capital ► For the economist, capital is a factor of production used in combination with land, labour and management to produce goods and services to satisfy consumers.
For the farmer, capital is both a physical and a financial resource; it is necessary as the total investment for any agricultural enterprise. Capital includes land, money, buildings, machinery and equipment, fuel and the raw materials needed to produce crops and rear livestock. So capital can include stock as well as money.
CAPITAL
• a factor of production
• a physical and financial resource • the total investment in the agribusiness
FIXED OR DURABLE CAPITAL OPERATING OR WORKING CAPITAL • buildings • fences • stock of materials (consumables): • machinery • tree crops fertilisers, pesticides, medication, feed, fuel • equipment • livestock • money (cash): to purchase land,
• land • ponds planting materials, feed, medication, fuel, to pay wages for labour/services Figure 6.1 Fixed and working capital on a farm.
A farmer's capital resources can be divided into fixed (or durable) capital and fixed capital ► operating (or working) capital. Fixed capital refers to those items on a farm that have more than one year of productive life. These are items that only need to be working capital ► renewed after many years. Working capital refers to those items which are needed for the everyday running of the farm and which are used up in the production of crops or livestock.
Working capital can be divided into two sub-groups:
stock ► • stock or consumables, such as feed, fuel, fertilisers, pesticides and medication cash ► • cash needed to purchase land, replenish the stock of materials and to pay for
labour and other technical services.
depreciation ► Farm buildings, machinery and equipment undergo depreciation every year. This means that each year they are worth a little less in financial terms. They also need regular maintenance so that the maximum productive service can be derived from them. Eventually the farmer has to replace these items because of their age, wear and tear and obsolescence. Land tends to appreciate in value. This means that it is worth a little more in financial terms each year. However, the farmer has to renew its fertility on a continuing basis.
I For many farmers, capital is a limiting factor. The amount of capital a farmer has
What is the meaning of capital to a farmer? at his disposal enables him to:
• make decisions about the type and size of his farm, the type of crops to grow and the best system to use
Explain the difference between fixed capital and • decide on the level of mechanisation he can afford
working capital, giving examples of each. • buy the farm inputs, such as land and stock, that he needs • employ modern technology
• generate farm income and profits
List reasons why capital is necessary for • develop and improve the farming business agricultural enterprises. • increase farm assets and values.
Section A: The Business of Farrhing
Sources of capital
In the Caribbean, farmers may obtain capital, that is money (cash) and/or a stock of agricultural materials, from the following sources:
1. Government institutions
Agricultural Development Bank These include the Agricultural Development Bank (ADB), the Ministry of ( ADB) ► Agriculture and agricultural societies. The ADB and the agricultural societies
offer loans at low rates of interest, usually from 3% to 6%. The Ministry of Agriculture arranges subsidised farm inputs (machinery, equipment, breeding stock, starter colonies of bees, hybrid seeds and other planting materials). They also arrange leases for state land.
2. Commercial banks/Enterp
rises and insurance companies
The rates of interest from commercial banks, insurance companies and financial agencies are higher than those from the government institutions (8% to 14%). The commercial enterprises sell land, planting materials, machinery and equipment.
3. Credit Unions
These offer loans at low rates of interest.
4. Co-operatives and Associations
These organisations rent out machinery and equipment and offer loans at low rates of interest. Depending on the nature of the co-operative or association, planting materials, breeding stock and starter colonies of bees may be offered.
5. Sou-Sou Groups
In these friendly co-operative savings schemes, each person in a small group contributes every week or month, as agreed, an equal portion of money. The sum of the group's total contribution goes to one member of the group in rotation, so that every month, week or fortnight one person benefits from a large sum of money, interest-free, that can be put to a particular use. In Dominica the practice is more often called a 'sub'. This system was more widespread before banks openly welcomed small-scale savers and before the Credit Union movement established itself in the 1950s and 1960s.
6. Money-lenders
Loans from money-lenders have high rates of interest and relatively short repayment times.
7. Personal savings
The farmer may have saved money over a period of time from the profits of the farm.
8. Relatives
List FIVE sources of capital available to farmers. I This may take the form of a loan, at a reasonable rate of interest, borrowed
machinery and equipment, or an inheritance of land, cash, buildings or machinery and equipment.
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9. Friends
Name TWO government institutions and state the Friends may offer loans at reasonable rates of interest, or land, machinery, type of capital which they can provide to farmers. tree crops and livestock might be borrowed in a share-cropping arrangement.
credit- How to obtain loans
farmer's worthiness farm
registration proposal To obtain a loan from a reputable financial institution, farmers need to fulfil certain lifestyle and LOAN budget requirements (see Figure 6.2).
character estimates
Farmer's registration
credit-rating
I
farm records The applicant (farmer applying for a loan) must be a registered farmer. In Trinidad and reputation collateral, and experience and Tobago, the registration of farmers is done by the Ministry of Agriculture atsecurity
guarantor regional and county agricultural offices. Farmers who are registered are more
favourably considered for loans, subsidies and other national incentives. In other
Figure 6.2
The farmer has to prove territories, such as Jamaica, registration is via the Ministry of Agriculture. several things before getting a loan.6 • Farm financing and support services