Conformación Espacial de la Zona de Integración

The aim is to avoid risk hence the enterprise with the minimum variance. A variance column is created by taking the difference between the highest and lowest income given under each state of nature.

States of Nature

Enterprise 1 2 3 Variance Column

A 10 12 6 12 – 6 = 6

B 8 15 23 23 – 8 = 15

C -5 25 11 25 – (-5) = 30

The decision rule is to choose the enterprise A with the minimum variance.

The SAE 2

Using the table below which enterprise will you choose using the following strategies:

The enterprises A,B,C, could represent any type of enterprises – crops, livestock etc. It could represent levels of fertilizer treatment, levels of capital, labour use soil types etc. The states of nature could be any number representing rainfall, temperature, humidity, windy condition etc.

4.0 Conclusion

Management becomes necessary because knowledge is imperfect. Yields and prices of inputs and outputs cannot be predicted with accuracy because of imperfect knowledge. The farmer therefore takes decisions under conditions of risks and uncertainty. This unit therefore considered ways and means of improving farmers decision under these conditions that are outside their control.

5.0 Summary

In this unit you have learnt what risk and uncertainty mean and how they affect decision making about the farm business. Risk can be overcome by different types of insurance while uncertainty situations cannot be insured.

Certain precautions that can be taken against uncertainty include flexibility, diversification, asset management, discounting, forward contracting and choice of enterprises.

Agricultural product prices fluctuate more than prices of industrial products because of the effect of natural factors like weather, diseases and pests. Also, once a crop is planted it is difficult to interfere with its potential output. Price fluctuations also depend on storability of the products.

Decision rules or strategy models that are used under uncertainty conditions include the expected value theory, minimum regret strategy and optimism – pessimism index.

Answers to Self-Assessment Exercises

SAQ 1: Distinguish between risks and uncertainty.

1. For risk situations, the probability of occurrence are known but unknown for uncertainty situations.

2. For a risk situation you can take insurance but not for uncertainty condition.

= + B

3. Risk situations are based on measurable and quantifiable data but for uncertainty, it is subjective and refers to the peculiarity of the mind of the individual producer.

SAE 2: Total variance is given by:

2 2 2

T A + 2r A B

The condition which will make T2

to be less than are:

1. r must be negative i.e. A and B move in opposite directions.

2. 2r A B will be negative as a result of r being negative.

3. 2r A B in absolute term must be greater than B2 so that it takes some value away from A 2such that the right hand of the equation becomes less than the left hand i.e. T 2.

6.0 Tutor Marked Assignment

Using the table below which enterprise will you choose using the following strategies:

i) Minimum regret ii) Minimax strategy iii) Maximax strategy iv) Minimum variance

v) If P1 = 0.2, P2 = 0.3 and P3 = 0.5 for states of nature 1,2,3 vi) Use the expected value theory

vii) La place game theory.

States of Nature

Enterprises 1 2 3

Layers 20 30 45

Beef cattle 60 30 40

Piggery 30 50 50

Turkey 15 40 70

7.0 Further Reading and References

Castle, E.N., M.H. Becker and F.J. Smith (1972) Farm Business Management: The Decision-Making Process. The MacMillan Company, New York. Chapter 7.

UNIT 13

Livestock Enterprise Management

1.0 2.0

Introduction Objectives

Table of Contents

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 4.0 5.0

Selection of Livestock Enterprises Risk and Uncertainty

Supplementary and Complementary Enterprises Criteria for Decision to raise Livestock

Feeding

Labour Efficiency

Markets and Timing of Production

Tips for Profit Making in Livestock Enterprise Factors Affecting Profitability of Milk Production Factors Affecting Profitability of Beef Production Factors Affecting Profitability of Sheep Enterprise Factors Affecting Profitability of Pig Enterprise Factors Affecting Profitability of Egg Production Conclusion

Summary

6.0 7.0

Tutor Marked Assignment Further Reading and References

1.0 Introduction

Nigeria is endowed with a fast variety of livestock breeds in form of cattle, goats, sheep, pigs, poultry, donkeys, camels and horses. The management of livestock enterprises particularly cattle is left largely in the hands of the Fulani nomads. Those animals constitute the source of protein for the nation and therefore it is essential to deal with their management.

2.0 Objectives

It is hoped that by the end of this unit, you will be able to:

Identify factors affecting selection of livestock enterprises.

Identify factors affecting the profitability of milk production, egg production and pig production.

Explain tips for making profit in livestock production.

3.1 Selection of Livestock Enterprises

The effect which each livestock enterprise will have on available resources must be considered in considering different livestock enterprises. Although profitability can be tested by budgeting procedures, the major decision is which alternatives are feasible to be tested by budgets. The land, labour, capital and management resources will not be equally well adapted to all livestock enterprises. The resource that is most limiting will play an important role in the planning process.

Use of Principal Resources:

Land: Farm acreage may be limiting on some farms and the prospect of expansion may not be bright. Enterprise that provides high gross return per hectare of land should be included in the budget. With this limitation, poultry, dairy and cattle feeding would be preferable to beef cattle with calves.

