Evaluation of Production Processes

Many of you might have heard older people saying:” What worked for my dad is working for me”. There is truth in the saying but you need to advance with technology, and you need to evaluate the production process.

To evaluate is to measure. To evaluate the production process, you need to measure it against a standard or a benchmark. To make the correct and informed decisions you need to measure the budget vs. actual expenditures: marketing results vs. grading standards and marketing results vs. prices your products obtained - are products downgraded due to poor quality?

The marketing information will be discussed in the next section.

Several ratios can be used to determine the financial position of a farming business - the solvency, liquidity and profitability ratios.

To determine the production activities, a diagnostic analysis of the farming results need to be done. Various efficiency analyses can be applied, depending on the size of the farming business, the type of enterprise and the purpose of the analysis.

The following criteria or standards can be developed for the analysis:

• Criteria based on comparing the farm’s records for year-to-year
• Average criteria for a region or area as obtained from study groups, cooperative services that assist farmers with data collection and interpretation and also the Department of Agriculture.
• Criteria based on the results of the top performers of the different groups in the region
• General accepted norms - so far that these norms have been developed for and adjusted to suit the particular circumstances of the farming business.
• Criteria obtained from research results regarding physical and financial performances.

For this diagnostic purpose, the records of the farming business must contribute towards the development of evaluation criteria, and must be able to identify gaps in the production process. Deficiencies in a farming business are usually diagnosed by using efficiency criteria.

General Criteria

There are criteria that are applicable to the farming business as a whole:

• Net farm income per hectare
• Net farm income per R 100.00 capital investment
• Gross margin for the farm business as a whole
• Return on total capital investment
• Gross margin per hectare
• Interest earnings on own capital
• Increase or decrease in the net value of the farming business.

Investment Criteria

This criterion takes into account the investment that was made in the farming business - what amount is invested in land, fixed improvements and livestock.

• Land value per ha
• Value of improvements per ha
• Total farm value per ha
• Capital investment in livestock per large stock unit (LSU)
• Value of livestock per hectare
• Machinery and equipment
• Capital investment in power machinery
• Capital invested in implements per hectare arable land
• Capital investment in vehicles per ha

Utilisation of Machinery

To determine the efficiency of machinery used, only the cost that is directly related to the cultivation - variable cost – is used:

• Vehicle costs per hectare
• Power machinery costs per hectare cultivated land
• Tractor costs per litre fuel used
• Tons harvested per tractor
• Cultivation costs per unit harvested

Utilisation of Labour

Only the direct locatable costs regarding labour can be used:

• Labour cost per hectare (full time) per month
• Gross production value per R100 labour costs
• Net farm income per R100 labour costs
• Labour efficiency percentage - that is the total number of labour days worked by labourers as a percentage of the maximum number of available working days.
• Labourers per day per yield-unit harvested
• Hectares cultivated per labourer per day

Crop Cultivation

Gross margin per hectare.

Effective utilisation of cultivated land:

• Hectares cultivated per tractor unit
• The ratio of hectare cash crops to hectare fodder
• Cultivation costs per hectare arable surface area
• Yield per hectare harvested, per 100 mm rainfall or per irrigation cycle

Measurement of Practice

• Kilogram seed used per hectare
• Yield per hectare
• Fertiliser applied per ha
• Fertiliser cost per ha
• Cultivation cost per ha

The gross margin per hectare can be used for comparing the profitability of crop enterprises with each other, provided that production practices and fixed costs requirements are more or less the same.