variety

10 Page 10 of 25 A. Expenditures Seed expenditures 100 kg x 2,500 VND 250,000 Fertiliser and other inputs Urea 0 TSP 100 kg x 1, ,000 KCL 0 Pesticide 100,000 Total cost 450,000 B. Revenues Yield 3,000 kg Price per kg VND 2,500 Revenue 3,000 x 2,500 7,500,000 GROSS MARGIN B-A = 7,500, ,000 = 7,050,000 Note: within gross margin budgets we consider only variable expenditures or working capital. MODULE 6 PARTIAL BUDGETING Outcome At the conclusion of this module students will have an understanding of budgeting techniques and how these can be applied to changes within the farm household. The advantage being that only the changes need to be considered so it is a quick and easy assessment of the impact of the proposed change on the household financial situation. Introduction The main types of decisions and problems facing farm households are how to: use limited resources such as land and labour. plan and budget expected food supply, plan and budget expected cash income. And perhaps many more items. To sum up these problems, it can be stated that farm household decision making is to "select the best combination of economic activities, both on and off the farm, to produce food supply and cash income needed to cover essential household needs". On selecting the best economic activity, sometimes farmers change from the existing production pattern to a new production pattern (e.g.: replacing the old variety with a new one, replacing a different crop or livestock, replacing a new farm implement or input). Partial budgeting is a good farm management tool to analyse the change of economic activity. A partial budget can be defined as a budget which shows the expected gain and losses from a change incurred from a change contemplated in a farm household.

11 Page 11 of 25 Gains from change are extra revenues and reduction of expenditures. Losses from change are extra expenditures and revenue forgone. If net gain is positive, it is desirable to change. For example if a farm household is going to replace the old variety (shown in the budget example in module 5) with the new variety of rice. The information gathered by Mrs Kim Lien, a farmer, for the new variety for 1 ha is in table 1: Flip chart 6/1 Table (1) Information for the new variety: Item Unit Value per unit Total value of item A. Expenditures Seed 30 kg VND/kg 75,000 Urea 200 kg 3,000 VND/kg 600,000 TSP 250 kg 1,000 VND/kg 250,000 KCL: 150 kg 2,000 VND/kg 300,000 Pesticide 100,000 B. revenues Revenues from rice sale 8000 kg 2500 VND/kg 20,000,000 The existing costs and income from old variety is in table (2) Flipchart 6/2 Table (2) Mrs Lien's existing cost and income from the old variety Item Unit Value per unit Total value of item (VND) A. Expenditures Seed 100 kg 2500 VND/kg 250,000 Urea 0 0 TSP 100 kg 1000 VND/kg 100,000 KCL: 0 Pesticide: 100,000 B. Revenues Revenues from rice sale 3000 kg 2500 VND/kg 7,500,000 She wants to know the profitability of the new variety compared to the old one. The extension officer constructed a partial budget. We replace the old variety with a new variety. Calculations are shown in table (3). Remember: partial budgets are related only to expenses and income concerned with the change. Flipchart 6/3

12 Page 12 of 25 Table (3) Partial budget for replacing new variety of rice Gains Losses Extra revenues Extra expenditures Yield ( ) x 2500 VND/kg 12,500,000 KCL (300,000-0) Urea (600,000-0) Pesticide (100, ,000) TSP, (250, ,000) 300, , ,000 Total extra revenues 12,500,000 Total extra expenditures 1,050,000 Expenditures saved Revenue forgone Seed (250,000-75,000) 175,000 Total revenue forgone 0 Total expenditures saved 175,000 0 Total gains 12,675,000 Total losses 1,050,000 Gains from change to the new variety 12,675,000-1,050,000 = + 11,625,000 If the farmer change to the new variety she will gain 11,625,000 compared with the old one. Classroom exercise: Mrs Lien needs an extra 20 labour days for the new variety. Her family cannot provide the extra labour need, so she had to hire labour at 20,000 VND/day. If hired labour is used, how much is the gain from the change? Example 2: A farmer is considering to replace maize with a new variety of high yielding cassava, the information is as in table (4) Flipchart 6/4 Table (4) Partial budget for replacing maize with cassava Item Maize Cassava Unit Unit value Value of item Unit Unit value Value of item own seed 25 kg 1000 VND/kg units 30VND 48,000 Purchased Seed units 30VND 225,000 Yield 1600 kg ,920,000 12,000 kg 500 VND/kg 6,000,000 Partial budget is derived as in table (5) Flipchart 6/5