Labour: Poultry and dairy enterprises require labour nearly all the year round. These enterprises may not be the best choice where labour is limiting.

Some livestock enterprises that require seasonal feeding operations may be chosen to allow integration of crops. The kind of skill of labour required should be considered. Adoption of livestock of a large scale may require hired labour.

Capital: Different types of livestock enterprises have different capital requirements. Certain enterprises might be suitable for a farm but may be ruled out because of capital limitation. For example, feeder cattle requires higher capital outlay than Swine enterprise. Broiler enterprise may be financed by contract farming.

Management: Demands of different livestock enterprises on management must be considered. All enterprises are not the same in management requirement. Livestock care is regarded as an ‘art’.

Systematic plan for evaluating the possibility of different livestock enterprises for a particular farm might be developed.

The essential idea is to determine the resources that are limiting and to select enterprises that make the best use of those limiting resources.

If only limited land and capital are available, poultry would be a better choice than feeder cattle. If labour is limiting, feeder cattle would be the logical choice.

3.2 Risk and Uncertainty

Price: Some livestock and livestock product prices vary considerably.

These types of enterprises may be avoided by farmers who cannot afford a loss in a particular year.

Production: Because biological and physical forces such as disease and weather do not affect all livestock in the same way, production of different livestock enterprises varies differently. Risk and uncertainty, associated with livestock production should be considered.

Cost Structure: An important factor influencing the riskiness of enterprises is the cost structure associated with an enterprise, e.g. Feeder cattle Vs.

Poultry feeding.

When fixed costs are a large proportion of the total costs, it is possible to remain in business for a longer period than when most of the costs are in cash and variable in nature. Assuming high fixed costs, it is possible for a farmer to lose money for a long time but not be aware of it. While someone with higher variable costs would have been out of business for a long time. For example, feeder cattle farmer is of long time, heavy fixed costs than production of poultry which has a short gestation period.

The operator who is in a position to survive one or two lean years probably should choose the enterprise that will offer the greatest profit in the long run.

The farmer who cannot survive poor years should consider livestock enterprise that minimize loss prospects while holding the prospect more certain for substantially less profit.

Size of enterprise: Unit costs vary considerably as the size of farm is increased. The same principles apply to livestock enterprises. It is important to understand the relationship of the size of flock to the cost of production.

Economic size of livestock changes from time to time and place to place.

Economic size of the herd depends upon technological and economic conditions.

3.3 Supplementary and Complementary Enterprises

There is always a need to select livestock enterprise that would be supplementary or complementary to other farm operations. Such enterprises use resources that would otherwise go to waste e.g. Livestock raised during the slack period; Manure on crops; Sheep and goat enterprises could utilize remains after harvests.

It is better to evaluate carefully each farm’s resource and determine the size and types of livestock enterprise best adapted to the farm through the use of budget to estimate the effect of different sizes of a given livestock enterprise on income.

Once the type and size of livestock have been determined the following operating decisions are necessary.

3.4 Criteria for Decision to raise Livestock

i) Excess labour: When excess labour exists, livestock enterprise can be introduced to make use of the excess. This is especially true during the slack period.

ii) Rotation: Not all lands can support profitable cropping, livestock can be introduced to make use of grazing land.

iii) People like to keep livestock to diversify cropping programme If crops fail, livestock may do well.

iv) Manure: Serves as fertilizer. Although the nutrient analysis is low, but the organize matter put in the soil helps to build the soil structure,

and water holding capacity of the soil. Nutrient requirements of crops are so high for high yield that manure should be supplemented with commercial fertilizer.

v) Scavengers: to provide additional income.

vi) Introduction of livestock to utilize all the resources better – e.g.

Housing, buildings and scavengers.

vii) When grain is profitable converted into livestock production, costs of marketing and transport are reduced.

viii) Source of Power: Some livestock can be used as draft animals.

SAQ 1: People will like to diversify cropping programme. If crop fail, livestock may do well. Under what conditions are diversified conditions met?

3.5 Feeding

Feeding costs represent a substantial portion of the Production costs for all livestock enterprises. Nutritional and economic principles are brought together to determine the most profitable rate of feed and composition of the ration. Different feeds contain varying quantities of essential materials not present in all feeds. The farm manager is therefore faced with the problem of supplying the needs of the animals from variety of feeds that contain varying proportions of the essential material. Feeds are classified into nutrient groups: protein, carbohydrates and fats.

The economics of nutrition depends on the relationships between feeds. The extent that one feed can be substituted for another at a constant rate has some economic importance.

The substitution ratio is determined as follows:

Kg. of replaced resources Kg. of added resource

In order to obtain the most economic combination, it is necessary to know the prices of the two feeds. The most economic combination is achieved when the substitution is set equal to the inverse of the price ratio of the two feeds thus:

Kg. of replaced resources = Price per kg. added resource Kg. of added resource Price per kg of replaced resource Major consideration not covered here is quality and time.

The alert manager should be aware of substitution possibilities for livestock enterprise.

SAQ 2: Why should the manager be concerned with substitution