VAE 321: Livestock Economics, Marketing &

Business Management (2+1)

SYLLABUS

THEORY

Economics:

Introduction, definition and scope (production, consumption, exchange and distribution)

of economic principles as applied to livestock. Common terms - wants, goods, wealth,

utility, price, value, real and money income. Important features of land, labour, capital

and organization.

Livestock produce and products. Livestock contributions to national economy. Demand

projections of livestock produce. Theory of consumer behaviour law of diminishing

marginal utility and indifference curve analysis. Theory of demand; meaning, types of

demand, demand curve and law of demand, individual and market demand, elasticities

of demand and factors affecting demand. Laws and types of supply. Elasticity of supply.

Cost concepts and principle of fixed and variable costs. Theory of production, law of

diminishing returns, laws of returns to scale and concept of short and long run periods.

Economics of animal disease and disease losses.

Marketing:

Livestock business- concepts, nature and scope. Components, characteristic of small

business. Marketable livestock commodities. Concept of market; meaning and

classification of markets. Market price and normal price, price determination under

perfect competition in short and long run. Marketing of livestock, and perishable and

non-perishable livestock products. Merchandising - product planning and development

Marketing functions; exchange functions- buying, selling and demand creation. Physical

functions- grading, transportation, storage and warehousing. Facilitative functions -

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standardization, risk bearing, market information and market intelligence. Market

opportunities - marketing channels of livestock and livestock products,

organized/unorganized markets and cattle fairs. Import and export of animal and animal

products. International Agreements/Regulations (WTO and General Agreement on Trade

and Tariff-GATT) for marketing/trade of live animals and products.

Management:

Resource Management- Organizational aspects of livestock farms, sources and

procurement of inputs and financial resources. Break- even - analysis. Personnel

(Labour) Management- Identification of work and work (job) analysis/division of labour.

Accounting:

Definition, objectives, common terms. Different systems of book keeping- single and

double entry system. Various types of account books including books of original entry.

Classification of accounts and rules of debit and credit Recording of business

transactions. Analysis of financial accounts- income and expenditure accounts, trading

account, profit and loss accounts.

PRACTICAL

Book keeping; general entry, writing of journal and ledger, cash book (two and three

column), purchase-safe and purchase-sale return registers, trading account, profit and

loss accounts, income and expenditure accounts, balance sheet bills of exchange (bill of

receivable and bill of payable), bank reconciliation statement,.

Economics of a dairy unit poultry, piggery, sheep and goat units. Visit to" farms,

markets and cattle fairs, backyard units and preparation of report.

COURSE OVERVIEW

VAE-321: LIVESTOCK ECONOMICS, MARKETING AND BUSINESS MANAGEMENT (2+1)

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This course is dealt with meaning of common terms and principles of basic economics. Here we deal with

production, consumption, exchange and distribution of economic principles as applied to livestock with

the animated graphs for easy understanding. Apart from this it also explores new emerging topics like

current  export and import of livestock and livestock products, guidelines for import of germplasm and

International Agreements/Regulations (WTO and General Agreement on Trade and Tariff – GATT).

Importance of the quantum of animal diseases losses, a highly beneficial concept  for the veterinary

graduate has been dealt  under  animal health economics. Further  various cost concepts with suitable

graphical representation and formulas are discussed to teach ways to increase profitability for the farm.

Course contents under  livestock marketing, create awareness regarding nature and scope, classification,

functions and various marketing channels for livestock and livestock products. Livestock business

management contents has been articulated under management of  resource, finance and labour. Further

this course ushers knowledge on accounting part of the farm with formula and procedures.

In the practical portions, solved model practical exercises have been discussed for each exercise like

preparation of  journal and ledger, cash book , trading account, profit and loss accounts, income and

expenditure accounts, balance sheet and bank reconciliation statement. Model project of dairy unit,

poultry, piggery, sheep and goat units have been dealt with excellent MS excel sheet with automated

calculation of income and expenditure, repayment schedule and financial analysis.

CHAPTER-1: INTRODUCTION, DEFINITION AND SCOPE OF

ECONOMIC PRINCIPLES AS APPLIED TO LIVESTOCK

Learning objectives

 To explain the meaning of economics from different views of economists and their criticism.
 To illustrate the approaches to the study of economics.
 To discuss the different methods of investigation of economics.
 To give in details about the economic system for the production and distribution of goods.

DEFINITIONS

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  Economics is the term derived from a Greek word, OIKOS (a house) and NEMEIN ( to manage )
which in effect meant managing a household using limited funds available in the most economical
manner possible.
 Four Important definitions are,
 Wealth definition of Adam Smith - Father of Economics
 Science of Material Welfare definition of Alfred Marshall
 Scarcity definition of Lionel Robbins
 Growth definition of Paul Samuelson
 Adam Smith defined economics as a science, which studies the nature and causes of wealth of
nations.
 Criticism on wealth - Many philosophers like Dickens, Ruskin, Carlyle and Mathew Arnold
strongly criticised the wealth definition. They said that the science which concentrates only on the
study of wealth is a “Selfish Science”, “Mundane Science”, “Bastard Science”, “Bread and butter
Science”, “The Science of getting riches”, “the gospel of mammon” (song of the devil), “a science
of illth and not wealth” etc. These philosophers were highly critical of the wealth definition
because they at that time were highly influenced by the religious sentiments and spiritual values.
They considered that mere acquisition of wealth is not the object of all human activity and they
looked at acquiring wealth with great contempt.
 Defects of wealth - Stress in the wealth definition is only on acquiring wealth. But in reality the
human life and activity consists of other considerations like love, affection, charity, social
obligation, family obligation etc. Wealth is only a means and not an end to human activity. End of
human activity is his welfare i.e. welfare of man. Wealth definition did not include the services of
various professionals like teachers, doctors, veterinarians, lawyers etc.
 Alfred Marshall (1819) defines economics as: "Political economy, or Economics is a study of
mankind in the ordinary business of life; it examines that part of individual and social action
which is most closely connected with the attainment and the use of material requisites of
wellbeing."
 Marshall defined there is a shift of emphasis from wealth to human welfare. In his view wealth is
not an end by itself, it is the means to promote the economic well being of the people. The term
ordinary business of life denotes among various people and groups of society.
 Lionel Robbins (1931), defined economics as the science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses.

Limitations of Scarcity definition

 Resources are limited, but scarcity definition has not taken into account the possibility of
improving resources due to scientific and technological development.
 Scarcity definition is silent about the role of resources towards human welfare.
 Problems can arise not necessarily due to scarcity of resources but also due to abundance. For
example more production of eggs and milk than the demand will bring down the price to such an
extent that even the production cost may not be met.
 Scarcity definition does not discuss about employment, economic growth, determination of value
or price etc.
 Paul Samuelson defined "Economics is the study of how men and society choose with or without
the use of money, to employ scarce productive resources which could have alternative uses to
produce various commodities over time and distribute them for consumption now and in the
future among various people and groups of society.

APPROACHES TO THE STUDY OF ECONOMICS

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In Traditional approach, economics is studied under 5 major divisions.

Consumption

 Satisfaction of human want on use of goods and services is known as consumption.

Production

 It is the creation of utilities and values. This part of subject deals with economics of agents or
factors of production i.e. land, labour, capital or organisations, earning wealth for the purpose of
satisfaction of human wants.
 Marshall makes a distinction between two types of things i.e. material things and immaterial
things.

Exchange

 It is the act of obtaining the desired object from some one by offering something in return.
 Goods produced are not for self-consumption alone. They are primarily for sale.
 They are sold in market where buyers buy the commodities and sellers sell the commodities in
particular price.
 Thus the process of buying and selling put together constitute exchange.

Distribution

 Production of any commodity requires land, labour, capital and management.

 These factors of production are to be rewarded for their services in the process of production.

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  The landlord gets rent for land, labour earns wages. The capital is given with interest or manager
is rewarded with profit.
 Thus the process of determining wages, rent, interest and profit is known as distribution.

Public Finance

 Studies that how the Government gets money and how it spends money. Hence in public finance,
taxation, interest structure, Public expenditure etc., are dealt.

SUBJECT MATTER OF ECONOMICS

 Subject matter of economics is divided by modern approach in two as

o Micro economics
o Macro economics

Micro economics

 It is also called as Price Theory. Price theory explains the composition, or allocation, of total
production- why more of some things is produced than of others.
 The word Micro means a millionth part. When we speak of microeconomics or the micro
approach, what we mean is that it is some small part or component of the whole economy that we
are analysing.
 Thus, micro economic theory studies the economic behaviour of individual decision - making
units such as consumers, resource owners and business firms.

Macro economics

 It is also called as Income Theory. Income theory explains the level of total production and why
the level rises and falls.
 Macro - economics is concerned with aggregates and averages of the entire economy, such as
national income, aggregate output, total employment, total consumption, savings and investment,
aggregate demand, aggregate supply, general level of prices, etc.,
 It studies the behaviour of economic system as a whole or all the decision making unit combined
together.

Positive or Normative Science

 Economics is both positive and normative science. Positive science deals with things as they are.
Hence it addresses what it is. Eg. The feed unit is sick.
 The normative science makes distinction between right and wrong of a thing.
 It prescribes what it should be. Positive science describes while normative science evaluates.

METHODOLOGY OF ECONOMICS

 Economics has certain method for discovery of laws and theories.

 There are two methods of investigation available to economics.

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 o Deductive method.
o Inductive method.

Deductive method (Analytical or Apriori method)

o It descends from "generals" to "particulars".

o This method starts with the few indisputable facts about human nature and draw
inferences about concrete individual cases.

Inductive method (Realistic or Historical)

o It goes up from "Particulars" to "generals".

o This method insists on the examination of facts and then laying down general principles.
 Modern economists use both methods and consider that induction and deduction are both needed
for scientific thought as the right and left foot are needed for walking. Which of the two methods
is to be used in particular situation depends upon the nature of inquiry the material on hand and
stage at which inquiry has reached.
 The deductive method seems to be more suitable in the field of pure theory and inductive method
for formulating practical policies.

ECONOMIC SYSTEMS

 Each economy is a system in which the production and distribution of goods are organised
around people's wants.
 There are three important alternative economic systems functioning in the world.
 They are,
o Capitalist economy
o Socialist economy
o Mixed economy

Capitalist economy

 The prominent characteristics of a capitalist economy are

o Right to private property.
o Prevalence of free enterprise commonly known as laissez faire that is, free play of price
mechanism in determining economic activity.
o Absence of government controls and of central economic planning.
o Profit motive being the moving force behind any economic activity.
o Full freedom for the consumer in the choice of consumption, which is popularly referred
to by the expression Consumer sovereignty.
o USA and UK follow this system.

Socialist economy

 The cardinal characteristics of a socialist economy are bound to be the opposite of capitalism.
o All means of production and natural resources are socially owned.
o There is centralised economic planning .

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 o There are rigours controls, directing the entire gamut of trade (internal and international)
and production.
o This also means that there is no scope for free play of price mechanism or market forces.
In brief, it is a command economy.
o Consumer sovereignty is severely restricted by means of predetermined allotment of
consumer goods and rationing .
o Welfare is the main goal, all other factors becoming matter of less importance .
o This system took place in western countries after industrial revolution.

Mixed economy

 The features of mixed economy are

o Both private sector and public sector co-exist: supplementing efforts of each other in
attaining targeted economic goals.
o While the market forces are free, prices may still be administered by state intervention.
o Certain industries (especially monopolies) may be nationalised, areas such as agriculture
may be left in the hands of private enterprise.
o Again, works and services whose benefits are indivisible between different sections of the
society (for instance, the benefits of an army to the country as a whole) are taken care of
by the government, while operations in which cost-price relationship is straight and
simple, are left in the hands of private entrepreneurs.
o After independence , we follow this system with inclusion of public and private sectors.

CHAPTER-2: COMMON TERMS 

Learning objectives

 To explain the meaning of common terms like consumption, wants, goods, wealth, value, price,
income and utility.
 To explore the classification and characteristics of wants
 To explain the different types of goods.
 To illustrate the types of income, wealth and utility.

CONSUMPTION

 World is at work, the farmers plough their land, factory workers control machines, feed them with
raw materials and transform into manufacture goods.
 Buyers and sellers are busy, thus economic activities are circling around.
 People want to earn money. They need money to satisfy their wants relating to food, clothing,
shelter and other necessities and luxuries.
 Thus wants make people to work, i.e. wants give rise to various kinds of economic activities.
 This is the starting point of all economic activities for the existence of human wants.
 Goods and services that satisfy our wants are to be produced.They are produced with the help of
available resources in nature.
 The resources that can be used for the production of goods and services are not available in
plenty. They are scarce. Hence the economic problems arise.
 The responsible factors for emergence of economic problems are
o The existence of human wants
o Scarcity of available resources

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  Thus the sign of economics wonders around wants, efforts, and satisfaction.

WANTS

 In general, wants may be defined as desires of consumers to obtain and use various goods and
services, which give pleasure and satisfaction.
 However, more wish or desire to have goods and services in the economic sense is not a want.
 Therefore, wants can be defined as those effective desires for goods and services which are
associated with the following three essentials.
o Desire to acquire goods or service.
o Ability to pay for the desired goods and
o Willingness to pay for those goods.
 The wants originate from one of the following sources
o Desire of the minimum of goods required for existence. Eg. Food, Clothes etc.
o Desire to maintain the standard of living, giving rise to conventional necessaries. E.g.
Well equipped house, membership of a club etc.
o Desire of distinction and excellence. Eg. Latest model of a car, dress of latest design etc.

CLASSIFICATION OF WANTS

 Wants can be classified as

o Necessaries
o Comforts
o Luxuries

Necessaries

  Necessaries are goods that are essential for human existence and to maintain our efficiency.
 Goods, which are used for our existence, are called necessaries for existence and goods that we
use to improve our efficiency are called necessaries for efficiency.
 E.g. Nutritive food. Goods, which are used out of habit or long established customs and
conventions, are called as conventional necessaries. Eg. Tea, Coffee.

Comfort

 Comforts are goods that lead to easy living and make our life pleasant.
 They also improve our efficiency, but improvement in efficiency is not in a proportion to the
money spending on them .eg. Car, Refrigerator, etc.

Luxuries

 Luxuries are goods and services, which are generally non- essential and very expensive.
 They do not improve the efficiency of the people.
 It is just meant for increasing the prestige of a person. Eg. Diamond ornaments.

CHARACTERISTICS OF WANTS

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Wants are unlimited

 As soon as one want is satisfied another want comes up in it's place.

Wants vary in their intensity

 Wants differ in importance. Some wants are more urgent and others are less urgent wants.

Wants are satiable

 A single want can be satisfied at a particular time.

 If a person is hungry he can satisfy his want fully by taking sufficient amount of food.

Wants are recurrent

 Wants get themselves repeated at interval of short or long period.

Wants are alternative

 A person can substitute coffee in the place of tea.

Wants are competitive

 For a hungry person wants for food is more urgent than anything else.
 The most urgent wants takes the first position with satisfaction and the less follows.

Wants are complementary

 To satisfy particular want we need several things.

 For eg. If a person wants to write a letter he needs pen, paper, ink etc.

Wants tend to become habits

GOODS AND ITS CLASSIFICATIONS

Classification of Goods

 Anything that satisfies human wants is called goods or commodity.

 Goods can be classified into

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Free goods

 Air we breath has utility for us. So it is a commodity. For the use of this commodity we do not pay
any price.
 Such goods are called free goods. Free goods are available in plenty and not in scarce.

Economic goods

 Milk is a commodity we have to pay price to get it.

 Such goods are called economic goods.
 They are available in scarce.

Visible goods and non-visible goods

 Egg can be seen and felt by touch. Such goods are called material or visible goods.
 Copy write of books or services of a doctor can be sold for money but they cannot be seen or felt,
such types of goods are immaterial or invisible goods.

Consumer and Producer goods

 We use goods like egg, pen etc. which satisfy our wants directly. They are called consumer goods.
 We use goods like machine to produce other goods. They do not satisfy our wants directly.
 Such goods are called producer goods or capital goods or investment goods.

Durable goods and perishable goods

 Goods, which decay quickly, are known as perishable goods. Eg. Milk.
 Goods which lasts for long period are called durable goods. Eg. Incubator, milking machine, etc.

Competitive goods

 Production of one good must be forgone in order to produce more of other good. For example for
a given level of maize, one has to give up a certain level of piggery production in place of
increasing broiler production.

Supplementary goods

 Some positive level of one good is produced without reduction in output of another good. For
example, women labourer employed in backyard poultry keeping.

Substitute goods

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  If price of one good falls with consequent increase in demand for it, the demand for other related
good decreases and can act as substitute for the first one. Soya can be substituted for maize in
feed ration.

Complementary goods

 If production of one good causes the increased production of another goods. For example a
legume in rotation increase the production of grain crops in alternate years

WEALTH AND ITS CLASSIFICATION

Meaning

 It refers to the state of economic goods at a particular time, i.e. goods which are not transferable
are not included. E.g. personal skill and ability.
 However, it may not be true while calculating wealth of a country, which may include the skill and
ability of its citizens.

Classification of Wealth

 This can be classified into three forms

o Personal or individual wealth
 A common human being requires this wealth e.g. clothes, books, scooter etc.,
o Business wealth
 This is used for further production of goods and services, e.g. farms, industries,
machines etc.,
o National or Social Wealth
 This includes the goods owned by states or local bodies e.g. educational
institutions, public library, transport, electricity etc.,

VALUE, PRICE, INCOME AND UTILITY

Value

 In economics we use the term value in the sense of exchange.

 Value of commodity means purchasing power of the commodity.

Price

 The value is expressed in terms of money it is called price. Eg. A pack of rice.

Income

 Income is the remuneration paid to the service rendered by factors of production.

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Real income and Money income

 Income can be expressed in terms of commodities or money.

 When we express income, the terms of commodities it is called real income.
 If we say that income of a person is five kg rice, he express his income in terms of commodity.
 When we express income in terms of money it is called money income.

Utility

 Utility means capacity to satisfy wants, i.e. want satisfying power of a commodity.
 Total utility may be defined as the total satisfaction derived from the consumption of all the goods
or services at the disposal of the consumer, i.e. aggregate utilities derived.
 Different types of utilities are

Form utility

 Form utility is added when the processor of the goods (such as milk, paddy and oilseeds)
transforms the material into finished products ready for consumption (such as cheese, rice and
edible oil respectively).
 In doing so, he adds form utility to the raw products, i.e. form utility is created by the processing
functions.

Time utility

 Time utility is added when products are stored from the time of production to the time of
consumption.
 Time utility is created by the operations like storage in ware houses and godowns.

Place utility

 Place utility is added by the transporting system which transfers the goods from one point where
it is not needed to another point where it is consumed.
 Hence, transporting agencies contribute to place utility.

Possession utility

 Possession utility is added to the product when its ownership is transferred to the final consumer.
 Thus, all the institutions and agents in the marketing chain which enable transfer of ownership
are contributing to possession utility.

CHAPTER-3: IMPORTANT FEATURES OF LAND, LABOUR,

CAPITAL AND ORGANISATION

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Learning objectives

 To discuss about the meaning of Land, Labour, Capital and Organisation

 To explore the characteristics of factors of production
 To explain the importance of factors of production in livestock farming activities

FACTORS OF PRODUCTION

 Production is the process by which resources are transformed into products usable by consumers
either directly or indirectly.
 Generally, resources or inputs of any production process are otherwise called as factors of
production.
 These factors are broadly grouped into four viz.
o land,
o labour,
o capital,
o entrepreneurship management/Organisation.

FACTORS OF PRODUCTION - LAND,LABOUR AND CAPITAL

Land

 The term land has been given a special meaning in economics.

 Land does not mean soil surface alone as it is ordinarily understood, but it includes the materials
and forces which nature gives in land, water, air, light and heat.
 Land has some characteristic features. They are
o Land is fixed in quantity
o Land is immobile
o Land is permanent i.e. there are some inherent properties of land which are original and
indestructible.
o Land has infinite variation of degrees of fertility so that no two pieces of land on earth is
same.

Rent

 It is a reward for land and refers to that part of payment by a tenant which is made only for use of
land i.e free gift of nature.
 It is of two types namely economic rent and contract rent.
 Economic rent is the payment made for the use of land only.
 Contract rent is total payment made by tenant to landlord.

Lease

 It is defined as an oral or written contract outlining how a tenant and landlord will do business
and share income, provide for expenses, improve the land and determine business program,
practices and compensation for demage to the land or termination of lease. 

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  It is of five types in order of risk and return to the tenant.
o Cash lease - Direct cash payment at end of year
o Flexible cash lease - Hybrid of cash and crop share.
o Crop share lease - sharing only crop not cash deal
o Livestock share lease - Sharing livestock and its income.
o Labour share lease - Giving way for landlord to acquire extra labour and suitable for
young farmer without enough capital.

Labour

 Labour means any exertion of mind or body undertaken for a monetary consideration.
 Any work done for the sake of pleasure does not fall under labour in economic sense. Wage is
known as reward of labour.

Characteristics of labour

 Labour is perishable
o A day without work in worker’s life is lost forever. He cannot store his labour and
deliver it later.
 Labour has a poor bargaining power
o As labour is perishable, they accept even low wages.
 Labour is inseparable from labourers
o Labour is an integral part of the labourer’s personality.
 Supply of labour changes very slowly
o Supply of labour cannot be curtailed at once even if wages fall because the
labourers must earn their subsistence.
o It also takes time for children to grow up or people to get trained in order to
increase the supply of labour.
o Labour is not so mobile as capital – It happens due to differences in language,
environment, habit etc.

Wage

 It is a reward for labour. It means payment made for services of labour. It may be defined as a
sum of money paid under contract by an employer to a worker for his physical or mental service
rendered.
 It is of two type namely nominal wage and real wage.
 Determinants of wages are efficiency, existence of non-competing groups, ability of learning
trade, social acceptance, hazardous and dangerous occupation, bargaining power.

Nominal Wage

 It is a wage paid or received in terms of money.

Real Wage

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  It is not money wage but rather it represents that part of standard of living of labourer. 
 It includes purchasing power of money and constitutes subsidiary earning, extra work without
extra payment, regularity or irregularity of employment, condition of work, future prospect, etc.

Capital

 Capital is a stock or fund existing at a given moment.

 Capital is man made. Man constructs capital equipment to help him in the production of other
goods and services. Hence capital is defined as produced means of production.

Characteristics of capital

 It is man - made and its supply is therefore, within the control of man.
 It involves the element of time as it renders its services over a period of time. Therefore
payment to capital is calculated in terms of so much per cent per annum.
 Production of wealth with the aid of capital has been called the round about process of
production.
 Labour can produce more with aid of capital than it was without it. Since capital is
productive, there is demand for capital.
 People look forward to getting an income by accumulating capital. Hence capital is
prospective.

Functions of capital

 Capital increases productivity by enabling the entrepreneur to acquire the other factors of
production.
 It provides subsistence to enable workers to maintain themselves during the period of
waiting for marketing of goods.
 It provides appliances or auxiliaries of production to carry on production effectively on
modern lines.
 It provides raw materials to feed the machines.

Interest

 It is a reward or payment for capital use.

 It is of two types ie. Gross interest and Net interest.
 Gross interest is the total payment which debtor pays to the creditor.
 Net or pure interest is the payment only for the services of capital as such or for the money
borrowed.
 Gross interest include net interest, insurance against risk, wage for management, return for
inconvenience.

FACTORS OF PRODUCTION-ORGANISATION

Meaning

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  Organisation combines the other factors of production. Viz. Land, labour and capital and decides
on what to produce.
 A special skill is required to combine factors of production and accomplish the difficult task of
production.
 This task is undertaken by organiser or entrepreneur. Profit is known as reward of management.

Types of Organisation

 There are five forms of organisations viz.

o /Sole proprietor
o Partnership
o Joint stock company
o Co-operative societies and
o Public sector undertaking

Sole proprietor

 This is the oldest form of entrepreneurial organisation. Even today, from the point of view of
numbers, small firms are predominently sole proprieter firms. Such one person firms range from
farmer, shop keeper and small factory-owner who employ other workers and may even own many
separate units.
 Nevertheless, all these businesses have the same characteristic of being owned and controlled by a
single person.
 It is this person's task to make all decisions regarding the policy of the firm and it is he alone who
takes the profit, bears the brunt of any losses made.

Disadvantages

 Development of such a firm must proceed slowly because the sources of capital are
limited.
 In the event of failure, not only the assets of business but also the private assets and
property of the proprietor can be claimed against by creditors. In short there is no limited
liability.
 There is lack of continuity; On retirement or death of the owner, a one-person firm may
cease to function.
 Because of these disadvantages, this type is confined to those businesses, which are just
starting up or to certain industries such as agriculture and retailing.

Partnership

 A large amount of capital is available when persons combine together into a 'partnership'.
 Normally not more than twenty (ten in case of a banking) may so join.
 Each partner provides a part of capital required and shares the profit on an agreed basis.

Joint stock company

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  Some kinds of business could not be conducted on a small scale, and these have to start as joint
stock companies, either sponsored by some important interests or else developed as subsidiaries
of existing large firms.
 The advantages are limited liability, continuity, and availability of capital and ease of expansion.

Co - operative societies

 They are a form of organisation where people work together or business people on the basis of
natural benefit.
 It is a voluntary organisation designated to promote economic interests of its members. Members
have equal right.
 Co-operative society has the motto of "each for all and all for each".

Public Sector Company

 A company undertaken and run by the local, state and central government are called as public
sector undertaking or a company.
 To promote people's welfare, government directly undertakes economic activities.
 Public undertakings have been started with the following reasons,
o To bring about rapid economic development.
o Benefits of development are shared by all the people and.
o Inability of private sectors to find huge amount of capital needed to take up large projects.

CHAPTER-4: LIVESTOCK PRODUCE AND PRODUCTS 

Learning objectives

 To understand the importance of Indian livestock sector

 To explain livestock and poultry contribution to national economy
 To explore the growth dimension of the different livestock and poultry products

INTRODUCTION

 Indian livestock sector plays a critical role in welfare of rural population.

 It contributes 5.4 per cent to the total GDP and 27 per cent to the GDP from agriculture and allied
activities engaging 30 million small producers raising one or two cow or buffaloe.
 It is of special importance and a main source of family income in the arid and semi-arid regions of
the country.
 In the arid and semi-arid regions, the contribution of livestock to agricultural GDP is as high as 70
per cent and 40 per cent, respectively.
 The sector has excellent forward and backward linkages, which promote many industries and
increase the incomes of vulnerable groups such as agricultural labourers and small and marginal
farmers.
 In 2005-06, livestock sector produced 97.1 million tonnes of milk, 46.2 billion eggs, 44.9 million
kg of wool and around 2.31 million tonnes of meat from organized sector.
 All India Summary Reports of the 17th Livestock Census released in July 2006 points out that
India possesses the largest livestock populations in the world after Brazil.

18
  It accounts for about 56 per cent of the world’s buffalo population and 14 per cent of the cattle
population.
 It ranks first in respect of buffalo and second in respect of cattle population, second in goat
population and third in respect of sheep in the world.

POULTRY

 Poultry sector, with total value of output exceeding Rs.26,000 crore and providing direct and
indirect employment to over three million people, produced around 1.9 MT of chicken-meat in
2005.
 Between the 1970 and 2006, the annual per capita availability of eggs has quadrupled from 10 to
41, while the corresponding increase in chicken meat has been even faster from 146 grams to 1.6
kgs.
 While India’s share of world trade in poultry and poultry products continues to be very small, in
the last decade the value of such exports has increased from Rs.11 crore in 1993-94 to Rs. 326
crore in 2005-06.
 Exports of products, such as live poultry, eggs, hatching eggs, frozen eggs, egg powder and poultry
meat, to countries including Bangladesh, Sri Lanka, Middle East, Japan, Denmark, Poland, USA
and Angola augurs well for the industry.
 Uninterrupted supplies of feed as well as preparedness for external shocks such as avian influenza
are critical for the continued robust growth of this sector.

