# Gross Margin

Topics: Decision making, Profit, Cost Pages: 7 (501 words) Published: October 28, 2014
MINISTRY OF AGRICULTURE
ECONOMICS PLANNING &
STATISTICS DIVISION
PROJECTS & BUDGET SECTION

TOPIC:
GROSS MARGIN FOR DALO, RICE,
CASSAVA & GINGER
COMPILED BY:
 JIAOJI MAVOA WAQABACA

INTRODUCTION
 A gross margin is the amount of cash left over from growing any particular crop. It is not an absolute measure of profit but it will determine the best financial result when a number of different crop alternatives are compared. Gross margin is

usually reported in a \$/ha figures.
 Gross margins do not include overhead costs such as rates, living costs, insurance, that must be met regardless of
whether or not a crop is grown. For this reason gross margins are not a measure of the profit of a particular enterprise.
 Gross margin analysis is used to provide an indication of the most rewarding enterprise and is a technique for reducing the field of choice without resorting to full budgeting.
 Formula used to calculate gross margin:

 Gross Margin= Gross Income – Variable costs

How can a Gross margin be useful?
 Gross margins are useful for decision making. They are logical and systemic way of assessing each activity including input cost such as water, fertiliser and labour and yields or market prices. Different scenarios are compared so that a robust decision can be made on which crop to grow, or how much of particular crop to grow.

 Gross margins are also useful for looking at production questions, for example where water is expensive and crop production can be ‘dialed up’ with the amount of water used, a gross margin analysis will help make the decision as to the optimum level of water use and hence production for a particular crop.

 If you end up in the situation where you have a negative gross margin, it can be a case of the larger the area you plant and harvest, the more money you will lose. By using gross margins you can understand the tipping points for your systems and which crops are financially riskier to grow; this knowledge will help in managing risks and making decisions.

Limitations of gross margin:
 When making relative gross margin comparisons between enterprises the resources used by them must be considered.
 For example, important to not compare enterprises on a gross margin per hectare basis but also consider gross margin per unit of labour.
 Gross Margins are useful but there are other considerations such as debt, crop rotations and risk that need to be measured and managed.  Gross margins may be a reasonable measure of the relative profitability of enterprises that make similar demands on farm resources. However, if you are considering major changes in enterprise mix, you will require more comprehensive budgeting techniques to indicate the real profitability situation.

Gross Margin
of Cassava, Dalo, Ginger & Rice

Cassava
Dalo
Ginger
Rice

REFERENCES
• ACIAR (2008)- The potential for Tropical Fruit Production in Tonga: A Feasibility and constraints Analysis. 86p.
• Fiji MPI (2010)- Farm Management Budget Manual.
390p.
• Fiji MPI (2012)- The Farmer’s Guide. 150p.
• Samoa MAF (2009)- Farm Management Manual for
Samoa. 132p.

References: • ACIAR (2008)- The potential for Tropical Fruit Production
in Tonga: A Feasibility and constraints Analysis. 86p.
• Fiji MPI (2010)- Farm Management Budget Manual.
390p.
• Fiji MPI (2012)- The Farmer’s Guide. 150p.
• Samoa MAF (2009)- Farm Management Manual for
Samoa. 132p.