Compiled by Mr Z.

Magqashela using prescribed resources

Topic : Agricultural economics

Subtopic : Production factors
➢ Definition of the concept production factors
➢ Factors of production are all the inputs needed in-order to produce the output
➢ In Agriculture , there are four main recognised factors of production.
They include the following in their chronological order:
1. Land
2. Labour
3. Capital and
4. Management/ Farm management
We proceed learning about the first production factor THE LAND
1. The definition of the concept Land
➢ Land is the area of ground used for farming and agricultural production.

2. Economic functions of land

➢ Land can be used for collateral meaning is used to secure lend capital.
➢ It provides space for human settlements.
➢ It is a source of minerals used to manufacture fertilisers
➢ It provides food for both humans and animals.
3. Economic characteristics of land
➢ Land is durable
➢ Land is indestructible
➢ Land appreciates
➢ Land is immovable/fixed
➢ Land is a passive factor of production
➢ Land is a primary factor of production
➢ For agricultural purpose land is limited.
➢ Land is restricted.
➢ Land is a subject to Law of diminishing returns which mean that: if you continue to
add more of one factor, while keeping other factors constant a point is reached
whereby the output per unit of the added variables will start to decline.

4. Ways of increasing land productivity

➢ Scientific methods.
➢ By improving soil fertility.
➢ By improving water management.
➢ By changing cropping systems.
➢ By restoring land potential.
➢ By farming land more efficiently.
 Compiled by Mr Z. Magqashela using prescribed resources

5. We proceed learning about the second production factor which is Labour

➢ Definition of the concept Labour
➢ Involves the combination of human energy and mental skill and is also known as an
ability to do work.
➢ There are five types of labours
1. Fulltime/permanent labour.
➢ They work ordinary hours set by the farming sector such as Foreman, Tractor drivers

2. Temporal labour
➢ They work under temporal basis until permanent employee is appointed
3. Seasonal
➢ They work during peak periods such as shearing or harvesting
4. Casual
➢ They work less than 24 hours a month.
5. Part time labour.
➢ They work less than ordinary hours set by the farming sector
NB: Casual labours differ on the part time labours in this sense casual come for a service that
needs to be provided at that time such as fencing or painting where part time labours
continues to come to render services but not everyday and not can milk the cows at the farm
in the first two hours of the morning then during the day could be packing bags of potatoes
at Woolworths.
➢ Problems associated with labour.
1. Lack of skill
2. Labour shortage - causes are:
1. Low wages
2. Job is less attractive
3. Working conditions are bad.
3. Competition from other industries
4. Migration from rural areas to cities
5. Impact of HIV/Aids.

➢ Impact of HIV and Aids to farm productivity

1. Productivity of the farm decrease caused sickness in workers.
2. Increase workers unannounced absenteeism.
3. Planning of farm operations become difficult to managers.
4. Loss of skilled and experienced workers.
➢ Ways to redress impact of HIV/Aids
1. Provide awareness training.
2. Provide access to condoms.
3. Encourage good values such as not having multiple sexual partners.
4. Establish support groups for affected members.
5. Supply vitamins and antiretroviral treatment to workers.
6. Provide treatment for STD’S and STI’s.
 Compiled by Mr Z. Magqashela using prescribed resources

➢ Ways of increasing labour productivity

1. Improve economic conditions by:

➢ Paying high salaries
➢ Paying bonuses
➢ Providing incentives
➢ Provide medical insurance and pension
➢ Allow workers to enter partnership deals
➢ Buy giving workers the product that is produced at work freely.

2. Improve educational conditions by:

➢ Organising training for the workers

3. Improve environmental conditions it is also known and (living and working

conditions) by:
➢ Providing adequate leaves
➢ Providing free transport from their houses to workplace
➢ Providing housing which safe for workers
➢ Building facilities where your workers can relax and socialise
➢ Providing protective clothing.
➢ Access to water and food.
Laws/Labour Legislations
➢ Labour relations Act
It is responsible for ensuring workers are not exploited/unfair treated.
Ensures there are relations between employee and employer.

➢ Basic conditions of employment Act It regulates issues of payments, leaves,

Overtime, termination of the contract and time intervals.
➢ Occupational health and safety Act
It is responsible for ensuring workers are provided with protective clothing in the
work-place.
➢ Compensation for occupational injuries and diseases Act
It is responsible for ensuring workers who contracted the disease in the work place or
who have been injured are compensated.

➢ Skills development Act

It is responsible for ensuring workers are provided with training to acquire the skill
needed.

➢ UIF Stands for (Unemployment insurance fund)

It is responsible for paying workers who are on pension.
It is also responsible for paying female workers who are on maternity leave.
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➢ Employment Equity Act

It protects both workers and job seekers from unfair descrimination.
➢ Labour contract
1. Employer and employees details
2. Place of work
3. Job title
4. Conditions for termination of contract
5. Wages
6. Allowances
7. Meal intervals
8. Signature of both parties
9. Signature of two witnesses.
 Compiled by Mr Z. Magqashela using prescribed resources

3rd production factor (Capital)

➢ Is the money , produced goods ands assets such as buildings, equipment and vehicles
that can be used for the production of other goods.
Types of capital
1. Fixed capital
This is the of capital which is invested on durable/fixed assets, fixed assets are assets
with long life span such as properties , land and buildings.
2. Movable capital
3. Type of capital which is invested on Medium term assets ( medium term assets they
have less than 10 years life span) such as livestock, machinery, equipment and
vehicles.
4. Floating/Working/Production capital
Type of capital invested in short term assets such labours payments, seeds, fertilisers,
and fuel

NB: More capital meaning high money is paid for fixed assets due to they are durable
and they have long life span more than 10 years.
➢ Short term assets, those ones are assets used within a span of a year or a span of one
production cycle.