DAIRYING

 India ranks first in the world in milk production, which rose from 17 MT in 1950- 51 to around
100 MT by 2006-07.
 Per capita availability of milk has also increased from 112 grams in 1968-69 to 230 grams per day
in 2005-06 with ever increasing human population and is expected to reach about 245 grams per
day in 2006-07.
 Presently, about 1.13 lakh village level co-operative societies spread over 265 districts in the
country form part of the National Milk Grid.
 The Grid links the milk producers throughout India with consumers in over 700 towns and cities
smoothing the seasonal and regional variations in the availability of milk, and ensuring a
remunerative price to the producers and a reasonable price for quality milk and milk products to
the consumers.
 Under Integrated Dairy Development Project, 73 projects with an outlay of Rs.407.58 crore and
spread over 25 States and 1 UT have been approved.
 Cumulative expenditure incurred up to end-March 2006 was Rs.274.33 crore.
 By end-March 2006, the programme had benefited 10.56 lakh farmers through 16,469 village-
level dairy cooperative societies procuring 13.6 lakh litres of milk per day.

CHAPTER-5: LIVESTOCK SECTOR IN TAMIL NADU 

Learning objectives

 To discuss the status of livestock and poultry population in Tamil Nadu

 To explore the breedable female bovine population
 To view the per capita availability and milk production of milk in Tamil Nadu
 To understand the animal health care activities

19
 INTRODUCTION

 Activities allied to agriculture viz. animal husbandry, fisheries and forestry have the potential for
providing significant employment opportunities to rural and urban population.
 Allied activities provide supplementary occupation to the people besides contributing to Gross
State Domestic Product.
 Dependence on the agricultural sector for supporting livelihood is well known while the allied
sectors offer scope for absorbing surplus labour from the agricultural sector.
 The allied sector has the potential for putting the State's rural economy on a higher growth
trajectory.

ANIMAL HUSBANDARY

 Total livestock population of the State which stood at 307.59 lakhs in 2007 had increased by 1.01
per cent when compared to the previous 2004 census.
 However, the total livestock population in the State as per the provisional figures of the Livestock
Census 2007 was at 307.59 lakhs, recording a marginal decline of 3.85 per cent over that of 1997
census.
 The bovine (cattle and buffaloe) population in the State had witnessed a steady decline between
1982 and 2004.
 While sheep population showed signs of variation, the goat population had steadily increased
during the reference period.
 The poultry population at 1281 lakhs in 2007 had recorded an increase of 48 per cent over the
previous census.
 The State ranks second in poultry population in the country and accounts for 17.7 per cent of the
total poultry population in India. The details are given below.

Livestock Census: Tamil Nadu (Lakhs)

Year Cattle Buffaloe Sheep Goats Others Total Poultry

1982 103.66 32.12 55.37 52.46 18.26 261.87 182.84
(-4.03) (4.35) (4.69) (24.85) (135.31) (8.45) (27.44)
1989 93.53 31.28 58.81 59.20 20.85 263.66 215.70
(-9.77) (-2.62) (6.21) (12.85) (14.18) (0.68) (17.97)
1994 90.96 29.31 56.12 58.65 21.75 256.79 238.54
(-2.75) (-6.30) (-4.57) (-0.93) (4.32) (-2.61) (10.59)
1997 90.47 27.41 52.59 64.16 24.76 259.39 365.11
(-0.54) (-6.48) (-6.29) (9.39) (13.84) (1.01) (53.06)
2004 91.41 16.58 55.93 81.77 3.73 249.42 865.9
(1.03) (-39.5) (6.35) (27.45) -- (-3.85) (137.16)
2004 91.41 16.58 55.93 81.77 3.73 249.42 865.9
(1.03) (-39.5) (6.35) (27.45) -- (-3.85) (137.16)
2007 111.89 20.09 79.91 92.72 2.95 307.59 1281.08
(22.00) (21.00) (43.00) (13. 00) (-21.00) (23.00) (48.00)

20
  As per 18th Quinquennial Livestock Census 2007, the cattle population is concentrated in 13
districts which together accounted for more than 60 per cent of the total cattle population in the
State.
 Of these districts, Villupuram topped the list and shared 9 per cent of the total cattle population
followed by Salem (6.5%) and Vellore (5.5%).
 Tamil Nadu Livestock Agency has brought all breeding activities under a single umbrella and
artificial insemination programme is carried out effectively.
 A decline in breedable population was noticed in 2007 Quinquennial Livestock Population – from
47.12 lakhs in 2001 to 41.17 lakhs in 2007 in respect of cattle and from 15.15 lakhs to 9.01 lakhs in
case of buffaloes.
 The share of exotic and crossbred cattle accounted for 62.9 per cent and that of indigenous and
native pure worked out to 37.1 per cent of the total breedable cattle population of 41.17 lakhs.
 Among buffaloe population the share of the murrah and graded was 32.08 per cent while
indigenous buffaloes accounted for a higher share of 67.92 per cent.

Breedable Age Female Bovine Population(in Lakhs)

Category 1997 2001 2004 2007 

Cattle 25.89
- Exotic and Cross 12.61 18.78 15.28 48.09
- Indigenous and 32.02 28.34
Native pure
Total 44.63 47.12 41.17 48.09
Buffaloe 2.89
- Murrah and Graded 3.74 4.97 6.12 9.00
- Indigenous 13.64 10.18
Total 17.38 15.15 9.01 5709

Milk Production and Per capita Availability

 Sustained initiatives to augment the production potential of livestock and poultry and to increase
the production of milk, egg and meat to cater to the increased demand were taken .
 Milk production rose from 47.53 lakh tonnes in 2003-04 to 47.84 lakh tonnes in 2004-05 and to
54.74 lakh tonnes in 2005-06.
 The State's share in total milk production at the All India level was 5.38 per cent in 2004-05.

21
  The per capita availability of milk per day which witnessed a marginal increase from 209 gms, in
2003-04 to 210 gms. In 2004-05 improved further to 234 gms in 2005-06.
 Tamil Nadu Cooperative Milk Producer's Federation procured milk through a chain of Primary
Cooperative Societies numbering 7431 in 2004-05 and 7701 in 2005-06 in the State.

Figure 1

 The milk production by societies rose by 5.6 per cent from 23.96 lakh litres per day (LLPD) in
2004-05 to 25.09 LLPD in 2005-06.
 The procurement price per litre of buffaloe milk and cow milk was at Rs.22.00 and
Rs.20.00respectively.
 These societies procured more than 35 per cent of the total milk produced in the State. The
quantity of milk sold had improved from 20.53 LLPD in 2004-05 to 21.59 LLPD in 2005-06 Milk
Production (lakh tonnes).

Milk Production and Availability

Year Tamil Nadu All India % Share of  Percapita availability

Tamil Nadu (gms. per day)
(Lakhs tones)
Tamil Nadu All India
2003 - 04 47.53(2.8) 881 (1.6) 5.4 209(2.5 ) 231(0.4)
2004 - 05 47.84(0.7) 907 (2.9) 5.3 210(0.5) 232(0.4)
2005 - 06 54.74(14.4) - - 234(11.4) -

22
Per capita daily requirement 220 gram, (Figures in brackets indicates percentage change over the

previous year)

Milk Yield

Average Yield Rate of Milk (Kgs., / Animal / day)

Breed 2004 - 05 2005 - 06

I. a. Cows 
Exotic and Cross Bred 6.244 (1.1) 6.272 (0.4)
b. Indigenous 2.680 (0.6) 2.734 (2.0)
II Buffaloes 4.200 (1.8) 4.161 (-) 0.9
(Figures in brackets indicates percentage change over the
previous year)

 Gains from the White Revolution is reflected in the steady increase in average yield during the
period 2002-03 to 2005-06.
 The breeding policy, animal health care and fodder development together contributed to this
achievement.
 Average daily yield of milk from exotic and crossbred cows had improved from 6.244 kgs. in
2004-05 to 6.272 kgs in 2005-06.
 Average daily milk yield of indigenous cows rose from 2.680 kgs. in 2004-05 to 2.734 kgs in
2005-06. Thus, there had been an overall improvement in the yield rate of cows.
 Average daily yield of milk from buffaloe marginally declined from 4.200 kgs in 2004-05 to 4.161
kgs. in 2005-06.

Veterinary Health Care - Veterinary Care Infrastructure

 In order to provide health care to animals, promote scientific breeding of cattle and control of
diseases, the State has put in place the requisite infrastructure.

Animal Care Institutions (Nos.)

SI.No Items 2006 - 07

I. Veterinary Health Services
a. Polyclinics 6
b. Clinician Veterinary Units 22
c. Mobile Veterinary Units 55

23
 d. Veterinary Hospitals 139
f. Veterinary Dispensaries 1207
g. Sub - Centres 1385
II Animal Disease Intelligence Units 20
III Cattle breeding and Fodder Development 20
IV Institute of Veterinary Preventive Medicine 1
V Poultry Disease Diagnostic Laboratory 2
VI Artificial Insemination Centres 3177
VII Frozen semen Production stations 3
VIII Frozen Semen Banks 12

Animal Health Care Activities

 Livestock health care prevents loss of lives and helps to improve productivity.
 Livestock Development Programmes like ‘Kalnadai Padhukappu Thittam’ is being implemented
in the State.
 Livestock rearers get proper medical facilities at their doorsteps. The number of animals treated
in the State rose by 8.7 per cent from 186.15 lakhs in 2004-05 to 202.41 lakhs in 2005-06.
 Vaccination and deworming done put together had increased from 426.60 lakhs in 2004-05 to
635.92 lakhs in 2005-06.
 Veterinary health services like vaccination and deworming and breeding coverage like artificial
insemination are provided to livestock in remote villages through Mobile Veterinary Units (55
Nos.) in the State.

The details of animal health care service provided are given below.

Animal Health Care Activities (lakh numbers)

SI.No. Item 2004 - 05 2005 – 06

1 Animals treated 186.15 202.41
2 Vaccination done 344.22 449.91
3 Deworming done 82.38 186.01
4 Castration done 6.58 6.44
5 Artificial Insemination Performed 29.23 32.87
6 Calves born 11.09 11.40
 

MEAT PRODUCTION

24
  To ensure supply of good quality and hygienic meat to consumers, 123 registered slaughter houses
have been established and the animals like sheep, goat, cattle, buffaloe and pig were slaughtered
in these houses.
 Number of animals slaughtered in these centres rose by 19.4 per cent from 26.29 lakhs in 2004-
05 to 31.40 lakhs in 2005-06.
 Sheep and goat accounted for 94.4 per cent of the total animals slaughtered in the State.
 Meat production had gone up by 17.3 per cent from 425.44 lakh kgs. in 2004-05 to 499.11 lakh
kgs. in 2005-06.

SI. No. Item 2004 - 05 2005 - 06

1 Registered Slaughter House (Nos.) 123 123
2 Animal Slaughtered(lakhs)    
a Sheep 11.29 15.71
b Goat 13.67 13.94
c Cattle 0.71 1.03
d Buffaloes 0.50 0.55
e Pig 0.13 0.16
  Total 26.29 31.40
3 Meat Production ( lakh kgs.)    
a Mutton 123.50 171.74
b Chevon 166.34 171.80
c Beef 72.14 86.09
d Cara Beef 58.70 63.33
e Pork 4.76 6.15
  Total 425.44 499.11

Poultry

 Poultry farming provides livelihood support besides contributing to the nutritional requirements
of the human population.
 Poultry activity creates employment opportunities besides providing income to the workers.
 The State stands second in egg production at the All India level.
 The introduction of modern scientific techniques and California Cage system of poultry rearing in
the seventies has revolutionised poultry farming in the State.

25
  Poultry Extension Centres, acts as demonstration farms and provide training to poultry rearers.
 The Government organises widespread immunisation campaigns against the diseases like
Ranikhat.
 Poultry rearing has become a commercial activity in the districts of Namakkal, Salem, Erode and
Coimbatore.
 Namakkal district has become an ‘egg basket’ and accounts for 65 per cent of the total egg
production in the State and is a major foreign exchange earner too.

Egg Production and Per capita Availability

 Tamil Nadu is one of the leading States in egg production and export.
 The eco-friendly backyard poultry rearing is practised along with commercial poultry farming in
the State.
 The egg production in the State which improved from 3784 million numbers in 2003-04 to 6395
million numbers in 2004-05 and then marginally declined to 6223 million numbers in 2005-06.
 Consequently the per capita availability of egg per annum has declined from 102 numbers in
2004-05 to 97 numbers in 2005-06.
 A central-state shared poultry development programme (80 : 20) is being implemented in the
Poultry Farm at Kattupakkam with a total outlay of Rs.74.69 lakhs and at District Livestock Farm,
Hosur with a total outlay of Rs.85.00 lakhs.

Feed and Fodder

 Growth of the livestock and poultry industry depends on reliable and cost effective supply of
fodder and feed.
 The uncertainties of agriculture and rising prices of feed affect the viability of such activities.

26
  Supply of green fodder is constrained by limited availability of land. However, total land available
for grazing in the State is only 1.13 lakh hectares.
 In addition, 16.99 lakh hectares of common property resources and 16.20 lakh hectares of open
forest area are available for grazing.

Achievement under Fodder Production Schemes

SI. No. Particulars 2004 – 05 2005 – 06 % Change in 2005 – 06 

over 2004 - 05
1 Total area under cultivation(acres) 3450 1193 (-) 65.4
2 Fodder Seed Production Units (Nos) 7 7 -
3 Production of      
- Slips (lakhs) 20.54 20.54 --
- Seeds (lakhs) 38.60 0.722 (-) 98.1
- Seedlings(lakhs) 0.27 - -
4 Minikits Distributed ( Nos) 10900 6812 (-) 37.50

LIVESTOCK SECTORS IN OTHER STATES

For Livestock Sector in UP http://animalhusb.up.nic.in/

For Livestock Sector in Kerala http://ahdkerala.gov.in/overview.htm

For Livestock Sector in Andhra Pradesh 

For Livestock Sector in Karnataka www.ahvs.kar.nic.in/about_us.htm

For Livestock Sector in Maharasta http://mahavet.mah.nic.in/

For Livestock Sector in Madhya Pradesh www.mp.gov.in/VeterinaryandDairy/

For Livestock Sector in Orissa www.orissaahvs.com

For Livestock Sector in Bihar www.biharonline.gov.in/Site/Content/.../Dept.aspx?typ..

For Livestock Sector in Gujarat http://www.gujaratstat.com/agriculture/2/animalhusbandrylivestock/

48/stats.aspx

For Livestock Sector in Rajasthan http://animalhusbandry.rajasthan.gov.in/

For Livestock Sector in Punjab

http://punjabgovt.nic.in/Punjabrti/Departments/Animal_Husbandry_and_Dairy_Development/

27
Department%20of%20Animal%20Husbandry/01_Particulars%20of%20its%20organization,

%20functions%20and%20duties.pdf

For Livestock Sector in Haryana http://pashudhanharyana.gov.in/

http://panipat.gov.in/animalhusbandry.htm

For Livestock Sector in Jammu and Kashmir http://www.jkanimalhusbandry.net/

http://jammukashmir.nic.in/view/april25.htm

For Livestock Sector in West Bangal 

http://www.westbengalstat.com/agriculture/2/animalhusbandrylivestock/48/stats.aspx

http://wbgosampad.nic.in/about.htm

For Livestock Sector in Megalaya http://megahvt.gov.in/

http://meghalaya.nic.in/govt/dept/dept4.htm

For Livestock Sector in Nagaland http://vetyngl.nic.in/

http://www.nagalandstat.com/agriculture/2/animalhusbandrylivestock/48/stats.aspx

For Livestock Sector in Assam http://www.assamstat.com/agriculture/2/animalhusbandrylivestock/48/

stats.aspx 

http://assamagribusiness.nic.in/vety.htm

For Livestock Sector in Mizoram http://www.ahvety.mizoram.gov.in/index2.php?

option=com_content&do_pdf=1&id=44

http://www.indiastat.com/17/mizoramstat/agriculture/2/animalhusbandrylivestock/48/stats.aspx

http:/www.indiabudget.nic.in

CHAPTER-6: DEMAND PROJECTION OF LIVESTOCK PRODUCE

Learning objectives

 To define demand projection

 To show different methods for projection of the livestock products demand

28
 INTRODUCTION

 Information regarding the future demand is essential for both new firms and those planning to
expand the scale of their production.
 It is much more important where large-scale production is being planned and where production
involves a long gestation period.
 Information regarding future demand is essential also for the existing firms to avoid under or
over-production.
 Accordingly they will have to acquire inputs both men and material, plan their production,
advertise the product and organize sales channels.
 The firms are hence required to estimate the future demand.
 As per capita incomes rise in Third World countries, the demand for livestock products - meat,
milk, and eggs - not only rises faster than that for cereals in these countries but also more rapidly
than demand for livestock products in the developed countries.
 This in turn influences the demand for cereals and other staple foods used as livestock feed.
 Livestock production is also an important source of income and employment in the rural sector; it
helps to meet equity objectives by contributing cash income to small farmers in the Third World.
 Besides providing draft power and manure, livestock in developing countries convert many
agricultural wastes and by-products into food. Finally, livestock products contribute to export
earnings.
 Livestock sector plays a significant role in the welfare of rural population of India. Of the total
households in the rural area, about 73 per cent own livestock.
 More importantly, small and marginal farmers account for three quarters of these households.
 Income from livestock production accounts for 15-40 per cent of the total farm household’s
income in different states. Thus, an increase in demand for livestock products, can be a major
factor in raising the income and living standards of the rural households.
 In the low-income countries, the demand for livestock products is more elastic than the demand
for cereals.
 This implies that with the rise in per capita income, the demand for livestock products would rise
faster in the third world countries.
 The demand projections for livestock products corresponding to 5 per cent GDP growth rate,
generally regarded as closer to the realistic situation.
 The estimated consumption in the year 1993 was of 45.02 million tonnes milk, 0.78 million
tonnes mutton and goat meat, 0.49 million tonnes beef and buffalo meat and 0.25 million tonnes
chicken and 0.54 million tones eggs.
 In the year 2020, the demand would reach 147.26 million tonnes for milk, 12.72 million tonnes
for mutton and goat meat, 1.15 million tones for beef and buffalo meat, 0.81 million tones for
chicken and 2.58 million tonnes eggs.
 During 1993-2020, the average growth rate (weighted) for the total domestic demand of milk has
been found to be 4.9%.
 It is 13.7% for mutton and goat meat, 3.5% for beef & buffalo meat, 4.8% for chicken and 6.2% for
eggs.
 These growth rates indicate that the meat industry has bright prospects in the country.
 Techniques of forecasting are many but the choice of a suitable method is a matter of experience
and expertise.
 To a large extent, it also depends on the nature of the data available for the purpose.
 In economic forecasting, the classical methods use the historical data in rather rigorous statistical
manner for making the future projection.
 Various methods of forecasting demand may be grouped under the following categories
o Survey methods
o Market studies and experiments
o Statistical or analytical methods and
o Other methods.

29
 SURVEY METHOD,STATISTICAL METHODS AND OTHER
METHODS

Survey Methods

 These methods are generally adopted in estimating short-term demand.

 These methods include direct interview, complete enumeration, sample survey, opinion survey,
etc.,
 Survey methods include
o Survey of consumer’s plan through direct interview of consumers
o Collection of expert’s opinion and
o Collection of opinion of sales representatives.

Market studies and experiments

 Studies and experiments are carried out in consumer’s behaviour under actual, though controlled,
market condition.
 This method is known in common parlance as market experiment method. This method has the
following serious disadvantages.
o Experimental methods are very expensive and not affordable by small firms.
o Forceful generalization with a high degree of reliability from too small sample size.
o Results of controlled experiments are questionable in application to the uncontrolled
long-term condition of market.
o Changes in socio-economic conditions, political changes, natural calamities may
invalidate the results.

Statistical Methods

 Statistical methods utilize historical (time-series) data and cross-section data for estimating long
term demand.
 These methods are considered to be superior techniques of demand estimation because
o Element of subjectivity in this method is minimum.
o Method of estimation is scientific.
o Estimation is based on theoretical relationship between dependent and independent
variables.
o Estimates are relatively more reliable and estimation involves smaller cost.
o Frequently used statistical methods for demand projections are
 Trend projection method which involves both graphical and fitting trend
equation.
 Regression method.

Other methods of forecasting demand

 There are several other methods available for forecasting demand. However the choice depends
on the availability of data, purpose and technical competence of forecaster.
 These methods include the end-use method, econometric methods like Barometric Forecasting,
Delphi Technique, Box-Jenkins method, moving average method, etc.,

30
 DEMAND PROJECTION FOR MILK

 It accounts for 97.1 million tones in 2005-06 with 65 per cent of the total value of livestock
output.
 Though India is the world’s top milk producer, the percapita milk availability remains low at 241
grams per day (Economic Survey 2005-06) which is lower the minimum requirement of 250
grams per day as recommended by Indian Council of Medical Research.
 The demand for milk is estimated to be 191.3 Mt by 2020 assuming the growth rate of the
economy at 5 per cent per annum.
 The milk supply projection have indicated a defit of 52.7 Mt by 2020.
 The impact of Agreement on Agriculture under globalization process has made the Indian dairy
industry to face several challenges, including structural changes in production and trade patterns.
 India has one of the largest livestock economies in the world sharing 53 per cent of world
buffaloes, 20 per cent of goats, 15 per cent of cattle, four per cent each of chicken and sheep and
one per cent of pigs.
 Livestock production in India is predominantly supported with family labour and nearly 73 per
cent of farms own livestock for draught and production of milk, meat and mutton.
 Fifty per cent of the draught power in farms is provided by cattle and 25 per cent by buffaloes.
 In Tamil Nadu, according to 1994 livestock census, cattle account for 35 per cent, buffaloes 11 per
cent, sheep and goats 45 per cent and pigs around two per cent.
 During the past 30 years ending 1992, cattle population has grown annually at 0.3 per cent,
buffaloes 1.4 per cent, goats 2.2 per cent, and poultry 4.4 per cent.
 In the recent five years, however, in white cattle, exotic and cross breeds have increased by 64 per
cent whereas the indigenous cattle population has declined by 12 per cent, and black cattle has
gone down by 6.3 per cent.
 Small farms, with less than two hectares in size hold 56 per cent of bovines and 62 per cent of
small animals.
 Income from livestock is around one-third of farm income and approximately one-tenth of state
domestic income.
 In fact, the livestock generates continuous cash flow, unlike that of crops with seasonal incomes
by harvests, which introduce certain degree of stability in income and employment to farm
households.
 The demand for livestock products has been increasing mainly due to changes in per capita
income, in population, in dietary habits, and market structure.
 Prospectively, the world bank estimates the demand for livestock products in the year 2020 as, (in
million tones)

Products Demand Supply Gap (%)

Milk 497.01 281.51 -43.4
Eggs 7.21 7.69 06.7
Beef 3.74 6.93 85.3
Mutton 2.57 3.09 20.2
Poultry 1.35 2.18 61.5
meat

 The demand has been projected at an overall growth of 5.5 per cent annually in GNP while the
supply assumes its determinants would be stable over the last ten years.
 One could note that excepting milk all other products would be excess in supply.

31
  In actuals, there would be a supply gap of 216 million tones which needs to be bridged.
 The status of livestock development at the close of the current millennium indicates the existence
of a small number of large capital intensive and market oriented livestock and poultry farms.
 The state and parastatals have contributed significantly to the organization and growth of dairy
farms whereas private entrepreneurship and investment have shown the way poultry
development could be.
 There are a number of issues one could identify for future actions.
 The focus is thus on productivity, trade and empowerment through structural, technological,
market and institutional changes.
 Livestock in India is the endeavor of large number of small growers and they are low productive
across all species.
 They are scattered across the country and depended very much on livestock for employment,
income and continuous cash flows.
 Low capital output ratios and high employment absorption render the sector as a vehicle for rural
transformation with high income and employment growth. However, they reflect low productivity
warranting investment and technology in massive scale.
 A system of incentives for adoption of technology for higher productivity would immediately
suggest a set of subsidies and insurance.
 Subsidies for livestock production, processing and marketing are mostly indirect and invisible.
 They come through poverty alleviation and rural employment programmes.
 Focus could be on institutional susbsidies, on the lines of Self Help Group support programmes,
to get small livestock farmers get organized with seed money to support activities in production
and processing.
 Disease control and hygiene are the major problems of livestock sector.
 Particular, India can not enter the world market as suppliers of livestock products unless and
until the country becomes disease free for the relevant products.
 The annual loss due to foot and mouth disease, in terms of milk, is estimated to be in the order of
Rs. 1252 crores in foreign exchange and another Rs.1650- Rs.1873 crores as loss of domestic
supplies.
 In addition, loss due to permanent disabilities, death etc., amounts to Rs.1800 crores.
 Disease management is thus most crucial and the state can not leave this vital task to the private
trade as disease prevention and control are in the public domain and form the public good for
which little can be expected from market driven private agencies.

PLANNING FOR THE LIVESTOCK SECTOR

 This exercise provides an opportunity to make use of the formulas uniting FV,PV, i and n in the
context of planning livestock production.

Problem - Hypothetical example

 You live in a state called Tamil Nadu and are employed by the Livestock Project Analysis and
Planning Section (LPAPS) of the Ministry of Agriculture as a Livestock Planning Officer (LPO).
 LPO office is based in the capital, Chennai, where together with the other livestock planning
officers you are faced with the following problem. The year is 2008.
 The Minister of Animal Husbandry has just given a speech, making promises as to the future
contribution of the country’s traditional livestock sector to the country’s consumption of meat and
milk products.
 The next 5 year plan is due to start in 2010, and he has stated that by the year, 2015, the country’s
traditional cattle producers will make it possible to
o reduce country’s beef imports to one quarter of their present level

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 o reduce the country’s imports of milk and milk products to half their present level (in
terms of raw milk equivalent).
o Increase average per capita consumption of beef by 50%.
o Needless to say, you were not consulted before the Minister made his speech, and as good
civil servants you are now in the position of
o trying to work out whether it is possible to fulfil his promises
o trying to work out reasonable targets for livestock production and a reasonable strategy
for achieving these.
 As usual, if it all goes wrong, you will be blamed, so it is important that you make clear
recommendations to the Minister, indicating what he can safely promise, in your opinion, and
what type of measures will be needed to ensure that these promises become reality.
 Also, as usual the information is needed yesterday (if not last week) so you have to make use of
the information available at the moment in your office .

Information about Cattle Production

 The majority of Tamil Nadu's cattle (over 99%) are kept by traditional producers, under an
extensive management system.
 A few experimental dairy herds can be found on the outskirts of Chennai, and there is also a small
fattening unit, but this is also virtually at an experimental phase. For the time being, production
goals and plans have to be based on the traditional cattle producers.
 The cattle population in according to the 2005 census was 1.773 million. The 2008 vaccination
returns indicate a current population of about 2.1 million.
 A detailed survey of herds has come up with the following data.
o Offtake rate
 The offtake rate for the whole herd is 10 %, 40 % are old cows, having an average
carcass weight of 100kg each and 60% are adult males, having an average carcass
weight of 175 kg each.
o Milk production
 About 23% of the national herd consists of cows in milk, the average annual milk
yield is 275 litres per cow in milk.

Information about Meat and Milk Imports

 The figures for 2008 are not available yet, but 2007 meat imports were of 1,700 tonnes of beef,
131,200 tonnes of milk equivalent (imported milk and milk products in terms of their equivalent
in raw cow’s milk)
o (1 metric tonne = 1000kg)
 Imports of animal products have been increasing at about 5 % per year in recent years.