13 Page 13 of 25 Table (5) Partial budget for replacing maize with cassava Gains Losses Extra revenue VND Extra expenditures VND Cassava sales 12,000kgx 500VND 6,000,000 Cassava seed, own 48,000 VND purchased 225,000 VND 273,000 Expenditures saved Revenue forgone Maize seed 25,000 Maize sales 1,600 x 1700 VND 1,920,000 Total gains 6,025,000 Total losses 2,193,000 Gains from change = 6,025, ,000= 3,832,000 If the farmer changes to the high yielding cassava, she will gain 3,832,000 compared with maize. Other factors to consider harvest loss of the varieties may be different, labour days (maize 150, cassava 180), marketing costs, income from by-products (e.g. corn cobs), cassava seedlings cost much higher. Class room exercise -Example 3: (from Red River Delta) A farmer wants to change to producing chemical free potatoes. He is at present producing tomatoes on 2000 square metres of land. The reason he wants to change is i) he does not have enough family labour to produce tomatoes, ii) there is a higher demand for chemical free (organically produced) potatoes. The information is shown below: Extra costs IPM management for potatoes Quality seed: Revenue forgone: Income from selling tomatoes Extra income Sale of potatoes: 1,200 kg x 2,500 VND Costs saved Transport of tomatoes Weeding hired labour 3 days x 10,000 Harvesting hired labour 2 days x 10, ,000 VND 200,000 VND 1,200,000 VND 3,000,000 VND 30,000 VND 30,000 VND 20,000 VND other intangible benefits are --healthy environment, less hired labour for weeding and harvesting tomatoes, more nutrition. other intangible costs are- storaging costs for potatoes MODULE 7 RETURNS AND RISK IN PRODUCTION

14 Page 14 of 25 Outcome In this module, students will be able to analyse the household resource situation (as determined in the first four modules), and analyse the best return on resources, particularly land and labour. They will also gain an understanding of the variability which is always present in agricultural systems due to weather, prices, pest and disease etc. This leads to risks in production and an outcome of this module will be that they will be able to analyse these risks. Introduction The major resources of households are family labour and land. Efficient use of these resources is required to achieve family goals. The order of the goals are likely to be: 1. To produce food efficiently for the family with minimum risk. 2. To generate some cash income, 3. To accumulate savings which are easily convertible into cash or food in times of adversity. Part I. Calculate resource productivity For some or all of goals to be met, it is desirable to analyse whether the family land, labour resources, and investment capital are used efficiently. In module 6 we have already calculated the return to land. The efficiency of resources used are measured by the gross margins (net cash return) achieved using the resources. It is expressed as "returns to labour" or "returns to capital". The simplest form in expressing these returns are: Returns to labour = (VND/day) Returns to land = (VND/day) gross margin amount of labour input gross margin amount of capital used Returns to labour and capital can also be expressed as labour productivity and capital productivity. Using the information in Module 6, a comparison of labour and capital productivity between 2 rice varieties and between maize and cassava can be made Flip chart 7/1 Example 1 Table (1) Comparing returns on 2 rice varieties Old variety New variety A. Total expenditures 450,000 1,325,000 B. Revenue 7,500,000 20,000,000 C. Gross margin (B-A) 7,050,000 18,675,000 D. Labour input (C:D) 180 days 250 days Returns to labour (C:D) 39,166 74,700 Returns to capital (C:A) 15,670 14,090 Example 2: Classroom exercise Maize and cassava To be completed by students.

