Farm Management Guide
Farm Management Guide
Farm Management Guide
Compiled by
Sayed Mohammad Naim Khalid
and
Shukrullah Sherzad
This manual is produced under FAO funded project - TCP/MIC/3601 “Strengthening the capacity of
Farmers Associations to increase production and marketing of root crops, fruits and vegetables in FSM”
FAO. 2019. Farm management guide, by Khalid, S.M.N. & Sherzad, S. (eds.). Apia. 36 pp. Licence: CC BY-NC-SA 3.0 IGO.
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Acknowledgements
The following individual contributed to conceptualization, writing, reviewing, editing, and improving technical
accuracy of this manual. Their valuable contributions are hereby gratefully acknowledged:
iii
Contents
Introduction ............................................................................................................................................ 2
Objectives of the manual ....................................................................................................................... 2
Farm and farm management basics ...................................................................................................... 2
Twelve 12 tools of “farm as a business”................................................................................................ 4
Tool 1: Farming as a business checklist ................................................................................................. 4
Tool 2: Access to farm services .............................................................................................................. 5
Tool 3: Set farming goals ........................................................................................................................ 8
Tool 4: Acquire essential skills ............................................................................................................. 10
Tool 5: Make a strategic plan or a business plan ................................................................................ 11
Tool 6: Comply with rules and regulations .......................................................................................... 13
Tool 7: Accessing capital ...................................................................................................................... 14
Tool 8: Accessing land .......................................................................................................................... 15
Tool 9: Marketing ................................................................................................................................. 16
Tool 10: Farm-to-table food safety ...................................................................................................... 18
Tool 11: What is cost of production? Or farm budgeting ................................................................... 20
Tool 12: Book keeping .......................................................................................................................... 27
Tables
Figures
iv
How to use this Manual?
This manual is for those farmers and individual who wish to start farming as a business. It will also
serve as a useful document for Extension Agents wanting to support farmers making a transition
from subsistence to commercial or semi-commercial farming. The decision to become a business
farmer is not a light one and involves many variables and a lot of effort. With this guidebook, we
hope to make the process in Pohnpei and Yap clearer so those interested in farming as a business
will understand the work involved. For those willing to put in the effort, we hope this guide will ease
the transition from interested party to agribusiness owner.
The first section of this manual is about basic concepts of farm management so that the farmer
understands what a farm is, what his/her function is as a farm manager, and what skills and
information are needed to successfully manage a farm.
The next sections of this manual are comprised of 12 Tools that will help the farmer move step by
step towards running a small or medium scale farm as business. Using these tools will help farmers
acquire more knowledge, comply with regulations, reduce risk of failure and raise more funding for
farming activities. Each tool has a list of resource at the end for further information.
In order to become a successful business farmer and have high satisfaction ratings from customers
and other stakeholders’, a farmer needs to follow almost all of the steps provided in different tools.
1
Introduction
Congratulations on your interest in starting your own farm as business! The decision to become a
farmer is not a light one and involves many variables and a lot of effort. With this guidebook, we
hope to make the process here in FSM clearer so those interested in farming will understand the
work involved. For those willing to put in the effort, we hope this guide will ease your transition from
interested party to agribusiness owner.
At the beginning, we have included a list of key service providers to provide a quick glance reference
list. Many of these resources are mentioned again under sections related to the services they offer.
A checklist is also included so you can keep track of your progress as you go through the steps. At
the end of the guide, as well as throughout, there are useful websites or organizations listed that can
further help you make your farming venture a success.
Note: Efforts were made at the time of publication to ensure accurate information and up-to-date
listings for resources and organizations mentioned in this guidebook. Due to the dynamic nature of
websites, we cannot guarantee that all websites will be active in the future.
A farm is a socio-economic unit. It is composed of a farm family, the farm operations and farm
structures. A business farmer is a grower and also a farm manager who has to decide how much
land, labor, capital and type of technology to use to produce the desired product. Ultimately, the
farmer has to earn a profit to support their livelihood.
Using farm management techniques, a farmer would efficiently use the available resources to
increase profits through deciding among the best alternatives available.
The farmer performs following basic functions to effectively manage the farm:
1. Diagnosis: Analysis of past performance of farm, for both its weaknesses and strengths.
2. Planning: Planning for future crops and animals considering the opportunities and threats.
3. Implementation: Efficient implementation with least cost.
4. Monitoring: Reduce the losses and increase the profits by reducing the costs and choosing
better technologies based on the observed opportunities.
5. Evaluation: Evaluating the actions for repeating the success in future.
2
What is the objective of farming as a business?