Information about the Human Population

 The human population of Tamil Nadu was 6,346,281 according to the 2001 census. The annual
growth rate for the next decade was estimated at 3.1%.

Suggested Steps for Solving the Problem and Coming up with Suitable Recommendations

33
 o Calculate the annual growth rate (%) expected from the traditional herd using the
estimated results form the 2005 and 2008 cattle population figures
o Treat 2008 as your ‘year 0’ and work out what local beef and milk production was, what
was imported and what consumption per head of the human population was.
o Now look at your Minister’s promises and work out what these require, in terms of
growth rates of local production.
o Compare them to the quantities that would be produced and required if current levels of
productivity and growth continue unchanged.
o Then, if you think the Minister’s promises can be fulfilled, indicate how (in terms of
productivity improvements, changes in offtake rates, carcass weights etc.). If not, indicate
what you think might be reasonable goals.
 Very briefly, what types of projects do you think would be needed to achieve these goals?

CHAPTER-7: THEORY OF CONSUMER BEHAVIOUR

Learning objectives

 To highlight the meaning of utility and law of diminishing marginal utility.

 To explain the indifference curve technique.
 To expose the assumptions and properties of indifference curve.

THEORY OF CONSUMER BEHAVIOUR

 Utility is a subjective term like pain or joy which can only be felt and which cannot be measured.
Suppose a person starts eating egg one after another.
 The first egg gives him great pleasure. By the time he takes the second it gives him less
satisfaction as the second egg is meeting with a less urgent want.
 The satisfaction of the third will be lesser than of second, that of the fourth is lesser than that of
the third and so on.
 The additional or incremental satisfaction i.e. the marginal utility with every successive unit of
egg will go on decreasing till it drops down to zero.
 If the consumer is forced to take more, the satisfaction becomes negative and the utility changes
to dis-utility.
 Marginal utility (MU) is defined as the change in total utility (TU) resulting from unit change in
consumption of commodity per unit time.

Units (eggs) Total Utility Marginal Utility 

(units of satisfaction) (units of satisfaction)
1 25 25
2 45 20
3 60 15
4 70 10

34
 5 75 5
6 75 0
7 71 -4

 Total Utility curve increases at beginning and reaches maximum and decline eventually with
increase in quantity of goods consumed.
 Marginal utility slopes downward from left to right.
 It reaches zero when total utility reaches maximum and becomes negative if more of goods
consumed after that.
 It shows as the quantity of goods consumed increases marginal utility decreases.
 It is notable point that marginal utility is zero when total utility is maximum.

LAW OF DIMINISHING MARGINAL UTILITY (MARSHALLIAN

APPROACH)

 "The additional benefit which a person derives from a given increase of his stock of a thing
diminishes with every increase in stock that he already has."

Assumptions

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  The consumer is assumed to be rational.
 Cardinal utility – The utility of each commodity is measurable in monetary units.
 Money has a constant marginal utility.
 Utilities of different commodities are independent of one another.
 Taste and income of the consumer remains the same.
 Commodity is consumed in suitable size and in suitable time.
 There is no change in fashion.

Importance of the law

 The law helps us to derive the law of demand.

 Marginal utility of money to rich people will be smaller than the marginal utility of money to poor
people.
 So, the income of the rich people is taxed at a progressive rate.
 Law of diminishing marginal utility is the basis for progressive tax system.
 This law governs our daily expenditure. Our purchase stop at a point where marginal utility
equals price.

INDIFFERENCE CURVE TECHNIQUE

 This technique has been developed by the modern economists J.R.Hicks and R.G.D.Allen for the
analysis of demand.

Assumptions

 Rationality - The consumer is assumed to be rational.

 Ordinal utility - Here the measure of utility is viewed as the level of satisfaction rather than the
amount of satisfaction.
 The levels of satisfaction are comparable rather than quantifiable i.e. consumer ranks his
satisfaction derived from different goods and he does not know precisely the amount of
satisfaction.
 Consistency and Transitivity of choice – it is assumed that the consumer is consistent in his
choice i.e. if he chooses commodity A over B in one period, he would not choose B over A in
another period. If A >B, then B<A.
o Similarly it is assumed that consumer’s choices are characterised by transitivity.
o If A is preferred to B and B is preferred to C, then A is preferred to C. Symbolically if A>B
and B>C, then A>C

Indifference schedule

 An indifference schedule may be defined as a schedule of various combinations of two goods that
would give the same level of satisfaction to the consumer.

Indifference schedule –I

Combination Kgs. of meat No. of eggs

36
 s
I 1 20
II 2 15
III 3 11
IV 4 8
V 5 6
VI 6 5

 Assume a person has the choice of spending a part of his resources on two commodities, meat and
eggs.
 The above table shows various combinations of meat and eggs, which give the consumer the same
level of satisfaction.
 Since all combination of meat and eggs give the consumer the same level of satisfaction, the
consumer is indifferent whether he gets the first or last of the two commodities.

Indifference curve (Click here to view the graph)

 The figures in the above table, if plotted on a graph give the Indifference curve.
 While the Indifference schedule is the tabular statement of different combinations of two
commodities yielding the same level of satisfaction, Indifference curve depicts the same on a
graph.
 An Indifference curve may therefore defined as the locus of various combinations of two
commodities which yield the same total satisfaction to the consumer. This curve is also known as
Iso-utility curve (Iso means same).

Indifference map

 Consider another Indifference schedule which is as follows.

Indifference schedule –II

Combination Kgs. of meat No. of eggs

s
I 1 22
II 2 17
III 3 13
IV 4 10
V 5 8

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 VI 6 7

 Consumption of any combination of commodities in the second schedule would mean that the
consumer is on a higher level of satisfaction than with the previous schedule because the quantity
of egg is higher in all the corresponding combinations in the second schedule.
 Obviously any combination in the schedule II is superior to any combination in schedule I.
 Plotting the second schedule, we get an indifference curve above the first curve implying higher
level of satisfaction.
 In the same way, we can draw many similar curves representing greater or lesser satisfaction.
 Two or more indifference curves drawn on a same graph are collectively called as indifference
map.
 In other words indifference map represents a collection of indifference curves where each curve
shows a certain level of satisfaction to the consumer.
 While the higher indifference curve implies higher level of satisfaction, lower indifference curve
yield lower utility.

Properties of indifference curves

 An indifference curve has a negative slope, which denotes that if the quantity of one commodity
decreases the quantity of the other must increase if the consumer is to stay on the same level of
satisfaction.
 Indifference curves do not intersect each other.
 Indifference curves are convex to the origin. This is because as the consumer adds more of the
commodity, he gives up only less and less of the other.
 Any movement of the indifference curves to the right is a movement to greater total utility.

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 CHAPTER-8: THEORY OF DEMAND 

Learning objectives

 To explain the meaning of demand

 To explore different types of demand
 To discuss various factors involved in the demand of commodities.
 To understand exceptional demand curve, extension and contraction and increase and decrease in
demand

DEMAND

Meaning of Demand

 Demand in economics is the desire for something plus the willingness and ability to pay a certain
price in order to possess it.

Demand schedule

 Demand schedule is a statement which shows varying quantities of a commodity purchased at an

alternative prices at a given time.
 Demand Schedule represents a functional relationship between price and quantity demanded. It
is usually represented in a form of a table.

Demand Curve (Click here to view graph)

 The graphical representation of demand schedule is demand curve.

 Usually the demand curves slopes downward from left to right indicating inverse relationship
between price and demand for the commodity.

Law of demand

 A greater quantity of a commodity is demanded at a lower price and a smaller quantity is

demanded at a higher price.
 This inverse relationship between price and quantity demanded is called as "Law of demand".

Reasons for the inverse relationship

 There are two reasons why demand curve slopes downwards (or why people buy more when the
price falls).
o Consumer is able and willing to buy more of a good when its price falls. Because, a fall in
the price of a good is equivalent to an increase in the income of the consumer, i.e. with the
commodity being cheaper, the consumers’ real income increases which can be used for
purchasing some more units of the commodity. This is called as ‘income effect’.

39
 o If the price of a good falls, it tends to be substituted wholly or partly for other
commodities raising the quantity demanded of this good. This is called as ’substitution
effect’.
 The income and substitution effects combine to increase the ability and
willingness of the consumer to buy more of the commodity whose price has
fallen.

TYPES OF DEMAND

 Price Demand: It refers to various quantities of a commodity or a service that a consumer would
purchase at a given time in a market at various prices.
 Income demand: It refers to various quantities of a commodity or a service that a consumer would
purchase at a given time in market at various levels of income.
 Cross demand: It means quantities of a good or service which will be purchased with reference to
changes in price not of this good but of other related goods. Eg. Changes in quantity demanded of
coffee with respect to changes in price of tea.
 Joint demand: Certain goods are to be used together to satisfy a particular want. Eg. Pen and Ink.
The demand for such commodities is known as Joint demand.
 Composite demand: A commodity can be put to several uses and that commodity may be
demanded to satisfy any want or more of such uses. The demand for such commodity is known as
the composite demand. Eg. Electricity may be demanded for household uses, industrial purpose
etc.
 Derived demand and Direct demand: Demand for paddy grains is direct demand whereas the
demand for organic fertilizer to increase paddy grain production is derived demand.

EXCEPTIONAL DEMAND CURVE

 The demand curve instead of sloping downwards may rise upwards when there is an increase in
price showing that more quantity would be demanded when the price rises.(Click here to view
graph)
 This tendency was first observed by Sir Robert Giffen in 19th Century.
 Hence this exceptional process is called Giffen paradox.
 The reason for such exceptional behaviour may be
 Fear of scarcity of goods in future
 Possession of a goods conferring distinction in the society.

40
 DETERMINANTS OF DEMAND

 Amount of a commodity or service that a consumer wishes to purchase is called as quantity

demanded of that commodity or service.
 Purchase of this quantity is influenced by several factors, which are called as determinants of
demand.
 The relationship between the quantity demanded and its determinants are expressed in the form
of a functional equation known as demand function.
o Qd = f {Pi, Pj, Y, T, C, P, I...}
o Where Qd = Quantity demanded
o Pi = Price of that commodity
o Pj = Prices of related goods (substitutes and complements)
o Y = Income of consumer
o T = Tastes and preferences of consumer
o C = Climate or weather
o P = Size and composition of population
o I = Income distribution of the society
 Thus the quantity demanded of a commodity is determined jointly by all these factors indicated.
 Changes in any one or two or more of these factors listed above would become the causes for the
changes in demand.

EXTENSION AND CONTRACTION OF DEMAND

 Demand changes simply because of a change in price.(Click here to view graph)

 Though the consumer's demand schedule is fixed, he is solely led by price.
 He simply goes up and down in the same curve.

41
 INCREASE AND DECREASE IN DEMAND

 The consumer fixes his own demand and

 increases or decreases his demand not with respect to the price but to the factors other than price
like income.It will shift the demand curve.
 Now, there will not be a movement along the old curve but along a new curve altogether. (Click
here to view graph)

42
Consumer demand

 It refers to the quantity demanded for a good at a defined time period, in a defined geographical
area, in a defined marketing environment by a particular consumer.
 The determinants of consumer demand can be expressed as follows.

Qx = f (Px ,Pa---n, Y, Ax, T…..) Where

 Qx = the quantity of good 'X' demanded by the consumer

 Px = The price of the good
 Pa….n = The price of the other related goods 'a' to 'n'
 Y = Income of the consumer
 Ax = Advertising expenditure on good
 T = Consumer tastes and
 … = other, unspecified, explanatory variables

Market demand

 Market demand reflects total sales of a product at a specific point of time.

 The determinants of market demand can be expressed as follows.

Qx = f (Px ,Pa---n, Y, Ax, T…..) Where

 Qx = the quantity of good 'X' demanded by the market

 Px = Price of the good
 Pa….n = Price of the other related goods 'a' to 'n'
 Y = Incomes of the consumers
 Ax = Advertising expenditure on good
 T = Consumer tastes and
 … = other, unspecified , explanatory variables

CHAPTER-9: ELASTICITY OF DEMAND 

Learning objectives

 To explain elasticity and magnitude of demand

 To understand the factors affecting elasticity of demand
 To discuss the concept of Engels law and consumer's surplus

ELASTICITY OF DEMAND

Defination

43
  Elasticity of demand is defined as proportionate change in quantity demanded in response to
proportionate change in price.

Price elasticity of demand

 It is defined as relative responsiveness of quantity demanded of a commodity to the percentage

change in its price.

Measurement of price elasticity

 Elasticity of demand can be measured by three methods viz.

o Proportional method
o Total outlay method and
o Geometrical method

Proportional method

 In proportional method, price elasticity of demand is measured as below.

 Price elasticity of demand is the ratio of proportionate change in the quantity demanded to the
proportionate change in the price.

 Suppose price of an egg falls from Rs. 1.25 to Re.1 and as a result, the demand rises from 10 to 15
eggs, then price elasticity of demand (Ep)

44
  This indicates that for one- percent decreases in price, there would be 2.5 per cent increase in the
quantity demanded.

Total outlay method

 In total outlay method, from the changes in the total expenditure made on a good as a result of
changes in its price, the price elasticity of demand for the good is measured.
 But with this method, we can know only whether the elasticity is equal to one, greater than one or
lesser than one and we cannot precisely work out the coefficient of elasticity.
 If the total expenditure made on the good remains the same, when the price of a commodity
consumed changes, the elasticity of demand is equal to one.
 Because, the total expenditure made on the good can remain the same, only when the
proportional change in the quantity demanded is equal to the proportional change in price.
 When the total expenditure made on the good increases as a result of a fall in price or when the
total expenditure decreases as a result of a rise in price, then the price elasticity of demand will be
greater than one.
 When the total expenditure decreases as a result of a fall in price or when the total expenditure
increases as a result of a rise in price, then the price elasticity of demand will be less than one.
 Consider the following table, which gives quantity demanded of milk at various prices.

Total outlay and elasticity of demand

 Quantity demanded increases from 50 litres to 60 litres and total outlay increases from Rs. 725 to
Rs. 855, when the price decreases from Rs. 4.50 to Rs. 4.25 i.e. the quantity demanded increases
so much that the total outlay on milk increases indicating thereby that elasticity of demand is
greater than one at these prices.

Price of milk (Rs.) per Quantity demanded in Total outlay Elasticity of

litre litres (Rs.) demand
14.50 50 725.00 -
14.25 60 855.00 e>1
14.00 75 1050.00 e>1
13.75 80 1100.00 e=1
13.50 84 1134.00 e<1

45
 13.25 87 1152.75 e<1

 When the price falls from Rs. 4.00 to Rs. 3.75, the quantity demanded increases from 75 to 80
litres so that total outlay remains the same at Rs. 300.
 This shows that price elasticity of demand is unity. When the price of milk further falls from Rs.
3.75 to Rs. 3.50 and then to Rs. 3.25, total outlay spent on milk decreases in spite of the increase
in the quantity demanded.
 Thus, the elasticity of demand for milk at these prices is less than unity.

Geometrical method

 Geometrical method tells how to measure elasticity of demand at any point on a curve.
 Following is the straight demand curve DD'. Elasticity at a particular point is represented by a
fraction -distance from D' to that point divided by the distance from the other end.
 Thus elasticities of demand on the points P, Q, and R are D' P/DP, D' Q/DQ and D' R/DR
respectively. Since Q is in the middle of the curve, elasticity D' Q/DQ is equal to one.
 Any point above this point will have an elasticity of more than one and points below Q will have
elasticity of less than unity. Therefore, it can be concluded that elasticity of demand is different at
different points of the same curve.
 Elasticity calculated in this way can be called as point elasticity. (Click here to view graph)
 Point elasticity can be used only when the demand curve is known. However, often only scanty
data on price and quantity are available in which cases it will be difficult to find point elasticity.
 Instead, we shall have arc elasticity (an arc is a portion or a segment of a curve).
 Instead of using old and new price and quantity, here we take the average of both. Thus the arc
elasticity is the average elasticity which is equal to

46
Income elasticity of demand

 It is the responsiveness of change in quantity purchased to change in income.

 Luxury goods will have high-income elasticity while the necessaries have low-income elasticity of
demand.

Cross elasticity of demand

 It is a measure of responsiveness of demand for goods to given change in the price of related
goods.

MAGNITUDE OF ELASTICITY

 On the basis of numerical value five types of elasticity of demand can be distinguished.

47
 o Elastic Demand: When the coefficient of elasticity of demand exceeds one, the demand is
elastic. The percentage change in quantity demanded is more than that of the price. (Click
to view graph)
o Inelastic demand: When the coefficient of elasticity of demand is less than one the
demand is called inelastic. The percentage change in quantity demanded is less than that
of price.(Click to view graph)
o Unitary elastic demand: When the coefficient of elasticity of demand is equal to one the
demand is said to be unitary elastic. That is percentage change in quantity demanded is
equal to that of price. (Click to view graph)
o Perfectly elastic demand: When the coefficient of elasticity of demand is infinite the
demand is said to be perfectly elastic. i.e. when the quantity demanded changes even
when the price level remains static, the demand is said to be perfectly elastic. (Click to
view graph)
o Perfectly inelastic demand: When the coefficient of elasticity of demand is zero, the
demand is said to be perfectly inelastic. When the change in price does not result in
change in quantity demanded, the demand is said to be perfectly inelastic. (Click to view
graph)

FACTORS AFFECTING ELASTICITY OF DEMAND

 Nature of commodity
 Availability of substitutes at ruling market price
 Number of possible substitute E.g. Uses of the plastics
 Proportion of income spent on the good.
 Period of time / range of commodity use.
 Possibility of new purchasers / consumption pattern.
 Proportion of market supplied at ruling price.

ENGEL'S LAW

 The 19th century statistician Engel noticed that any additional income is tended to be spent more
on luxuries and non essentials than on essentials and his observation is commonly known as
Engel’s law which can be postulated as follows.
 “The proportion of personal expenditure devoted to necessities decreases as income rises”. It can
be illustrated with the help of following figure.
 The Engel’s law represented diagrammatically illustrates that expenditure on food and clothes
form a larger proportion of total expenditure of people with low incomes than of those with
higher incomes. (Click to view graph)

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Practical Importance

 The concept of elasticity of demand figures predominantly in both the theoretical analysis of the
economists and the practical decision of the businessmen and the government.

Theoretical economics

 To define perfect competition in selling a good.

 As a helpful tool in analysing problems connected with changes in the conditions of
supply.

Business decision

 Super market: When it cuts the price of a good the supermarket expects a considerable
expansion in demand by winning customers from retailers selling at a higher prices.
 Monopolists: A monopolist looks at the demand schedule for his good and fixes the
quantity and thus the price at which he makes profit.This is because he is not faced with
the perfectly elastic demand curve.

Government policy

 In fixation of sales tax.

49
  Imposition of selective tax or subsidy on goods will affect the size of the industry.

CONSUMER'S SURPLUS

 Consumer's surplus is based on diminishing utility.

 Concept of consumer surplus is defined as the excess of price, which a person would be willing to
pay rather than go without the good.
 In short Consumer's surplus is what we are prepared to pay minus what we actually pay or it is
the difference between total utility and the amount spent. (Click to view graph)

Consumer's surplus = Total Utility-Total price

No.of Price Total Total Marginal Consumer's

eggs (Rs) Cost utility utility surplus
(1) (2) (3) (4) (5) (6) = (4 - 3)
1 25 25 100 -- 75
2 25 50 175 75 125
3 25 75 225 50 150
4 25 100 250 25 150

 Consumer is prepared to pay OMPD for four eggs but as a buyer in the market, he pays
only OMPK.
 Hence the consumer's surplus is given by OMPD - OMPK = DKP (selected area)

50
 CHAPTER-10: SUPPLY

Learning objectives

 To define supply, supply curve and supply schedule.

 To know the factors affecting supply.
 To explain elasticity of supply.

SUPPLY

Definition

 Supply of a commodity refers to the various amounts of commodities, which the producers are
willing and able to make available for sale at various prices during a given time.

SUPPLY SCHEDULE

 Supply schedule is a statement showing varying quantities of goods offered for sale at alternative
prices at a given time.

Price of egg Rs / 100 eggs Market supply

150 17,500
140 16,000
125 15,500
110 14,600
 

SUPPLY CURVE

 Supply curve is the graphical representation of the supply schedule which represent various
amount of goods that would be offered for sale at different prices during a particular period of
time.
 Supply curve slopes upward from left to right because as the price rises the quantity supply
increases.

51
 
LAW OF SUPPLY

 Other things remaining constant (ceteris paribus), higher the price of a commodity, the larger
will be the quantity supplied and lower the price the smaller will be the quantity supplied.
 In mathematical terms supply is an increasing function of price.

Determinants of supply

 Price of the commodity – when price of a commodity increases, its supply also increases.
 Price of a related commodity – When price of a good increases , supply of its substitute declines
e.g. mutton and chicken.
 Cost of inputs of production – When cost of raw materials increases, supply decreases.
 State of technology – Improvement in technology lower the cost of production and increases the
supply.
 Factors outside the economic sphere like flood, drought, fire etc.
 Tax and subsidy – Higher taxation will decrease the supply and granting subsidies will raise the
supply.

Elasticity of supply (Click to view graph)

 It measures the rate at which the quantity supplied changes due to changes in price.

52
  Suppose the price of an egg rises from Rs. 1.00 to Rs. 2 and as a result the supply increases from
10 to 30 eggs.

 For 1 percent increase in price, there is 4 per cent increase (change) in quantity supplied.

Different types of elasticity of supply

 Perfectly inelastic - Esp = 0

 Inelastic - Esp<1
 Unitary elastic - Esp = 1
 Elastic - Esp >1
 Perfectly elastic - Esp = Infinite

CHAPTER-11: COST CONCEPTS – PRINCIPLES OF FIXED AND

VARIABLE COST

Learning objectives

 To explain meaning of various costs in animal husbandry practices.

 To discuss about various cost relationships.
 To clarify difference between fixed cost and variable cost.
 To show the relationship between Total Fixed Cost, Total Variable Cost and Total Cost.
 To explore the importance of unit cost curves.

COST CONCEPTS

Production costs

53
  Production costs play an important role in decisions making by the farmers.
 Cost of production often becomes a policy issue when producers complain that the prices they
receive for their product do not cover the cost of production.
 Cost of production here means the expenses incurred per unit of output.
 Costs in farming can be divided into two main categories
o Fixed cost
o Variable cost

Fixed cost (or) over head charges (or) sunk cost

 A resource or input is called a fixed resource if its quantity cannot be varied during the production
period and in general costs associated with fixed inputs are called fixed costs.
 Fixed costs have to be incurred even when the production is not undertaken.
 E.g., taxes, rent, electricity, water charges, insurance, depreciation, labour hired on a year -round
basis, interest on investment in equipment and livestock, etc
 In short run, some costs are fixed and others can be varied. However in long run, , all costs
become variable.

Variable costs

 An input is a variable input if it’s quantity can be varied during the period of production and the
costs associated with variable inputs are called variable costs.
 Variable costs vary with the level of production.
 These costs will not be incurred in the absence of production.
 E.g., seed, tractor fuel, repairs, feed, fertilizer cost, etc.
 Labour if hired on daily basis, interest on current investment, hired machines and other services
are also included in variable costs.

Total costs

 Total costs of production will include both fixed and variable costs.

Cash costs (explicit cost)

 Cash costs are incurred when resources are purchased and used immediately in the production
process.
 Cash costs result from purchases of non-durable inputs such as fertilisers, fuel, oil, and casual
labour which do not last more than one production process.

Non-cash costs (implicit costs),

 Non-cash costs consist of depreciation and payments to resources owned by the farmer.
 E.g., Depreciation on tractor, equipment, buildings, payments made to the farmer himself or
family labour, management and owned capital.

54
Opportunity cost

 Opportunity cost of an output is defined to be the income that can be earned in the next best
alternative use.
 For example, a farmer with 25 kg concentrate feed which can either be fed to his cows or sold.
 If he gives the feed to his cows, the opportunity cost is the amount of money for which the feed
can sold to others.
 If he sells the feed, the opportunity cost is the amount of extra income, which can be obtained by
giving this feed to his animals.
 Opportunity cost is defined to be the real cost of any input.

COST FUNCTION

 Production of output requires input, which cost money, and therefore there exist
a relationship between output and cost.
 Total cost curve or cost function represents the functional relationship between
output and total cost.
 Cost function can be presented
o Arithmetically (tabular form)
o Geometrically (graphic form)
o Algebraically (equation form)

Tabular form

Output TF TVC TC
C
0 10 0 10
2 10 2 12
5 10 4 14
9 10 6 16
13 10 8 18
17 10 10 20
22 10 12 22

Graphic form

55
  Nature of cost curve depends on nature of the corresponding production
function.
 Hence, when cost is portrayed on X-axis and the product on Y-axis, the total cost
curve will have the same shape as total product curve.

Algebraic form

 C = f(Y). Where, C-total cost and Y-output

RELATIONSHIP BETWEEN TFC, TVC, AND TC

 Total fixed cost (TFC) is represented by a straight line parallel to X-axis and it
remains unchanged for all output levels in a time period.
 TVC-is zero, when output is zero. It increases as output increases. The shape of
TVC curve depends on the shape of the production function.
 TC is the sum of TFC and TVC. When no variable output is added, TC is equal to
TFC.
 The TC curve is shaped exactly like the TVC curve, but is placed above the total
variable cost by the units of total fixed cost. (Click to view graph)

Opportunity cost

 The income which an output can earn in the next best alternative use.

56
Physical risks

 Destruction of the product itself and are due to fire, accident, rain etc.
 Risk attached to such natural hazards is often transferred to institutions
(Insurance companies) that specialize in assuming such risk.
 Unit costs are
o Average Fixed Cost (AFC),
o Average Variable Cost (AVC),
o Average Total Cost or Average Cost (ATC or AC)
o Marginal Cost (MC).
 These unit costs are more important than total costs in decision making process.
Plotting these, we get unit cost curves. (Click to view graph)

Average Fixed Cost

 Average Fixed Cost is worked out by dividing the Total Fixed Cost by the amount
of output.
 It is fixed cost/unit of output. AFC will vary for each level of output.
 As output increases, AFC continues to decline. When output is zero, AFC=TFC.
AFC always slopes downwards regardless of production function.
 AFC = TFC /Output

Average Variable Cost

 Average Variable Cost is calculated by dividing the Total Variable Cost by the
amount of output.
 AVC decreases, reaches a minimum and increases thereafter. AVC cannot be
computed when output is zero.
 AVC = TVC / Output

Average Total Cost

 Average Total Cost can be computed by dividing Total Cost by output.

 ATC, as AVC, first decreases, attains a minimum and increases thereafter.
 ATC is the cost of producing one unit of output.
 ATC = TC / Output

57
Marginal Cost

 Marginal Cost is the change in the Total Cost in response to a unit increase in
output.
 It is found out by dividing change in total cost (or total variable cost because TFC
is not going to change) by change in output.
 MC curve decreases first, reaches its minimum point and then raises upwards
and passes through AVC and AC (ATC) at their minimum points.
 In other words, AVC and AC will slope downwards and keep falling as long as MC
is below them.

BREAK-EVEN POINT

 Break-Even Point is the quantity of output corresponding to minimum of average

total cost.
 Exactly at this point, the producer neither gains nor looses anything.
 Whatever income he gets above this point is his profit.
 Suppose the farmer is operating below this point he will be incurring loss towards
his fixed cost.
 In short-run, the farmer continues to operate even below this profit. e.g., broiler
farms.
 In the long run, the producer has to operate above this point to remain in the
business.

Shut-Down Point

 Shut-Down Point is the quantity of output corresponding to minimum point of

average variable cost.
 Exactly at this point, the producer is in a position to meet the expenses towards
the variable cost alone.
 If he operates below this point, he will not be in a position to meet even the
variable expenses .
 In short run, the producer must be able to operate at least above this point in
order to sustain in the business.