15 Page 15 of 25 Maize Cassava A. Total expenditures 25, ,000 B. Revenue 1,920,000 6,000,000 C. Gross margin D. Labour input 150 labour days 180 labour days Returns to labour Return to capital Conclusion: We can make these calculations for the scarcest factor: If capital is scarce we find out where best to use our capital. Thus the "return on input" concept can then be derived generally as Returns / production input = Gross margin /input used Note: Derived from the returns concept, there is a law of diminishing returns. This law indicates that increases in variable inputs to a production process result in a smaller and smaller increases in total output. Part II. How to differentiate maximum and optimum We will use the cassava example in module 6. The household owns 1 ha of land and have 2 units of labour that can be used up to 300 days. They found out that yield increases with labour input. Possible production, income and returns on labour can be shown as below. Flipchart 7/2 Example on Law of Diminishing Returns Land (ha) Labour (day) Maize output* Income Return to labour ,000 1,500,000 15, ,000 3,500,000 23, ,000 6,000,000 33, ,000 7,000,000 29, ,000 7,500,000 25,000 Price of maize: 500 VND/kg Observing the above table, the return to the labour rises at first, but later declines. This law applies to all types of inputs (e.g. fertiliser, pesticide). Note the income increases though. Conclusion: with this calculation a family can assess where to make their labour input. Family A may decide to work 300 hours and maximize output. Family B may decide to spend only 180 hours. On the cassava field as they can use the extra 120 hours in an activity where they gain more than VND/day. They accept lower harvest but optimize labour productivity. Part III. Returns and Risk Households have limited resources, so even in good years they do not have much extra cash or savings

16 Page 16 of 25 beyond their essential needs. For maximum returns, and generating extra cash, households need to make the right decision. Decision making involves choosing between alternative actions. It is important not to choose a risky alternative. An economic activity that is risky involves when there is little information about the outcome (uncertainty). when the expected returns can vary widely (real risk). Risk in agriculture production can be varied. However, it can be due mostly to yield variability, change in cost or product price variability. To be able to choose the less risky economic activity, the concept of probability can be applied. With the information available and through past experiences, households can assign probabilities to a range of uncertain future events for the years ahead. Flipchart 7/3 Probability table for maize Frequency during 10 years Probability Good year 5 years.5 Average year 3 years.3 Bad year 2 years.2 Probability table for Cassava Frequency during 10 years Probability Good year 3 years.3 Average year 4 years.4 Bad year 3 years.3 Probabilities always add up to be total of 1, and can be derived as: Probability (event A) = chances or experiences concerned for A / total number of events In agricultural production, the returns can be high, average or low according to good average or bad years. The returns from production and their probabilities are set, expected money values (EMV) can be calculated. EMV = returns (income)*probability The EMVs can help in decision making among different enterprises. Using the net income (returns) from cassava and maize, the decision has to be made considering these facts; maize has a higher probability of having good years but lower returns cassava has higher returns but has lower probability of good years cassava has a wide variation in returns than maize Calculation of EMVs for maize and cassava from module (6) example can be carried out and help the decision making below. Flip chart 7/4 Table 4 Expected money values (EMV) for maize and cassava

17 Page 17 of 25 Type of year Returns from Maize (VND) Probability Returns from Cassava (VND) Probability Good year 3,000, ,000,000.3 Average year 2,000, ,500,000.4 Bad year 1,500, ,000,000.3 Total = 1 Total = 1 EMV maize=3,000,000*.5 + 2,000,000*.3 + 1,500,000*.2 = 1,500, , ,000 = 2,400,000 VND EMV Cassava = 4,000,000*.3 +2,500,000*.4 + 1,000,000*.3 =1,200, ,000, ,000 = 2,500,000 VND Conclusion: The average expected gross margin of cassava is higher. Most farm households try to avoid risk. They try to avoid risky economic activities. To ensure food security, especially poorer farm households will select crops which are less risky even though the crop may bring less EMV. In the example above, maize brings a lower EMS and is less risky. Class room exercise Assuming the above examples on probability of maize and cassava can change due to yield, cost and product price variances. Find out the expected money values and decide which crop to choose with reasons. Year Returns from maize (vnd000s) Probabilities Returns from Cassava (vnd000s) Probabilities Good year Average year Bad year MODULE 8 CHOICE OF CASH CROPS AND HOUSEHOLD CASH NEEDS Outcome In this module, students will continue with their household model and apply budgeting techniques to their model to maximise the benefits to the surplus land &/or labour after essential food requirements have been met. Introduction We will now return to the classroom household model you were preparing up to Module 4. We had reached the point where families had sufficient food production to meet their subsistence needs, a high priority for families, and we calculated the remaining land and labour which was available for cash crops. In Modules 5 & 6 you have learnt how to use budgeting to compare the profitability of various farm enterprises and now you can apply this knowledge to find the best crops to maximise the cash income for your family in the class household model. We can now apply gross margin budgeting to maximise the amount of cash income for

