Partial Budgeting AAgribusiness

Partial Budgets
Partial Budgeting is a procedure whereby
receipts and expenses associated with a
relatively small change in procedure or farm
organization are organised in a systematic
manner to determine whether the change is
feasible.
Prepared on an annual basis and considers all
costs (FC and VC)

Partial Budgets
Partial budgets are useful to evaluate changes
such as:
expanding an enterprise
selecting alternative enterprises
selecting different production practices
deciding whether to purchase equipment or
hire
making a capital improvement "buying new
equipment to replace manual labor or
maintaining an older equipment

Partial Budget Procedure

What new or additional costs will be incurred?
What current costs will be reduced or
eliminated?
What new or additional revenue will be
received?
What current revenue will be lost or reduced?

Partial Budget Format

Problem:
Additional Costs:

Additional Revenue:

Reduced Revenue:

Reduced Costs:

A. Total additional costs

and reduced revenue

B. Total additional revenue

and reduced costs

Net Change in Profit (B-A)

CRITERIA

$
$
$

X
Z

Partial Budget Procedure

A farmer is considering irrigating 0.5 acre
ginger enterprise
He will realize a 300 kg increase in production
annually (ginger - $4.50 per kg)
Extra labour will be required for water channels
$150, water application $120 and extra
harvesting $20
Extra transport will be $25
Should the farmer irrigate?

Partial Budget Procedure

Step 1 - State the Proposed Change Irrigation
to 0.5 acres of ginger

Partial Budget Form

Problem:

To irrigate acre ginger

Additional Costs:

Additional Revenue:

Reduced Revenue:

Reduced Costs:

A. Total additional costs

and reduced revenue

B. Total additional revenue

and reduced costs

Net Change in Profit (B-A)

$
$
$

Partial Budget Procedure

Step 2 - List the Added Annual Returns
Additional gross income.
In this case, the irrigation will increase
production by 300 kg of ginger or $1,350 (300
kg @ $4.50) annually.

Partial Budget Form

Problem:

To irrigate acre ginger

Additional Costs:

Additional Revenue:

300 kg @ $4.50)
Reduced Revenue:

Reduced Costs:

A. Total additional costs

and reduced revenue

B. Total additional revenue

and reduced costs

Net Change in Profit (B-A)

$1350.00.

$
$
$

Partial Budget Procedure

Step 3 - List the Reduced Annual Costs None.
Step 4 - List Added Annual Costs The
additional annual costs is the extra labor for
preparing water channels, water application
and for extra harvest, extra cost for
transportation and marketing.
(150+120+25+20 = $315.00)
Step 5 - List the Reduced Annual Gross
Incomes. None

Partial Budget Form

Problem:

To irrigate acre ginger

Additional Costs:

Additional Revenue:

$315.00 300 kg @ $4.50)

Reduced Revenue:

Reduced Costs:

Nil.

Nil.
A. Total additional costs
and reduced revenue

$1350.00.

B. Total additional revenue

and reduced costs
Net Change in Profit (B-A)

$
$
$

Partial Budget Procedure

Step 6 - Estimate Changes in Annual Farm
Income - In this example, the farm income
would increase by $1,035 due to the
introduction of irrigation
Apply Criteria - If the net change is positive
then make change.
If net change is negative dont
Positive so make the change

Partial Budget Form

Problem:

To irrigate acre ginger

Additional Costs:

Additional Revenue:

$315.00 300 kg @ $4.50)

Reduced Revenue:

Reduced Costs:

Nil.

Nil.
A. Total additional costs
and reduced revenue

$1350.00.

$315.00

B. Total additional revenue

and reduced costs

Net Change in Profit (B-A)

$
$1350.00
$
$
$1035.00

Activity - Partial Budget

Suppose a vegetable farmer is considering
growing yam instead of cassava. The information
available to the farmer is:
Extra income (yam)
$6,400
Costs Saved (cassava)
5,320
Extra costs (yam)
5,380
Income reduced (cassava) 5,640
Is it profitable to grow yam?