Long run

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  Long run is a period of time during which the quantities of all factors, both
variable and fixed, can be adjusted. Break Even Unit Cost Curve

Short run

 Short run is a period of time, within which the firm can vary its output by varying
only the amount of variable factors such as labour and raw materials.
 Fixed factors such as capital, equipment, top management personnel cannot be
varied.

RELATIONSHIP BETWEEN AVERAGE VARIABLE COST AND

AVERAGE PRODUCT

 AVC = TVC/Y = X . Px/Y = Px . X/Y = Px . 1/AP

 AVC * 1/AP
 Therefore, AVC is inversely related to AP, i.e., when AP increases, AVC decreases.
 When AP is maximum, AVC attains its minimum point and when AP decreases,
AVC increases.
 As on a production function, AP measures the efficiency of variable input, for cost
curves AVC provides the same measure.

Relationship between marginal cost and marginal product

Marginal Marginal Cost

Product
Increasing Decreasing
At maximum At minimum
Decreasing Increasing

CHAPTER-12: THEORY OF PRODUCTION 

Learning objectives

59
  To show relationship between a variable input and an output by use of
production function and its types of returns to scale.
 To illustrate Law of diminishing returns and its importance.
 To clarify the difference between short run and long run.

CONSTANT RETURNS PRODUCTION FUNCTION OR CONSTANT

COST

 There can be three types of input - output relationships in the production of

commodities.
 Nature of the relationship between a single input and a single output can be
either of the following or combination of them.

Constant returns production function or constant cost (Click here to view

graph)

 In constant returns, each additional unit of variable input produces an equal

amount of additional product. i.e., The amount of product increases by the same
magnitude for each additional unit of input.
 However, this is not a very common relationship in Animal Husbandry but may
be possible in other industries. (Value of each Unit of input Rs. 1500)

Example

No. of units Total output ∆ ∆ X MP Average Variable cost

of  (Y) Y ( ∆ Y/ ∆ X) = 
Input (X) Unit variable cost /AP
0 - - -
10 500 50 10 5 1500/50 = 300
20 1000 50 10 5 1500/50 = 300
30 1500 50 10 5 1500/50 =300
40 2000 50 10 5 1500/50 =300
50 2500 50 10 5 1500/50 =300

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  The table and the graph show that every equal increase in the input results in a
constant increase in the output and hence, the given production function is
known as a constant marginal returns function giving a straight line production
curve (TP curve) which is having the same slope throughout its entire range.

INCREASING RETURNS PRODUCTION FUNCTION OR

DECREASING COST

 In this case, every additional or marginal unit of input adds more and more to the
total product than the previous unit. i.e., addition to total product is at an
increasing rate.
 In actual practice, the cases of purely increasing returns are rarely available.
(Value of one unit of input Rs 500). 

Example

No. of Total ∆  ∆  MP Average Variable

units of output X Y ( ∆ Y/ ∆ X) cost =Unit
Input (X) (Y) variable cost /AP
10 100 - - - 500/10 =50
20 110 10 10 1 500/5.5 = 90.90
30 190 10 90 9 500/6.33 =78.99
40 300 10 110 11 500/7.5 = 66.67
50 450 10 150 15 500/9.0 = 55.56

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  Shape of the curve will go steeper and steeper with added inputs.  

DECREASING RETURNS PRODUCTION FUNCTION OR

INCREASING COST

 “If increasing amounts of one input are added to a production process while all
other inputs are kept constant, the amount of output added per unit of variable
input will eventually start decreasing”.
 In this type each additional unit of input add less and less to the total product
than the previous unit. Diminishing marginal product exist.
 This function exists in almost every practical situation in livestock production. .
(Value of one unit of input Rs 500) 

Example

No. of Total ∆  ∆  MP Average Variable

62
 units of output X Y ( ∆ Y/ ∆ X) cost =Unit
Input (X) (Y) variable cost /AP
0 50 - - -
10 140 10 90 9 500/14 =35.17
20 210 10 70 7 500/10.5 =47.62
30 260 10 50 5 500/8.6 = 58.14
40 300 10 40 4 500/7.5 =66.67
50 330 10 30 3 500/6.7 =74.63
60 350 10 20 1 500/5.9 =84.75

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Elasticity of production

 Elasticity of production can be defined as the percentage change in output in

response to the percentage change in input.

 A production function with an elasticity of 1 indicate constant returns and the

elasticity of more than one and less than one imply increasing and diminishing
returns, respectively.

PRODUCTION FUNCTION, SHORT AND LONG-RUN

PRODUCTION FUNCTION

 Production function is the relationship between inputs and outputs.

 Production function, which relates to factors and products where some resources
are fixed can be termed as short-run production function (Regardless of the
number of fixed resources and level at which each is held fixed).
 Those input-output relations which permit variation in all inputs or all factors
(none is fixed) can be termed as long run production function.

Law of Variable Proportion or Law of Diminishing Return

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Definition

 “If the quantity of one productive service is increased by equal increments, with
the quantity of other resource services held constant, the increments to total
product may increase at first but will decrease after a certain point” – E.O.Heady
 “An increase in capital and labour applied in cultivation of land causes in general,
less than proportionate increase in the amount of product raised, unless it
happens to coincide with an improvement in the arts of agriculture” - Marshall.
 As the amount of variable resource used in production of a product is increased,
the output of the product will at first increase at an increasing rate, then increase
at a decreasing rate and finally a point will be reached, where further application
of the variable resource will result in a decline in the total output of production.
 In short, marginal product of variable input will first increase, then decrease and
finally become negative.

Short Run and Long Run

 Short run refers to a period of time in which the supply of certain inputs (e.g.
plant, building and machines, etc.) is fixed or inelastic.
 In short run, therefore, production of a commodity can be increased by
increasing the use of variable inputs, like labour and raw materials.
 They do not refer to any fixed time period. While in some industries short term
may be a matter of a few weeks or a few months, in some others (e.g., electric and
power industry), it may mean three or more years.
 Long run refers to a period of time in which the supply of all the inputs is elastic,
but not enough to permit a change in technology.
 In long run, the availability of even fixed factor increases. Therefore, in long run,
production of commodity can be increased by employing more of both, variable
and fixed, inputs.
 Economists use another term, i.e., very long period which refers to a period in
which the technology of production is subject to change.
 In the very long run, the production function also changes. The technological
advances mean that a larger output can be created with a given quantity of
inputs.

Short run production with one variable input

 Laws of returns state the relationship between the variable input and the output
in the short term.
65
  By definition, certain factors of production (viz., land and capital equipments
such as plant and machinery) are available in short supply during the short run.
Such factors are known as fixed factors.
 On the other hand, the factors which are available in unlimited supply even
during the short periods are known as variable factors.
 In short run, therefore, the firms can employ a limited or fixed quantity of fixed
factors and an unlimited quantity of the variable factor.
 In other words, firms can employ in the short run, varying quantities of variable
inputs against a given quantity of fixed factors. This kind of change in input
combination leads to variation in factor proportions.
 The laws which bring out the relationship between varying factor proportions and
output are therefore known as the Law of Variable Proportions, or what is more
popularly known as the Law of Diminishing Returns.

Long term production with two variable inputs

 We shall now discuss the relationships between inputs and output under the
condition that both the inputs, capital and labour, are variable factors. This is a
long run phenomenon.
 In the long run, supply of both the inputs is supposed to be elastic and firms can
hire larger quantities of both labour and capital. With large employment of
capital and labour, the scale of production changes.
 The technological relationship between changing scale of inputs and output is
explained through the production function and isoquant curves techniques.

Production rules for the short run

 There are three rules for making production decisions in the short run. They are
o Expected selling price is greater than minimum ATC (or TR greater than
TC). A profit can be made and is maximized by producing where MR =
MC.
o Expected selling price is less than minimum ATC but greater than
minimum AVC (or TR is greater than TVC but less than TC). A loss cannot
be avoided but will be minimized by producing at the output level where
MR=MC. The loss will be somewhere between zero and the total fixed cost.
o Expected selling price is less than minimum AVC (or TR less than TVC). A
loss can not be avoided but is minimized by not producing. The loss will be
equal to TFC.
 Application of these rules is as follows. With a selling price equal to MR1, the
intersection of MR and MC is well above ATC, and a profit is being made.

66
  When the selling price is equal to MR2, the income will not be sufficient to cover
total costs but will cover al variable costs, with some left over to pay part of fixed
costs. In this situation, the loss is minimized by producing where MR=MC,
because the loss will be less than TFC.
 Selling price should be as low as MR3, income would not even cover variable costs,
and the loss would be minimized by stopping production. This would minimize
the loss at an amount equal to TFC.

Production rules for the long run

 There are only two rules for making production decisions in the long run.
o Selling price is greater than ATC (or TR greater than TC). Continue to
produce, because a profit is being made. This profit is maximized by
producing at the point where MR=MC.
o Selling price is less than ATC (or TR less than TC). There will be a
continuous loss. Stop production and sell the fixed asset(s), which
eliminate the fixed costs. Money received should be invested in a more
profitable alternative.
 This does not mean that assets should be sold the first time a loss is incurred.
Short-run losses will occur when there is a temporary drop in the selling price.
 The second long-run rule should be invoked only when the drop in price is
expected to be long lasting or permanent.

CHAPTER-13: ECONOMICS OF DISEASE LOSSES 

Learning objectives
 To discuss economic consequences of animal disease loss.
 To explore methods of measuring economic benefits of
disease control.
ECONOMICS OF DISEASE LOSSES AND MECHANISM OF
DISEASE ON ALTERED PRODUCTIVITY

 At present, animal health management becomes more complex phenomenon involving

multiple issues in order to optimize livestock production.

67
  In dealing with animal health issues, economic evaluation has become increasingly
important as the effects of diseases which remain to be controlled are far more subtle than
was the case for epidemic problem.
 It is necessary to define the ways in which a particular disease lower productive efficiency.
 Over the years it has become clear from many studies that typically animal health measures
yield very high economic return to livestock producers.
 In order to explain unusual nature of effects of disease on animal and hence to show how
economic studies on animal disease should be carried out .
 It is necessary to define the exact mechanism by which a disease can influence productivity.

Mechanism of Disease on Altered Productivity

 Infectious and parasitic diseases cause diversion of feed resources to growth and
multiplication of causative agents.
 Non-infectious disease can affect in a different manner. These disease may cause direct or
indirect effect.

Effect of ingestion

 Most infectious and non-infectious diseases cause major effect of reduced feed intake with
rare incidence of increased intake.
 Reduced feed intake is often called as anorectic effect. Its effect on feed conversion efficiency
is known as specific effect.
 This specific effect is of economic relevance and is of two types.
 Since lower production is achieved from same feed intake and efficiency of production
process is adversely affected.
 Anorectic effect reduces both intake and output without altering efficiency of production.
 This is an important consideration as variable cost in purchased feed and a fixed cost in feed
and fodder establishment.

Effect of Disease on Physiological Process

 Diseases generally modify different physiological processes such as nutrition, metabolism ,

respiration and excretion.
 Mainly protein metabolism is highly affected by many diseases compared to other every
metabolism.
 Altered protein metabolism results in depletion of protein in the body of host leading to
weight losses, and production loss.
 In rare cases, every metabolism impairment occurs as secondary to protein metabolism.
 This results in every costs of tissue regeneration. Other mineral and micronutrient
metabolisms are also alterd by disease process.
 Cobalt, copper, zinc and vitamins status have all been affected by protein metabolism.
 Since lung diseases can adversely affect productivity, another mechanism by which disease
might impair physiological function is a production respiratory function.
 Similarly altered kidney function and liver function can cause production deficiency.

68
 MEASURABLE EFFECTS OF DISEASES ON LIVESTOCK
PROFITABILITY

Premature Death

 This is the easiest of all consequences of diseases.

 In economic studies, death loss can be measured as a difference between the potential
market value and its value when dead ( which may not be zero), less the costs which would
have been incurred in obtaining market value (extra feed, care to market age, marketing cost
etc.).

Changed value of animal and products from slaughter animal

 Diseased animals may have lower marketing value either due to visible lesions or due to
indirect changes in appearance or body confirmation which make them less attractive.
 This reduced value may be due to changes in the ratio of meat to fat or meat to bone.
 Presence of lesions of zoonotic diseases may render animal totally unfit for consumption
from aesthetic point of view.
 Some external parasitic diseases cause reduction value of skin/hides to their uses.

Reduced Live weight Gain

 It is well known fact that diseased animal gain weight more slowly than equivalent disease
free animals.

Reduced Yield and Quality of Products from Live Animals

 Yield of animal products like milk, wool and meat may be reduced by disease.
 Quality of these products may also be reduced in term of change in milk composition (in
mastitis) and change in wool quality.
 In case of yield reduction, price of commodity will fall and livestock producer will suffer. But
in case of quality change, consumer will suffer the loss.

Reduced Capacity for works

 Most important use of animal in developing country is as a source of traction. There are
certain disease like FMD causing reduced capacity to work.
 Disease can severely curtail rice paddy field preparation and other task for which animals are
essentials. So this is essential economic loss of producing field.

69
Altered production of dung for fuel and fertilizer

 Dung is used as cooking fuel in most developing countries, apart from using it as fertilizer.
 Disease which cause high metabolic rate will indirectly influence rumen metabolism by
reducing the supply of dung.

Altered feed conversion efficiency

 Feed conversion efficiency is the ultimate measure of influence of disease on the production
process, but its measure require accurate measurement of feed intake which is possible only
under controlled feeding.
 In grazing system, it is reasonable to take changes in feed as an adequate indication of
change in feed conversion efficiency when comparing diseased and disease free animals kept
under identical condition.

Effect of Disease on herd productivity

 Effect of disease spreads from individual animal to broader extent of herd management.

Reduced Productive life of animal

 Reduced productive life of animal is due to increased culling which might be due to
reason of low yield or disease or unawareness of facts to farmers.

Less accurate genetic selection

 If a disease alters any of the components of productivity which are the subject of
genetic selection pressure in the herd (milk or wool yield), it will affect efficiency with
which animals of superior genetic merits are identified.

Effect on capacity to maintain and improve the herd

 If less progeny born, fewer animals are available as herd replacement or for sale to market
products.
 Thus not only livestock sale income reduced but also management flexibility for herd
improvement will be curtailed.
 It will lead to the purchase of breeding animals with all the additional risks that exists.

70
  For example, liver fluke and other gastro-intestinal parasites have been shown to affect
reproductive performance in ewes.
 In cattle, bovine leucosis and ephemeral fever have been reported to affect reproduction.

Effects of disease control measures on productivity of animals

 In evaluating economic benefit of disease control, it is necessary to consider not only the
difference in productivity between diseased and healthy animals, but also the change in
productivity following elimination of a disease from an affected animal i.e. as in mastitis and
worm infestation.
 Thus selection of an economically optimal control strategy will be strongly influenced by this
consideration.

EFFECT OF ANIMAL DISEASE ON HUMAN AND ANIMAL

WELFARE

Effect on human nutrition

 Major direct effect on human welfare is through
reduced supply of high quality animal protein to young
children and adolescents.
 Thus animal diseases reduce their nutritional value.

Effects on Community Development

 Animals are source of supply of traction power and
dung material in most developing countries.
 Further, they are sources of products like wool, hair,
hide, feather, fur etc., used for clothing, decoration,
manufacture of utensils. Animal disease may cause
reduced supply of these products.

71
  Another effect of animal disease which are zoonotic is
to cause disease in human as well as the animal
population, thus amplifying their impact.

Cultural significance of animal

 In most countries animals serve functions far beyond
the utilization roles.
 In our country, cow is considered as saint and buffaloe
is considered as vehicle of Emedharmaraja (God for
killing).

Animal Welfare
 Animal disease control is an important issue in
protecting the welfare of managed animals.
 There have been surprisingly few efforts to qualify
welfare effects of diseases and most of the information
available is opinion rather solid evidence.
 Greater biological understanding will be required
before quantitative assessments of effects of disease on
animal welfare.
METHODS OF MEASURING THE ECONOMIC BENEFITS OF
ANIMAL DISEASE CONTROL

 Main function of measuring benefits of animal disease

control is on estimating benefits of action against
disease rather than on economics.
72
 The simplest approach is to compare alternative control
programme within farms.
 Ideally large number of farms should be included in
such study to obtain estimates of variation in outcome
between farms.
 In some cases, it may be necessary to conduct a
comparison solely between farms because the farm is
the smallest feasible unit.
 It requires large number of farms because of the extent
of variation in controlled factors between farms.
 There are standard economic techniques which should
be used to describe and summarize the outcome of
economic studies.
 The most common ones are partial budgeting, cost-
benefit analysis and decision analysis.
 The focus of economic studies must be on estimating
the benefit of action against a disease rather than just
on the economic impact of the presence of a disease.
 Although it is not possible to get all of the economic
data using other analytical procedures of which
computer modeling is among the most useful .
 There are standard economic procedures to include an
evaluation of risk of each of alternative course of action.
 A rational approach to provision of health care requires
that the product and welfare significance rather than
pathological severity of the disease should be the
measuring yardstick for livestock.
 In this way health and production issue can be brought
together for the benefit of livestock producer and
equally of the consumer.

73
Reference

1. Prabu, M., A.Md.Safiullah and S.Selvam.2004.

Evaluation of Economic Losses due to Foot and Mouth
Disease in Bovines of Salem District. Agricultural
Economics Research Review.17(1):77-84.
2. Md Safiullah, A.,R.Prabaharan and P.Sadasivam.
2001.Economic Analysis of Calving Interval of
Hungarian Dairy Cattle.Journal of Applied Nutrtion.
(19) 237-246.
3. Md Safiullah, A.,E.Cenkvari, S.Selvam and
N.Meganathan.1997. An Economic Analysis of losses of
dairy cattle in Hungary. Indian Journal of Animal
Sciences. 67(9)739-743.
4. Md Safiullah, A., Imre Tell and Eva
Cenkvari.1994.Economic Analysis of productive
lifespan of Dairy Cattle. Acta Agronomica
Ovariensis.36(1-2) 83-94.
5. Ganeshkumar B., P.K.Joshi, K.K.Datta and
S.B.Singh.2008. Economic Losses due to Avian Flue in
Manipur. Agricultural Economic Research Review.
21(1):37-47.
6. Kumar S.,V.S. Vihar and P.R. Deoghare.2003.
Economic Implication of disease in goats in India with
reference to implementation of a health plan
calendar.Agricultural Economic Research Review.
47:159-164.
7. John Christy, R and M.Thirunavukkarasu.2006.
Emerging importance of Animal Health Economics - A

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 note. Tamil Nadu Journal of Veterinary and Animal
Sciences 2(3):113-117.
8. Jeyakumari M., M.Thirunavukkarasu and
G.Kathiravan.2003. Economic impact of post-partum
reproductive disorder on dairy farms. Indian Journal of
Animal Sciences.73(12):130-132.
9. Chauhan, S.K., R.K.Sharma and M.Gupta.1994.
Economic losses due to disease and constraints for
dairy development in Kangra district of Himachal
Pradesh. Indian Journal of Animal Sciences 64(1):61-
65.
10. Dijkhuizen, A.A. and Roger S.Morris.2000. Animal
Health Economics - Principles and Application.
University of Sydney.Australia.
CHAPTER-14: LIVESTOCK BUSINESS

Learning objectives
 To understand concepts, nature and scope of livestock
business.
 To illustrate characteristics of small livestock business.
CONCEPTS, SCOPE AND CHARACTERISTICS OF LIVESTOCK
BUSINESS

Concepts

75
  Livestock business includes both livestock and its
products under business transaction.
 Livestock generally includes all domestic animals which
are meant for human welfare.
 It includes primary activities of rearing all kinds of
animals for food and other uses.
 Business of livestock and its products encomposes
various activities involved in directing the resources
from point of production to consumption point. It
includes various forms of utilities.
 Livestock business includes all operation involved in
movement of animals, raw materials and the effect of
such operation on livestock farmer, middlemen /
traders, butchers and consumers.
 Livestock business comprises all activities, agencies and
policies involved in the procurements of all inputs by
livestock producers and movement of livestock and its
products from livestock farmers to consumers.
 Livestock business is the link between livestock farmers
and non-farm sectors.
 Further it includes organization of all material supply to
processing of finished products, their demand and
policy relating to farm products.

Scope
 Livestock business in a broader sense is concerned with
livestock and its products by farmers / traders and of
inputs required by them in production of these animals

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 and their products. This subject of livestock business
includes product marketing as well as input marketing.
 Livestock rearing is a age old practice even before
existence of agricultural farming with seed.
 Traditionally nomadic farmer reared their livestock
wherever the feed and water were available.
 Now days modern animal husbandry activities attract
usage of more scientific knowhow on breeding, feeding
and animal health care. Modern practices are more
input intensive.
 Thus the scope of livestock business includes both input
and output trading.
 These are subject mater of livestock marketing includes
marketing function, agencies / traders, channels,
efficiency and costs, price spread, market integration,
production surplus, government policy and research,
training and market statistics.
 Business of livestock products is a complex process.
 It includes all the functions and processes involved in
the movement of produce from livestock farmers to
consumers.
 Neither producers nor consumers of livestock products
are located at one place. They are spread all over the
country.
 Time wise, too, the production and consumption of
livestock products do not coincide.
 Moreover, farm products are produced in a form which
is different from the one in which they are consumed.
They move in different ways and at different places and
times.
 The number and type of functions, the cost of
performing these functions, the margins or profits of
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 those who perform these functions, and the
competition in the trade – all these vary from
commodity to commodity, from time to time and from
place to place.

Characteristics of livestock business

A good developed livestock business possess the following

characteristics
 A good livestock business should provide livestock and
livestock products which the consumers want and are
ready to pay for.
 It should provide a wide variety of products to
consumers so that they may easily choose for
themselves. The variety should not be so wide as to
create a confusion for him.
 No harmful products should be offered for sale in the
market, precautions should be taken to protect
consumers.
 Information on the presence of products in the market
and their relative merits should be available to all the
prospective consumers.

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  There should not be any sort of pressure on the
consumers to buy products from a particular trader or
class of traders.
 Retailing services should be available in the market for
small consumers.
 Prices should be fair and uniform for the products for
all categories of consumers.
 There should not be any inefficiency or waste in the
market.

Marketed and Marketable Surplus

 Marketed surplus is the actual quantity marketed in the
market by the producer.
 Marketable surplus is the quantity which can be
delivered by the producer to the market after his on-
farm consumption. It represents the excess quantity
affordable to the market and it creates the market for
certain commodity.
 Marketable surplus is expressed as follows

M=Q-C
 Where M - Marketable surplus.
 Q - Out put ( Old stock + Current stock)
 C - On-farm consumption

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  To understand this concept at farm level, the following
example may be attempted
 A farmer has two cows each yielding 25 litres daily. His
family composition is with his wife and two children.
Adult members of his family consume 500ml of milk
daily. But each of his children consumes 750 ml daily.
What is his marketable surplus?
 His marketable surplus = 2*25- (0.500*2 +0.750*2) =
47.5 litres daily.
CHAPTER-15: MARKETABLE LIVESTOCK COMMODITIES

Learning objectives
 To know marketable and marketed surplus
 To make clear about relationship between marketed
and marketable surplus in livestock production
MARKETABLE LIVESTOCK COMMODITIES

Producer’s Surplus
 Producer’s surplus is the quantity of produce which is,
or can be, made available by the livestock farmers to the
nonfarm population.
 Producer’s surplus is of two types:
o Marketable surplus
o Marketed surplus

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Marketable surplus
 Marketable surplus is that quantity of produce which
can be made available to non-farm population of a
country. It is a theoretical concept of surplus.
 Marketable surplus is the residual left with producer-
farmer after meeting his requirements for family
consumption, payment to labour, payment to landlord
as rent, and social and religious payments in kind. This
may be expressed as follows

MS = P – C Where,
 MS = Marketable surplus
 P = Total production and
 C = Total requirements (family consumption,
farm needs, payment to labour, landlord and
payment for social and religious work).

Marketed surplus
 Marketed surplus is that quantity of the produce which
the producer-farmer actually sells in the market,
irrespective of his requirements for family
consumption, farm needs and other payments.

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 Marketed surplus may be more, less or equal to the
marketable surplus.
 Whether the marketed surplus increases with the
increase in production has been under continual
theoretical scrutiny.
 It has been argued that poor and subsistence farmers
sell that part of the produce which is necessary to
enable them to meet their cash obligations.
 This results in distress sale on some farms. In such a
situation, any increase in the production of marginal
and small farms should first result in increased on-farm
consumption.
 An increase in the real income of farmers also has a
positive effect on on-farm consumption because of
positive income elasticity. Since the contribution of this
group to the total marketed quantity is not substantial,
the overall effect of increase in production must lead to
an increase in the marketed surplus.

Relationship between marketed surplus and

marketable surplus
 Marketed surplus may be more, less or equal to the
marketable surplus, depending upon the condition of
the farmer and of the produce.
 The relationship between the two terms may be stated
as follows
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Marketed surplus < or > or = Marketable surplus
o Marketed surplus is more than marketable surplus
when the farmer retains a smaller quantity of the
products than his actual requirements for family
and farm needs. This is true especially of small and
marginal farmers, whose need for cash is
immediate. This situation of selling more than the
marketable surplus is termed as distress or forced
sale. Such farmers generally buy the produce from
the market in a later period to meet their family
and /or farm requirements. The quantity of
distress sale increases with the fall in the price of
the product. A lower price means that a larger
quantity will be sold to meet some fixed cash
requirements.
o Marketed surplus is less than the marketable
surplus when the farmer retains some of the
surplus produce. This situation holds true under
the following conditions:
 Large farmers generally sell less than the
marketable surplus because of their better
retention capacity. They retain extra produce
in the hope that they would get a higher price
in the later period.
 Farmers may substitute one product for
another product either for family
consumption purpose and the variation in
prices.

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  Marketed surplus may be equal to marketable
surplus when farmer neither retains more nor
less than his requirement. This holds true for
perishable commodities of the average farmer.
CHAPTER-16: CONCEPT OF MARKET 

Learning objectives
 To define market and marketing.
 To explain various concepts in livestock marketing.
 To know outline of marketing process
MEANING, CONCEPT AND NEEDS FOR MARKETING

Meaning of Market
 Market is a derivative of Latin word 'marcatus' meaning
merchandise, wares, traffic, trade or place where
business is conducted.
 It may mean and include a place as an open space (in
village) or a larger building where actual buying and
selling takes place.
 An assembly or a meeting together of people for their
private purchases and sale of goods at a stated time and
place e.g. village fairs or periodical markets.
 An area of operation or geographical or economic
extent of commercial demand for commodities. The

84
 course of commercial activity by which exchange of
commodities is affected. It may mean all inhabitants of
an area.

Marketing
 American committee on marketing has defined
marketing from the following three viewpoints
o Legalistic view: Marketing includes all activities,
which are concerned with effecting changes in
ownership and possession of goods and services.
o Economic view: Marketing is that part of
economics, which deals with the creation of time,
place and possession utilities.
o Descriptive view: Marketing is the performance of
business activities that direct the flow of goods and
services from the producer to the final user or
consumer.
 Philip Kotler has defined, "Marketing, as the set of
human activities directed at facilitating and
consummating exchanges".
o In simple words, it is defined that the marketing is
the process of providing the right product in the
right place at the right price and at the right time.

Concepts of marketing

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  Sales concept and marketing concept are clearly
distinct from each other.

Sales concept
 Starts with the firm's existing products and
considers the task as one of using selling and
promotion to stimulate a profitable sales.

