Using partial budgets To answer all sorts of

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 209 B Curtiss Hall Ames, IA 50014 (515) 294 -1854 cchase@iastate. edu