Transcript Using partial budgets…… To answer all sorts of questions you or others may have… Craig Chase, Field Specialist Farm & Ag Business Management.

Using partial budgets……
To answer all sorts of
questions you or others
may have…
Craig Chase, Field Specialist
Farm & Ag Business Management
Partial Budget
• A partial budget allows you to analyze a
portion of your farm to determine if minor
adjustments should be made.
• For example, should you:
– Add an enterprise
– Change your product mix or production practices
– Custom hire or purchase machinery
– Change marketing outlets
– Purchase transplants or grow from seed…
Partial Budget
• Partial budgets allows you to compare two
alternatives side-by-side.
• The analysis tells you one of the alternatives
is comparatively better than the other.
Partial Budget Components
• There are seven components to a partial
budget: increased revenue, reduced cost,
reduced revenue, increased cost, total
positive effects, total negative effects, and
net change.
Partial Budget Example
Change Product Mix from Green Beans to Salad Greens
Positive Effects
Increases in revenue (1)
Sales of salad greens
Negative Effects
Decreases in revenue (3)
$150.00 Sales of green beans
360.00
Decreases in cost (2)
18.25 hrs labor @ $10/hr
Input & packaging costs
Total decrease in costs
Increases in cost (4)
$182.50 2.8 hrs of labor @ $10/hr
26.66 Input and packaging costs
209.16 Total increase in costs
28.00
8.53
36.53
Total positive effects (5)
$359.16 Total negative effects (6)
Net change (7)
- $37.37
$396.53
Partial Budget Exercise #1
Change Marketing Outlet from Farmers’ Market to Institutional Market
Positive Effects
Increases in revenue (1)
Institutional market sales
Negative Effects
Decreases in revenue (3)
$3,600 Farmers’ market sales
Decreases in cost (2)
Farmers’ market labor costs
$1,200
Farmers’ mkt. supply, trans. costs 400
Total decrease in costs
$1,600
Total positive effects (5)
Net change (7)
Increases in cost (4)
Institutional market labor costs $800
Inst’l mkt. supply, trans. cost
200
Total increase in costs
$1,000
$5,200 Total negative effects (6)
-$300
$4,500
$5,500
Partial Budget Exercise #2
Analyze the purchase of a new 1-row potato harvester ($2,000, 7-yr life)
Positive Effects
Increases in revenue (1)
Decreases in cost (2)
Labor (100 hrs)
Total decrease in costs
Total positive effects (5)
Net change (7)
Negative Effects
Decreases in revenue (3)
Increases in cost (4)
$1,000 Labor (2 hrs)
$ 20
Depreciation cost
286
Taxes, housing, insurance (1%)
20
Repairs and maintenance (2%)
40
$1,000 Total increase in costs
$366
$1,000 Total negative effects (6)
$634 (per acre)
$366
Partial Budget Exercise #3
Analyze the change in cattle production practices
Positive Effects
Increases in revenue (1)
Negative Effects
$1,150 Decreases in revenue (3)
$1,080
Decreases in cost (2)
Conventional feed
Conventional housing
Total decrease in costs
Increases in cost (4)
$400 Natural feed
80 Natural housing
$480 Total increase in costs
$500
85
$585
Total positive effects (5)
$1,630 Total negative effects (6)
Net change (7)
-$35
$1,665
Limitations
• As always, the decisions you make are only
as good as the numbers you used to make
them. Some numbers are better than none;
more is better…
• Partial budgets compare two alternatives,
neither which may be the best alternative
available to you.
• Partial budgets (all types of budgets) look at
only $, other factors come into play as well in
your decisions (health, environment, etc.)
Questions…..
Any questions or comments?
Thank You for This Opportunity!
Craig A. Chase
Leopold Center for Sustainable Agriculture
Marketing and Food System Initiative Program Leader
Iowa State University Extension and Outreach
Local Food and Farm Program Coordinator
Local Food Systems and Alternative Enterprise Analysis
209B Curtiss Hall
Ames, IA 50014
(515) 294-1854
[email protected]