In the absence of good farm management, the farmer may not make a profit or may experience
economic losses from farming. Reasons for farm production costs going up or down could include
any of the following:
There is a change in the supply and price of agricultural inputs like seeds, fertilizers,
irrigation, or power.
There is a change in the prices of produce (outputs) at the markets due to changes in
demand or supply.
There are improvements in farm technology that can decrease production costs.
There is a change in climate or a natural disaster that impacts the farm productivity.
For better farm management, what kind of knowledge is needed by the farmer?
It is strongly recommended that the farmer obtain the following information about their farm:
Farm map
Soil slope and topography
Soil type (physical and chemical properties)
Soil color such as red soil or black soil
Weather parameters such as rainfall, temperature, relative humidity, etc.
Vegetative cover such as trees, weeds, etc.
Irrigation potential from on-site or nearby water sources
Site drainage and tendency for site flooding or saturation
Physical and infrastructure facilities such as roads for transport, vehicles, custom hiring
centers, etc.
Market facilities information such distance from farm, frequency of operation, typical prices
Ease of access to farm production assistance and technology advice from service providers
Communication facilities like cell phone and internet connectivity
Risk factors like high rates of interest
Supporting programs and schemes/subsidies
Confidence that the farmer can produce the desired crop/animal profitably, after
considering the above conditions.
3
Twelve 12 tools of “farm as a business”
Twelve tools that will help the farmers move step by step towards running a small or medium scale
farm as business. Using these tools will help farmers acquire more knowledge, comply with
regulations, reduce risk of failure and raise more funding for farming activities. Each tool has a list of
resource at the end for further information.
8. Access land
a. Lease __________________ □ □
b. Mortgage __________________ □ □
c. Title documents __________________ □ □
9. Marketing
a. Complete market research __________________ □ □
b. Develop positioning __________________ □ □
c. Develop brand __________________ □ □
4
Tool 2: Access to farm services
This section provides a list of key farm service providers in Pohnpei and Yap, FSM, as a means to
provide a quick glance reference list. Many of these resources are mentioned again under sections
related to the services they offer. At the end of the guide, as well as throughout, there are useful
websites or organizations listed that can further help you make your farming venture a success.
Note: Efforts were made at the time of publication to ensure accurate information and up-to-date
listings for resources and organizations mentioned in this guidebook. Due to the dynamic nature of
websites and contact points, we cannot guarantee that all information will be active in the future.
The above services are needed with dimensions of accessibility, quality, cost effectiveness and
timeliness.
Agriculture Division
Pohnpei Department of Resources and Development
Phone: (691) 320-2400
Services offered:
Affordable and good quality supply of farm input needs, including seeds, fertilizers, and
equipment services
Livestock support, including multiplication and distribution of improved piglets, importation
of day old chicks, and sales of veterinary supplies to local pig and chicken producers
Trainings at the Pilot Farm site in Pohnlangas, Madolenihmw to pass on new and
appropriate methods of vegetable production
5
College of Micronesia – Land Grant Program
Pohnpei phone: (691) 320-5731
Yap phone: (691) 350-4319
Website: http://www.micronesialandgrant.org/
Services offered:
Agriculture extension and outreach, including trainings on new and appropriate production
methods
Extension diagnostics for plant nutritional needs and plant pest treatment
Cooperative research into climate-smart, locally adapted agriculture products
6
Technical assistance including trainings on crop production, processing & marketing
Technical assistance on agribusiness management, business planning and farm management
Facilitating demonstration plots, farmer field schools and other extension methods.
Provision of planting material and seeds.
International price information
3. Profit organizations
U.S. Department of Agriculture – Rural Development (USDA-RD), Pohnpei Office
Pohnpei phone: (691) 320- 2581
Website: https://www.rd.usda.gov/programs-services/all-programs/business-programs
Services offered:
Loans, loan guarantees, and grants available to individuals, businesses, cooperatives,
farmers and ranchers, public bodies, non-profit corporations
Business Programs providing financial backing and technical assistance to stimulate business
creation and growth
Pacific Islands Small Business Development Center Network (PISBDCN) and the Guam Small
Business Development Center (SBDC)
Website: http://www.pacificsbdc.com
Services offered:
Small business counseling
Business training
Business assistance center
Community and village outreach
7
Tool 3: Set farming goals
Becoming a farmer is a wonderful goal to have, but farming means different things to different
people. You will need to make a lot of smaller, results-driven goals in order to successfully start your
agribusiness and become the kind of farmer you want to be. Most of your goals will fit into four main
categories: personal goals, economic goals, community goals, and environmental goals. As you make
goals in each of these four areas, the type of agribusiness you want to have and ways to make your
business a success will become clearer.
