Factors and effective ways to reduce the cost of agricultural production

Cost price is one of the main economic categories of market production and is formed under the influence of many factors; the profitability of an enterprise depends significantly on it.

Given the low market prices for agricultural products, a producer may fail to make a profit and end the production cycle with a loss if the cost price of their products exceeds its price. With the continuous rise in prices for industrial means of production, as well as works and services, it is advisable to focus on minimizing costs per unit of production (even if the state compensates for a portion of the costs). To achieve this, it is necessary to calculate the cost price according to an accepted methodology; correctly record and allocate costs; know the factors (external and internal) affecting the level of cost price; identify and realize reserves for cost reduction; and find ways to decrease production and sales costs.

The main factors that determine the cost price per unit of production are the yield of crops and the productivity of livestock animals, and consequently, the fulfillment of organizational and technological requirements in crop production and livestock farming, adequate feeding of livestock, and the application of necessary fertilizer rates to the soil. However, if the growth in costs per 1 hectare of sowing and per 1 livestock animal outpaces the increase in yield and productivity, then a reduction in the cost price of products does not occur. Since the cost of production for any type of product is the ratio of production costs to the volume of gross output, the cost price can be reduced if: production costs are reduced while the gross output remains constant; the volume of gross output increases while production costs remain constant; the gross output yield outpaces the growth of costs for its production.

The entire set of factors, which represent the conditions and causes affecting the cost price of products, can be tentatively divided into three groups: 1) those that favorably influence the gross output, contributing to its increase; 2) those that ensure a reduction in material, monetary, and labor costs; 3) those that are ambiguous, or act simultaneously to both increase the gross output and reduce material and labor costs.

In agriculture, an enterprise usually has a high proportion of fixed costs, which remain unchanged both during an increase and a decrease in the volume of gross output. In this regard, among all factors of cost reduction, the main role belongs to the yield of crops and the productivity of livestock animals.

A reduction in cost price is achieved by strictly carrying out expenditures within the limits of standards and norms — those labor and financial costs that are provided for by technological maps.

Various innovations can be used to reduce the cost price of products, but agricultural producers lack the funds for innovation, and state investments of an innovative nature are limited.

Biological potential and reserves of crop production

In crop production, the reserve for cost reduction is linked to the biological potential of cultivars and hybrids of agricultural plants created by science. Currently, it is being realized by only 30—40 %. The fact that in the best farms, the yield level is 3—4 times higher than the national average indicates the existence of real reserves for yield growth.

Ways to optimize livestock farming and product cost price

In livestock farming, due to low animal productivity and the high cost of feed, production remains unprofitable. In the structure of the cost price of livestock products, feed accounts for more than half of the costs. However, due to inadequate feeding and the lack of balance in feed regarding protein and other elements, productivity does not increase, and high costs for home-grown feed combined with high prices for purchased feed simultaneously lower productivity and raise the cost price of livestock products. Note that the significant reduction in the number of livestock animals and poultry, which began in 1991, did not lead to improvement.

An enterprise can reduce the cost price per unit of livestock product by reducing both specific feed consumption (per 1 centner of milk, per 1 centner of weight gain, per 1000 eggs, etc.) and the cost price of feed produced on the farm. Feeding rations for livestock must be compiled on the basis of a comparative assessment of economically efficient feed under the conditions of the enterprise, according to indicators of output per 1 hectare of feed units and digestible protein, as well as their cost price.

Among the reserves for reducing the cost price of crop and livestock products, one should take into account the reduction of labor costs through complex mechanization of crop cultivation and automation of processes for obtaining livestock products. However, the low price of manual agricultural labor and the high cost of machinery, in the absence of funds for enterprises to purchase it, in many cases make the replacement of manual labor with mechanized labor inefficient.

Every enterprise has the potential to reduce the cost of production by cutting general administrative and general production expenses.

Thus, the main ways to reduce the cost of a unit of production (works, services) include the following:

• increasing crop yield and livestock productivity;
• using technologies that reduce energy intensity, material intensity, and land intensity of production;
• improving product quality and reducing losses;
• providing material incentives for employees to increase output and reduce production costs;
• using advanced technical means and equipment;
• reducing costs for organization and production management;
• rational location of production and its cooperation.

What are living labor and objectified labor? 2. What form do total labor costs take? 3. Where are individual costs formed? 4. How are individual costs that form the cost price subdivided? 5. How do variable costs differ from fixed costs? 6. What are imputed costs? 7. How do economic (entrepreneurial) costs differ from accounting costs? 8. What is the term for the increase in costs resulting from the production of one additional unit of output? 9. Why does an enterprise need to calculate the production cost of its output? 10. What types of cost prices are calculated depending on the completeness of costs included in them? 11. How are cost price and cost recovery related? 12. Which enterprise costs are not included in the cost price of products, works, and services? 13. Which costs are classified as primary and overhead? 14. How are costs subdivided by the method of inclusion in the cost price? 15. By what elements are costs classified? 16. What does the classification of costs by items mean? 17. Which cost items coincide in crop production and livestock farming? 18. What costs are included in the element "Other costs" within the cost price? 19. How does the determination of planned and actual cost price differ? 20. In what sequence is the cost price calculated? 21. What costs are included in the item "Maintenance of fixed assets"? 22. Which costs are classified as general production costs and how are they distributed? 23. Which costs are classified as general administrative costs and how are they distributed? 24. What are the main factors that determine the cost price of a unit of production in agriculture? 25. What are the main ways to reduce the cost price of a unit of production?