422 SECTIONAL TRANSACTIONS.— M. 



Mr. J. A. Venn. — Cost of Production Studies in Agriculture. 



Despite growing competition from the more widely flung, but less complete, 

 investigational system represented by the survey method, cost accounting has, during 

 the last decade, made considerable progress in many countries of the world. The 

 problems associated with its execution are threefold in character : (a) statistical, 

 (6) economic, and (c) accounting. Uniformity of technique in regard to book-keeping 

 principles has generally been looked upon as of paramount importance, and in conse- 

 quence too little attention seems to have been paid to the statistical factors involved, 

 both in preliminary selection of the sample and in presentation of results. Thus the 

 necessarily small number of examples dealt with in any voluntary scheme of co- 

 operation may, on human and psychological grounds, result in bias towards a standard 

 of management or of productivity above the normal or, conversely, there may be 

 present too many undertakings labouring under financial difficulties, for reluctance 

 to supply information on the part of persons securing abnormal profits, together with 

 willingness to do so on the part of those losing money, must always be taken into 

 account. As in such inquiries random sampling is, from the nature of the case, out 

 of the question, close culling is imperative. Again, the chronological factor is, at 

 least in Western Europe, of great importance, for results based on a shorter period 

 than the complete normal rotation (generally of four years) are almost valueless, for 

 introduction of the necessary allocations can vitiate figures relating to individual 

 years. When amalgamating results the alternatives presented in the adoption of the 

 ' simple ' or of ' weighted ' averages are far-reaching in efiect. At what numerical 

 stage, and within what density and type of distribution, should the ' simple ' be 

 substituted for the ' weighted ' figure ? For example, in connection with an inquiry 

 into sugar beet costs of production, sugar-content based on the former figure, when 

 converted into money equivalent and multiplied by the simple average yield, gave a 

 result which differed only by Is. Ifd. per acre from the actual sum paid, but when 

 weights were introduced this divergence became 15s. I^d. In efiect it will generally 

 1)6 found that statistical factors outweigh the great majority of accounting 

 adjustments. 



Economically the slow processes of nature (' inelasticity of supply ') render difficult 

 the investigation of alternative procedures and, as has recently been stated, ' the 

 confusion between prime and supplementary costs, the lag in production, the allocation 

 of expenditure between capital and revenue account, the differences between farmers 

 and farms . . . make costing more difficult than in other industries.' Classification 

 of types, especially in connection with soil variations, present further difficulties to 

 the investigator, which necessarily result in definitions such as ' soils more light than 

 heavy ' versus ' soils more heavy than light,' ' mainly beef production ' versus ' mainly 

 milk,' while the latter may again have to be subdivided into ' mainly wholesale * 

 versus ' mainly retail.' Agreement is even lacking in regard to what should constitute 

 the ideal — high farming, maximum employment of labour, profit to the occupier or 

 return to the landlord ? 



In the field of pure accountancy the only two items which can seriously affect 

 results are (a) remuneration to the farmer as manager or worker, and (b) interest on 

 capital employed in the undertaking. The former tends to become an optional charge 

 relegated to a separate column, the latter, widely recognised in industrial cost accounts, 

 is, in agricultural practice, -with the exception of borrowed sums, in some countries 

 included and in others rejected. Such allocations as those involved in the valuation 

 of home produce consumed on the farm, residual manurial values, the position of 

 fallow crops, and the treatment of overhead charges, can be demonstrated to be of 

 minor importance in the economy of the farm as a unit. Methods of valuation, once 

 established, have little efiect on returns. 



If close personal touch is maintained with those co-operating in such inquiries 

 (entire reliance upon information contained in post-delivered forms renders the work 

 nugatory) and due consideration is given to the above statistical and economic factors, 

 cost of production studies can achieve satisfactory results both in general terms ana 

 also in relation to individual products. That, in these circumstances, close approxima- 

 tion — statistical and economic — to the normal can be achieved by even a small sample, 

 this table illustrates. {Report No. 12, Farm Economics Branch, Department of 

 Agriculture, Cambridge University.) 



