IX. FARM-LEVEL BUDGETS AND ANALYSIS

Farm-level issues receive most attention from agricultural policy-makers. Ministries of agriculture usually maintain cost-of-production estimates for principal commodities. But ministries focus most often on private profitability, whereas the PAM analyst is concerned also with estimation of transfers induced by policy or market failures. These differing analytical objectives place new demands on the existing data. For example, the ministry requires only the total costs of intermediate inputs, whereas the PAM analyst is concerned with the price and quantity used of each input in order to measure the effects of price distortions or to assess the potential impacts of input substitution. Consequently, in most instances, substantial data gathering efforts will be necessary to permit the construction of PAMs for representative farm activities.

This chapter considers the more common strategies and problems encountered in using farm-level budget data to prepare a PAM. Policy issues dictate choice of crops, level of aggregation, and selection of indicators to measure representativeness. The chapter next discusses the complementary uses of budget data, national or regional production data, and experiment station (or demonstration farm) data. Because of time and cost constraints on the research project, the principal role for farm-level field work is the verification and modification of secondary data and the collection of appropriate private market prices. The most difficult pricing exercises usually involve primary inputs (especially labor and capital) and nonmarketed goods. Finally, the chapter considers some of the complications that arise in trying to portray farm decisions in the framework of a single commodity system. Because many farmers produce multiple crops, the disaggregation of fixed inputs in particular commodity systems may require some arbitrary assumptions. Intercropping, agronomic constraints on crop rotations, and perennial crops present further complications for the calculation of private and social profits.