# The Economics Module

The economic module calculates gross margins of crops and rotations (rotational gross margins) in Euro per hectare. This enables the potential economic returns of different rotational scenarios to be assessed. Since the model works with standard variable costs (only fertiliser costs are linked to physical inputs) its strength is in comparing different scenarios and demonstrating the size of variation, however, it can not be used to predict gross margin for a specific farm, region or country.

*Model input file*

The only variable costs calculated from the physical inputs are organic and mineral fertiliser application (partial budgeting technique). In the model input file the user has to specify the number of applications, the amount for each application, the cost of the fertiliser per kg and the cost of application per hectare.

Fertilisation

- 3 No of N fert applications (max=20)
- 70 Amount of fertiliser (kg/ha)
- 0.42 Cost of fertiliser (currency/kg)
- 10 Cost of applying fert (currency/ha)

The other inputs relevant to the economic model are for crops and cover crops:

Crop data

- 7.5 Target dry matter of total plant t/ha
- 0 Minimum mkt fresh weight per head (g/piece)
- 0 Maximum mkt fresh weight per head (g/piece)
- 0 CV coefficient of variation mkt product (%)
- 325 Price for mkt yield (currency/t)
- 768 Variable costs independent of mkt yield (currency/ha)
- 101 Variable costs dependent on mkt yield (currency/t)

The target total dry matter is the key input for the growth model. Since farmers do not normally know this, target marketable yield is used as the input which is then converted to target dry matter using approach 1 (explained below).

The default value for head size is zero, which forces the model to use values (and range) from the EU trade classification for minimum and maximum fresh weight. If a farmer has a specific contract with a supermarket then the actual fresh weight target per head can be inputted. The price per marketable yield and variable costs are stored in a database, but can be over-written by the user. The variable costs independent (VC_{ind}) of marketable yield are recorded per hectare and consist of seed and transplants costs, fertiliser costs (excluding N fertiliser), fleece, irrigation, crop protection, weed control. Variable costs depending (VC_{dep}) on the marketable yield are recorded per tonne marketed, and consist of packaging and drying, transport, casual labour and market commission. For cover crops all values are zero and only “variable cost independent of mkt yield” needs an input, standard figures are stored in the economic database.

*Model output files*

For the calculation of the marketable yield, the model uses two different approaches: Approach 1 ”Direct conversion”** **is a direct conversion of total dry matter (TDM) into marketable yield (MKTY) with one factor R, sourced from empirical data.

MKTY = TDM* x *R *f(N _{av}) * (1)

With:

- R the ratio of marketable yield to total dry matter for optimum nitrogen supply and spacing

- N_{av} the available nitrogen (N)

The ratio R is individual for each crop and depends on the available N supply used for each crop. The formula for R is a linear or polynomial relationship of available nitrogen (N_{av})

R = r_{0} + r_{1} *x * N_{av} + r_{2} *x * N_{av}² + r_{3} *x * N_{av}² + r_{4} *x * N_{av}² (2)

The terms r_{0}, r_{1} and r_{2} are empirically gained for individual crops. For a simple constant relationship: r_{1} = 0 and r_{2} = 0. For a linear relationship: r_{2} = 0. Otherwise, the relationship is non-linear. For some crops, more polynoms may be needed because of different behaviour in sub- and supra-optimum conditions and therefore r_{3}, r_{4} …r_{x} are added.

Approach 2 ”Via single plant” is only possible if the marketable product is a single part of a plant, e.g. cabbage head but not Brussels sprouts. For this the plant population, the harvest index, the percentage dry matter of marketable product, the minimum and maximum marketable fresh weight per head and the coefficient of variation of the marketable product are required. The average single plant weight is calculated and the % gradeout calculated based on the minimum and, if applicable, the maximum marketable fresh weight.

Average single plant fresh weight = TDM *x* HI *x* plant population^{-1} *x* %dm^{-1} (3)

A normal distribution with a given coefficient of variation is used to simulate the %-gradeout, then the marketable yield in tonnes is calculated.

For each crop, a default model choice (approach 1 or 2) is stored in the crop table, but the experienced user can change this. With the marketable yield modelled, the calculation of the crop gross margin (GM) uses the standard equation:

GM = MKTY *x* Price - VC_{ind} - VC_{dep } - VC_{N fert} (4)

The variable costs of inorganic and organic fertilisers (VC_{N fert}) are calculated using the physical data generated by the model. The triggered amount of fertiliser and number of applications are multiplied by the cost of fertiliser and the cost per application as specified in the input file. Subsidies are not considered in the gross margin calculation. Rotational gross margin is cumulative gross margin of all crops in the rotation (including the negative gross margin of cover crops) divided by the number of years simulated.

**References **

Agro Business Consultants Ltd. (2005): The Agricultural Budgeting & Costing Book, Agro Business Consultants.

Lampkin, N., M. Measures, et al. (2004). 2004 Organic Farm Management Handbook. Aberystwyth, Newbury, Organic Farming Research Unit at Institute of Rural Sciences, University of Wales. Organic Advisory Service, Elm Farm Research Centre. 226.

Nix, J. (2004). Farm Management Pocketbook 2005. London, The Andersons Centre.

Schmutz, U., C. Firth, F. Rayns and C. Rahn (2004): Can N Use and Farm Income be Optimized for Organic Field Vegetable Rotations in Europe? In: Organic Farming Ed. A. Hopkins BGS Symposium No. 37: ISBN 0905944 844. p. 200-203