Agriculture is indeed the largest single employer in Kenya. The largest population segment in Kenya are farmers who depend on their farming as a source of income. But how many make a profit? Most of them don’t, while those who do just break even.
Mis-understanding of what profit is, lack of farm records and budget, poor market research, misinformation, inability to calculate costs and lack of simplicity are some of the reasons among many that makes it hard to calculate profit.
Just like any other business, carrying out due diligence, budgeting and cost and sales recording are necessary for a successful farming enterprise. Cost is inversely proportional to profit. You can sell your produce at a high price and still make a loss if the production cost is higher than revenue. It’s good to understand what profit, loss, revenue, break-even and other terms mean to the farmer.
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Costs
It is the amount paid for a service or input used in your farming production. These costs include; Inputs costs, labour costs, capital costs, transport costs, consultancy costs, mobile or internet costs, harvesting costs, electricity and fuel costs and irrigation costs. Total cost is the sum of all costs.
Budget
It is an estimate of income and expenditure for a set period.
Revenue
It is money earned from the sale of a given commodity. It is the selling price multiplied by the total units sold.
Profit
It is a financial gain on the difference between the amount earned and the amount spent producing something. It occurs when revenue is higher than the cost.
Loss
A financial loss is a difference between the amount earned and the amount spent in producing something. It occurs when the cost is higher than revenue.
Most farmers perceive revenue as equal to profit. This argument may explain why small scale farmers often make profits compared to large scale farmers. In the case of small scale farmers, simplicity is his model. With a small budget of four items, he can farm short term produce with a ready market and make a profit.
A managu farmer with a cost of Kshs 15,000 can make revenue of Kshs 26,000 and profit of Kshs 11,000. Contrarily a tomato farmer with a total cost of Kshs 298,000 and a sales revenue of Kshs 290,000. The managu farmer is better than the tomatoes farmer at the end of the day. It is the profit margin that counts and not the size of revenue.
Conclusion
In summary, revenue is not profit. While Calculating cost includes your salary, then subtract it from your revenue to get how much you are making from your farming.
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Farming is a business; record every activity with its cost as well as every sale. Adjust where necessary and work within your budget. Target to have as minimal cost as possible with high prices. Then you will have profit margins. Simplify your farming as possible and avoid shortcuts. Remember there are more than a thousand and one products in the market. For minimal costs, always buy what is working; the rest don’t. If the use of a particular product doesn’t have any direct relation to profit, avoid it. It unnecessary cost.
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