When making goals, make sure they’re specific and have an end-date. Giving yourself a time-frame
and picturing what you’ll have achieved by that time solidifies the goal. Goals should be based on
reality. If you have no idea what’s attainable, do some research. Look online or ask other farmers at
what point they turned a profit, how much time they put in, etc. You can give yourself either more
or less time, but it’s helpful to have a starting point.
The following are just some of many questions you may want to ask yourself as you begin to make
goals. Good goals will motivate you and help you channel your enthusiasm in the right direction. The
goals you make now will shape your agribusiness and give you a good starting point for developing a
strategic plan and a business plan later on.
Personal
Personal goals include thinking about why you want to farm and what you want to accomplish
through farming. Consider the following questions and come up with others that will help you define
what kind of farmer you want to be and what kind of farm or agribusiness you want to have.
What do you like about farming?
Do you want to farm as a hobby or as a large producer?
Is this an opportunity to allow your family to work together?
Do you want to provide all your family’s produce and sell some on the side as well?
Do you want to provide healthy food to the community?
Do you want your agribusiness to expand and be your main source of income?
How much time do you want to spend on the business?
As you make personal goals, inventory the skills you possess (technical or practical knowledge, drive,
physical health, family support, etc.). Make a list of necessary skills you lack and set goals to fill in
those gaps through education, technical advice, trained farm hands, or other means.
Economic
As you make economic goals for yourself and your agribusiness, inventory your existing resources,
income and expenses. Estimate what you will need to start and base your economic goals off those
numbers. Think about how much you are willing to spend, how much debt you’re willing to accrue,
when you’ll need to start receiving net income, and whether or not you’re financially able to
weather a disaster or bad production year.
Environmental
Farming, depending on how it is done, can have a potentially negative or positive effect on the
environment. You may not even have land yet for your farm. In that case, think about the natural
resources on a property before you buy or lease. Consider the following questions:
What will you do to minimize or neutralize negative effects?
What natural or cultural resources are in the area and how will you maintain them?
Will you practice traditional, organic, or natural farming?
Will you develop a conservation plan for your farm?
Is the land steep enough that erosion will be a problem?
Is there a stream nearby that could be contaminated by fertilizers or pesticides?
8
Are there endangered or nesting birds in the area?
What can you do to protect valuable ocean resources?
Community
Farming is not an isolated enterprise. Your neighbors and community will probably be observing
your operation. They may even be part of your market or labor pool, so it is important to develop
and maintain good relations with them. How will you do so? Think about how your business will help
the community. What local businesses and organizations will you support as you build your business
and expand your own resources?
The best goals are S.M.A.R.T. This acronym tells us that goals should
be Specific, Measurable, Attainable, Rewarding and Timed. Try to be as specific as possible in stating
what you would like you achieve. Some way to measure progress in attaining the goal should be
included. Make sure that your expectations in setting goals are realistic so that the goals can be
attained. If goals are attained, then this helps to motivate you to continue and feel rewarded for
your hard work. The goals also need to be timed in order develop a deadline for achieving them.
By December 1, 2013, I will have planted, harvested, and successfully sold 2 acres of mixed
vegetables.
Further information:
University of Minnesota Extension.
https://www.extension.umn.edu/agriculture/dairy/business-tools-and-
budgeting/setting-farm-goals/
University of Missouri. http://agebb.missouri.edu/mgt/settingfandfgoals.htm
9
Tool 4: Acquire essential skills
As you made goals and inventoried your skills and resources, you probably identified some skills
you’re lacking that would be useful in your agribusiness. Perhaps you know how to grow crops, but
you have no experience with running a business. Maybe you’re an entrepreneur, but you’ve only
ever grown a backyard garden. Luckily, there are many options for gaining the skills you need to
make your farm a success. Many opportunities are here in FSM. In this section, we outline some
options for developing skills and widening your knowledge base.
Pohnpei and Yap Agriculture and Extension offices, FAO, USDA-NRCS, Farmers Associations and
many other organizations have field days and workshops for agriculture, organic agriculture and
farming as a small business.
T.4.4. Internships/apprenticeships
Internships and apprenticeships offer a way for those with minimal farming skills or knowledge gaps
to get into farming. These opportunities allow you to gain experience working on a farm and
developing knowledge and skills you can then use on your own farm. Generally, internships last only
a few months and interns are often given only a few responsibilities. Apprenticeships are similar to
internships, but they usually last a whole growing season and the apprentice is involved in many
parts of the farm operation. An apprentice will often be involved in the whole process, from
preparing for planting to harvesting and selling. Before accepting a position, it is important to talk to
the farmer or producer. Find out what they need the most help with, but also let them know what
skills you are hoping to gain. If possible, tour the farm and get to know other workers as well.
