Producers must strive to integrate all considerations relating to the well-being and productivity of their animals with those relating to cost-effectiveness. Success in this regard invariably depends on a relatively high degree of attention to detail, technical and economic factors as well as the competence of the operator.
The potential profitability of a livestock enterprise varies considerably from country to country and between regions within a country. In either large or small-scale production, prospective livestock producers need to consider some economic points or questions before undertaking an enterprise particularly involving live animals or animal products to avoid disillusionment and loss of money.
(i) Is there an assured market for the stock or animal product intended to be produced? Closely related to this is how to sell the products without incurring too high a cost. Is the price on offer adequate for products adequate to justify cost and profitability?
Will it be necessary to site the farm closer to the market and what is the possibility to expand the market or production in the future for an increased income?
(ii) Do I have sufficient funds to get started? Money is needed for fixed capital costs i.e. buildings and equipment and working capital to pay for the stock, feed, and labor for the first year of operation.
Note that cash expense tends to increase in the first year and cash receipt takes a similar duration to begin to come after the take-off of the enterprise.
(iii) What are the possible directions for expansion or integration to enable the enterprise to take advantage of various opportunities-production or marketing available? Is there more suitable stock or breeds available for the type of system or operations in managing the enterprise?
(iv) Do I have unhindered access to input supplies at suitable costs, especially for feed resources, water, drugs, power as well as infrastructures such as access roads and construction materials?
(v) Do I have the requisite managerial competence to engage in the enterprise or employ competent experts and labor force to undertake production at a desirable level?
(vi) Specifically important to these considerations is the overall security of the farm against corrupt tendencies of the employees, over-invoicing of purchases by contracting agents, pilfering, or organize acts of robbery at every unit of the enterprise.
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It is also important to bear in mind a few concepts of financial and economic analyses to enable quick determination of profitability. Financial analysis has to do with returns to the farmer or operator of the enterprise.
It gives an indication of the profitability level of the enterprise when both costs of production and returns are considered.
The cost of production consists of variable and fixed costs while gross return or gross revenues concerns the total value of production. The profit is the difference between gross return and the total cost of production.
Fixed cost is derived from expenses incurred in acquiring the breeding/replacement stock, housing, waterers, feeders crates, measuring scale, farmland, equipment, and infrastructures. Variable costs arise from expenditures pertaining to concentrate feed, hay, labor, drugs, transportation, marketing, and miscellaneous expenses.
Net returns or profit are derived from the gross profit after the deduction of marketing, administrative costs and taxes have been made. It is advisable for a beginner to raise his own stock and initiate his own project within his own resources without any external source of funds.
The economic analysis covers the profitability of the entire farm enterprise. It discusses the pay-back period, break-even analysis, benefit-cost ratio, internal rate of return, and net present worth which are indicators of profitability and sustainability of the enterprise.
Read Also: General Management Considerations in Livestock Management