Marketing concept
o Starts with firm's existing and potential consumers
and their needs; it plans a coordinated set of
products and programmes to serve these needs;
and it hopes to build its profits on creating
meaningful value satisfactions.
o In the words of Philip Kotler, the marketing
concept is a customer orientation backed by
integrated marketing aimed at generating
customer satisfaction and long-run customer
welfare as the key to satisfying organizational
goals.
o Integrated marketing means an intelligent
adaptation and coordination of four P's viz.,
Product, Price, Place and Promotion.
 Price should be made consistent with quality.
 The channels of distribution made consistent
with price and quality
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  The promotion made consistent with channels,
price and product quality.
o To achieve this type of integration, many
companies have created product managers and
market managers.

Based on the new concept of marketing, the

marketing process can be illustrated below:

 Here, the marketing process starts with the consumer
and ends, with the consumer.
 After knowing consumer needs and wants, appropriate
products and services are developed and demand for
these products and services is stimulated and created
by implementing suitable promotional polices.
 Then the said demand is satisfied through an optimum
distribution strategy.
 Finally, by organizing appropriate marketing
information system, feedback is collected and in the
light of this information, appropriate changes are
initiated so as to adopt the marketing elements to the
changing situation in the market place.

Needs for marketing

87
 In developing countries, it is the least developed part of
the economy probably, because of the strong, pervasive
prejudice against the middleman.
 Marketing would make the producers capable of
producing marketable products by providing them with
standards, with quality demands and with
specifications for their products.
 Marketing is the most easily accessible, "multiplier" of
managers and entrepreneurs in an "underdeveloped"
growth area and they are the critical needs of these
countries.
 Marketing can covert latent demand into effective
demand. It cannot by itself, create purchasing power,
but it can uncover and channel all the purchasing
power that exists. So it can create conditions for higher
level of economic activity in the developing countries.
 Marketing in a developing country is the 'developer of
standards' for product and services as well as of
conduct, integrity, reliability, foresight and of concern
for the basic long-range impact of decisions on the
customer, supplier, economy and the society.
 Whether the economy developed or developing is
immaterial as far as marketing is concerned because the
basic functions of marketing (buying, selling,
transporting , storing, grading, financing, risk bearing
and marketing information ) and the utilities (Time,
Place and possession utilities) created by them are a
necessity for any social system.
 Marketing provides wide employment opportunity.
CHAPTER-17: CLASSIFICATION OF MARKET 

88
Learning objectives
 To explain the different classification of market
 To know the various types of market
CLASSIFICATION OF MARKETS

 Markets can be classified on the basis of nature of

commodity, time and nature of business, area, nature of
competition etc.

On the Basis of Location

 On the basis of the place of location or operation,
markets are of the following types:

Village market
 A market which is located in a small village, where
major transactions take place among the buyers
and sellers of a village, is called a village market.

Primary markets

89
  These markets are located in big towns near the
centres of production of commodities.
 In these markets, a major part of the produce is
brought for sale by the producer-farmers
themselves.
 Transactions in these markets usually take place
between the producers/farmers and traders.

Secondary wholesale markets

 These markets are located generally at district
headquarters or important trade centres or near
railway junctions.
 Major transactions in commodities take place
between the village traders and wholesalers.
 Bulk of the arrivals in these markets is from other
markets.
 Produce in these markets is handled in large
quantities.
 There are, therefore, specialized marketing
agencies performing different marketing functions
such as those of commission agents, brokers,
weighmen etc.

Terminal market

90
  A terminal market is one where the produce is
either finally disposed of to the consumers or
processors or assembled for export.
 Merchants are well organized and use modern
methods of marketing.
 Commodity exchanges exist in these markets
which provide facilities to forward trading in
specific commodities.
 Such markets are located either in metropolitan
cities or in sea-ports.
 Delhi, Mumbai, Chennai, Kolkatta and Cochin are
terminal markets for many commodities.

Seaboard Markets
 Markets which are located near the seashore and
are meant mainly for the import and / or export of
goods are known as seaboard markets. These are
generally seaport towns.
 Examples of these markets in India are Mumbai,
Chennai, Kolkatta and Cochin.

On the Basis of Area/Coverage

 On the basis of the area from which buyers and sellers
usually come for transactions, markets may be
classified into the following four classes

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Local or Village Market
 A market in which the buying and selling activities
are confined among the buyers and sellers drawn
from the same village or nearby villages.
 The village markets exist mostly for perishable
commodities in small lots, e.g., local milk market
or vegetable market.

Regional market
 A market in which buyers and sellers for a
commodity are drawn from a larger area than the
local market.
 Regional markets in India usually exist for
foodgrains.

National market
 A market in which buyers and sellers are at the
national level.
 National markets are found for durable goods like
jute and tea.

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World market
 A market in which the buyers and sellers are drawn
from the whole world. This is the biggest market
from the area point of view.
 This market exists in the commodities which have
a world-wide demand and /or supply, such as
coffee, machinery, gold, silver, etc.
 In recent years many countries are moving towards
a regime of liberal international trade in
agricultural produce like raw cotton, sugar, rice
and wheat.
 It is expected that the international trade in such
commodities will become free from many
restrictions as they exist now.

On the Basis of Time Span

 On the basis of time span, markets are of the following
types:

Short-period markets
 Markets which are held only for a day or few hours
are called short period markets.

93
  Products dealt within these markets are of a highly
perishable nature, such as fish, fresh vegetables,
and liquid milk.
 In these markets, the prices of commodities are
governed mainly by the extent of demand for,
rather than by the supply of, the commodity.

Long-period markets
 These markets are held for a longer period than the
short period markets.
 Commodities traded in these markets are less
perishable and can be stored for some time; these
are foodgrains and oilseeds.
 Prices are governed both by the supply and
demand forces.

Secular markets
 These are markets of a permanent nature.
Commodities traded in these markets are durable
in nature and can be stored for many years.
 Examples are markets for machinery and
manufactured goods.

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On the Basis of Volumes of Transactions
 There are two types of markets on the basis of volume
of transactions at a time.

Wholesale market
 A wholesale market is one in which commodities
are bought and sold in large lots or in bulk.
 These markets are generally located in either
towns or cities.
 Economic activities in and around these markets
are so intense that over time the population tends
to get concentrated around these markets.
 These markets occupy an extremely important link
in the marketing chain of all the commodities
including farm products.
 Apart from balancing the supply and demand and
discovery of the prices of a commodity, these
markets and functionaries in them serve as a link
between the production system and consumption
system.

Retail markets

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  A retail market is one in which commodities are
bought by and sold to the consumers as per their
requirements.
 Transactions in these markets take place between
retailers and consumers.
 Retailers purchase the goods from wholesale
market and sell in small lots to the consumers in
retail markets. These markets are very near to the
consumers.

On the Basis of Nature of Transactions

 The markets which are based on the types of
transactions in which people are engaged are of two
types

Spot or Cash markets

 A market in which goods are exchanged for money
immediately after the sale is called the spot or cash
market.

Forward markets

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  A market in which the purchase and sale of a
commodity takes place at time t but the exchange
of the commodity takes place on some specified
date in future i.e., time t+1.
 Sometimes even on the specified date in the future
(t+1), there may not be any exchange of the
commodity.
 Instead, the differences in the purchase and sale
prices are paid or taken.

On the Basis of Number of Commodities in which

Transaction takes place

 A market may be general or specialized on the basis of
the number of commodities in which transactions are
completed.

General markets
 A market in which all types of commodities, such
as food grains, oilseeds, fibre crops etc., are bought
and sold is known as general market. These
markets deal in a large number of commodities.

97
Specialized markets
 A market in which transactions take place only in
one or two commodities is known as a specialized
market.
 For every group of commodities, separate markets
exist. The examples are foodgrain markets,
vegetable markets, wool market and cotton
market.

On the Basis of Degree of Competition

 Each market can be placed on a continuous scale,
starting from a perfectly competitive point to a pure
monopoly or monopsony situation.
 Extreme forms are almost non-existent. Nevertheless, it
is useful to know their characteristics.
 In addition to these two extremes, various midpoints of
this continuum have been identified.
 On the basis of competition, markets may be classified
into the following categories.

Perfect markets

98
A perfect market is one in which the following conditions

hold good
 There is a large number of buyers and sellers;
 All the buyers and sellers in the market have
perfect knowledge of demand, supply and
prices;
 Prices at any one time are uniform over a
geographical area, plus or minus the cost of
getting supplies from surplus to deficit areas;
 The prices are uniform at any one place over
periods of time, plus or minus the cost of
storage from one period to another;
 The prices of different forms of a product are
uniform, plus or minus the cost of converting
the product from one form to another.

Imperfect market
 Markets in which the conditions of perfect
competition are lacking are characterized as
imperfect markets.
 The following situations, each based on the degree
of imperfection, may be identified.

99
Monopoly market
 Monopoly is a market situation in which there
is only one seller of a commodity. He exercises
sole control over the quantity or price of the
commodity. In this market, the price of a
commodity is generally higher than in other
markets.
 Indian farmers operate in monopoly market
when purchasing electricity for irrigation
(Tamil Nadu Electricity Board). When there is
only one buyer of a product the market is
termed as a monopsony market.

Duopoly market
 A duopoly market is one which has only two
sellers of a commodity. They may mutually
agree to charge a common price which is
higher than the hypothetical price in a
common market (Bus transport -Private and
Public sector).
 Market situation in which there are only two
buyers of a commodity is known as the
duopsony market.

100
Oligopoly market
 A market in which there are more than two
but still a few sellers of a commodity is termed
as an oligopoly market. A market having a few
(more than two) buyers is known as
oligopsony market.

Monopolistic competition
 When a large number of sellers deal in
heterogeneous and differentiated form of a
commodity, the situation is called
monopolistic competition. The difference is
made conspicuous by different trade marks on
the product.
 Different prices prevail for the same basic
product. Examples of monopolistic
competition faced by farmers may be drawn
from the input markets.
 For examples, they have to chose between
various makes of insecticides, pumpsets,
fertilizers and equipments.

On the Basis of Nature of Commodities

101
  On the basis of the type of goods dealt in, market may
be classified into the following categories

Commodity markets
 A market which deals in goods and raw materials,
such as wheat, barley, cotton, fertilizer, seed, etc.,
are termed as commodity markets. Specific
commodities are bought and sold in these markets.
 These may either be production goods or
consumption goods. In such markets, transactions
of specialized commodities take place.
 E.g. Mumbai cotton market, Punjab wheat market
etc.

Produce exchange
 Produce exchanges are the big and well
organized markets for raw produce like wheat,
cotton, jute etc. and are found in cities or
developed industrial centres of a country.
 One exchange deals in one specialized
product.
 Typical examples of such exchanges are the
wheat exchange, Cotton exchange and Jute
exchange.

102
Manufactured and semi-manufactured goods market
 In these markets, different types of
manufactured and semi-manufactured
commodities are bought and sold. E.g. Leather
goods market, Kanpur.

Bullion Market
 Bullion markets are concerned with the
purchase and sale of gold, silver and other
precious stones.
 These are highly specialized and well
organized markets of the world and are
localized in civilized as well as industrially
developed centres of a country.
 Bullion markets of Bombay, Calcutta, Delhi
and Chennai etc., are of a few examples of
such markets.

Capital markets
 Capital market is responsible for meeting the
financial requirements of big industrial and
commercial concerns.

103
  Capital is required at every stage of business which
comes from the money market, stock exchange and
foreign exchange.

Money market
 It includes a number of agencies providing
finance to business and industrial concerns.
 Such markets, on one hand, help the people to
invest or deposit their surplus funds either in
industrial concerns or in banks and on the
other, allow those who are in need of money to
take loans through banks for a reasonable
remuneration in turn by way of interest.

Stock exchange market

 In this market, shares are purchased and sold
in different parts of the country. Ex. BSE, NSE
 These markets are highly specialized and
command a very wide area of operation.
 Main purpose of such markets is to make
investments in public and private sector
undertakings.

104
Foreign exchange market
 It is a market for buying and selling of
foreign currencies. It can also be called as an
international market concerned with the
export and import trade of a country.
 Mumbai, London, New Delhi are examples of
such markets.

On the Basis of Stage of Marketing

 On the basis of the stage of marketing, markets may be
classified into two categories

Producing markets
 Those markets which mainly assemble the
commodity for further distribution to other
markets are termed as producing markets.
 Such markets are located in producing areas. Ex.
Uthukkuli Butter Market, Rasipuram Ghee Market.

Consuming markets
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  Markets which collect the produce for final
disposal to the consuming population are called
consumer markets.
 Such markets are generally located in areas where
production is inadequate, or in thickly populated
urban centres.

On the Basis of Extent of Public Intervention

 Based on the extent of public intervention, markets may
be placed in any one of the following two classes

Regulated markets
 In these markets, business is done in accordance
with the rules and regulations framed by the
statutory market organization representing
different sections involved in markets.
 The marketing costs in such markets are
standardized and practices are regulated.

Unregulated markets
 These are the markets in which business is
conducted without any set rules and regulations.

106
  Traders frame the rules for the conduct of the
business and run the market.
 These markets suffer from many ills, ranging from
unstandardised charges for marketing functions to
imperfections in the determination of prices.

On the Basis of Type of Population Served

 On the basis of population served by a market, it can be
classified as either urban or rural market

Urban market
 A market which serves mainly the population
residing in an urban area is called an urban
market.
 Nature and quantum of demand for agricultural
products arising from the urban population is
characterized as urban market for farm products.

Rural market
 The word rural market usually refers to the
demand originating from the rural population.

107
  There is considerable difference in the nature of
embedded services required with a farm product
between urban and rural demands.

On the Basis of Visibility

Black Market
 In black markets, scarce commodities are sold at a
very high price not openly but in a secret manner.
 The situation arises on account of excess of
demand over limited supply.
 Black market is an anti-social activity which gives
way to black money.
 Black money, hidden money or unaccounted
money then passes into the money market where it
is invested in different trades and business
activities.
 The interest and profits so earned on the
unaccounted money go on accumulating, till it
attracts attention of the income tax authorities.

On the Basis of Accrual of Marketing Margins

108
  Markets can also be classified on the basis of as to
whom the marketing margins accrue.
 Over the years, there has been a considerable increase
in the producers or consumers co-operatives or other
organizations handling marketing of various products.
 Though private trade still handles bulk of the trade in
farm products, the co-operative marketing has
increased its share in the trade of some agricultural
commodities like milk, fertilizers, sugarcane and sugar.
 In the case of marketing activities undertaken by
producers or consumers co-operatives, the marketing
margins are either negligible or shared amongst their
members.
TYPES OF MARKET

 Based on number of sellers/buyers in the market

o Monopoly - Only one seller
o Oligopoly - Few number of sellers
o Monopsony - Single buyer
o Oligopsony - Few number of buyers
o Perfect/Pure competition - large number of sellers
and buyers
o Bilateral monopoly - single seller and single buyer

CHAPTER-18: SHORT–RUN EQUILIBRIUM AND LONG–RUN

EQUILIBRIUM

Learning objectives
 To know the definition of market and normal price.

109
  To illustrate the equillibrium price determination under
perfect competition in short and long run.
SHORT-RUN EQUILIBRIUM PRICE WITH ABNORMAL LOSS

Short- Run Equilibrium price and output under

perfect competition
 Show the determination of short run equilibrium price
and output under perfect competition.
 In this figure, we show the average cost curve (AC) and
marginal cost curve (MC) of the firm, together with its
demand curve. We said that the demand curve is also
the average revenue curve is also the average revenue
curve and the marginal revenue curve of the firm, in a
perfectly competitive market.
 The firm is in equilibrium at point E where MR = MC,
i.e., MC curve intersects the MR curve at the point E.
The equilibrium price is OP and equilibrium output is
OQ.
 Profit per unit of output is the difference between
average revenue or price and average cost. Average
revenue or price is QE or OP. Average cost is QS.
 Therefore, profit per unit of output is ES. Total profit
earned the firm will be equal to LPxES. Thus, the total
profit earned the firm is PESL.

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Abnormal Loss (Click here to view graph)
 Figure shows the abnormal loss of a firm, where
prevailing market price of the product is such that the
price line average and marginal revenue curves lies
below the average throughout.
 In the figure, the equilibrium price and output are
determined when MC interest MR at point E. OQ is the
equilibrium output and OP is the equilibrium price.
 QE is the average revenue and NQ is the average cost.
Since average revenue or price (QE) is less than average
cost (NQ), the loss per unit of output is equal to NE and
total loss will be equal to PENM. This is known as
abnormal loss.
 Hence, the conditions of firm’s equilibrium under
perfect competition are:
o MC=MR = Price
o MC curve must cut MR curve from below

SHORT-RUN EQUILIBRIUM WITH NORMAL PROFIT

 Figure shows that E is the equilibrium point, where MC

curve cuts the MR curve from below.
 OQ is the equilibrium level of output and OP is the
equilibrium price level.
 AC curve is tangent to the AR curve at the point E,
Where the firm incurs normal profit, when P=AR = MR
= AC =MC.

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Normal profits (Click here to view the graph for "Short-

Run Equilibrium with Normal profit")

 Just as land has rent, labour wages, capital rate of
interest, the reward for entrepreneur, under perfect
competition, is normal profit.
 Thus, normal profits are the remuneration for the
entrepreneur, under perfect competition.
 Normal profits are those profits which are not large
enough to attract any new entrepreneur into the
business nor are they small enough to make the existing
entrepreneurs quit the business.
LONG RUN EQUILIBRIUM PRICE AND OUTPUT UNDER
PERFECT COMPETITION

 First condition for equilibrium of a firm is that

marginal cost must be equal to marginal revenue and
the condition is that marginal cost curve should cut the
marginal revenue curve from below.
 The condition is that average revenue or price should
equal average cost. In the short run there is abnormal
profits quit business.
 This period of entry and by firms is by itself long run.
The industry attains equilibrium when AR or Price =
AC.
 Price is also equal to marginal cost and revenue. Shows
that point E is the long run equilibrium output.
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 CHAPTER-19: PROBLEMS OF PECULIARIES OF DEFECTS IN
LIVESTOCK MARKETING

Learning objectives
 To understand functioning of the marketing of
livestock, perishable and non perishable livestock
goods.
 To expose to various channels involved in the livestock
and livestock products marketing.
PROBLEMS IN LIVESTOCK AND LIVESTOCK PRODUCT
MARKETING

Lack of producer's organization

 The farming community is more or less disorganized at
the village level.
 Except for a few, till now no such organization has
developed which may prove a sound basis for
strengthening the bargaining power of the farmers.
 An individual deals in his own product, he sells his
surplus produce in the village or at the primary market
level with his low bargaining power and hence, he is
always at a disadvantage against the organized trading
community.

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Forced sale
 In a country like India, majority of subsistence
producers are compelled to sell their produce
immediately after harvest in order to meet the pressing
claims of their lenders even if the prices are not
remunerative.
 Most producers sell their product, repay debts, face a
shortage, and fall in debt again. Thus they sell to repay
debt only to fall in debt again.

Superfluous middlemen
 Since the farmer sells a substantial portion of his
surplus produce in the village and nearby markets,
there is always intervention of a number of middlemen
between him and the consumer and naturally share of
the consumer's price received by the producer is
reduced.

Malpractices in the market

 Malpractice arises on account of multiplicity of market
charges, spurious deductions, unfair weighment and
undesirable mode of sale.

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  Weight and scales are manipulated against the seller.
 There are all kinds of arbitrary deductions for religious
and charitable purpose.
 The burden falls entirely on the seller and he has no
effective means to protect himself against such
practices.
 Some quantity is taken away from the producer's
produce as sample.
 This varies from produce to produce. The producers are
not paid for this even when no sales are effected.

Absence of grading and standardization and

inadequate storage facilities

 Many state governments have not so far prescribed
grades and standards for many livestock products.
 A good number of farmers have little knowledge of
grading their produce and usually mix up good and bad
quality product into a single lot which secures them a
lower price for their produce in the market.
 There is general inadequacy of good storage facilities
both in urban as well as in rural areas.
 The indigenous methods of storage adopted in village
do not adequately protect the produce.
 As a result, physical losses go on increasing if the period
of storage is lengthened.

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Undeveloped modes of transportation
 Without a good transporting system, no individual will
have the incentive to produce or to purchase more than
minimum.
 Unless it is reasonably convenient for the farmer to
exchange his surplus produce for consumer goods or
farm production requisites, he is lacking an important
incentive to exploit the full potentials of his animals.
 Lack of an efficient transport network is the real
limiting factor in the attempts to increase livestock
production in our Country.

Variability in Output
 The quantity of farm products available depends upon
several factors.
 With the gambling nature, one cannot forecast the
quantity of products that would be produced as
livestock production is mainly biological depending on
weather, rainfall etc for its main inputs like feed, fodder
etc.,

Seasonality in production

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  Much of farm production is highly seasonal. The
production varies from one season of the year to
another.
 Hence, storage facilities must be made ready to hold the
product until it is consumed.
 This seasonality in production thus, raises costs of
marketing through demand storage facilities.
 The seasonal variability in production of items like
milk, egg, butter etc is not as acute as it used to be a few
years ago.
 The widespread use of rapid transportation and
refrigeration has tendered to reduce the seasonality.

Raw materials
 Farm out put which mainly sold in the farm of raw
materials is used subsequently for processing.
 Sugarcane is to be converted into sugar, oils seeds into
oil, animals in to meat, wool in to cloth before all these
are used for consumption.
 Hence the raw materials produced by the farmers are to
be processed at once stage or the other before final
consumption.

Perishability

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  In relation to other products, agricultural products by
nature are perishable. All products ultimately
deteriorated.
 Eggs, mutton, and milk must move into the place of
consumption very quickly, otherwise they would
completely lose their value.
 These perishable products require speedy handling and
often-special refrigeration, which raises the cost of
marketing.

Others
 The differences in variety, colour, palatability, nutritive
value, size, quality etc. of the products are the other
determinants of a good market for these products.
MARKETING OF LIVESTOCK AND LIVESTOCK PRODUCTS

Perishable Goods (Click here to view graph)

 Marketing of livestock and livestock products is
different from manufactured or industrial goods.
 Most of the livestock products are perishable in nature
and the period of perishability varies from a few hours
to few months.
 Most of the farmers are landless, marginal or small.
Therefore the produce of individual is very less.

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  Lastly, most of the farm products are processed before
they are used, purchased and consumed by the ultimate
consumers.
 Selling of perishable products like fruits, vegetables,
and livestock products (milk, meat, and egg) require
fast movement of the commodities from the producers
to the ultimate consumers.

Non-Perishable Goods
 Non-perishable goods are goods that can be used again
and again in the process of production. They are
tangible goods that normally survive many uses. They
don't loose their utility or shape after their first use.
 They continue to provide utility over a long period of
time, of course their utility over a long period
diminishes in value and utility.
 Example factory buildings, machines and equipment
are durable. Refrigerators, machine tools and clothing
are non perishable.
 Nonperishable goods normally require more personal
selling and services command a higher margin and
require more seller guarantees.
 The perishable goods as used for the smaller period of
time are not having any guarantee.
 Whereas the Non perishable goods (Radio, TV,
Refrigerator) are usually provided with guarantee
period.They can classified as M

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Durable - TV, Refrigerator

Industrial goods - Milking Parlour, Feed Mill, Machines

in Automobile industry, etc.,

CHAPTER-20: MERCHANDISING

Learning objectives
 To know definitions of merchandiding
 To furnish in detail about product planning and
development
 To understand the PERT and CPM method in product
development.

MERCHANDISING-PRODUCT PLANNING AND DEVELOPMENT

120
Merchandising
 It is the barometer of efficiency in buying
and selling and it is closely related to several
aspects of buying and stock management.

Product Planning and Development

 Product planning covers a broad area of
decisions including product-line planning,
introduction of new products, deletion of
the product from product-line, product
modification, packaging, labeling, branding
etc.,

Alternative growth stages

 Marketers have four alternative ways for
growth in sales and profits

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 o Market penetration
o Market development
o Product development and
o Product diversification.

New product development process

 Most of the successful companies employ
one or more of the following alternatives in
locating organizational responsibility for
new product development.
o New product committees / departments

o Product mangers/ venture teams.

 There are seven stages for new product

development process such as Idea
generation, Screening, Concept
development and testing, Business analysis,
Product development, Test marketing and
Commercialization.

Product Development programme

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 This is an important stage in atleast
three ways i.e.
o It marks the first attempt to develop

the product in a 'concrete form'

o It represents a huge investment for

developing a technically feasible

product.
o Lastly, it provides an answer as to

whether the product idea can be

translated into a technical and
commercially feasible product.
 Primarily there are four steps involved
in the product development stage: (i.e)
Engineering, Consumer testing,
Branding and Packaging.
 Other activities involved in the product
development stage are
 formulation of preliminary

advertising and promotion

programme,
 trade merchandising programme,

 application for patent and copy

rights etc.
 Systematic planning of all phases of new
product development and introduction

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 can be accomplished through the use of
such scheduling methods as the
 Programme Evaluation and

Review Technique(PERT) and

 Critical Path Method (CPM)

CHAPTER-21: MARKETING FUNCTIONS  

Learning objectives
 To understand different
approach to marketing
 To illustrate the primary
and secondary functions of
livestock marketing

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  To summarize the
marketting information
and marketting intelligence
APPROACHES TO STUDY OF MARKETING

Approaches to study of marketing

 Marketing can be studied through any one of the
following four approaches.
o Functional approach

o Institutional approach

o Commodity approach

o Behavioural system or decision making

approach.

Functional approach
 Here the entire marketing process is broken down
into many functions.
 A marketing function may be defined as a
specialized activity performed in accomplishing
the marketing process.
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  The marketing functions are classified into three

Exchange Functions
 Exchange functions are those activities
involved in the transfer of ownership of
goods. There are two exchange functions viz.
buying and selling.
 Buying and selling are the complementary
functions around which all marketing efforts
revolve and they are basic to the entire
marketing process.

Physical functions
 Physical functions are those activities that
involve handling of the products, storage,
movement and processing of the goods.
 Storage, transportation and processing
functions are primarily concerned with
making the goods available at the desired
time, at the proper place and in the correct
form.

126
Facilitating functions
 Facilitating functions are those which make
possible the smooth performance of the
exchange and physical functions.
 These activities are not directly involved in
either the exchange or the physical handling
of products.
 However, without them, the modern
marketing system would not be possible.
 They might correctly be designated as the
grease that makes the wheels of the
marketing machines go round. They are
 Standardization and grading
 Financing
 Risk bearing
 Market intelligence

Standardization and grading

 It is the establishment and maintenance
of uniform measurements of both quality
and quantity. This function simplifies the
process of buying and selling.
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  It establishes a rational relationship
between price and quantity and hence
gains the consumer’s confidence. It takes
into account size, shape, form,
composition, weight etc.

Financing
 It is concerned with advancing of money
to the marketing functionaries to carry
out various functions of marketing.

Risk bearing
 It is concerned with the acceptance of the
possibility of loss in the marketing of a
product. These risks are classified as
physical risks and market risks.
 The physical risks are those which occur
from destruction or deterioration of the
product itself by fire, accident, wind,
earthquakes, cold, heat, etc.
 Market risks are those which occur
because of the changes in the value of the
product as it is marketed.
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  Changes in prices, tastes and preference
of the customers may lead to losses and
they come under market risks.

Market intelligence
 This is the job of collecting, interpreting
and disseminating a variety of data
necessary for the smooth operation of the
marketing process.

Institutional approach
 In this approach, principles of marketing are
formulated around the instiutions performing the
marketing functions. This approach considers the
nature and character of various middlemen and
related agencies and also the arrangement and
organization of the marketing machinery.
 In this approach, the human element receives
primary emphasis and hence institutional
approach is simply the study of middlemen.

129
Commodity approach
 In this approach, specific commodities are
selected and they are followed through from the
producer to the consumer.
 For study of  marketing of milk, it begins by
examining the sources of supply, volume and
nature of demand, different marketing functions
involved etc.

