Entrepreneur
New Lister
It’s important that we do a break-even analysis for all projects, especially for those doing small scale.
Break-even in terms of volume is simply the volumes you need sell in order to cover your costs of production and bringing the produce to the market.
Let’s take tomato for example: How many crates of tomatoes do I need to sell to cover my costs of producing the tomato and the costs of bringing it to the market? This question is talking of break-even volumes.
The challenge is at the time you plant the tomato you will not know the price at which it will sell. How do you get around that? You look at the past prices of tomato over the years. Take the lowest ever price at which the crate of tomato was sold in the market in US$ equivalent (US is stable).
If the lowest ever price of a crate of tomato was 3 USD per crate or 15 US cents per kg, I use it the following way if I am say doing 200 tomato plants (bush type or determinate).
Typical output from 200 tomatoes(hybrid bush type) for a skilled tomato farmer: 5kg per plant x 200 plants = 1 000 kg = 50 buckets.
Expected revenue at lowest historical market prices:
50 crates x 3 USD per crate = 150 USD
*Typical costs for 200 tomatoes*
Fertilisers & manure: 15 USD
Seedlings (hybrid): 16 USD
Chemicals: 80 USD
Labour: 40 USD
Water & Electricity: 20 USD
Transport to market: 15 USD
Transport of inputs: 4 USD
Total production & marketing costs for 200 tomatoes: 192 USD
Break-even volumes = 192 USD divided by 3 USD (per crate)= 64 crates
But 200 tomatoes of hybrid bush tomato will produce 50 crates by a skilled farmer.
So a skilled farmer will run a loss of (64 - 50) crates = 14 crates.
Lesson: skill but with insufficient scale = losses. This is why many tomato farmers are crying of losses these days.
So planting a much bigger volume of tomatoes and applying skill is necessary. With sufficient scale the costs per crate will go down significantly (up to a certain point).
Break-even in terms of volume is simply the volumes you need sell in order to cover your costs of production and bringing the produce to the market.
Let’s take tomato for example: How many crates of tomatoes do I need to sell to cover my costs of producing the tomato and the costs of bringing it to the market? This question is talking of break-even volumes.
The challenge is at the time you plant the tomato you will not know the price at which it will sell. How do you get around that? You look at the past prices of tomato over the years. Take the lowest ever price at which the crate of tomato was sold in the market in US$ equivalent (US is stable).
If the lowest ever price of a crate of tomato was 3 USD per crate or 15 US cents per kg, I use it the following way if I am say doing 200 tomato plants (bush type or determinate).
Typical output from 200 tomatoes(hybrid bush type) for a skilled tomato farmer: 5kg per plant x 200 plants = 1 000 kg = 50 buckets.
Expected revenue at lowest historical market prices:
50 crates x 3 USD per crate = 150 USD
*Typical costs for 200 tomatoes*
Fertilisers & manure: 15 USD
Seedlings (hybrid): 16 USD
Chemicals: 80 USD
Labour: 40 USD
Water & Electricity: 20 USD
Transport to market: 15 USD
Transport of inputs: 4 USD
Total production & marketing costs for 200 tomatoes: 192 USD
Break-even volumes = 192 USD divided by 3 USD (per crate)= 64 crates
But 200 tomatoes of hybrid bush tomato will produce 50 crates by a skilled farmer.
So a skilled farmer will run a loss of (64 - 50) crates = 14 crates.
Lesson: skill but with insufficient scale = losses. This is why many tomato farmers are crying of losses these days.
So planting a much bigger volume of tomatoes and applying skill is necessary. With sufficient scale the costs per crate will go down significantly (up to a certain point).