Introduction to Livestock Economics – SS2 Livestock Farming Lesson Note (Third Term)

Livestock economics is the study of how a farmer uses limited resources such as money, land and labour to earn the highest possible profit from animals. The four farm resources are land, labour, capital and management. A farmer applies management principles, builds enterprise budgets, separates fixed from variable costs and plans for risk.

Behavioural objectives

By the end of the lesson, students should be able to:

• define livestock economics and name the four farm resources;
• state the five principles of farm management with an example of each;
• explain what an enterprise budget is and why a farmer needs one;
• distinguish between fixed costs and variable costs, with examples;
• identify price, production and technical risks and say how a farmer can reduce them.

What is livestock economics?

When we talk about livestock, we usually talk about feeding and health. But a farm is also a business. If you spend more money buying feed than you get from selling your goats, your farm will soon close down.

Livestock economics is the study of how a farmer uses limited resources (like money, land and labour) to get the highest possible profit from animals.

What are the four farm resources?

1. Land: Where the pens are built and where the grass grows.
2. Labour: The human effort (you, your family or hired workers).
3. Capital: The money used to buy animals, feed and equipment.
4. Management: This is the “brain” of the farm. It is the person who makes the decisions.

What are the principles of farm management?

A farm manager is like the captain of a ship. If the captain does not know where he is going, the ship will hit a rock. To be a good manager, you must follow these principles:

1. Planning: Deciding in advance what to do. (e.g., “I will buy 100 chicks in April so they are ready for sale by December.”)
2. Organisation: Putting things in the right place. You should not put the feed store where rain will beat it.
3. Directing: Telling the workers exactly what to do and when to do it.
4. Coordination: Making sure all parts of the farm work together. You do not buy 500 pigs if you only have one small bag of feed.
5. Control: Checking the records to see if the plan is working. If too many chickens are dying, a good manager finds out why and fixes it immediately.

What is enterprise budgeting?

On a big farm, you might have chickens, pigs and fish. Each of these is called an enterprise.

An enterprise budget is a simple list of all the expected “income” (money coming in) and “expenses” (money going out) for just one specific animal type for a certain period.

Why do we need a budget?

• It helps you see which animal is making the most money. (Maybe the pigs are making a profit, but the chickens are making a loss.)
• It helps you plan how much cash you need to have before you start.
• It helps you set a selling price for your animals.

Note to students: You can be the best vet in the world, but if you do not understand enterprise budgeting, you will find it hard to grow your farm into a big company. Agriculture is a business.

What are fixed costs and variable costs?

When making your budget, you must divide your costs into two “baskets”.

Variable costs (operating costs)

These are costs that change depending on the number of animals you have.

• Example: If you have 10 chickens, you buy a little feed. If you have 1,000 chickens, you buy a lot of feed.
• Other examples: vaccines, fuel for the generator and water bills.

Fixed costs (overhead costs)

These are costs you pay even if you have only one animal or a thousand. They stay the same for a long time.

• Example: The money you spent to build the poultry house.
• Other examples: rent for the land, salary for a permanent security guard and the cost of the feeding troughs.

What risks do livestock farmers face?

Farming is not like a fixed-salary job. Things can change quickly. A good manager must plan for:

• Price risk: You might start your farm when a bag of feed is ₦15,000, but by next month it might jump to ₦25,000.
• Production risk: An outbreak of bird flu or a sudden heatwave can kill your animals, even if you did everything right.
• Technical risk: Your incubator might break down, or the borehole might stop pumping water.

How can a farmer survive these risks?

1. Diversity: Do not put all your eggs in one basket. Keep two different types of animals.
2. Insurance: On big farms, you can pay a small fee to an insurance company so that they pay you back if your animals die.
3. Savings: Always keep some “emergency money” aside for rainy days.

Evaluation

1. Define livestock economics.
2. Name the four farm resources.
3. State the difference between a fixed cost and a variable cost, with one example of each.
4. Name the three types of risk in a livestock business.

Assignment

1. If you are a manager and your birds are not growing fast enough, which management principle will you use to fix it?
2. List 3 variable costs on a pig farm.
3. Why is management considered the most important resource on a farm?