Types of farm units and cooperatives
A farm unit is one farm business. Who owns and runs it decides its type.
- Family farm: one family owns the land and does most of the work. It is small and flexible.
- Farming company: a business owned by one or more partners. It is usually big. It hires workers and sells to shops and factories.
- Cooperative: many farmers join together. They buy seed together, share machines or sell the crop together. Every member owns a share and has a say.
A cooperative helps small farmers. A bigger group can ask for a lower price when buying and a better price when selling. This is called bulk buying.
Material resources and land
Material resources are the things you can touch: land, buildings, machines (such as a tractor), tools, seeds and animals.
Land is the most important one. It is measured in hectares (1 ha = 10,000 mΒ², about a square of 100 m by 100 m). Land can be owned or rented. A rented field costs rent every year, even if the crop fails.
More land can give more crop. But machines and buildings also wear out. This loss of value is called depreciation. A farmer must plan for it.
Human resources and recruitment
Human resources are the people who work on the farm: the owner, the family, and hired workers.
- Permanent workers work all year and get a regular wage.
- Seasonal workers are hired only for busy times, such as sowing and harvest.
Recruitment means finding and hiring people. Steps: decide what job is needed, announce it, choose the person, agree the pay and the duties, and train the worker for safety. A rule of thumb in the 3D: one worker can look after about 2 ha. With fewer workers, work is late and the crop gives less.
Financial resources and EU funds
Financial resources are the money used to start and run the farm. There are three main sources.
- Own money: savings or last season's profit. You do not pay it back, but it is limited.
- Loan (credit): money from a bank that you must repay with interest.
- Grant or subsidy: money given by the state or a union to support farmers. You do not repay it, but you must follow the rules. In Europe, EU funds such as the Common Agricultural Policy (CAP) support farmers. In India, examples are the Kisan Credit Card (a farm loan) and PM-KISAN (income support).
A good plan mixes the three sources and checks that the farm can repay what it borrows.
Costs: direct, indirect, fixed, variable
A cost is money you spend to produce. We sort costs in two ways.
Way 1: fixed or variable. Fixed costs stay the same whether you grow a lot or a little: land rent, insurance, loan interest, a permanent worker's wage. Variable costs change with the amount you grow: seed, fertiliser, pesticide, fuel, seasonal labour.
Way 2: direct or indirect. Direct costs can be linked to one crop: the seed of wheat is for wheat only. Indirect costs are shared by many crops: the tractor shed, electricity, the manager's salary.
Total cost = fixed cost + variable cost. Profit = income β total cost. If income is less than cost, it is a loss.
Try it: run your own farm
In the 3D, use the Land and Workers sliders. Predict first: what happens to profit if you add 2 more hectares and no new worker? Then check. Also try at home: list what your family spends in a month. Mark each item fixed (rent, school fees) or variable (vegetables, mobile data).
Key formulas and definitions
- Total cost = Fixed cost + Variable cost
- Income = Quantity Γ Price
- Profit = Income β Total cost
- Cost per hectare = Total cost Γ· Hectares
- Break-even quantity = Fixed cost Γ· (Price β Variable cost per unit)
Worked examples
1. A farm has fixed cost 5,000 per year and variable cost 300 per hectare. It farms 10 ha. Find the total cost.
Variable cost = 300 Γ 10 = 3,000. Total cost = 5,000 + 3,000 = 8,000.
2. The same farm grows 4 tonnes per hectare on 10 ha and sells at 250 per tonne. Find income and profit.
Quantity = 4 Γ 10 = 40 t. Income = 40 Γ 250 = 10,000. Profit = 10,000 β 8,000 = 2,000.
3. Find the cost per hectare for the farm above.
Cost per hectare = 8,000 Γ· 10 = 800.
4. Sort these costs: (a) wheat seed, (b) insurance of the tractor shed, (c) diesel for all machines, (d) rent of the wheat field.
(a) Direct and variable. (b) Indirect and fixed. (c) Indirect and variable. (d) Direct to wheat and fixed.
5. One farmer buys 1 t of fertiliser at 480 per tonne. A cooperative of 20 farmers buys in bulk at 420 per tonne, 1 t each. How much do the 20 farmers save together?
Saving per tonne = 480 β 420 = 60. For 20 farmers: 60 Γ 20 = 1,200.
6. Fixed cost is 6,000. Price is 250 per tonne and variable cost is 100 per tonne. Find the break-even quantity.
Each tonne leaves 250 β 100 = 150. Break-even = 6,000 Γ· 150 = 40 tonnes. Below 40 t the farm loses money.
7. A project costs 10,000. A grant pays 50% and a bank loan gives 3,000. How much own money is needed?
Grant = 5,000. Loan = 3,000. Own money = 10,000 β 5,000 β 3,000 = 2,000.
Common mistakes
- Thinking "variable" means "small". It means the cost changes when the amount produced changes.
- Mixing up the two ways of sorting: fixed/variable is not the same as direct/indirect. One cost has both labels.
- Forgetting fixed costs when finding profit. Rent and wages must be paid even if the harvest is poor.
- Treating a grant like a loan, or a loan like free money. A loan must be repaid with interest.