Types of credit
1. Long term credit.
A credit given for fixed/durable assets it is expected to be returned in span of
more-than 10 years with interest.
2. Medium term credit.
A credit given for movable assets as is return in a span of less than 10 years with
interest.
3. Short term credit.
A credit given for short term assets such as seeds, chemicals, fertilisers, animal
feeds as is expected to be returned in a span of only production cycle with interest.

Creation of capital
➢ It is created through :
1. Production
2. Credit/Loan
3. Savings
4. Grant
5. Inheritance
NB: Grant is the free money given by government for specific purpose.
 Compiled by Mr Z. Magqashela using prescribed resources

➢ Problems associated with capital.

1. Overcapitalisation
2. Undercapitalisation
3. Scarcity
4. High interest rate
5. High risk factor
6. Depreciation
7. Capital is a subject to law of diminishing returns

Types of costs
1. Variable costs
➢ They vary with level of production example if the farmer has more number of chick
therefore more animal feed will be bought to feed the chicks.
2. Fixed costs
They are unchanged such the rent
3. Overhead costs
4. Marketing levy

➢ Importance of keeping financial records (Financial management systems)

1. To analyse past and current performance of the farm business
2. To manage capital of the farm
3. To draw up a budget
4. To provide proof of payment
5. To provide information for tax purposes
Financial management systems.
1. Inventory
Are the records of assets.
2. Cash analysis book
Shows the records of money coming in and going out of the business with evidence.
3. Balance sheet
Is a summary of assets and liabilities.
NB: The difference between the total assets and liabilities is called net worth and therefore
if the net-worth is positive that indicates the business is generating profit and if its negative
that as well indicate the business is running at a loss.
4. Income statement
Is the summary of all income and expenditure over a specific time period.

5. Budget
Is the estimated income and estimated expenditure over period of time.
There are two types of budget
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1. Enterprise budget
Budget made for one enterprise in the farm/business
2. Whole farm budget
Budget for all enterprises in a business/farm.

6. Cash flow budget/ Cash flow statement

Shows income and expenditure with opening, closing , payments and cash items.
 Compiled by Mr Z. Magqashela using prescribed resources

4th Production factor Management

➢ Definition of the term Management

Is the effective combination and co ordination of all resources in order to achieve
specific goal usually maximizing profit.

There are three main components/principles of management

1. Planning
2. Implementation
3. Control

Important skills the manager must have for the success of the business

1. Communication skills
2. Planning
3. Control
4. Monitoring
Additional principles of management
1. Organising
2. Communication
3. Decision making
4. Co ordination
5. Motivation
6. Leading
7. Monitoring

Ways to monitor farm performance

1. Keep labour records.

2. Keep crop records.
3. Keep livestock records.
4. Mechanisation records which is the vehicle fuel usage, maintenance , and
insurances.
5. Sales and purchases records.
 Compiled by Mr Z. Magqashela using prescribed resources

➢ Strategic management
Is the long term strategy , that allows the business to adjust and adapt to possible future
changes and challenges.
There are THREE main components strategic management
1. Developing a vision
2. Developing a mission
3. Setting up goals and objectives

When developing business strategies

1. Consider external business environment
2. Consider internal business environment
3. Conduct SWOT analysis
4. Consider your mix of enterprise
5. Consider competitive strategies
General skills of business management
1. Conceptual skills
2. Analytical skills
3. Planning skills
4. Problem solving skills
5. Operational skills
6. Communication skills
Forces affecting the businesses
➢ There are TWO types of forces affecting the business.
1. Internal forces
Are forces that into the business that manger can have control over them.

2. External forces
Are forces that are beyond the managers control , cannot be controlled
2.1 Economic forces
2.2 Political forces
2.3 Ethical forces
2.4 Socio cultural forces
2.4.1 Population demographics
2.4.2 Education levels
2.4.3 Attitudes towards the environment
2.4.4 Impact of HIV/Aids
2.4.5 Culture and religion
2.5 Competitive forces
2.6 Legal forces
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2.7 Environmental forces

Risk
➢ Is a thread of a negative occurrence
➢ There are three types of risks
1. Technical/Enviromental risk
➢ Floods
➢ Drought
➢ Outbreak of pests and diseases

2. Market price risk

➢ Competition amongst producers
3. Financial risk
High interest rates when had borrowed capital from a financial institution

Risk Management strategies

1. Risk sharing strategy
2. Insurance
3. Diversification
4. Specialisation
5. Processing
6. Ensuring flexibility
7. Contract
8. Hedging

End of factors of production content…….. ALL THE BEST………………………………………..

Compiled by Mr Z. Magqashela using prescribed resources