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Concluding Comments
The procedures for compiling budgets for representative postfarm activities are very similar to those used in the compilation of farm budgets. Descriptions of marketing chains are analogous to descriptions of cropping calendars, and input and output valuations confront the same problems of separating prices and quantities. Two principal differences distinguish postfarm from farm budgets: primary surveys are easier to do off the farm than on it, and the relative prominence of fixed costs means that economies of size usually are more important for postfarm activities.
Research projects that estimate PAMs in practice often give limited attention to postfarm activities. In particular, little research effort is expended on the disaggregation of costs among inputs. Such treatment is justified only when postfarm costs are trivial or when the farm commodities can be directly marketed in world markets. In other circumstances, postfarm costs are an integral part of the commodity system. Analysis is needed to assess the impacts of policies and market failures on the postfarm activity. These divergences may be as important as or more important than those influencing the farm activity in a commodity system. Even when the primary concerns are with farm-level issues, postfarm divergences can have major implications for farm prices and incomes.
Box 10.3. Partial Budget Adjustments for Utilization of Full Capacity of Large-Scale Flour Mill in Portugal
The base-case budget for the representative large-scale wheat flour mill utilized an average operating rate of 240 days per year, eight hours per day. This rate was a single-shift operation, with annual throughput of 6,720 metric tons of wheat. Mill processing capacity was 3.5 metric tons of wheat per hour. The following table summarizes annual labor cost and total fixed cost estimates.
Discussions with plant managers allowed the development of estimates of potential maximum operating times. About 36 days per year (3 days per month) were needed to clean, repair, and adjust equipment; holiday regulations required the firms to be closed for 10 days. Therefore, maximum capacity operation was set at three shifts per day, 320 days per year (250 weekdays, 50 Saturdays, and 20 Sundays). Annual throughput increased to 26,880 metric tons of wheat. Although no premia were paid for shift work, Saturday labor commanded a 75 percent premium above regular wages and Sunday labor a 200 percent premium. The skilled labor force required only a small increase in size. The following table summarizes annual labor cost and total fixed cost estimates for full capacity utilization.
Further investigation revealed a potential technical change-the addition of a flour silo and automated sacking equipment-that had been explicitly prevented by regulation. These investments had been made by one firm in anticipation of a change in the regulations, allowing simulation of the new technology. Full capacity costs are presented in the following table.
The direct labor costs were converted to a per metric ton of flour basis and substituted in the base-case activity budget. The fixed costs were converted to annual equivalent values, adjusted to a per metric ton of flour basis, and substituted in the base-case activity budget.
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