Behavioural systems approach or decision

making approach or management approach

 Marketing process is continuously changing in its
organizational and functional combinations.
 Understanding and predicting these changes are a
major problem in marketing.
 Every marketing system is composed of people
who are making decisions in an attempt to solve
problems in marketing.

130
  They take decisions on the product to be handled,
the distribution polices, pricing, advertising,
selling etc.
 In this approach, an attempt is made to find out
how marketing decisions are made and should be
made.
 In transferring the product from producer to
consumer various functions are carried out by
different marketing functionaries and they are
called as marketing functions.
 They are, buying, selling, standardizing, grading,
transports, storage and risk bearing.

BUYING AND SELLING

PHYSICAL FUNCTIONS-GRADING, TRANSPORTATION,STORAGE

AND WAREHOUSING

Buying and Selling

 Buying and selling are the complimentary
functions, around which all marketing efforts
revolve and they are basic to the entire marketing
process and these two are known as exchange
functions which are involved in the transfer of
ownership of goods.
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Physical functions
 Standardizing
 Grading
 Transport
 Storage and
 Risk bearing
 These are essential to the main functions of
marketing (Assembling, Processing and
Dispersion).
 Standardizing and Grading imply setting up of the
basic measures which the goods must conform.
 A standard specifies what basic quality a product
must have to be consistent with the established
characteristics.
 Standards are set with regard to the shape, size,
colour, flavour, composition, weight etc.

Grading
 Grading is the act of separating goods into
different lots according to established
specifications.

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  Purpose of grading is to establish a common
language easily understood by buyers and sellers
as the basis of judging the quality of the product
in relation to its price.
 Grading and standardization also help to cater to
the special tastes and liking of different section of
buyers.

Transport
 It is one of the most important functions of the
modern marketing system. This function is
primarily concerned with making goods available
at the proper place resulting in creating place
utility of the products.
 Transportation  is necessary not only to provide
the goods to the consumers in time, but also to
find remunerative markets at far away places.
 An efficient transport system enables the goods to
reach the markets far and wide without losing the
precious time.
 Special type of transport is highly essential for the
transportation of livestock products.
 E.g. Refrigeration facility is essential for the
transportation of milk and meat.

133
Storage
 It is the process of holding and preserving goods.
Storage creates time utility whereby goods are
made more useful.
 Farm products are stored to make them available
throughout the year to balance the periods of
plenty and periods of scarcity.
 Reasons for storing farm products:
o To even out the seasonal fluctuation in

production
o To lengthen the shelf life of the farm products

which are mostly perishable

o To improve the quality as well as the value of

the products.
FACILITATIVE FUNCTIONS - STANDARDISATION,RISK
BEARING, MARKET INFORMATION AND MARKET
INTELLIGENCE

Risk Bearing
 It is accepting the possibility of loss when
marketing a product.

134
Physical risks
 Physical risks are those results in the
destruction of the product itself and are due
to fire, accident, rain etc.
 Risk attached to such natural hazards is often
transferred to institutions (Insurance
companies) that specialize in assuming such
risk.

Market risks
 Market risks are those which occur due to the
changes in product prices and changes in
consumer demand for the products.
 Market risks can be reduced through accurate
forecasting and market research.

Marketing Information

135
  In the field of marketing, information is of great
importance. Like men, money, machines and
materials and information is also a vital input.
 As defined by Philip Kotler, Marketing
information system is continuing & interacting
structure of people, equipment & procedure
designed to gather, sort, analyze, evaluate,
distribute, pertinent, timely and accurate
information for use by marketing decision
makers, to improve their marketing planning,
execution and control.
 Three type of information come out of the
systems are
 Recurrent information
 Monitored information
 Requested information

Sources of marketing information

 Sources of marketing information are
o Exeutive experience

 It is the direct counter part of the casual

experience that we accumulate from the
process of every body living.
o Internal reports

136
 Come from the authorities that work as
specialists for the firms.
o Marketing research
 Studies are conducted using methods of

enquiry, observation and experimentation

and by using available internal reports.
o Marketing models
 At a general level, sources may include for

example, daily news papers, technical

journals, hand books, and reference
materials, government publication,
corporation annual reports and computer
data bases.

Functions of Marketing Information System (MKIS):

 MKIS should perform the following six functions.
o Assembly -Searching and gathering marketing

data
o Processing - Editing, tabulating and

summarizing data
o Analysis - Computation (percentages and

ratios), combining sales and costs data and

other mathematical tasks.
o Storage and retrieval - Indexing, filing and

locating data.
o Evaluation - Determining the accuracy of

information.
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 o Dissemination - Routing useful information to
appropriate decision-makers.

Marketing Intelligence
 A marketing intelligence system is a set of
procedures and sources used by managers to
obtain their everyday information about pertinent
developments in marketing environment.
 It is a product of market research and marketing
research. In marketing intelligence, marketing
managers scan the environment in four ways.
o Undirected viewing

o Conditioned viewing

o Informal search

o Formal search

 Marketing managers carry on marketing

intelligence mostly on their own by reading
books, news papers and trade publications,
talking to customers, suppliers and other
outsiders and talking with other managers,
personnels within the company.
 Well-recognized companies take additional
step to improve the quality and quantity of
marketing intelligence. First they train and
motivate the 'sales force' to spot and report

138
 new development. Sales representatives are
company's " eyes and ears".
 They are in an excellent position to pick up
information missed by other means. The
company must sell its sales force on their
importance as intelligence gatherers. The
sales force should be provided with easy
reports to fill out. Sales representatives
should know which type of information to
be sent to different manager.
 Secondly, the company motivates
distributors, retailers and other middlemen
to pass along important intelligence.

Marketing Cost
 It is the actual expense incurred in buying goods
and services from producers to ultimate
consumer.
 It is the difference between final price paid by
consumer for a commodity and price received by
the primary producer.
 It includes assembling charges, handling charges,
transport and storage cost, processing cost, profit
margin to different intermediaries, etc.

139
Market (Price) Spread
 Marketing cost is measured by the concept called
market or price spread .
 Price spread is the difference between price paid
consumer and price received by producer.
 Market spread is expressed in percentage of
consumer's rupee.

Marketing Channel 
 Marketing channel can be defined as path
through which a product moves from producer to
consumer.
 There are mainly tow types of marketing channel
i.e Organized and Unorganized.
 Organized marketing channel involve
participation of government institution or co-
operative federation.E.g Tamil Nadu Co-operative
Milk producer's Federation. It is basically a
service motive organization where consumer price
will not have any violent fluctuation.

140
  Unorganized marketing channel has many
participation of private traders having profit
motive e.g. Private milk vendors.

Factor affecting marketing channel 

1.Consumer distribution
2.Product characteristics
3.Characteristics of consumer
4.New marketing technologies
5.Changes in management
6.Changes in policies of government
7.Cost requirement

Value chain
 Marketing channel adds value to commodities
when goods pass through. To reduce
exorbitant price rise in the value chain, market
integration is carried out. There are two types of
market integration namely vertical or horizontal .
 Vertical integration occur when firms confine
activities of different channel. e.g. wholesaler
doing functions of both retailer and wholesaler.

141
  Sometime producers convert their produce from
raw material ready to cook or to ready eat
forms.In this case value chain is maintained with
heavy investment on value addition process , cold
chain, specialized transportation vehicle, etc.,
 Horizontal integration occur when firms gain
control over other firms by performing similar
activities at same level in marketing channel.
CHAPTER-22: MARKETING OPPORTUNITIES 

Learning objectives
 To highlight concepts of marketing opportunities
 To understand various principles in consumer
behaviour during the buying process
 To explain the the different pathway of livestock
products
MERKETING OPPORTUNITIES

 Companies must look internally for strength and

weakness and externally to the environment for
opportunities and threats. Most opportunities and
threats evolves from
o Changes in the demographic, economic,

political, legal and cultural environment.

142
o Change in the competitive environment, such
as a technological break through by a
computer.
o Events that may or may not be under the
company's control such as strike by the work
force or a serious fire in an industrial plant.
 New market opportunities are determined

by discovering customer groups with unmet

needs.
 The new market opportunities arise for a

variety of reasons in industrialized

societies. One is geographical mobility.
 People live where they did not live before

and thus create new markets.

 The aggressive business firms recognize

these new markets and builds new super

markets, new discount houses etc.
 Another source of new market is social

mobility.
 As people become more educated and

acquire more sophisticated social

environment their interest change
frequently resulting in markets for new
products.
 Yet another cause of new market is psychic

mobility, when people change the

conception of themselves and their
environment along with physical and social
mobility.
CONSUMER BEHAVIOUR
143
  Consumer behaviour refers to those acts of
individuals directly involved in obtaining and
using economic goods and services, including the
decision processes and determines these acts.
 Consumer behaviour may be analyzed from the
three principal angles as detailed below :

Steps in the buying process

 Broadly, a buying decision involves the following
steps/stages
o Decision that there is a need for a product

o Pre-purchase search about its relevant

particulars
o Analyzing the importance of different factors

involved (i.e.) price, utility, durability and the

like,
o Weighing the pros and cons of alternative

products
o Selection of the best available product in the

context
o Use of the product and

o Post use review

Role of individuals in the buying process

144
  There are five different roles that persons play in
a buying decision process.
o Initiator: The person who first suggests or

thinks of buying the particular product.

o Influencer: A person who explicitly /implicitly

carries some influence on the final decision.

o Decider: A person who ultimately determines

any part or the whole of the buying decision -

Whether/What/ How/ When/ Where to buy?
o Buyer: The person who makes the actual

purchase.
o User: The person (s) who consume or use the

product or services

Determinants of buyer behaviour 

 In a broad sense the determinants of buyer /
consumer behaviour may be divided into two
groups as follows:
o Marketing channel can be defined as a path

through which product moves from producer

to consumer.
o  Hence a short channel of distribution will be

an effective tool to reach the target consumers.

o  However, distribution of products having

lower unit value and high turn over like eggs

involves a large number of middlemen.

145
 o The channels of distribution serve as a
network, which creates value for the consumer
by generating possession, time and place
utilities.
o There are number of middleman and
merchants, including Government and co-
operative agencies, who act as links between
the producers and consumers.
o The possible visible channels of distribution
for few selected livestock products (Milk, egg)
are given below.
CHAPTER-23: IMPORT AND EXPORT OF ANIMAL AND ANIMAL
PRODUCTS

Learning objectives
 To understand the world trade of livestock and
livestock products.
 To explore the potential for  import and export of
animals and animal products in India.
 To show the value of export and import of
livestock and livestock products.
 To look at the various guidelines for export of
livestock and livestock products.
IMPORT AND EXPORT OF ANIMAL AND ANIMAL PRODUCTS

146
 India is known for its livestock wealth and ranks
high among the nations having bovine
population.
 However, despite having huge livestock
population, India stands insignificant in the world
trade of livestock products.
 The recent concerted efforts made by the
government in the era of liberalization after
opening up of the national economy to the
international market have certainly boosted
India’s export trade of livestock products to newer
heights.
 The dairy industry of India is already at a take-off
stage and the entry of the corporate sector
following the liberalized policies of government is
bound to complement the efforts of National
Dairy Development Board (NDDB) to usher in a
white revolution.
 The most important achievement of the dairy
industry is the near-self sufficiency in milk
production.
 Nonetheless, the possibility of India emerging as a
potential exporter of various livestock products
will largely depend on India’s own ability to
exploit her potential in this sector and generate
exportable surplus of these commodities, aside
her competitive strength in the world market.

147
Import Procedure for Livestock Products
 Livestock products include meat and meat
products of different types that comprise fresh,
chilled and frozen meat as well as tissue or organs
of poultry, pig, sheep and goat.
 It also consists of egg and egg powder; milk and
milk goods; pet foods of animal origin and
embryos, ova or semen of cows, sheep and goats.
 No livestock product may be imported into India
without a valid sanitary import permit.

VALUE OF IMPORT OF LIVESTOCK AND

LIVESTOCK PRODUCTS DURING 1997-98 to
2002-03.
( Rs. million)
Broad 1997- 1998- 1999- 2000- 2001- 2002-
Groups 98 99 2000 01 02 03
Livesto 28 14.7 18.8 13.5 17 36.5
ck
Meat - 0.3 2.6 4.3 5.9 3.7
and
Edible
Meat
Offals
148
Dairy 300.2 424.3 1811.3 535.7 393.1 946.9
and
Poultry
Produc
ts and
Honey
Animal 413.5 499.4 668.5 818.5 1227.7 12941.3
Fodder 7
and
Feed
Leather 5343. 6142.1 6587. 8730. 10330 9735.2
1 9 6 .2
Raw 6127. 4979. 4969. 4686. 6339. 8957.3
Wool 7 9 4 8 3
and
Animal
Hair
All 12212 12060 14058 14789. 18313. 32620.
Groups .5 .7 .5 4 2 97
(Total)
Source - Directorate General of
Statistics&Commercial Intelligence, Calcutta ,
(DGCIS, Calcutta )

PROCEDURE FOR IMPORT OF LIVESTOCK PRODUCTS INTO

INDIA

149
 All live-stock products shall be imported into
India subject to the following conditions, namely:
 No live-stock product shall be imported into India
without a valid sanitary import permit issued
under clause (3).
 All applications for a permit to import
consignments by land, air or sea shall be made in
either Form A (Application For Permit To Import
Live-Stock Products For Personal Consumption)
Or Form B(For Trading / Marketing ) whichever
is relevant, and sent in triplicate to the Joint
Secretary, Trade Division, Department of Animal
Husbandry and Dairying, Ministry of Agriculture,
Government of India .
o The sanitary import permit shall be issued for

import of livestock products if, after a detailed

import risk analysis, the concerned authorities
are satisfied that the import of the
consignment will not adversely affect the
health of the animal and human populations of
this country.
o The import risk analysis shall be conducted by

the concerned officers of the Department on

the basis of internationally recognised
scientific principles of risk analysis and the
analysis shall be conducted with reference to
the specific product and the disease situation
prevailing in the exporting country vis-a-vis
the disease situation in India .
150
 o The issue of permits shall be refused if the
results of the import risk analysis show that
there is a risk of the specific product bringing
in one or more specific diseases, which are not
prevalent in the country and which could
adversely affect the health and safety of the
human and animal populations of this country.
o The import permit shall lay down the specific

conditions that will have to be fulfilled in

respect of the consignment, including pre-
shipment certifications and quarantine checks.
o The permit shall also specify the post-import

requirements with regard to quarantine

inspections, sampling and testing.
o The import permit issued under this clause

shall be valid for a period of six months, but

can be extended by the concerned authority for
a further period of six months, on request from
the importer and for reasons to be recorded in
writing.
 All livestock products shall be imported into India
through the seaports or airports located at Delhi,
Mumbai, Kolkata and Chennai, where the Animal
Quarantine and Certification Services Stations are
located.
o  On arrival at the entry point, the livestock

product shall be inspected by the Officer-in-

charge of the Animal Quarantine and
Certification Services Station or any other

151
 veterinary officer duly authorised by the
Department Of Animal Husbandry and
Dairying, wherever required, in accordance
with the specific conditions laid down in the
sanitary import permit and with general
guidelines issued by the Department of Animal
Husbandry and Dairying from time to time.
o After inspection and testing, where-ever

required, the concerned quarantine or

veterinary authority shall accord quarantine
clearance for the entry of the livestock product
into India or, if required in public interest,
order its destruction or its return to the
country of origin.
o Where ever disinfection or any other treatment

is considered necessary in respect of any

livestock product , the importer shall, on his
own or at his cost through an agency approved
by the Department of Animal Husbandry and
Dairying, arrange for disinfection or other
treatment of the consignment, under the
supervision of a duly authorised quarantine or
veterinary officer.
 It shall be the responsibility of the importer.
o To bring the livestock product to the concerned

Animal Quarantine & Certification Services

Station, or to the place of inspection,
disinfection or treatment or testing as directed

152
 by the Quarantine or veterinary officer duly
authorized on this behalf;
o To open, repack and load into or unload from

the Animal Quarantine Station and seal the

consignment; and
o To remove them after inspection and

treatment or testing, according to the

directions of the Quarantine or veterinary
officer duly authorized by the Department. 
 The Central Government may, in public interest,
relax any of the conditions  specified under this
Schedule relating to the permit in relation to the
import of any live-stock product .
EXPORT PROCEDURES
VALUE OF EXPORT OF LIVESTOCK AND
LIVESTOCK PRODUCTS DURING 1997-98 to
2002-03
( Rs.million)
Broad 1997- 1998 1999- 2000 2001- 2002-
Groups 98 -99 2000 -01 02 03
Livestock 13.3 47.5 58.9 76.3 90.41 62.82
Meat and 8022. 7721. 7964. 1456 11828. 13575.
Edible 9 3 3 8.6 4 5
Meat
Offals
Dairy and 1155.5 859 1142. 2081. 3524. 3567

153
Poultry 9 6 8
Products
and
Honey
Animal 653.0 671.5 418 543.6 973.2 322.41
Fodder 6
and Feed
Leather 11006 1129 10384 17455 21971. 24705.
2.7 .1 .7 4 4
Raw Wool 64.11 63 38.7 34.2 18.8 22.8
and
Animal
Hair
All 20914. 2065 2000 3476 38407 42255.
Groups(T 87 5 6.9 0 .01 93
otal)
Source - Directorate General of
Statistics&Commercial Intelligence, Calcutta ,
(DGCIS, Calcutta )

 Certain documentation takes place while

exporting from India. Special documents may be
required depending on the type of product or
destination.
 Certain export products may require a quality
control inspection certificate from the Export
Inspection Agency.
154
  Some food and pharmaceutical product may
require a health or sanitary certificate for export. 
Shipping Bill/ Bill of Export is the main document
required by the Customs Authority for allowing
shipment.
 Usually the Shipping Bill is of four types and the
major distinction lies with regard to the goods
being subject to certain conditions which are
mentioned below
 Export duty/ cess
 Free of duty/ cess
 Entitlement of duty drawback
 Entitlement of credit of duty under DEPB Scheme

The following are the documents required for

the processing of the Shipping Bill:

 GR forms (in duplicate) for shipment to all the
countries.
 4 copies of the packing list mentioning the
contents, quantity, gross and net weight of each
package.
 4 copies of invoices which contains all relevant
particulars like number of packages, quantity,
155
 unit rate, total f.o.b./ c.i.f. value, correct & full
description of goods etc.
 Contract, L/C, Purchase Order of the overseas
buyer.
 AR4 (both original and duplicate) and invoice.
 Inspection/ Examination Certificate.

The formats presented for the Shipping Bill

are as given below:

 White Shipping Bill in triplicate for export of duty
free of goods.
 Green Shipping Bill in quadruplicate for the
export of goods which are under claim for duty
drawback.
 Yellow Shipping Bill in triplicate for the export of
dutiable goods.
 Blue Shipping Bill in 7 copies for exports under
the DEPB scheme.
 Documents Required for Post Parcel Customs
Clearance
 In case of Post Parcel, no Shipping Bill is
required. The relevant documents are mentioned
below:
156
Customs Declaration Form
o It is prescribed by the Universal Postal Union
(UPU) and international apex body
coordinating activities of national postal
administration. It is known by the code
number CP2/ CP3 and to be prepared in
quadruplicate, signed by the sender.
 Despatch Note, also known as CP2. It is

filled by the sender to specify the action

to be taken by the postal department at
the destination in case the address is
non-traceable or the parcel is refused to
be accepted.
 Prescriptions regarding the minimum

and maximum sizes of the parcel with its

maximum weight 
Minimum size: Total surface area not less
than 140 mm X 90 mm.
Maximum size: Lengthwise not over 1.05
m. Measurement of any other side of
circumference 0.9 m./ 2.00 m.
Maximum weight: 10 kg usually, 20 kg
for some destinations.

157
Commercial invoice
 Issued by the seller for the full realisable
amount of goods as per trade term.
INTERIM GUIDELINES FOR EXPORT/IMPORT OF BOVINE
GERMPLASM

 The import and export of the cattle/ buffalo

germplasm is under restricted list and is allowed
against the license issued by Directorate General
of Foreign Trade, Ministry of Commerce on the
recommendation of this Department.
 Introduction of temperate dairy breeds in the
country for cross-breeding indigenous non -
descript cattle has been accepted for quite some
time now.
 In pursuance to this, the need has been felt by
number of State Governments/ Organisations to
import exotic germplasm to produce the quality
cross-bred animals.
 With the extension of the breeding programme
and the artificial breeding network, a surge in the
demand for the exotic germplasm is also
expected.
 There is a definite demand for the germplasm of
Indian breeds of cattle and buffalo, in South
America, South Asia and other countries. Keeping
158
 in view our responsibility towards conservation of
the rich diversity, it is important to broadly
categorize the germplasm of cattle and buffalo
meant for breeding purposes and further for the
export purposes.
 Imposing a complete ban on the export of
Indigenous germplasm because of conservation
concern would actually be counterproductive.
 Such a ban will only encourage the flow of
germplasm through illegal trade and in a country
with such huge land border it will be impossible
to control such flow through illegal trade.
 It can be used for the up gradation of the
indigenous stock.
o Accordingly, it has been felt that some

guidelines should be put in place for

processing such applications for import and
export of germplasm.
o Interim Guidelines for export /import of

bovine germplasm

Guidelines for the Import of bovine

germplasm

159
 Import of live animals (bovine) and bovine
germplasm will be permitted for breeding
purpose only.
 Eligibility of Importers
o The institutes/Organizations capable of

keeping and maintaining the performance

records 'of exotic germplasm should only be
permitted to import bovine germplasm and
these institutions will be evaluated by the
Department of Animal Husbandry. Dairying
and Fisheries(DADF) for grant of permission.
o Complete genetic and production data

/information with respect to the germplasm

should be submitted to this Department before
the actual imports.
o Post import information from the date of

import to the date of disposal in prescribed

proforma must be maintained and submitted
to Department of Animal Husbandry, Dairying
and Fisheries and State Governinents on six
monthly basis.
o The feeding schedule from the import'ing

country should be supplied along with other

documents
o The import should be based on the fat % and

lactation yield in addition to other milk

component character standards. The type
evaluation should form the integrated
component of selection.

160
 o The guidelines formulated by OlE, Codex
Alimentarius and lETS should be strictly
adhered to while importing the genetic
material.
o The pre and post import quarantine measures

for live animals and germplasm should be

strictly adhered to according to GOI health
protocols.
o The justifications for import and future

roadmap for utilization of imported

germplasm should be supplied with other
documents.
o No objection certificate from the concerned

State Government should be submitted before

the actual imports.
 Screening Committee
o All the applications for the import of

germplasm will be examined. by .the

Department of Animal Husbandrx Dairying
and Fisheries (DAD F).
 Veterinary Certificates
o The imports should be regulated as per the

provision of Livestock Importation Act, 1898

amended from time to time and as per the
protocols/ veterinary certificates
 Order of import
o For import of germplasm, the order of

preference should be frozen semen, frozen

embryos, and live animals, which shall be

161
 based on the assessment of the domestic
requirement of bulls and bull mothers and
their availability in the country.
 Standards for Import of Germplasm
o Semen from progeny tested sires with +ve sire

indices/breeding values (with reliability of>

85%) should only be allowed for importation.
o The selection criterion for milk fat should be a

minimum of3.5% in HF and 5% in Jersey. 

Semen should be procured from the bulls with
daughters average lactation yield ( in 305 days)
above 9000 liters in HF and 6000 liters in
Jersey.
o Bulls should be improver for type characters

like udder and feet conformation.

o Donor bull should be free from genetic

disorders like bovine leukocyte adhesion

disease (BLAD), deficiency of uridine mono-
phosphate synthetase (DUMPS), citrulinemia
(deficiency of argino-succinate synthetasea)
and Factor XI
o Embryos should be procured from the donor

dams -HF with minimum lactation yield of'l

000 Its with minimum of 3,5% fat. Sire should
be progeny tested with sire indices/breeding
value of higher order (with reliability of>
85%).
o Embryos should be procured from the donor

dams- Jersey with minimum

162
 o lactation yield of 7000 Its with minimum of
5% fat. Sire should be progeny tested with sire
indices/breeding value of higher order (with
reliability of> 85%),
o In case of import of indigenous germplasm,
average of top 20% of genetic
o Material on current animal register of the
exporting country shall be considered for
import.
o Import of germplasm of other exotic breeds
will be allowed only for experimental purpose
subject to condition that the semen is from
progeny tested.
o For import of live animals/ Semen! Embryos of
other bovine breeds, the DADF shall consider
and recommend case-to-case basis.
CHAPTER-24: GUIDELINES FOR EXPORT OF BOVINE
GERMPLASM

Learning objectives
 To explain  the guidelines involved in the export
of bovine germplasm
 To discuss  the status of livestock, livestock
products and poultry products in export
GUIDELINES FOR EXPORT OF BOVINE GERMPLASM

163
 Export of live animals (bovine) and bovine
germplasm will be permitted for breeding
purposes only.
 The export of germplasm will be allowed subject
to the fulfillment of following conditions:-
o For export of'germplasm, order '"of preference

should be frozen semen, frozen embryos and

lastly live animals.
o Animal should conform to breed

characteristics.
o Milk production records of breed averages will

be considered during export of live animals.

o However elite animals (top 20% of the

production level) of each breed having best

milk product(on level should not be exported.
o The export component should not exceed 5%

of animals of the concerned breed estimated as

qualified for export per year.
o However, export of live anImals of some of the

Indigenous breeds categorised as threatened/

endangered shall not be allowed.
o Countries which are interested in importing

bovine germplasm (live animals,

o semen, ova, embryo and gonads) will provide

their import policy documents and health

protocols to Govt. of India.
o The exporting agency from India will comply

with the rules and regulations as intimated by

DADF.

164
o The export of germplasm (semen, ova &
embryos) of all the breeds may only be
permitted to only those countries, which are
willing to have similar arrangements on
reciprocal basis.
o The health certificate requested by the
importing authorities will be provided by the
registered Veterinarian authorized by DADF.
o Exporting agency/ State Government will keep
the detailed data on the exported animals and
shall regularly inform DADF.
o For export of Embryo/ ova, the collection and
processing techniques as stipulated under
section 3.3 Appendix 3.3.1.1 to 3.3.1.13 and
micro- manipulation of the Bovine Embryos at
Appendix 3.3.3.1 to 3.3.3.5 of the DIE
Terrestrial Anima1.Health code (2005). as
amended from time to time may be adhered to.
..
o Similarly the collection and processing
procedure of semen as per section
3.2,Appendix 3.2.1.1 to 3.2.1.10 of the DIE
Terrestrial Animal Health code (2005) as
amended from time to time may be complied.
o The animals with National Institute/NDDB,
registered animals with CHRS or State
Government or Livestock Development
Boards, shall be eligible for Consideration for
export of germ-plasm.

165
 o Preferential treatment shall be given to the
SAARC countries in terms of the number of
animals and breeds to be exported especially
from Central Cattle Breeding Farms (CCBFs). .
 Although India is a world leader in the production
of Dairy Animal Products.
 India's exports of Animal products has increased
from 1266333.38 MT with the value of Rs.
4109.93 Crores in 2006-07 to 2101759.49 MTwith
the value of Rs.5104.63 Crores in 2007-08.
 India’s exports of poultry products has increased
from Rs. 318.17 Crores in 2006-07 to Rs 441.09
Crores in 2007-08.
 Birds, eggs, in shell, fresh, preserved or cooked
constitute the largest segment with about 50%
share. Processed egg products accounted for
about 48% of the exports.
 India's export of Buffalo meat and sheep/goat
meat products reached 483478.29 MT and
8908.72 MT with the value of Rs. 3549.78 Crores
and Rs. 134.10 Crores during 2007-08.
 Frozen bovine meat dominated the exports with a
contribution of over 97%. The demand for bovine
meat in international market has sparked a
sudden increase in the meat exports from India.
The main markets for Indian bovine meat are
Malaysia, Philippines, Mauritius, and Gulf
countries.