If you are interested to learn through internship/apprenticeship, try again to use your network and
connect with potential organizations or other farms.
10
Tool 5: Make a strategic plan or a business plan
Strategic plans and business plans are representations of your agribusiness on paper. They
demonstrate how you incorporate your goals, values and skills into the running of your business and
how you plan to make that business a success.
Identifying the farming industry’s values, strengths and weaknesses and comparing your business’s
values, strengths and weaknesses can help you determine what your business has to offer and why
or how you can be the best at what you do. It is important to revisit your strategic plan every so
often to determine if your business is still heading in the direction you intended or if goals have
changed.
When you have a good idea of your business goals, you can begin your business plan. Many
businesses include a mission statement and a vision statement as part of their business plan. A
mission statement clearly defines the main goals or values of the company and how they will be
achieved. It serves to keep the company on track. Sound familiar? Strategic plans frequently become
the basis for a business’s mission statement. A vision statement presents your vision of what your
business will accomplish for your customers, industry, or community in the next five or ten years.
11
Funding Requirements
Financial Projections
Figure 1
Seedling preparation for farming
© FAO/Shukrullah Sherzad
12
Tool 6: Comply with rules and regulations
Many countries and states have farm-related laws and regulations in place to try to protect you,
your workers, your neighbors, and the environment. In Pohnpei and Yap, FSM, you will need to
apply for and be granted permits, licenses, and other documentation. In this section, we list the
most common documentation needed. Not all may apply to your agribusiness and there may be
some we have not listed that you will need. Do your research, as missing documentation can result
in fines or even halt work on your business.
T.6.1. Zoning
Pay attention to zoning. Land you farm must be zoned for the type of agriculture you want to do.
Make sure you know what kind of structures and activities are allowed on the land. You can check
with the zoning or planning department of your municipality or state for current zoning maps.
T.6.2. Permits
Common permits which might be applicable to each farming business:
Building permit
Grading/grubbing permit. If you will be moving much dirt or removing much vegetation in
preparation for planting, a grading and grubbing permit may be required.
T.6.2. Licenses
Common licenses recommended:
Pesticide applicator license—certain pesticides are restricted and anyone using them must
be trained and have a current license.
Ownership and Movement Certificate or Dealer’s License—In order to reduce agricultural
theft, food producers must produce an Ownership and Movement Certificate when asked
and any non-producers dealing in agricultural commodities must obtain a Dealer’s License
(recommended)
Food Safety Certification- Department of Health. Though not necessarily required, if you will
have a packing plant or be selling to restaurants, a food safety certificate will help you be
competitive.
13
Tool 7: Accessing capital
Loans and grants are the most common way of securing capital. Some farmers are able to borrow
money from friends or family or interested investors. Not everyone is so lucky, but there are several
other options for raising necessary funds.
T.7.1. Loans
There are four main places to get commercial loans for agribusinesses.
1. Commercial banks and credit unions
2. FSM Development Bank
3. Government Lending Programs such as the Pohnpei Business and Guarantee Loan Scheme
(PBGLS)
T.7.2. Grants
Grants are particularly appealing, as you do not need to pay back money given you as you would
with a loan. However, be aware that many grants require up front funding matches by the farmer
and it takes time and effort to locate, apply for, and write reports for grants. Grants will rarely fund
beginning ventures, but may be a way to expand your agribusiness after a few years in operation.
14
Tool 8: Accessing land
Land for farming can be part of lands already owned by your family, rented, leased and in some
occasions, purchased. Which option you choose will depend greatly on your goals and the
availability of land. Land availability may affect your options for expansion or the market or goals for
your farm may change.
T.8.1. Buying
Currently, there is less agricultural land available in FSM for purchase than there is for renting or
leasing. Here are ways to find what is available:
T.8.2. Renting/Leasing
Rented or leased land is usually more readily available and gives you the flexibility to develop your
product and market base. There are several options for finding lands to rent or lease.
Large landowner leases—large landowners may lease out agricultural land. They may know
which of their tenants is willing to sub-lease smaller parcels of land for agricultural
production.
Retiring farmer—Retiring farmers not willing to sell their land may be willing to lease it.
Figure 2
Vanilla protected production farming
© FAO/Shukrullah Sherzad
15
Tool 9: Marketing
In order to have a successful agribusiness, it is essential that you know who you are selling to and
why they would want to buy your product.
Answering the following questions will help you determine whether or not your identified target
market will be able to sustain your business:
Can you easily identify your target market?
Why would your target market want to buy from you?
Do they have a need that isn’t already being satisfied?
Do you have a way to communicate with your target market?
Is your target market large enough to support your sales goals?
