|Better Farming Series 26 - The Modern Farm Business (FAO - INADES, 1977, 55 p.)|
|Part 4 - The farmer's expenses|
Examples of investment:
· Buying new tools
A farmer buys a plough or a seed drill that is drawn by animals. With this plough or seed drill, the farmer works better and quicker. By this means he can increase the area farmed. He will have increased his productive capacity by buying a plough or a seed drill. He has made an investment.
· Land improvement
The farmer clears some land and grubs up all the trees. He digs irrigation and drainage ditches to make an irrigated rice field. He makes barrier strips and terraces to protect the soil from erosion. All these undertakings are investment because they increase productive capacity.
· Establishment of new plantations
The planter who makes new plantations of coffee trees or mango trees also makes an investment.
Investment expenses are often very large.
· Some farmers have enough money at hand to pay the full cost of an investment.
Example: Issa is a good farmer, he has had good harvests for several years; he has not spent any money on useless things. Issa has more than 40 000 francs in reserve. Issa wants to get on. He wants to buy a plough and a pair of oxen. The plough costs 8 000 francs and the oxen 20 000 francs. Issa pays cash for the plough and the oxen. Issa can pay for his investment right away because he has money in reserve; he has made savings.
· But many farmers are not like Issa, they have not got enough money to make an investment. They have to ask for money from banks or credit institutes; they have to borrow money (see Part 4: How a farmer can find the money).
Marcel wants to get on; he wants to buy a plough and a pair of oxen. The plough costs 8 000 francs, the oxen 20 000 francs. But Marcel has no money. He borrows 28 000 francs from the agricultural credit institute.
The institute lends him the money for five years Each year Marcel is to give back 28 000/5 francs = 5 600 francs to repay his loan.
In addition, he has to pay the agricultural credit institute interest of 5% a year, that is: 28 000 francs x 5/100 = 1 400 francs
So each year Marcel has to pay the institute 5 600 plus 1 400 francs = 7 000 francs. At the end of five years, he will have paid 7 000 francs x 5 = 35 000 francs
The next paragraph's are difficult. If you do not understand, you are not obliged to read them, you can go straight on to "Part 4: How a farmer can find the money".