Page 327 - Agriculture_Form_Three

Agriculture for Secondary Schools

Gross margin can be expressed on the basis of enterprise size or type or level, for
example, per hectare (for crops) and per flock size or per animal (for livestock) or
per farmer. Gross margin can also be expressed as a percentage which is obtained by
dividing gross margin by sales revenue. As a rule of thumb, 5% is a low margin, 10%
is a healthy margin and 20% is a high margin. For a farmer or an entrepreneur, to
measure profit for the whole farm by attempting to compare different farm enterprises
or know profitability of the specific farm enterprise, he/she has to subtract the total
fixed costs from the gross margins of the enterprise(s).

Procedures of computing Gross Margin
To compute a gross margin, you need to have a cash book or income and expenditure
record books. If your farm keeps both records together, you just need a cash book.
You will calculate the gross margin by following these five steps.
Step 1: Find yield(s) or total outputs or average yield derived from farm produce(s),
e.g., a total of 2,000 trays of eggs produced by 10 farmers hence average yields is
200 trays of eggs per farmer.

Step 2: Identify selling price(s) corresponding to produces, e.g., market price of TZS
12,000 per tray.
Step 3: Compute gross income (total revenue) by multiplying particulars under step
1 and 2 such as TZS 12,000 per tray x 200 trays which is equal to TZS 2,400,000.

Step 4: Determine the total variable costs based on farm enterprise or crop type or
livestock product type given and quantities of inputs. Here we add together all costs
of buying the variable inputs, e.g., costs of feeds, drugs and vaccines, casual labour,
water, electricity and other variable costs for poultry rearing which give a total of
TZS 1,680,000.

Step 5: Calculate gross margin, gross income or total revenue in step 3 minus total
variable costs in step 4, that is, TZS 2,400,0000 – 1,680,000 = 720,000 per farmer.
This is relatively higher margin (30%) per farmer if we express it in percentage after
dividing sales by gross margin.

It is important to mention and re-emphasise that gross margin analysis should be
standardised according to given units, for example, per hectare, per farmer, per
location, per household. Therefore, it can be computed at each farm products or
enterprises level or between farms or farmers or between localities to facilitate
comparisons then inform decision making. In addition, gross margin computations
depend on the type of data and purpose. For example, you can calculate gross
margins of different farm enterprises to select the likely best performing enterprise
to choose. You can also compute gross margin per farm (if you want to know which
is the most cost-effective across different farms of different sizes) or per animal

Student’s Book Form Three
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10/01/2025 12:32
AGRICULTURE FORM 3 9.11.2022.indd 316
AGRICULTURE FORM 3 9.11.2022.indd 316 10/01/2025 12:32