If you’re unsure, as you likely are, of the answers to any of the above questions, you will want to do
more research and possibly get some help. Ask the extension officers and reach to development
organizations that can help you identify your target market, as well as help develop the next two
steps in marketing, positioning and branding.
T.9.2. Positioning
Positioning allows you to differentiate yourself from your competition and show your potential
customers why your company is better to work with or your product is the best or most desirable.
1. Research your competition. What are they known for?
2. List the defining characteristics and strengths of your business.
3. Why would your target market choose your company or products over a competitor’s?
4. Write a concise Positioning Statement that describes one or two things you want customers
to associate with your agribusiness and products.
T.9.3. Branding
Once you’ve decided on your positioning, emphasize it with your brand. You need to be the one who
determines how your customers view your business. Your positioning, reinforced by your brand, will
do that work for you. Design all of the following using your new positioning and brand:
Company name/brand name
Tagline/slogan
Logo
16
Color scheme
Packaging
Labels
Advertising
Given what you know about your target market and positioning and branding, what might you
change in each of the following areas (products, price, place, promotion) to better appeal to them
and reinforce/convey your positioning/branding?
An example: Your target market is health-conscious, Pohnpei-based young adults without or with
young children, and your desired positioning is “The most nutritious vegetables, grown right here in
Pohnpei.” A few appropriate things you might do with your Marketing Mix are:
Product
• Bag your product in clear bags to accommodate a label, which includes your company name,
logo, and website, emphasize Pohnpei-grown, and show a comparative analysis of the
nutrient content of your product versus a mainland competitor.
• Label space permitting, explain the environmental benefit of being grown here (significant
portion of your target market is also concerned about the environment).
• Package each bag to include around two single servings.
Price
• Premium versus imports. On a per pound basis, slight premium pricing over imports (target
is typically not a “value” buyer, small quantity bag should make premium pricing less of an
issue, and can enhance perception of a premium product).
Place
• Sell and deliver to specialty grocers (and supermarkets if volume permits) in Pohnpei, Yap
and other states focusing on areas of high concentrations of your target market.
• Sell over the Internet for on farm pickup.
Promotion
• Shelf tag with your brand, slogan, logo and expanded descriptions of nutritional (and
possibly environmental) benefits of your products.
• Web site with a blog about what you’re doing to maximize the nutrient content of your
products.
• Get food providers at events that attract healthy young adults to use your products (perhaps
donated) with mention of your company and slogan somewhere (menu, program, table
cards where food is served).
Resources:
FAO Agriculture and Food Marketing Management
http://www.fao.org/docrep/004/W3240E/W3240E00.HTM
http://www.marketing-schools.org/types-of-marketing/agricultural-
marketing.html
17
Tool 10: Farm-to-table food safety
Introduction
Assuring the safety of our food supply begins long before food reaches the table. At each stage of
the food chain, from the producer to the consumer, food safety strategies can be followed to
minimize contamination and help lower the risk of foodborne illness.
Growers can implement proven best practices to reduce crop exposure to contaminants and
minimize the potential for bacterial growth before planting, during production, and
throughout harvest and post-harvest handling.
Retailers and food service workers can be trained in safe food handling practices and local
health department regulations regarding storing, displaying, preparing, and serving foods
safely.
Consumers can adopt safe food handling practices when purchasing, storing, preserving
foods at home, and preparing meals that will help to protect their family's health.
Infants and preschool children, pregnant women, adults 65 years and over, and immune-
compromised children and adults have a higher risk of experiencing a foodborne illness and
may need to take additional food safety precautions.
Good agricultural practices (GAPs) and good handling practices (GHPs) encompass the general
procedures that growers, packers, and processors of fresh fruits and vegetables should follow to
ensure the safety of their product. GAPs usually deal with pre-harvest practices (i.e., in the field),
while GHPs cover postharvest practices, including packing and shipping. This factsheet covers
harvest practices associated with sanitation in the field.
Organic production
One of the most rapidly increasing methods of production is organic. To become organically certified
you will again need to work with a certifying agency and provide records and documentation of
production practices for the three previous years before applying for certification. These records will
include what forms of fertilizers and pesticides and all production practices used prior to applying for
certification. Check with the certifying agency for your state for more information concerning what
records are needed.
Microbial hazards
Fresh produce can become contaminated with pathogenic microorganisms any time before, during,
and after harvest. Sources of microbial hazards in the field can include soil, soil amendments (any
input intentionally added to the soil), water, workers, and equipment. Improper management and
cleaning of field equipment and unsanitary harvesting practices are examples of poor field sanitation
that can increase the risk of contaminating fresh produce.