166
  Concentrated Dairy products such as skimmed
milk continues to be the largest item of export,
which together accounts for nearly 78% of net
milk and milk products exports during the year
2006-07.
 The exports of Dairy Products reached. 69415.44
MT with the value of Rs.866.58 Crores in 2007-
08 as against Rs. 434.58 Crores in 2006-07.
 On the other hand butter, butter oil, ghee and
other milk fat together accounted for just over
10% of the net milk and milk product exports
from India during 2006-07.
 India ’s exports of Processed Meat and Natural
honey attained 1245.47 MT and 12231.19 MT with
the value of Rs. 12.96 Crores and Rs. 93.30 Crores
in 2007-08.
BUFFALO, SHEEP AND GOAT MEATS AND THE AREAS OF
PRODUCTION

Buffalo Meat
 India's livestock population includes, 88 million
buffaloes, which is 58 per cent of the world's
buffalo population.
 Animals which are generally used for production
of meat comprise of sheep and goats, pigs and
poultry.
167
  Besides about 3600 slaughter houses, there are
live modern abattoirs and one integrated abattoir
meat processing plant for slaughtering buffaloes
for exports and domestic consumption.
 There are 24 meat processing plants including 13,
hundred percent export oriented units who are
mainly engaged in export of meat products.
 In the last one-year three new export oriented
units of buffalo meat processing have been
approved and are reportedly under
implementation.
 In addition, there are few animal casing units
engaged in collecting cleaning, grading and
exporting sheep and goat and cattle guts .
 The individual products under this sub-head are
as below:
o Carcasses Of Bovine Animals(Fresh)

o Meat Of Bovine Animals With Bone (Fresh)

o Boneless Meat Of Bovine Animals (Fresh)

o Carcasses Of Bovine Animals (Frozen)

o Meat Of Bovine Animals With Bon (Frozen)

o Boneless Meat Of Bovine Animals (Frozen )

Production and Export of buffaloe meat 

 The major areas for Buffalo Meat production are
Maharastra, Andhra Pradesh , Uttar Pradesh
168
India Facts and Figures
 India’s export of Buffalo (bovine) meat has
increased from Rs. 3213.75 Crores in 2006-07
to Rs 3549.78 Crores in 2007-08 .

Major Export Destinations (2007-08)

 Vietnam, Malaysia, Philippines, Angola,
Saudi Arabia

Value in Rs. Lakh

Quantity in MT
2004 - 2005 2005 - 2006 2006 - 2007
Country QTY(2004- Value(2004 QTY(2005- Value(2005 QTY(2006 Value(2006
2005) -2005) 2006) -2006) -2007) -2007
Buffalo 337,777.67 177,451.85 460,593.32 263,389.32 494,506.3 321,374.58
Meat 0

169
Sheep 9,024.52 8,127.42 7,272.97 8,104.24 5,777.53 6,587.23
/Goat
Meat
Poultry 1,062,265.6 28,774.23 1,185,279.6 31,653.03 711,245.65 31,817.09
Proudcts 5 4
Diary 42,160.04 35,869.20 75,551.39 67,668.26 45,371.84 43,457.85
Products
Animal 552.74 1,263.98 1,125.82 1,751.33 435.97 950.65
Casing
Processe 1,359.68 944.84 745.36 724.01 860.69 712.60
d Meat

Sheep and Goat Meat

 Goats\Sheep constitute a very important species
of livestock in India, mainly on account of their
short generation intervals, higher rates of
prolificacy, and the ease with which the goats as
also their products can be marketed.
 They are considered to be very important for their
contribution to the development of rural zones
and people.
 The local initiatives to promote quality labels and
innovative products for cheeses, meat and fibres
could help goats in keeping a role for sustainable
development in an eco-friendly environment all
over the world.
 However, the future of the goat and sheep
industry as a significant economic activity will
170
 also be very dependent on the standards of living
in the countries where there is a market for the
goat products.

Areas of Production
 Rajasthan, Jammu, Kashmir, Uttar Pradesh,
Gujarat, Hilly regions of North and Eastern
Himalays are the Indian regions with maximum
livestock population.
 The individual products under this sub-head are
as below.
o Carcasses Of Lamb (Fresh)

o Carcasses Of Sheep (Fresh)

o Meat Of Sheep With Bone (Fresh)

o Boneless Meat Of Sheep (Fresh)

o Carcasses Of Lamb (Frozen)

o Carcasses Of Sheep (Frozen)

o Meat Of Sheep With Bone (Frozen)

o Boneless Meat Of Sheep (Frozen)

 India Facts and Figures

o The world production of Sheep meat was 8.89

million tones and Goat meat was 5.14 million

tones in 2007.
o India ranked seventh in sheep and second in

goat meat production.

171
 oIndia’s export of sheep/goat meat has been
increased from Rs. 65.87 Crores in 2006-07 to
Rs.134.10 Crores in 2007-08 .
 Major Export Destinations (2007-08) of buffaloe
meat.
o Saudi Arabia, UAE, Qatar, Germany, Oman.

POULTRY PRODUCTS,DAIRY PRODUCTS AND THE AREAS OF

PRODUCTION

Poultry Products
 Poultry is one of the fastest growing segments of
the agricultural sector in India today. While the
production of agricultural crops has been rising at
a rate of 1.5 to 2 percent per annum, that of eggs
and broilers has been rising at a rate of 8 to 10
percent per annum.
 As a result, India is now the world's fifth largest
egg producer and the eighteenth largest producer
of broilers.
 The Potential in the sector is due to a combination
of factors - growth in per capita income, a
growing urban population and falling real poultry
prices.
 Poultry meat is the fastest growing component of
global meat demand, and India, the world's

172
 second largest developing country, is experiencing
rapid growth in its poultry sector.
 In India, poultry sector growth is being driven by
rising incomes and a rapidly expanding middle
class, together with the emergence of vertically
integrated poultry producers that have reduced
consumer prices by lowering production and
marketing costs.
 Integrated production, market transition from
live birds to chilled and frozen products, and
policies that ensure supplies of competitively
priced corn and soybeans are keys to future
poultry industry growth in India. There are
number of small poultry dressing plants in the
country.
 These plants are producing dressed chickens. In
addition to these plants, there are five modern
integrated poultry processing plants producing
dressed chicken, chicken cut parts and other
chicken products. These plants will manufacture
egg powder and frozen egg-yolk for export.

Areas of Production
 Over all, Tamil Nadu counts for maximum egg
production. In Andhra Pradesh, Hyderabad is the
city with maximum poultry and hatcheries.
173
 Besides the state of Andhra Pradesh,
Vishakhapatnam, Chittoor, Karnataka, Tamil
Nadu, Maharashtra, Gujarat, Madhya Pradesh,
Orissa and North Eastern States are the major egg
contributors
 The individual products under this sub-head are
as below
o Live Poultry <=85 Gram

o Other Live Poultry <=185 Gram

o Live Poultry > 185 Gram

o Other Live Poultry >185 Gram

o Edible Poultry Meat (Fresh)

o Edible Poultry Meat (Frozen)

o Other Poultry Meat Not Cut In Pieces

o Cuts & Offals Excluding Livers

o Eggs In Shell

o Other Eggs

o Egg Yolks Dried

o Other Egg Yolks

o Eggs Not In Shell (Dried/Cooked)

o Eggs Not In Shell (Frozen/Preserved)

o India Facts and Figures

o India’s export of poultry products has

increased from Rs. 318.17 Crores in 2006-07 to

Rs 441.09 Crores in 2007-08 .
 Major Export Destinations (2007-08)
o Kuwait, Afghanistan, Oman, Japan, Denmark.

174
Dairy Products
 India now has indisputably the world's biggest
dairy industry—at least in terms of milk
production; last year India produced close to 100
million tonnes of milk, 15% more than the US and
three times as much as the much-heralded new
growth champ, China.
 Appropriately, India also produces the biggest
directory or encyclopaedia of any world dairy
industry.
 The dairy sector in the India has shown
remarkable development in the past decade and
India has now become one of the largest
producers of milk and value-added milk products
in the world.
 The individual products under this sub-head are
as below
Butter Fresh Butter MilK
Butter Oil Fresh Cheese
Milk & Cream in Powder Milk for Babies
Other Fat Skimmed milk powder
Other milk power Whole Milk
Ghee

175
Areas of Production
 Maharashtra , Himachal Pradesh , Madhya
Pradesh , Punjab , Rajasthan , Tamil Nadu
are the major production area of Dairy
Products in India .

India Facts and Figures

 Concentrated Dairy products such as
skimmed milk continues to be the largest
item of export, which together accounts for
nearly 78% of net milk and milk products
exports during the year 2007-08.
 The exports of Dairy Products reached.
69415.44 MT from 45371.84 MT . India’s
export of Dairy products has increased from
Rs. 434.58 Crores in 2006-07 to Rs 866.56
Crores in 2007-08 .

Major Export Destinations (2007-08)

176
  Bangladesh, UAE, Egypt, China, Algeria.
ANIMAL CASING,PROCESSED MEAT AND THE AREAS OF
PRODUCTION

Animal Casing
 India, being a country with numerous states and
vast area , has resources for production of animal
casings of high quality with excellent calibration
and shining colour .
 This makes India one of the major exporter of
animal casing in the world.
 Animal products including the products or animal
casing like Bladders and Stomachs of Animals,
Casings of Other animals, Cattle Casings, Guts for
Animal Casings, Sheep Casings etc.
 The individual products under this sub-head are
as below
o Cattle Casings

o Sheep Casings

o Casings of other animals

o Guts for animal casings

o Bladders and stomach of animals

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India Facts and Figures
 India’s export of Animal Casing products has
reached to Rs 6.84 Crores in 2007-08

Major Export Destinations (2007-08) 

  Vietnam, Italy, South Africa, Portugal , Spain.

Processed Meat
 The total processing capacity in India is over 1
million tons per annum, of which 40-50 percent is
utilized. India exports more than 500,000 tons of
meat, mostly buffalo meat.
  Indian buffalo meat is witnessing strong demand
in international markets due to its lean character
and near organic nature.
 Unlike cow slaughter, there is no social taboo in
killing buffalo for meat. Goat and lamb meat are
relatively small segments where local demand is
outstripping supply.
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 The production levels in these two categories have
been almost constant at 950,000 tons with
annual exports of less than 10,000 tons.
 The recent trend in India is to establish large
abattoirs-cum-meat processing plants with the
latest technology.
 India has already established ten state-of-art
mechanized abattoirs-cum-meat processing
plants in various states based on slaughtering
buffaloes and sheep.
 These plants are environmentally friendly, where
all the slaughterhouse byproducts are utilized in
the production of meat-cum-bone meal, tallow,
bone chips and other value-added products.
Several more are under construction.
 The plants follow all the sanitary and phyto-
sanitary measures required by the International
Animal Health code of World Organization for
Animal Health (O.I.E.). These plants mostly
produce buffalo meat for export.
 India is becoming a major buffalo meat producing
country and will be a main player in the
international market with additional
establishment of the state-of-art-abattoirs cum
meat processing plants.

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Areas of Production
 Andhra Pradesh , West Bengal , Maharashtra ,
Kerala, Delhi , Uttar Pradesh , Rajasthan are the
key areas of Processed meat production in India.
 The individual products under this sub-head are
as below
o Sausages & Canned Meat

o Homogenized Meat Preparations

o Preserved Meats

o Other Poultry Meat

o Preserved Meat Of Bovine Animals

o Meat Extracts & Meat Juices

India Facts and Figures

 India export of Processed Meat production has
increased from Rs. 7.13 Crores in 2006-07 to
Rs.12.96 Crores in 2007-08 and from 860.69 Qty
(Mt) in 2006-07 to 1245.47 Qty (Mt) in 2007-08.

Major Export Destinations (2007-08)

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  Vietnam, Malaysia, Australia, New Zealand, and
Ghana
CHAPTER-25: RESOURCE MANAGEMENT 

Learning objectives
 To give in details about resource management.
 To explain organisational aspects of livestock
farms.
 To describe sources, procurement of inputs and
financial resources.
ORGANIZATIONAL ASPECTS OF LIVESTOCK FARMS

Organizational aspects of livestock farms

 Promotion of the welfare of the people is one of
the major objectives of the modern livestock
farming. For the attainment of this objective the
state attach high priority on their economic
development.
 The economic development in turn depends on
human, natural and financial resources. Since in
most of the developing countries these resources

181
 are not available in abundance, every care should
be taken to make proper use of these resources to
obtain best possible results.
 Hence the management of various types of
resources assumes special importance in the
developing countries.

Management of human resources

 Management of human resources is of vital
importance for every country and organization, A
pertinent question which deserves our
consideration is as to what is the process of
management of human resources.
 This process comprises of four things, acquisition
(getting the people), development (preparing the
people), motivation (activating the people) and
maintenance (keeping them).

Management of natural or material

resources

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  Material or the natural resources also play an
important role in the economic development of a
country.
 Effective management of natural or material
resources is of prime importance.

Management of financial resources

 Financial resources are as important for the
economic development of the country as natural
and human resources.
 It is of vital importance that the limited financial
resources should be utilized with utmost care and
all wasteful expenditure be avoided.
 Financial management, according to Hiwad and
Uptron "involves the application of general
management principles to a particular financial
operation."

Sources and procurement of materials

 Purchasing procedures of materials include
various stages: First, the need is to be ascertained
and recognised.

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  Accurate statement of quality and quantity of
material needed with full descript is to be
prepared.
 Purchase requisitions and negotiations with
possible sources of supplies are made.
 This is important in the business, as it is more
concerned with the economy of the company or
the firm.

Requirement of materials
 Type of the material to be used in the production
process is generally determined by the production
department (engineering dept.) of the company,
since it has necessary knowledge and equipment
to check the real physical characteristics.


Making/Buying
 Usually the top management does this. It depends
how highly integrated and the diversified the
company is.

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Advantages of Making
 Delivery on time in right quantity and quality
 Cost consideration, less inventory
 Emergency

Advantges of Buying
 Less investment in machines and equipment
 Simpler to manage in smaller and less diversified
companies

Source selection
 Procedure involved in the source selection is the
preparation of and exhaustive list of supplies and
then sorting them out the one or ones with when
to do the business.
 To prepare the list, a buyer can use the following
type of supplier information
o Past experiment with the supplier

o Interview with the sales man

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 o Technical and descriptive catalogues
o Trade fairs and conventions
o Trade directories and journals
o Trade representatives and agencies
o Periodical advertisement in the press
PROCUREMENT OF INPUTS AND FINANCIAL RESOURCES

Material procurement activities

 Procurement is a generic term, which includes the
purchasing and related activities.
 Procurement activities are the selection of the
vendors, establishing prices and services,
preparation of orders and supply contracts,
arrangement of scheduled delivery of the
materials, proper maintenance of the records and
relation with suppliers.
 Procurement activity also includes effective
communication with the user and other services
department as also with the supplier.
 Frequently, however materials management
procedures require direct communication and
discussions between the user and the supplier for
technical reasons.

186
  The heart of the industrial management function
is the procurement circle, which may be depicted
as shown below  

Financial resources
 Resources are the inputs we give to the enterprise.
Land, labour and capital are the basic resources.
Any form of the capital can be considered as the
financial resources.

Types of Financial Resources

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Share Capital
 A Company issues shares of its capital to raise
the fund for its business.
 This is done at the time of incorporation of
the company and also subsequently as and
when the need arises.
 There are two types of share capital
o Preference capital

o Equity capital

 Capital of the company is called the share

capital. Those who acquire shares are called
as the shareholders.
 They are the owners of the company.
Shareholders cannot withdraw any part of the
capital except under appropriate legal
customeric provisions.
 Shareholders can transfer shares held by
them to other persons.

Dividends
 Payment of dividend by a company to its
shareholders is similar to the withdrawal

188
 made by the owner partners from the
business.

Debentures and Bonds

 When large amount of money is required which
cannot be obtained from a single source small
amounts are borrowed from large number of
people. This is done by issuing debentures/bonds.
 Each debenture has a face value which is the
amount supposed to be borrowed from the
debenture holder.
 Rate of interest, date of issue and date of maturity
are indicated on the debentures.

Borrowings
 Based on the purpose and duration of the
borrowings agricultural credits may be divided
into
o Short term credit: Loan for paying wages,

hiring labour, purchasing feeds, seeds and

fertilizers. They are payable out of the income
of the next immediate harvest.

189
 o Medium term loan: Comparatively bigger
loans required for the purchase of cattle, pump
sets, implements etc., spanning 2-7 years for
repayment. Repayment cannot be made at the
next harvest.
o Long term credit: Still larger sums to purchase
land, wells, etc., It will take many years to
repay.

Sources of Agriculture finance

 Finance for agriculture can be obtained from
o Money lender

o Credit co-operatives

o Commercial banks

o Government

o Regional Rural Banks

CHAPTER-26: GATT, WTO AND AGRICULTURE 

Learning objectives
 To discuss about the functioning of  GATT, ITO
and WTO.

190
  To explain in detail about different negotiation
and rules in WTO.
GATT,WTO AND AGRICULTURE

 To facilitate increased flow of commodities across

international border is to eliminate completely
some of the non-tariff barriers. Non-tariff barriers
(NTB) in AoA are quantitative restriction, giving
preference to domestic supplies in government
purchases, providing subsidy or advantageous
taxation allowance to domestic producer,
minimum import prices, discretionary licensing,
variable import levies, voluntary export
restrictions, etc.,

GATT
 General Agreement on Tariffs and Trade
(typically abbreviated GATT) was the outcome of
the failure of negotiating governments to create
the International Trade Organization (ITO).
 GATT was formed in 1947 and lasted until 1994,
when it was replaced by the World Trade
Organization during the final round of
negotiations in early 1990s.
 The history of the GATT can be divided into three
phases:
191
 o The first, from 1947 until the Torquay Round ,
largely concerned which commodities would
be covered by the agreement and freezing
existing tariff levels.
o A second phase, encompassing three rounds,
from 1959 to 1979, focused on reducing tariffs.
o The third phase, consisting only of
the Uruguay Round from 1986 to 1994,
extended the agreement fully to new areas
such as intellectual property, services , capital ,
and agriculture . Out of this round the WTO
was born.

WTO
 World Trade Organization (WTO) is the only
global international organization dealing with the
rules of trade between nations.
 At its heart are the WTO agreements, negotiated
and signed by the bulk of the world’s trading
nations and ratified in their parliaments.
 The goal is to help producers of goods and
services, exporters, and importers who conduct
their business
 In 1993 the GATT was updated (GATT 1994) to
include new obligations upon its signatories.

192
 One of the most significant changes was the
creation of the World Trade Organization (WTO).
The 75 existing GATT members and the European
Communities became the founding members of
the WTO on 1 January 1995.
 The other 52 GATT members rejoined the WTO in
the following two years (the last being Congo in
1997).
 Since the founding of the WTO and 21 new non-
GATT members have joined, 29 are currently
negotiating membership. There are a total of 153
member countries in the WTO.
 Whereas GATT was a set of rules agreed upon by
nations, the WTO is an institutional body. The
WTO expanded its scope from traded goods to
trade within the service sector and intellectual
property rights .
 Although it was designed to serve multilateral
agreements, during several rounds of GATT
negotiations (particularly
the Tokyo Round) plurilateral agreements created
selective trading and caused fragmentation
among members. WTO arrangements are
generally a multilateral agreement settlement
mechanism of GATT.

193
Agriculture
 The WTO’s Agriculture Agreement was negotiated
in the 1986–94 Uruguay Round and is a
significant first step towards fairer competition
and a less distorted sector.
 It includes specific commitments by WTO
member governments to improve market access
and reduce trade-distorting subsidies in
agriculture.
 These commitments are being implemented over
a six year period (10 years for developing
countries) that began in 1995.
 Participants have agreed to initiate negotiations
for continuing the reform process one year before
the end of the implementation period, i.e. by the
end of 1999.
 These talks have now been incorporated into the
broader negotiating agenda set at the 2001
Ministerial Conference in Doha, Qatar.
 WTO members agreed to initiate negotiations for
continuing the agricultural trade reform process
one year before the end of the implementation
period, i.e. by the end of 1999.

194
  These talks began in early 2000 under the
original mandate of Article 20 of the Agriculture
Agreement.
 At the November 2001 Doha Ministerial
Conference, the agriculture negotiations became
part of the single undertaking in which virtually
all the linked negotiations were to end by 1
January 2005.

Tariff Barriers
 Tariff is a set of proportion of the price of good to
increase the price at the border of importing
countries. Aim of levying tariff is to stimulate in
import-competing industries and depressing
demand by reducing imports. This is needed to
safeguard the domestic producer. It is specified in
money term per unit in the form of excise and
custom duties.
 This is of two type ie. optimum tariff and
prohibitive tariff.
o Optimum tariff - Tariff which maximizes

country's welfare.
o Prohibitive tariff - It is the increased level of

tariff when there is no trade.

 Tariff rate Quota (TRQ) - is two tiered tariff
structure where minimum access quantity is
195
 charged a low tariff (within quota tariff) while
imports above minim access quota are charged
higher tariff (out of quota tariff) which experience
prohibitive tariff.
 Special Safeguard Clause (SSC) provides
imposition of additional import duty if import
exceeds their average of three preceding years by
no more than 5% or if CIF import price of
shipment falls below 90% of average reference
price.

Non-Tariff Barriers
 Changes in the form of fees for loading and
unloading important products, port charges,
custom processing fees, consular charges to
imports are in the form of non-tariff barriers.
 Other specific type of non-tariff barriers are
technical barrier to trade (TBT) and sanitary and
phyto-sanitary (SPS) measure.
 TBT covers all technical regulations, voluntary
standards and conformity assessment procedures.
Many TBT can result in unnecessary costs
increase to exporters. TBT measures focus on
ensuring imported products satisfy domestic
taxes, preferences and requirements with respect
to quality, safety or appropriate consideration of
196
 environmental concern during manufacturing,
processing and or shipment of product.
 SPS covers all measures whose purpose is to
protect human or animal health from food borne
risks, human health from animal or plant carried
diseases.
 Remedy for this barrier is to harmonise such
requirements or standards within union
members.
CHAPTER-27: BREAK EVEN ANALYSIS 

Learning objectives
 To define and calculate break-even output and
margin of safety.
 To explain importance of break even and shut
down point.
BREAK EVEN ANALYSIS

Break-even point

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  Break-even point is the output level
corresponding to minimum point of average total
cost.
 A farmer must produce at least this amount of
product to cover the total cost of production.
 Whatever is produced above this point will be the
profit for the farmer.
 Point where the farmer recoups his investment is
the Break-even point.
 Investment is in the form of fixed cost and
variable cost, which constitutes the total cost.
 When the total cost is equal to total revenue it is
Break-even point. It can be calculated by,

Service charge = How much one gets by selling an

individual unit of output.

 Break-even point nearer to the origin indicates
less loss and more profit zones.

198
  Break-even point away from the origin indicates
more and more loss zone and less and less profit
zone.
 Nearness of Break even point to the origin also
indicates whatever the farmer is producing is
market worthwhile.
 Due to this the farmer will recoup his investment
even by producing less number of units of output.
 Break even point away from the origin indicates
to recoup the investment the farmer has to
produce larger number of units of output which is
an indication that whatever the farmer is
producing is not so market worthwhile.
 Find out the break even point of a sheep herd with
following information.
o Total fixed cost =Rs.10000, Number of sheep

=100. Variable cost of production = Rs.60000,

Gross return =Rs.100000
o Break Even point or output=

10000/{(100000/100)-(60000/100)}= 25
sheep.

Shut down point

 Shut down point is the output level corresponding
to minimum point of average variable cost.

199
  A farmer must produce at least this amount so
that he will be able to cover the variable cost of
production.
 If the total revenue curve goes below this point, it
is better to close the business instead of incurring
losses. So this point is called as Shut down point.

Margin of Safety = Output – BEO

Particulars Problem 1 Problem 2 Problem 3 Problem 4 Problem 5
Total Variable Rs.16,000 Rs.40,000 Rs.60,000 Rs.6
Cost
Total Cost Rs,24,000 Rs.30,000 Rs.50,000 Rs.8,000
Total Fixed Cost Rs.10,000 Rs.10,000
Milk Production 3,000 lts 3,500 lts
Gross Income Rs.30,000 Rs.35,000 Rs.60,000 Rs.1,00,00
0
Meat Production 500 Kg. 100
Number of sheep 100
Service charge Rs.15/unit

CHAPTER-28: ACCOUNTING

Learning objectives

200
  To know importance of accounting
 To explore definition of accounting
AIM OF ACCOUNTING

 The following are the main objectives of

accounting:

To keep systematic records

 Accounting is done to keep a systematic record of
financial transactions.

To protect business properties

 Accounting provides protection to business
properties from unjustified and unwarranted use.

To ascertain the operational profit or loss

 Accounting helps in ascertaining the net profit
earned or loss suffered on account of carrying the
business.

201
  This is done by keeping a proper record of
revenues and expenses of a particular period.
 The profit and loss account is prepared at the end
of a period and if the amount of revenue for the
period is more than the expenses incurred in
earning that revenue, then it is said to be a profit.
In case the expenditure exceeds the revenue,
there is said to be a loss.
 Profit and loss account will help the management,
investors, creditors, etc. in knowing whether
running the business is remunerative or not.

To ascertain the financial position of

business
 The profit and loss account gives the amount of
profit or loss made by the business during a
particular period. However it is not enough.
 The businessman must know about his financial
position i.e, where he stands: what he owes and
what he owns? This objective is served by the
balance sheet or position statement.
 The balance sheet is a statement of assets and
liabilities of the business on a particular date.
202
To facilitate rational decision making
 Accounting these days has taken upon itself the
task of collection, analysis and reporting of
information at the required points of time to the
required levels of the authority in order to
facilitate rational decision making.
ACCOUNTING DEFINITION

 The American Accounting Association has defined

accounting as the process of identifying,
measuring and communicating economic
information to permit informed judgements and
decisions by users of the information.
 Accounting may be defined as the process of
recording, classifying, summarizing, analyzing
and interpreting the financial transactions and
communicating the results thereof to the persons
interested in such information – Shukla et
al(1993).
 An analysis of the definition brings out the
following functions of accounting.

Recording
203
  This is the basic function of accounting. It is
essentially concerned with ensuring that all
business transactions of financial character are
recorded in an orderly manner.
 Recording is done in the book- journal.

Classifying
 It is concerned with the systematic analysis of the
recorded data, with a view to group transactions
or entries of one nature at one place.
 The work of classification is done in the book
termed as ledger.

Summarizing
 This involves presenting the classified data in a
manner, which is understandable and useful to
the internal as well as external end users of
accounting statements.
 This process leads to the preparation of following
statements:
o Trial balance,

o Income statement,

o Balance sheet.

204
Deals with financial transactions
 Accounting records only those transactions and
events in terms of money which are of financial
character.
 Transactions which are not of a financial
character are not recorded in the books of
account.

Analysis and Interprets

 This is the final function of accounting.
 The recorded financial data are analyzed and
interpreted in a manner that the end users can
make a meaningful judgment about the financial
condition and profitability of the business
operations.

Communications
 The accounting information after being
meaningfully analyzed and interpreted has to be
205
 communicated in a proper form and manner to
the proper person.
 This is done through preparation and distribution
of accounting reports.
BRANCHES OF ACCOUNTING

 Accounting has three main branches, viz.,

o financial accounting.

o cost accounting.

o  management accounting.

Financial Accounting
 Financial accounting is primarily concerned with
record-keeping directed towards the preparation
of profit and loss account and balance sheet.
 The main purposes of financial accounting are
o Recording of the transactions concerning and

affecting the business

o Preparation of necessary accounts and balance

sheet as required by statutes and

o Apprising the owners of the business about the

results of the business over a period of time.