18 Page 18 of 25 the household while using up as much as possible of the surplus land and labour as one of these will limit how much crop can be grown. This is called optimising resource use. We could also apply the same principles to other limiting resources such as irrigation water or investment capital (cash). For example, a farmer has access to $600 credit and has the choice of two crops, A & B shown below: Flipchart 8/1 Activity A Activity B Gross margin / hectare 300,000 VND 200,000 VND Capital needed 600,000 VND 300,000 VND Area planted using 600,000 credit limit 600,000 / 60,000 = 10 hectares 6,000,000 / 300,000 = 20 hectares Net income from area planted 10 hectares x 300,000 = 3,000, hectares x200,000 = 4,000,000 If the farmer grows crop A, he needs to invest 600,000 for every hectare and since he has only 6,000,000 credit he can only plant 6,000,000 / 600,000 or 10 hectares. This will give him an income of 10 hectares x 300,000 = 3,000,000 If he plants crop B, he will have 6,000,000 / 300,000 or 20 hectares of crop for an income of 20 hectares x 200,000 = 4,000,000 so he will be better off. This process can be quite time consuming where there are many alternatives to choose from. Gross margin and labour data for several crops are given in the databank below. For the classroom exercise now apply this technique to your household model just comparing coffee and sugar. Flipchart 8/2 40 Surplus/deficit labour for cash crops and offfarm employment [39-38] 41 Module 8 Choice of cash crops and household cash needs 42 residual land for cash crops [10-27] 43 Cash crop 1 - sugar labour / hectare Cash crop 1 -sugar area planted 45 labour used [44x43] gross margin/hectare vnd000's gross margin / labour day vnd000s[46/43] 48 sugar net income vnd000's[44 x 46] 49 Cash crop 2 - coffee labour / hectare coffee area planted 51 labour used[49x50] 52 gross margin vnd000's gross margin / labour day vnd000s[52/49] 54 coffee net income [50x52] 55 off-farm income vnd000's 0 0 0

19 Page 19 of total income vnd000's [ ] 57 residual labour[ ] 58 residual land [ ] 59 Essential family cash needs (vnd000's) 60 education (vnd300,000/child) [(4+5)x300,000] 61 health (vnd500,000/consumption unit) [7x500,000] 62 other-clothing, house, travel, some foods (vnd500,000/consumption unit)[7x500,000] 63 Total family cash need[ ] 64 Net cash after essentials[56-63] Assignment Use the same budgeting techniques to choose the most suitable cash crops for the families in your assignment household model. Try to make best use of the scarcest resource (land or labour), that is the one that is depleted first. Databank Gross margins and labour needs Crop Gross margin (vnd000s)/ hectare Labour days/hectare Return for labour / day (vnd000s) Upland rice Maize Cassava Coffee (mature) Home garden, fruits Sugar MODULE 9 LIVESTOCK ECONOMICS Outcome In this module, students will learn agricultural production economics as applied to livestock systems. Introduction Economic analysis can be used to determine then profitability of livestock enterprises as well as crops. In this module we will apply partial budget analysis to livestock and also examine improved production through breeding.