18
How to control potential hazards
GAPs are critical in ensuring the safety and quality of fresh produce. The US Food and Drug
Administration identified the following GAPs that should be considered during harvesting and
equipment maintenance to mitigate microbial risks in the field.
Equipment maintenance
Improperly managed field equipment, such as harvesting machinery, knives, containers,
tables, baskets, packaging materials, brushes, buckets, etc., can be a source of
contamination. Regularly cleaning and maintaining equipment can help prevent
contamination of fresh produce. The following GAPs should be considered:
Use harvesting and packing equipment appropriately and keep it clean. Equipment used to
haul garbage or manure should be cleaned and sanitized before coming in contact with or
hauling fresh produce. Document the cleaning and sanitizing of equipment to help establish
“clean breaks” between different lots of produce.
Keep harvest containers clean to prevent cross-contamination of fresh produce. If containers
are used repeatedly during a harvest, they should be cleaned after each load is delivered,
prior to each reuse. Containers stored outside should be inspected and/or cleaned before
use.
Assign responsibility for maintenance to the person in charge of managing equipment. The
person in charge must know what and how equipment is being used, ensure equipment is
functioning properly, and make sure equipment is cleaned and sanitized regularly.
Resources/further information:
FAO http://www.fao.org/english/newsroom/news/2003/15903-en.html
FAO GAP http://www.fao.org/prods/gap/
FAO GAP guideline http://www.fao.org/3/a-a1193e.pdf
19
Tool 11: What is cost of production? Or farm budgeting
Determine your true costs per unit to evaluate pricing and more
Cost of Production reflects the dollar amount associated with growing a specific crop. Cost of
Production is commonly expressed as a unit quantity (e.g., dollars per pound). For example, to
produce an acre of tomatoes, you may need seed, fertilizer, irrigation water, labor, machinery time,
etc. In addition, you may have office, advertising, and insurance expenses. Each of these is
associated with a dollar value. When you add them up, you can determine the cost to produce each
pound of tomato.
Cost of Production can be calculated in several ways, depending on the intended use. In general,
calculating the Cost of Production requires identifying all costs associated with your operation, then
allocating them to either a specific crop (aka “Direct Costs”) or towards general business expenses
(aka “Indirect Costs”).
Identify Expenses – Specific expenses can be determined using historic information (from tax forms,
your financial recordkeeping, or receipts) or gathered estimates. The costs you list on the Cost of
Production Worksheet should reflect the current cost (rather than historic costs).
Estimate Annual Production – Production can be determined based on your prior experience or can
be based on the average of a smaller sample. For example, if on average, one tomato plant produces
15 pounds of tomatoes per cycle and you have 2,000 plants per acre, your production estimate
would be 30,000 pounds per cycle per acre. If you have 4 cycles per year, your annual tomato
production is 120,000 pounds per acre-year. The Cost of Production Worksheet and instructions
referenced in this document can be used for crop production (e.g., vegetables, nursery plants).
Value-added product calculations will differ.
Direct Costs can be thought of as those costs directly associated with a specific crop. Examples of
Direct Costs include:
Farm Labor
Planting Expenses
Weeding Costs
Fertilizer Costs
Other Materials
Packaging Costs
Delivery Costs Use the Crop Specific Worksheets to document information about your crop
as well as all tasks and corresponding costs associated with each crop.
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Table 1: Direct cost itemized in crop worksheet example
Indirect Costs are those required for the farm business to operate and typically do not vary greatly
by individual crop. Examples of Indirect Costs include:
Utilities
Insurance
Advertising and Marketing
Bank Fees and Interest
Professional Services (e.g., accountants and attorneys)
Office Supplies Use the Indirect Cost Allocation Worksheet to document annual expense
information on your Indirect Costs. Indirect Cost Allocation Worksheet example The Indirect
Cost Allocation Worksheet will calculate your total annual Indirect Costs.
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Table 2: Indirect cost allocation worksheet example
If you are producing a single crop, you can add your annual direct and indirect expenses and divide
the sum by your annual sales volume to determine your cost of production per unit; however, if you
are producing multiple crops, you will need to allocate a percentage of your Indirect Costs to each
crop. Allocating Indirect Costs per square foot of production is a common practice. The Cost of
Production Worksheet will calculate the Indirect Cost per square foot and allocate it per crop.
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Table 3: Production space worksheet example
Use the Crop Worksheets to enter information about the size of specific crops and use the
Production Space Worksheet to enter information about your non-producing areas.
The Cost of Production Worksheet uses the entered information to allocate Indirect Costs based on
the acreage of each production. It will also allocate a percentage of the non-producing areas to each
crop.
