2 - 



3. Another problem occurs when the orchard has more than one 

 crop such as apples, pears and peaches. Many equipment 

 items are shared and thus ownership costs must be alloca- 

 ted to the different enterprises in some manner. The 

 method used is usually arbitrary and may be based on the 

 proportionate contribution of each enterprise to gross in- 

 come or, alternatively, on the proportion of total hours 

 the equipment is used on a given enterprise. A prime ex- 

 ample might involve the allocation of storage costs to 

 different fruits or even different varieties of the same 

 fruit. Another difficulty arises in allocating the costs 

 of activities which are not readily attributable to a 

 specific enterprise. It should be evident that the method 

 of allocating shared costs among enterprises will have a 

 substantial effect on the production cost estimate for a 

 given fruit crop. 



4. Production costs will vary from orchard to orchard and 

 from year to year. Tree age and/or size, tree spacings, 

 varieties, rainfall, timing of orchard operations, input 

 costs and managerial decisions are factors which vary 

 from year to year. Thus, a cost of production estimate 

 should be identified with the whole complex of factors 

 and assumptions involved. 



5. In a production period, the price is determined by the 

 short run supply and demand situation. Economic theory 

 defines demand in terms of prices that consumers are will - 

 ing to pay for varying quantities of a product. It has 



no relation to cost of production. Supply is defined as 

 the quantities of the product that individual producers 

 are wil ling to sell at varying prices. 



The short run supply curve of the individual producer is 

 defined as his marginal cost function. Marginal costs are 

 derived from variable costs, not total costs. Thus by 

 definition, fixed or overhead costs are excluded from the 

 determination of the supply function and, therefore, mar- 

 ket price. 



Thus, while a figure representing the cost of production for 

 apples may be attractive from a political and policy point of view, 

 it has many shortcomings which make it unreliable for such uses. 



The cost-price squeeze on almost all farmers is a very real 

 problem and the seriousness of the situation should be brought to 

 to attention of the public and policy-makers. However, the use of 

 a "cost of production" estimate can easily create a misleading im- 

 pression and, at worst, result in action that would unwittingly 

 have an undesired effect. Finally, there are alternative approaches 



