What types of crop costing models are there?

Crop costing is the process of determining the costs associated with growing a particular crop. This includes both fixed costs, such as equipment and land, as well as variable costs, such as seeds, fertilizer, and labour. By calculating the total costs of growing a crop, you can determine the price you need to charge in order to make a profit. Each farm has different ways they analyse and calculate crop costings, as they will use different resources to grow.  

Different ways to calculate your crop costing 

Crop costing can be done on a per-hectare or per-unit basis, depending on the specific crop and farming operation. A farmer may calculate the cost of growing a hectare of brassicas, or the cost of growing a bushel of wheat. 

Direct costing 

This method calculates the cost of production for a specific crop by taking into account all direct costs. Direct costs are anything associated with the growth and harvesting of a crop. This includes seed, fertiliser, pesticides, fuel, and labour expenses for planting, cultivating, and harvesting the crop. Some farmers include irrigation costs and the rental of any additional equipment.  

Absorption costing 

A more expansive form of crop costing, absorption costing takes into account both fixed and variable costs, and include all the direct costings, plus overheads. Overheads are things such as rent or mortgage, utility bills, and crop wastage.  

Activity-based costing 

Activity-based costing provides a more accurate picture of the true cost of producing a product or service by taking into account all activities and costs that go into it. This can help farmers and agribusinesses to identify areas where they can reduce costs or increase efficiency. If a farmer finds that a particular crop is not profitable due to high harvesting costs, they can find ways to reduce those costs, or look at more profitable crops. It is important to note, activity-based costing is considered a more advanced method which is not commonly used in farming and agribusinesses. This form of costing can be useful for larger operations where there are many different products or activities. 

Marginal costing 

This method calculates the cost of producing one more unit of a crop by taking into account only the variable costs, such as seed and fertiliser, and not the fixed costs, such as rent and salaries. The goal of marginal costing is to determine the minimum price at which the crop must be sold in order to make a profit, and to identify ways to reduce costs in order to increase profitability. 

Break-even analysis 

The break-even crop costing takes all costs, to work out what the minimum sale price per crop needs to be. This is the point at which the revenue from selling the crop equals the total costs of producing it. Once the break-even price is determined, farmers can use this information to set prices for their crops. Farm management software can also help with crop costing by providing tools for tracking expenses, and analysing costs and revenues. This can help farmers to make more informed decisions about crop prices, and to identify areas where they can reduce costs and increase profitability.