Columnists Features

Farming as a business can be profitable

In the agricultural sector there are many different farming enterprises which farmers (business persons) can engage in.
It is a known fact that large commercial farmers run farming business profitably.
Farming as a business can also be done profitably by smallholder farmers. However, the smallholder farmers should be willing to change their attitude towards negative practices, working hard and to be committed to their business.
This may call for loss of free time in order for the business to succeed.
Farming business qualities
•Personal qualities
Personal qualities
The failure or success of the business (cotton production) being undertaken by the smallholder farmer will mostly depend on the farmer.
Hard work
•The farmer should be willing to work for long hours everyday and should have the necessary skills to execute the various operations of the business,
•The smallholder cotton producers should be willing to work hard and give up some of their free time because it is necessary for their enterprise to succeed.
Any business person needs to be careful with money by way of keeping records of all the activities of the business enterprise because this is the sure way of making a profit as the business is kept under control.
Able to make decisions
In business correct and timely decision making is very important for the success of any enterprise. The smallholder cotton farmers who largely depend on family labour ought to consult the family members particularly the spouse (wife) on important business matters for correct decision making.
Cotton producers have to spend money or get credit from cotton promoters to get inputs for cotton production.
Good time management
Cotton producers should be well organised with time. They should be able to identify the different operations that are involved in the production of cotton.
Well informed
The cotton producers should be well informed of the different cotton promoting companies operating in their areas and the credit conditions and seed cotton pricing. The farmers should be well knowledgeable of the enterprise they are engaged in which is cotton production. The knowledge could be acquired through training which is provided by various stakeholders in the cotton sector such as extension agents for the various cotton promoting companies, learning from mistakes and openness for new ideas
Many smallholder cotton business persons do not keep written records of all the various activities of their business. For instance they do not write down all the inputs they bought or the loan they got, money spent on transport and labour costs whether family or hired. This makes it difficult to know whether the enterprise is making a profit or loss.
•There are basically two (2) types of skills needed for running a successful enterprise.
•Practical Skills
Practical skills are directly related with the quality and quantity of the crop you would like to be producing and selling.  They also can be known as practical abilities that you need to produce the product.
•Organisational Skills
These skills are also called management skills. These skills help the farmer to run the enterprise well and take care of all the different parts of the business without many pit falls
The practical skills can help the farmers to manage their crops very well and attain high yield per unit area and enhance good gross margins, these would include:
1. Time of planting
2. Plant population
3. Weed control
4.Pest control
5. Quality control and grading
You need to know how to write down details about your enterprise (record keeping). This will be the basis for analysing the performance of the enterprise at the end of the production cycle.
You need to know when to carry out the various operations of the enterprise such as sourcing of inputs, land preparing, planting, weed control and pest management.
You need to know how to divide time among your labour force so that all the different operations are done properly and timely.
Record Keeping
•You use records to generate production costs and revenue earned. Without records, it is difficult if not impossible to remember every expense incurred and the incomes generated.
•Record keeping means writing down:
– How much money your business receives which include loans and
– How much money your business spends
The type of Records a Farmer needs to keep
A ) Physical Records
These are records of quantities of inputs (seed, fertilisers, and chemicals) and amount of temporary labour time spent in carrying out all the operations such as ploughing, planting, weeding and harvesting.
B) II. Financial Records
These are records of expenses (money spent on every input and labour) and income generated
Records to be kept
Smallholder cotton farmers should keep such record as:
Production costs
Input use
Timing of various production operations
Sales and receipts
Dates of various operations
Marketed quantities, quality and buyer
Producer price
Labour requirements
Transport for the produce
Factors that influence the producer price
A ) World price of cotton lint
For the world price of lint the benchmark indicative price is the Cotlook A index. Cotlook A is the average world price for the medium grade cotton. Medium grade is the middling of (US grade denoting colour and cleanliness ) and staple length of 27.8mm.
Price is derived from five (5) cheapest among 18 qoutations of lint from different origins.
Exchange rates (Zambia Kwacha to dollar rates )
This exchange rate has a significant effect on the price of cotton.
The appreciation and depreciation of kwacha/dollar has direct bearing on the production costs of both the farmers and ginning companies.
This is because the ginning companies have costs that are both Kwacha (salaries, operational costs etc) and dollar based (loans, pesticides and machinery etc).
The consequences of unstable exchange rate are far reaching, as the out-grower company may purchase most inputs for the growing season when the exchange rate is high (weak kwacha) and base the input prices for farmers at that exchange rate. The ginning company may even indicate to the farmers the producer price based on that exchange.
But if the local currency appreciates (strong kwacha) just before marketing, it means that the ginning companies will mobilise resources for purchase of the seed cotton at a lower exchange rate.
This will call for more dollars to buy an equivalent volume of the local currency, making it unprofitable for the ginning company. This may force ginning companies to lower the producer price from the indicative pre-planting price.
Demand and supply
The forces of demand and supply also affects the price. When the demand for lint is higher than supply on the world market, the world lint price rises and vice versa.
D) . Seed cotton quality
Quality requirement does not just affect the farmer but also the marketing company as the price which will be offered at world market will take into consideration the quality of the lint.
Cotton production is a business like any other commercial enterprise such as retailing in groceries and running a fleet of busses. As such it requires planning, time, starting capital and all the skills business requires.
These are; Plannning Time Starting capital Sense of purpose
The author is cotton breeder at Cotton Development Trust.

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