20 Page 20 of 25 flipchart 9/1 Livestock fulfil many purposes on family farms. These can include: source of food meat, eggs, milk non-food products - fibre (wool and hair), bone, leather transport and draft animals prestige and saving flipchart 9/2 Animal production is determined by two broad factors: 1. breeding or the qualities of the animal determined by its parents 2. environmental or the feed amount and quality, protection from disease and the climate factors It is important to know whether a desired trait is more responsive to breeding or environmental factors if you wish to improve this trait. The degree to which breeding plays a role is measured by heritability and is shown as a percentage. For example, the heritability of birth weight for cattle is 40% i.e. of the difference in average birthweights between two populations, 40% is accounted for by genetic factors or breeding, the remaining 60% depends on environment, such as feed, disease and climatic factors. Further examples are: flipchart 9/3 Animal Characteristic Heritability Beef cattle Birth weight 0.4 Weaning weight 0.3 Post weaning weight 0.5 Poultry Egg weight 0.6 Body weight 0.4 Pigs Pigs farrowed 0.15 Pigs weaned 0.10 Feed conversion 0.30 With animals such as pigs and poultry, where feed must be grown and prepared, the efficiency of feed conversion to the final product e.g. meat or eggs is most important for livestock profitability. This is measured by the Feed Conversion Ratio (FCR) and is expressed as: Kgs feed / kg liveweight gain When introducing improved breeds of livestock, for example an improved breed of pig, the simplest way to analyse the benefits of the change is to use partial budgeting. Partial budgeting for improved breed of breeding sow. flipchart 9/4 Technical and financial data for 1 sow Item Traditional breed Improved breed Feed conversion ratio (FCR) Value of sow (already owned) VND2m feed per head per year 400Kgs 500kgs Cost of housing 0 (already owned) VND2m for cement floor

21 Page 21 of 25 Veterinary /head VND50,000 VND150,000 Litter size 4 12 Litters per year Grower liveweight 60Kgs 80Kgs Grower Price (VND /kg liveweight) VND20,000 VND20,000 Feed price per kg Flipchart 9/5 Partial budget (VND000 s) for one year Gains from the change Extra income From improved breed 24 growers x 80Kgs liveweight x 20vnd/kg = 38,400 Saved costs Losses from the change Revenue foregone due to change From traditional breed 6 growers x 60Kgs liveweight x vnd20 / kg = 7200 Extra costs Depreciation* Sow (vnd2,000 / 4years) = 500 Building (vnd2,000 / 10 years) = 200 Feed for traditional 1 sow x 400Kgs x 1.5 = growers x 60Kgs x FCR 3.5 x feed cost 1.5vnd/kg = 1890 Veterinary for traditional (1 sow + 6) x 50) = 350 Feed of improved 1 sow x 500Kgs x 2.5 = 1, growers x 80Kgs x FCR 3.0 x feed cost 2.5vnd/kg = Veterinary for improved (1 sow + 24 growers) x 150 = 3,750 A. Total gains = 2, ,400 = 41,240 B. Total losses = 27,300 Net gain = A B = 41,240 27,300 = 13,940 MODULE 10 ANNUAL & PERENNIAL CROPS AND CREDIT Outcome In this module, students will apply agricultural production economics to long term tree crops. Several simplistic methods on how to analyse choices of enterprise require more than one year for income to be produced are shown Introduction Partial budgeting is normally used for analysing enterprises over a one year period. For tree crops such as fruit trees and coffee where there is a delay of several years from the time investment is made in planting the crop until full production is reached we need to use different methods for analysis. The first step taken is to prepare annual development budgets and a cashflow over a period of 5 to 10 years depending on the type of crop. The following example is given for coffee. Labour is not costed because it is all family labour. For each year the expenditures are deducted from the revenues to give a cashflow. Note that the

22 Page 22 of 25 cashflow is negative in years 1 and 2 and becomes positive after year 3 when the coffee begins production. From years 4 to 10 the production and expenditures remain constant. flipchart 10/1 Coffee development budget (vnd000s) Item Unit cost Units for one hectare Value for planted area of 2 hectares Year Year seedling 5 each fertiliser pesticide 10 litre 10l 10l 10l 15l tools labour No value A. Total cost B. Income 2 / kg kg 5000kg B-A Cash flow In the above example we have not costed labour because it is supplied by the family and so it is not a cash item. If we wish to consider family labour in our analysis we can use the concept of opportunity cost. This involves placing a cost on labour which is equivalent to the next best use of the labour. This could be the return on an alternative enterprise or the daily wage from employment assuming it is available. We now compare two tree crops to see which is the best investment in labour and capital for a farmer. In addition to the coffee cash flow calculated above we include a cashflow for fruit trees and one for maize. Flipchart 10/2 Cash flows for two hectares (vnd000s) Year Coffee Fruit trees Maize