Use the Capital Investment Worksheet to enter information about start-up costs and equity
provided to the company. The desired return on the initial capital investment can also be included
here. The Cost of Production Worksheet calculates your desired return per square foot and allocates
the amount to each crop.
Table 4: Capital Investment Worksheet example
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T.11.6. Cost, volume, and profit analysis
Use the Crop Worksheet to enter your estimated annual production and sales volume for each crop.
Table 5: Annual production itemized in Crop worksheet example
Use the Unit Sales Analysis Worksheet to enter your sales price per pound.
Figure 3
Farm products in the market place
© FAO/Shukrullah Sherzad
24
Table 6: Unit Sales Analysis Worksheet example
The Cost of Production Worksheet will calculate a plant loss percentage based on production and
sales information.
After documenting the information above in the Cost of Production Worksheet, you will be able to
analyze the following:
Forecasting – You will be able to estimate your annual revenues and expenses.
Breakeven Price – You will know how much you need to sell your product for in order to breakeven.
Oahu RC&D Agribusiness Training Series 15 Breakeven Units – You will know how many products you
need to sell at specific prices to cover your costs.
Cost Reduction Targeting – You can identify high cost items and target specific costs for possible
reduction.
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Product Mix Selection – You can evaluate the profitability of each product and determine whether
you should change your crop mix.
Adjustments – You can use the worksheet to evaluate the effects of adding staff, changing prices and
expenses, and increasing or reducing production.
Further information
FAO Reference manual. Helping Small Farmers Think About Better Growing and
Marketing
http://www.fao.org/sustainable-food-value-chains/training-and-learning-center/details-
materials/en/c/273885/
Hawaii Agribusiness Guidebook,
https://www.ctahr.hawaii.edu/sustainag/Downloads/HI%20Ag%20Guidebook%20Final.
pdf
University of Minosota Extension
https://www.extension.umn.edu/agriculture/business/farm-financial-management/
Michigan State University
http://msue.anr.msu.edu/news/getting_started_with_farm_finance_management
https://gofarmhawaii.org/wp-
content/uploads/2017/10/hawaii_new_farmer_guidebook_2013.pdf
Figure 4
Tropical tomatoes
© FAO/Shukrullah Sherzad
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Tool 12: Book keeping
Tracking your money for compliance and business success
Bookkeeping is the recording of all financial transactions for a business. Keeping good financial
records (“books”) is an essential part of sound business management and a requirement for success.
Good financial records will provide you with information to make sound business decisions and are
necessary to get financing and to pay taxes.
You need accurate records of your transactions to monitor the progress of your farming business –
to determine whether your business is improving, which crops are selling, and what changes you
could/should make. You need records to prepare accurate financial statements for grants and loans
and to manage your business. You can maximize your tax savings by identifying non-taxable income
and tracking deductible expenses. Good records allow you or your tax preparer to easily prepare
your tax return, saving your business time and/or money.
Many records are currently kept by the traditional paper method. This may involve a ledger book for
financial records with a list of all debits and credits recorded daily. If this is your current method and
it is adequate for you that is fine. The most important things are to keep records and to be
consistent. Many very successful businesses still use pen and paper record keeping.
Software packages for record keeping are becoming as industry specific as production agriculture. It
seems that most industries have software packages developed to assist with record keeping. This is
very apparent in the program crop area. There are several companies who have developed software
packages that will assist in record keeping from mapping to profit and loss statements for each field.
You will need to spend considerable time in data entry when you begin to use the package however,
entering information after set up can be made very easy with the addition of a smart phone or tablet
computer.
T.12.2. 3. Combination
You may also choose to use a combination of paper and electronic. If you are uncomfortable with
computer use, keeping a daily record of events on paper then entering them into a computer may be
your option. You may also have another family member (children or grandchildren may enjoy this) or
employee use the computer. Recording all transactions and happenings on a daily basis is preferred
however, during the busy planting or harvesting season, this may not be possible for smaller
operations without a dedicated book keeper. As previously stated, whatever method you choose, be
diligent and consistent.
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T.12.3. Basic system components
Sales receipt book – Book of receipts, each with a unique number, with carbon-copy duplicates for
filing, which are used for evidence of sales and for capturing information for the Monthly Income
Record. Fill this out each time you make a sale; give the original to the customer.
Checking account – Bank checking account that is used only for your business transactions, with a
checkbook that generates carbon copies. Use this account to pay vendors who don’t accept cash or
credit cards, help manage your cash flow, assist in tracking business expenses, as evidence of
payment, and to capture information for the Monthly Expense Record. Pay for business expenses
using the checks from this account. Don’t pay for nonbusiness items using this account.
