Presentation on theme: "Using partial budgets……"— Presentation transcript:
1 Using partial budgets…… To answer all sorts of questions you or others may have…Craig Chase, Field SpecialistFarm & Ag Business Management
2 Partial BudgetA 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 enterpriseChange your product mix or production practicesCustom hire or purchase machineryChange marketing outletsPurchase transplants or grow from seed…
3 Partial BudgetPartial budgets allows you to compare two alternatives side-by-side.The analysis tells you one of the alternatives is comparatively better than the other.
4 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.
5 Partial Budget Example Change Product Mix from Green Beans to Salad GreensPositive EffectsNegative EffectsIncreases in revenue (1)Decreases in revenue (3)Sales of salad greens $150.00Sales of green beansDecreases in cost (2)Increases in cost (4)18.25 hrs $10/hr $182.502.8 hrs of $10/hrInput & packaging costsInput and packaging costsTotal decrease in costsTotal increase in costsTotal positive effects (5) $359.16Total negative effects (6) $396.53Net change (7) $37.37
6 Partial Budget Exercise #1 Change Marketing Outlet from Farmers’ Market to Institutional MarketPositive EffectsNegative EffectsIncreases in revenue (1)Decreases in revenue (3)Institutional market sales $3,600Farmers’ market sales $4,500Decreases in cost (2)Increases in cost (4)Farmers’ market labor costs $1,200Institutional market labor costs $800Farmers’ mkt. supply, trans. costs 400Inst’l mkt. supply, trans. costTotal decrease in costs $1,600Total increase in costs $1,000Total positive effects (5) $5,200Total negative effects (6) $5,500Net change (7) $300
7 Partial Budget Exercise #2 Analyze the purchase of a new 1-row potato harvester ($2,000, 7-yr life)Positive EffectsNegative EffectsIncreases in revenue (1)Decreases in revenue (3)Decreases in cost (2)Increases in cost (4)Labor (100 hrs) $1,000Labor (2 hrs) $ 20Depreciation costTaxes, housing, insurance (1%)Repairs and maintenance (2%)Total decrease in costs $1,000Total increase in costs $366Total positive effects (5) $1,000Total negative effects (6) $366Net change (7) $634 (per acre)
8 Partial Budget Exercise #3 Analyze the change in cattle production practicesPositive EffectsNegative EffectsIncreases in revenue (1) $1,150Decreases in revenue (3) $1,080Decreases in cost (2)Increases in cost (4)Conventional feed $400Natural feed $500Conventional housingNatural housingTotal decrease in costs $480Total increase in costs $585Total positive effects (5) $1,630Total negative effects (6) $1,665Net change (7) $35
9 LimitationsAs 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.)
10 Questions….. Any questions or comments? Thank You for This Opportunity!Craig A. ChaseLeopold Center for Sustainable AgricultureMarketing and Food System Initiative Program LeaderIowa State University Extension and OutreachLocal Food and Farm Program CoordinatorLocal Food Systems and Alternative Enterprise Analysis209B Curtiss HallAmes, IA(515)