23 Page 23 of 25 We will show two methods of analysing these cash flows. Where two investments which take several years to become profitable need to be compared it is best to use payback period. This is simply the number of years it takes to recover the investment capital. For coffee the investment is = To calculate payback period: Subtract each years net income until investment is repaid. Apportion last year. Flipchart 10/3 Investment residual Less yearly net income Apportion last year Year 3 = = Year 4 = = 4000 Year 5 = / 9550 = 0.4 of year 5 The payback period for coffee is 4.4 years. A similar calculation for fruit shows a payback period of 3.6 years so fruit is the preferred investment because of the quicker return to invested capital. Maize is an annual crop and so no investment period is needed. We cannot use payback period to compare maize with the two perennial crops, so we will use accumulated cash for periods of five and ten years. Flipchart 10/4 Cash at 5 years Cash at 10 years Maize 5 x 1895 = Coffee (2 x 9550) = Fruit (3 x 5000)= This shows maize to be the best investment for the shorter five year period but coffee is the best investment for ten years. This it gives the farmer information on which he can make investment decisions based on whether he wants a short term or long term benefit. Credit Farmers use two main types of credit for their farming operations, they are short term and long term credit. Short term is used mainly over the growing season and can be used to finance inputs such as fertiliser, seed and possibly hired labour. The delivery of this type of credit is critical as it must be accessible to the farmer before the planting season. Both principal and interest are usually repaid at harvest time. Credit of this type can be supplied by formal sources such as banks, fertiliser suppliers or crop buyers. Informal money lenders also fund short term loans. The other types of credit is for longer term developments such as tree crop development, breeding animal purchase, farm machinery and processing equipment. It is used for more expensive items and is repaid over a period of years. The main source for these loans are agricultural and rural banks as the loan term is not suitable for money lenders or commercial input suppliers or traders. It may be accompanied by the lender taking security such as a mortgage over the farmer s land or buffaloes. We will use the coffee development budget and cashflow to show how to calculate the amount of loan required and repayments where the farmer uses credit to finance all of the cash costs of development. Flipchart 10/5 Loan schedule

24 Page 24 of 25 Year Investment needs/ revenue Opening balance Loan drawdown Interest at 10% per year Interest Repayment Principle repayment Closing balance Farmers surplus -1555* -1830* Important: Farmer has to input his own money in this case. Alternative: Interest is not paid for two years (increase grace period) for two years, but instead is added to loan amount. Conclusion/notes: farmers has to negotiate the repayment account to his capacity (shorter or longer). He should do at least a second calculation considering the impact of lower/later yield. HOUSEHOLD ECONOMICS TRAINING EVALUATION FORM Please give a rating of the relevance, your understanding of each session and you opinion of the teaching techniques using the following scores: Score: very low = 1, low = 2, average = 3, high = 4, very high = 5 Relevance Understanding Teaching technique Comments Module 1 Module 2 Module 3 Module 4 Module 5 Module 6 Module 7 Module 8 Module 9 Module 10 Were your expectations / objectives met? 1 Very low 2 Low 3 Average 4 High 5 Very high Improvement in your skills 1 Very low 2 Low 3 Average 4 High 5 Very high Improvement in your knowledge

25 Page 25 of 25 1 Very low 2 Low 3 Average 4 High 5 Very high Change in your attitude on households? 1 Very low 2 Low 3 Average 4 High 5 Very high TEACHING METHODOLOGY 1. How would you rate the quality of the teaching in terms of the following: 1.1. Clarity of the trainers presentation : 1 Very low š 2 Low š 3 Average š 4 High š 5 Very high š 1.2. Trainers response to questions from participants 1 Very low š 2 Low š 3 Average š 4 High š 5 Very high š 1.3 Training materials How would you rate the quality of course materials of this course 1 Very low š 2 Low š 3 Average š 4 High š 5 Very high š