Expense filing folder – Durable 12-pocket accordion folder, with each pocket labeled with the
months of the year. The folder is used to track business expenses, as evidence of payment, and to
capture information for the Monthly Expense Record. Place all receipts for business purchases into
the corresponding month pocket.
Monthly income record – Log sheet to record sales information for the month, with each
crop/product/service receiving a separate sheet. This record provides (at-aglance) a recap of total
sales per product and who it was sold to, and captures information for the Annual Income Summary.
Transfer information from the Sales Receipt Book and record any sales for which you do not use the
Sales Receipt Book for the month. Different products go on different sheets.
Month/Year_____________________________________________ Crop:
____________________
Receipt # Date Sold To # of units sold Price per unit Total Dollar
(piece, kg, Amount
bag)
Monthly expense record – Log sheet to record expenses for the month, categorized by expense
type. This record provides a recap (at-a-glance) of expenses per category, and captures information
for the Annual Expense Summary. Record information from the Expense Filing Folder for the month,
along with the checks written in the month and any other business expenses paid with cash or credit
card. Write down the amounts for each item or service purchased in the correct category.
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Table 8: Monthly expenses for month/year:
Check #
Rent or Lease
maintenance
Or Cash
Custom hire
Seed/Plants
Repairs and
Chemicals
Car/Truck
Insurance
(machine
expenses
Fertilizer
Supplies
Utilities
Gas/Oil
Paid To
work)
Labor
Taxes
Feed
Date
Totals
Annual summaries of income and expenses – Log sheets to record income (sales) and expenses for
the year, categorized by crop and expense category, which give you an “at-a-glance” recap of all
farm income and expenses throughout the year and to determine net profit/loss. Transfer totals
from the Monthly Income and Expense Records to the corresponding fields on these tables. For the
Annual Income Summary, total the entries by month and then by crop/product/service. For the
Annual Expense Summary, total the entries by month and then by category.
Jan
Feb
Mar
April
May
June
July
August
September
October
Nov
Dec
TOTAL Annual Income ($)
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Table 10: Annual Expense Summary for: XXXX Farmer/Company
Rent or Lease
maintenance
Custom hire
Seed/Plants
Repairs and
Chemicals
Car/Truck
Insurance
(machine
expenses
Fertilizer
Supplies
Utilities
Gas/Oil
work)
Labor
Taxes
Feed
January
February
March
April
May
June
July
August
September
October
November
December
TOTAL
Capital expense record – Log sheet to record equipment purchased for the business that are
depreciable on your tax returns, used in preparing your tax returns to calculate depreciation,
amortization or depletion deduction and to determine your basis for computing gain (or loss) when
you sell or otherwise dispose of the equipment. You will maintain this record for as long as there are
items on the list that you are still depreciating, amortizing, or depleting.
Date Bought From Description Units Bought Price Per Unit Total
(Files by first latter Dollar
Used in Description) Amount
Folders for Other Records – Six-pocket accordion folder, used to organize documents, with the
following sections (labeled):
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T.12.4. How long should you keep records?
You must keep your records as long as they may be needed for the administration of any
provision of the Internal Revenue Code. Generally, you must keep records that support an
item of income or deduction for at least 3 years from when your tax return was due or filed
or within 2 years of the date the tax was paid, whichever is later.
If you have employees, you must keep all employment tax records for at least 4 years after
the date the tax becomes due or is paid, whichever is later.
Keep records relating to property until the period of limitations expires for the year in which
you dispose of the property in a taxable disposition. You must keep these records to figure
any depreciation, amortization, or depletion deduction and to figure out your basis for
computing gain or (loss) when you sell or otherwise dispose of the property.
When your records are no longer needed for tax purposes, do not discard them until you
check to see if you have to keep them longer for other purposes. For example, your
insurance company or creditors may require you to keep them longer than the IRS does.
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Further reading
[1] B. Beale, S. Dill, D. Johnson and G. S. Myers, Farm Business Planning, Maryland: University of
Maryland, 2010.
[2] FAO, Training of Farmers Programme South Asia, Bangkok: FAO, 2011.
[9] University of Hawaii , "Hawaii guide for new farmers," [Online]. Available:
http://oahurcd.org/wp-content/uploads/2013/08/Hawaii-New-Farmer-Guide_slides.pdf.
[Accessed 20 June 2018].
[10] EPA, "Parntership for sustainable communities: Urban farm business plan handbook,"
September 2011. [Online]. Available: https://www.epa.gov/sites/production/files/2015-
10/documents/1.urban_farm_business_plan_handbook_091511_508.pdf. [Accessed 20 June
2018].
Let’s entertain the earth, it will entertain us with food, timber and fuel.
Sayed M. Naim khalid
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