206
Cost Accounting
 Cost accounting is the process of accounting for
costs.
 It is a systematic procedure for determining the
unit cost of output produced or services rendered.
 The primary functions of cost accounting are to
ascertain the cost of a product and to help the
management in the control of cost.
 Both financial accounting and cost accounting are
concerned with the accumulation and
presentation of information to serve the needs of
management.

Management Accounting
 Management accounting is the term used to
describe the accounting methods, systems and
techniques which, coupled with special knowledge
and ability, assist management in its task of
maximizing profit or minimizing losses.
 Hence, it is the reproduction of final accounts in
such a way as will enable the management to take
decisions and to control activities.

207
 COMMON TERMS

Business
 It is an establishment for the conduct of trade or
commerce.
 It denotes activities of person or group of persons,
undertaken to exchange goods and/or services
with a view to earn income and profit.
 Example:
o A manufacturing business,

o Banking business

o Insurance business, etc.

 Business is a semi-agent or a medium which

accepts money from the proprietor or investor,
pays him if profit is earned and demands from
him, if loss is incurred.

Proprietor
 He is the owner of the business.
 He invests capital in the business with the
invention of earning profit.
 He undertakes all risks involved in the business.

208
  He enjoys all the incomes and profits and bears
all expenses and losses if any.
 He has the claims against net assets of the
business i.e., total assets minus liabilities to
outsiders.

Assets
 These are the material and non-material things or
possessions or properties of the business
including the amounts due to it from others.
 E.g: Land, buildings, furniture, equipment, plant,
machinery, fixtures, cash, bank balance, debtor’s
bills receivable, stock of goods, investments, etc.,
are all assets.

Tangible assets
 These are assets having physical existence like
cash, furniture, land, building etc.

Intangible assets
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  These are assets with no physical existence. But,
their possession gives rise to some benefits to
owners. E.g. Goodwill, Patents, Trademarks, etc.

Liabilities
 These denote the amounts, which a business owes
to others (other than the proprietor/s) on
different accounts such as;
o Loan from bank

o Loan from other persons,

o Creditors for goods supplied

o Creditors for services rendered to the business,

etc.
 Liabilities are also called creditors equity i.e.,
Creditors claims on assets.

Capital
 It is the amount invested by the proprietor/s in
the business.
 For the business capital is a liability towards the
owner. It is also called net worth or net assets, i.e.,
Assets – Liabilities = Capital.

210
  Capital is also called owner’s equity or owner’s
claim against assets.

Assets = Capital + Liabilities

Or

Capital = Assets - Liabilities

 Residual value of assets is called capital
 Reserves and undistributed profits increase the
capital
 Losses (which are not transferred to capital) also
increase capital.

Equity
 Any rights or claims to assets or any interest in
property or in a business is known as equity.
Therefore, it denotes liabilities.
211
  An equity holder may be a creditor, a partner, a
shareholder or a proprietor. Therefore, all
liabilities of a business are the creditors equity
and the capital is owner’s equity.

Therefore, Assets = Capital + Liabilities

= Owners equity + Creditors equity

Accounting equation
 It is a mathematical form of saying that in any
business the total assets always equal to owners
equity + creditors equity.

Assets = Owners equity + Creditors equity

212
Balance sheet
 It is a statement of financial position of a business
at any given time. It discloses the assets, liabilities
and owners equity or capital of a business at a
given time.
 The equation i.e., accounting equation is
sometimes referred to as Balance Sheet equation.
 This balance sheet equation is always maintained
in the accounts book keeping.
 That is a position of equality (in values) between
assets on one hand and capital and liability on the
other hand.

Debtor
 One who owes debt or money is a debtor, i.e., one
who owes money to a business is a debtor.

Creditor

213
  One to whom a debt is owed or creditor is a
person to whom some money is to be paid for the
loan taken or service obtained or goods bought.

Drawings
 It is the value of the cash or goods withdrawn by
the owner or proprietor for his personal or
domestic purposes or use. It is opposite of capital.

Revenue and income

 Sales of products, merchandise (goods for sales
and services) earnings by way of interest, rents,
wages, salaries, commission, etc., are revenues.
 ‘Revenue’ is the gross money receipts which
increases owners equity (capital) on one hand and
also the assets (cash or account receivables) on
the other hand.
 ‘Income’ is the money or money’s equivalent
earned or accrued during an accounting period
increasing the total of previously existing net
assets (net worths) and arising from the sales and
rentals of any types of goods or services.

214
  Example: When goods of Rs.10,000/- are sold to
Rs.15,000/-, the sum of Rs.15,000/- is the
revenue, whereas Rs.5,000/- is earned over and
above the original asset value of Rs.10,000/- is
the income. Similarly the receipts and amounts
receivable for services rendered like rent, wages,
salary, interest, commission, dividend, etc. are
income.

Expense
 It is the money spent in conducting business
activities.
 It is the expenditure in return for which some
benefit i.e., service is received.
 Exampe: Expenditure on clerk’s salary for clerical
services, money spent to pay the wages to
labourers for the labour received to the business.

Loss
 It is depletion or decrease in the value of any asset
without resulting in any revenue or benefit.

215
Service
 It is the work performed by the business to get
revenue or the work obtained from others by
spending for the same.
 Thus, rendering the service results in income and
receiving service results in expense.

Goods
 These are articles bought for resale to earn profit.

Transaction
 It is the exchange of cash, goods or services in a
business.
o Cash transactions: is one where cash receipt or

payment is involved in any exchange.

o Credit transaction: It is the transaction

wherein cash is neither received nor paid at the

time of transaction, but involves exchange on
credit or debit.

216
 o Non cash transaction: is one where the
question of receipt of cash or payment of cash
does not arise at all. Eg. Depreciation, return
of goods, etc.

Books of accounts and entry

 The various books wherein transactions of varied
nature of a business are entered are the books of
account.

Entry
 Entry is the record of a transaction of a business
in a journal.

Gross profit
 Difference between selling price and the cost price
of the goods is the gross earning or gross profit of
the businessman.

217
Gross loss
 Difference between cost price and selling price of
goods.

Net profit (net income)

 Surplus remains after charging against gross
profit all expenses including depreciation and
other provisions properly attributable to the
normal activities of the particular group.

Account
 Summary of similar elements in the transactions
relating to a person, thing or service.
 Example:Cash account, goods account, persons
account, income and expenses account, etc., short
form A/c or a/c.

218
Debit and credit
 These are symbols used while recording
transactions. Debit (Dr) refers to the receiving
account and credit (Cr) to giving account.
 If any benefit is received or a person is a receiver
of benefit the receiving or receivers account is
said to be debited.
 If benefit is given or a person is a giver of benefit,
the giving account or givers account is said to be
credited.

Voucher
 It is a written document in support of a business
in respect of a transaction, represented on a
carbon or counter copy of a cheque or a receipted
bill or an acknowledgement receipt received.

Receipt

219
  It is a written acknowledgement of a receipt of
cash/money/goods, etc.
 It is an accounting document recording physical
receipt of something acquired/got.

Folio
 It means the page (number) of a journal or a
ledger (J.F and L.F)
CHAPTER-29: PERSONNEL MANAGEMENT 

Learning objectives
 To discuss about  personnel management.
 To explain the identification of work study and
work measurement.
 To highlight  the importance of supervision and
division of labour.
INTRODUCTION-PERSONNEL MANAGEMENT

 A manager gets things done through other people.

These people (human resources) use material
resources such as land, money, machinery,
equipments, materials, etc.It is the
220
 responsibility of managers to ensure that the
employees utilize these resources in optimum
manner.
 There is minimum wastages of resources and
maximum returns on investment made in
resources.
 Similarly an enterprise spends considerable
amount of money on acquit ion, training,
remuneration, motivation etc., of its employee.
 Unless the employee work with devotion, their
performance will be poor. They will not make
effective utilization of material resources.
 Therefore, the effective utilization of human
resources is even more important.
 Management is said to be effective, of when
enterprise is utilizing its human and natural
resources effectively to achieve its objectives.
 But at the same time it does not mean that human
resources should be utilized only as a resources.
 Employees are human being with emotions and
aspirations of their own.
 It is also the duty of management to treat
employees with dignity and sense of belongings.

Personnel management

221
  Personnel management is the sub area of the
general management.
 It concentrates on the human activity element of
the general management.
 It is concerned primarily with manpower resource
or inputs.
 "Personnel management is the planning,
organizing, directing and controlling of
procurement, development, compensation,
integration and maintenance of people for the
purpose of contributing to organisation,
individual and social goals."

Functions of  Personnel Management

 Personnel manager has to perform the managerial
functions such as planning, organising, directing,
motivating and controlling personnel working in
his department.
  In addition to these managerial functions he has
to perform the following operative functions also.
o Procurement - recruitment, selection,

placement and induction of the new employees

o Development - performance appraisal,

promotion, transfer of employees

o Compensation - remuneration in the form of

wages, salaries, bonus

222
 o Integration  - integrating the organizational,
social and individual goals
o Maintenance - health and safety, favourable

work environment, employee benefits and

services, labour welfare work, worker
participation in management.
 Every work  whichever type it may be, to
whichever category it may belong is characterized
by certain inherent criteria known as work
specifications.
 Procedure for securing, organising and combining
the important facts related to work enable the
personnel department to assess the quality and
characteristics of the operator in performing the
same, is regarded as an essential basis of work
analysis.
 The man entrusted with this work is popularly
known as work analyst.
DENTIFICATION OF WORK-TYPES OF STUDY,LABOUR INPUT

Identification of work
 Organization structure is developed to achieve
objectives. Therefore works necessary for the
accomplishment of objectives are determined.

223
  Total work is classified or divided systematically
because no one can handle total work alone.
 Identification and classification of work enables
managers to concentrate attention on important
works, to avoid duplication of work and to avoid
overlapping or wastage of efforts.
 While identifying and classifying works,
management must ensure that
o All necessary works are performed

o There is no unnecessary duplication in

performing activities and

o Different workers are performed in a co-

ordinated manner.

Work Study
 Work-study can conveniently be defined as the
tool in the hands of the management for achieving
higher productive efficiency in the organisation.
 Work-study can be broadly classified into
o Methods study and

o Work measurement

Methods Study

224
  This can be defined as the systematic procedure
for analysing the existing methods of doing work
including the various human movements involved
in it with the main objective of evolving the best
or the most economical methods of doing the
work.
 Procedure adopted can be categorized stage by
stage as follows:
o Selection of the work to be studied

o Collection of data and recording of the relevant

facts about the existing methods

o Critical examination of the data collected

o Development of most practical, economic and

effective method, having due regard to all

contingents circumstances.
o Installation of the new methods and

maintaining it by regular routine check.

Techniques followed in Methods Study

 Operation Process Chart - graphical
representation by linear diagrams
 Flow Process Chart - shows in addition to above
the transportation required, distance travelled
storage and delays.
 Flow Diagram - same as above but here symbols
are used
225
  String Diagram - using string and pins on the
template models
 Multiple Activity Charts - also known as simo
chart (simultaneous motion chart)

Work Measurement
 This is the technique of assessing the time content
of the work performed by an operator.
 The technique involves the determination of the
proper time required for the work and so
popularly known as time study.

Optimization of labour input

 Optimization of labour in the actual sense means
to obtain the most efficient or optimum use of
labour.
 Labour must be confined with the other factors of
production and cannot be discussed in isolation.
 Proper labour management policy will depend on
particular farming situation.
 According to Alfred Marshall " labour is any
exertion of mind or body undergone partly or

226
 wholly with a view to earning some good or other
than pleasure derived directly from work.
o Labour is not a commodity

o Labour is inseparable from the labourer

o Labour is more perishable than any other

commodity
o Labour is less mobile

o Supply of labour is independent of its demand

o It is difficult to calculate the cost of production

of labour
o Labourer sells his service and not himself

o Labourer does not have same bargaining

power as their employers

o Labourer is not a machine - have ones own

liking , feelings , wishes, thoughts etc.,

o Labourers differ in efficiency

Types of Labour
 Hired/Casual - Seasonal
o For special jobs

 Temporary - Skilled
o Unskilled

 Permanent - Skilled (e.g. Milkers, Clerks,)

o Unskilled (eg.workers, attendants)

SUPERVISION OF LABOUR AND SUPERVISORS - DIVISION OF

LABOUR

227
Supervision of labour and supervisors

Supervision
 Supervision is referred to as " the key stone in the
organizational arch", supporting the structural
member which ties together the management and
workers (Keith Davis).
 Supervisors are so to speak, the ligaments and
tendons and so views of an organization (Peter
Drucker).
 Supervision is a part of a manager's job at all
levels. The vertical relationship among the
different kind of mangers is called the
management level.

228
  The top and middle management is considered to
be the upper level management and first level
managers are referred as supervisors (lower level
management).

Supervising the supervisors

 Since the first line management play an important
role in the organization their supervision is also
important.
 This is carried out by the middle level
management - called the "supervisor of the
supervisors".
 Middle management is the link between the top
management where the policies are framed and
the operators' level.

Functions of Management by levels

229
  Division of labour means dividing large tasks into
smaller packages of work to be distributed among
several people. This work specialisation allows an
employee to master a task in the shortest time
with a minimum skill.

Division of labour
 Making of an article is split up into several
processes and each process is entrusted to a
separate set of workers. This is known as division
of labour.
 It is simply a form of specialisation of labour. The
division of labour is associated with efficiency of
labour.
 There are 3 types of division of labour. They are,

230
Simple division of labour
 A work is done by the combined efforts of a group
of workers. It is difficult to say how much Work
each one did. Ex. carrying a heavy object, led by a
number of people.

Complex division of labour

 Work is split up into different processes and each
worker is assigned a definite part of the work.
 This is the division of labour proper. Ex.
Manufacturing of pins, making of bread etc.,

Territorial division of labour

 This term refers to certain localities or cities or
towns specialising in the production of some
commodities.
 Eg. Lock -making in Dindugul and match
factories in Sivakasi.

231
Advantages of division of labour
Advantages to the producer
Increase in mechanisation
Increase in production
Increase in inventions
Reduction in production cost
Economic use of machinery
Savings of time
Advantages of specialization
Advantages to the workers
Reduction in training period
Allocation of work according to ability
Increase in workers efficiency
Increase in mobility of labour
Organization of workers

Disadvantages of division of labour

Disadvantages to the worker
Monotony of work
Narrow outlook of workers
Decline in mobility of labour
Sense of irresponsibility
Disadvantages to the society
Exploitation of women and children
Physical and moral deterioration of workers
Struggle between workers and employers
Sense of irresponsibility

MERITS AND DEMERITS OF JOB SPECIALISATION - LABOUR

EFFECIENCY

 The word specialization is frequently used with

the division of labour and essentially both means
the same.
232
  Both mean that each unit of the productive input -
each person, each piece of land, and each machine
- does only a part of the total production job.

Merits of Job Specialisation

 Employing high grade and experienced men for
more specialised work is economical in the long
run.
 Lightens the workload on each labourer - making
him more physically and mentally acquainted
with the job.
 Make the worker to be more skilled and increase
his efficiency in the job he does.
 Streamlining the capital investment in labour by
actually knowing the skill and specialization of the
worker.
 Management is easier, so also the supervision.
 Increase in production is probably the most
important advantage.
 Time saving .
 Doing the work more times make the worker to
know the minutes detail which may instil new
ideas for the modification of the product or the
process.
 Helps to find out the job of ones taste.

233
  Possibility of employing the right man at the right
place.
 Maximum exploitation of the skill is possible,
enabling to produce good quality
products/services.

Demerits of Job Specialisation

 Risk of unemployment
 Monotony of the work
 Monopoly of the power
 Brings stratification in the society, creating
inequality among the individuals
 Profit is stipulated as one is concentrating on one
product

Labour Efficiency (Qualitative aspect of

labour)
 Efficiency means the ability to do work so that the
productivity is increased with minimum cost.

234
  Efficiency of labour is a great national asset. The
following are some important factors, which affect
efficiency of labour.

Racial qualities
 Efficiency of labour depends on hereditary and
racial stocks to which he belongs.
  Punjabis work harder than other Indians.

Natural and climatic factors

 A cool bracing climate is more conducive to work
hard than tropical climate.
 Hence a labourer in Europe will be more efficient
than a labourer in Asia.

Education
 Education stimulates and strengthens the right
type of instincts and builds up character.
 A technically trained man is naturally more
efficient.
235
Personal qualities
 If a worker has a strong physique, is mentally
alert and intelligent, his efficiency will be greater.
 Resourcefulness and initiative also increases
efficiency.

Organisation and equipment

 Labour efficiency also depends on how labour is
organised and what quality of machinery is placed
at his disposal.
 First-rate work cannot be expected from a third-
rate labourer using second-rate equipment.

Environment
 If the surroundings are depressing, labour
efficiency is bound to low.
 On the other hand, cheerful and bright
environments are conducive to better work.

236
Working hours:
 Workers must have sufficient intervals for
relaxation.
 Long working hours with no suitable rest or
recreation will reduce the efficiency of labour.

Fair and prompt payment

 A well-paid worker is generally contended and
puts his heart and soul into his job.
 He must also be paid promptly.

Labour organisation:
 An organised effort is more effective.
 If labourers are properly organised both inside
and outside the place of work in the form of
strong trade union, their efficiency will
undoubtedly go up.

237
Social and political factors:
 Social security scheme guaranteeing freedom
from want and fear, and sympathetic state
attitude towards labourer will go long way in
improving labour efficiency.
CHAPTER-30: BOOK KEEPING

Learning objectives
 To explain the meaning of systems of book
keeping
 To discuss the difference between single and
double entry systems of book keeping
 To highlight the advantages of doble entry system
MEANING,SINGLE ENTRY AND DOUBLE ENTRY SYSTEMS OF
BOOK KEEPING

Meaning

238
  Book keeping is an art of recording pecuniary or
business transactions in a regular and systematic
manner.
 This recording of transactions may be done by the
following two systems

Single Entry System

 An incomplete double entry can be termed as a
single entry system.
 It is a system of book keeping in which only
records of cash and personal accounts are
maintained, it is always incomplete double entry,
varying with circumstances.
  This system has been developed by some
business houses, who keep only essential records.
 Since all records are not kept, the system is not
reliable and can be used only by small business
firms.

Double Entry System

 This system is believed to have originated with
the Venetian merchants of fifteenth century and it

239
 is the only system of recording two – fold aspect
of transaction.
 This system recognises that every transaction has
a two – fold effect.
 If someone receives something then either some
other person must have given it, or the first
mentioned person must have lost something, or
some service etc. must have been rendered by him
ADVANTAGES OF DOUBLE ENTRY SYSTEM

 Complete record of transactions: Double entry

system records both aspects of a transaction.
Thus, a complete and reliable record of all
business transactions is provided.
 Arithmetical accuracy: As both debit and credit
aspects of a transaction are recorded, a trial
balance can be prepared and arithmetical
accuracy can be easily verified.
 Ascertainment of financial result: Profit and loss
account can be prepared to find out profit earned
or loss suffered during a given period.
 Ascertainment of financial position: Balance sheet
of business can be prepared to ascertain financial
position on a particular date, i.e., amount of
assets, liabilities and capital.
 Helps in comparison: Double entry system
enables businessmen to ascertain purchases, sale,
expenditure, income, assets, liabilities of the
current year as well as those of previous years to
240
 make simple comparison which helps
management to take appropriate decisions.
 Detection of frauds if any: Double entry system is
a scientific and reliable system. It prevents
commission of frauds, but if it has been
committed, it can be easily detected.
DISTINCTION BETWEEN DOUBLE ENTRY AND SINGLE ENTRY
SYSTEM

 Distinction between double entry system and

single entry system is as follows:
 Under double entry system both the aspects, i.e.,
debit and credit, of all the transactions are
recorded. But under single entry system, there is
no record of some transactions, some transactions
are recorded only in one of their aspects whereas
some other transactions are recorded in both of
their aspects.
 Under double entry system, various subsidiary
books like sales book, purchases book, etc. are
maintained.
 Under single entry system, no subsidiary books
except cash book which is also considered as a
part of ledger is maintained.
 Under double entry system there is a ledger which
contains personal, real and nominal accounts. But
under single entry system, the ledger contains
some personal accounts only.

241
  Under double entry system preparation of trial
balance is possible.
 It is not possible to prepare a trial balance under
the single entry system. Hence, accuracy of work
is uncertain.
 Under double entry system, Trading and Profit
and Loss Account and Balance Sheet are prepared
in a scientific manner.
 Under single entry system, it is not possible; only
a rough estimate of profit or loss is made and a
Statement of Affairs is prepared which resembles
a balance sheet in appearance but which does not
present an accurate picture of the financial
position of the business.
CHAPTER-31: VARIOUS TYPES OF ACCOUNT 

Learning objectives
 To understand different types of account books.
 To know about the various entries in account
books.
BOOK OF ACCOUNTS

242
 

DIFFERENT BOOKS USED IN ACCOUNTANCY

Journal
 Journal is the primary or original book of entry in
which all transactions are recorded in the form of
‘entries’.
 These entries are entered in the order of their
happening of occurrence in a chronological order.
From these journals, entries are transferred to
ledger.

243
Ledger
 It is a book of final entry wherein the transactions
that are finally entered in Memorandum book or
journals are finally entered in ledger.
 It is also called the ‘Principal Book of Accounts’.
 Transactions relating to different persons are
recorded separately in the name of each person in
a ledger.

Cash book
 This is an account book where only cash
transactions i.e., both receipts and payments of
cash are recorded.
 Purchase book or Purchase Day book or Daybook
of purchase, Bought Daybook, Invoice book,
Credit Purchase book, Purchase journal,
Purchases register
 This book records only credit purchase of goods in
which trends deals.

244
Sales book or Daybook of sales or Sales daybook
 In this book only credit sales of goods dealt by the
traders are entered.

Purchase returns book

  It contains the records of returns of goods
purchased by the trader for which no cash is
received.
 This happens when the goods are purchased but,
the purchased goods are;
o Defective

o Damaged during transit

o Qualities delivered or received may not agree

with invoice
o The price charged may be too high

o Goods may have been received quite later

o Substandard

o Terms and conditions may not be suitable

Sales returns book

245
  It records the goods returned by customers out of
the sales already made and for which no cash is
paid.

Bills payable book

 In this book bills passed or pronotes passed or
accepted are recorded.

Bills receivable book

 In this book bills already drawn or acceptance
received are entered.

Journal Proper
 This is the journal in which (this is like
miscellaneous journals) those entries are entered,
which cannot be entered in any of the above listed
subsidiary journals or books.
SIMPLE CASH BOOK

246
Simple cash book
 Simple cash book is like an ordinary cash account.
Its proforma is given
below.                                                      
Dr.   Cr.
Dat Particulars L.F. Amount Dat Particulars L.F. Amount
e e
0
0

Exercise 1:
 Record the following transactions in Simple Cash
book.
 Jan. 1 Opening cash balance Rs.5,000
 Jan. 4 Rent paid Rs.2,000
 Jan. 6 Interest received Rs.3,000
 Jan. 15 Cash purchases Rs.4,000
 Jan.25 Cash sales Rs.8,000
 Jan.31 Salaries paid Rs.2,000

247
Solution                                                                               

                                                 
Dr. Cr.
Date Particulars L.F. Amount Date Particulars L.F Amount
Jan. 1 To balance 5,000 Jan. 4 By Rent 2,000
b/d
Jan.6 3,000 Jan.15 By Purchases
To Interest A/c 4,000
Jan.2 8,000 Jan.31
5 To sales By salaries A/c 2,000
_______ Jan.31
To balance By Balance c/d 8,000
b/d 16,000 ______

8,000 16,000
CASH JOURNAL OR CASH BOOK

 Cash book is meant for recording all cash

transactions. It is a very important journal of
business on account of the following reasons:
o Number of transactions is quite large in every

business.
o Chances of fraud being committed regarding

cash are higher as compared to other assets.

o Strict control is, therefore required. Properly

maintained cash book helps in attaining this

objective.
248
 o Cash is nerve centre of business. Timely
payment to its creditors increases the
reputation of the business.
o Similarly timely payments from its debtors

improve the financial position of the business.

 Cash book can be any one of the following types:
o Simple cash book

o Two columnar cash book

o Three columnar cash book

o Multi columnar cash book

o Cash receipts book

o Cash payments book

THREE COLUMNAR CASH BOOK

 This type of cash book contains the following

three columns on each side:
o Cash column for cash received and cash paid

o Discount column for discount received and

discount paid
o Bank column for money deposited and money

withdrawn from the bank.

o The proforma of such a Cash book is given

below.
Dr. Cr.
D Particul L. Disco Cas Ba D Particul L. Disco Cas Ba
t. ars F. unt h nk t. ars F. unt h nk
0

249
Exercise 3
 1. Prepare a three column cash book from the
following particulars.

1998
 Jan. 1 Cash in hand Rs.1,600 and Bank overdraft
Rs.1,000.
 7 Discounted a bill for Rs.5,000 at 1 % through
Bank.
 9 Paid into Bank Rs.1,000.
 11 Joginder who owed us Rs.2000 became
bankrupt and paid us 50 paise in the rupee.
 15 Withdrew from Bank for private expenses
Rs.100.
 20 Received repayment of loan Rs.3,000 and
deposited out of it Rs.2,000 in the Bank.

250
Solution                                                                             

                                                      
Dr.  Cr.
Dat Particul L. Dis Ban Cash Dat Particul L. Dis Ban Cash
e ars F c. k e ars F c. k
Jan. To Jan By 1,00
1 Balance 4,95 1,600 1 Balance 0 1,000
b/d 50 0 b/d
7 -- 9
To Bill 1,00 By Bank 100 2,00
9 receivable 0 15 (C) 0
100
11 To Cash ___ 20 By 6,85 1,700
(C) _ 3,000 Drawings 0
20 2,00
To 50 0 ____ By Bank ___
Joginder ___ _ (C) ___ __
_ ___ _
To loan _ 4,700 By 4,70
repaid ____ balance 7,95 0
7,95 _  c/d 0 ___
To cash 0 ___ __
(C) ___ 1,700 _
_

6,85
To 0
balance
b/d

TWO COLUMNAR CASH BOOK

251
  It has two columns:
o Cash Column, and 

o Discount Column

 Cash Column is meant for recording cash receipts

and payments while discount column is meant for
recording discount received and the discount
allowed.
 The discount column on the debit side represents
the discount allowed while discount column on
the credit side represents the discount received.
 Cash column of the cash book serves both the
functions of a book as well as an account but
discount column does not serve the function of a
discount account.
 A separate discount account has to be opened in
the ledger in which total debits and credits from
the cash book are posted.
 Sometimes, two separate discount accounts are
kept in the ledger-one for discount allowed and
the other for discount received.

                                                                                                 

                                           

252
Dr. Cr.
D Partic L. Disco Ca D Partic L. Disco Ca
t. ulars F. unt sh t. ulars F. unt sh
0

Exercise 2
 Enter the following items in the two-column cash
book.

2010 
 August 1 Rahul commences business with cash
Rs.10,000.
 He pays Rs.2,300 for goods purchased; Rs.500
for furniture purchased; Rs.400 for office
equipment
 2 He pays rent Rs.100; pays legal cost Rs.10.
 3 He sells goods for cash Rs.1,800.
 4 He sells goods to Naveen on 5 days’ credit
Rs.800
 5 He pays wages Rs.15; cartage Rs.5

253
  6 He buys goods for cash Rs.700 and pays a
creditor Suresh Rs.425 in settlement of a claim of
Rs.430.
 7 He receives cash from Naveen Rs.798 in full
settlement of debt.
 8 He sells goods for cash Rs.50.

Solution

                                                                                              

                                            

Dr. Cr.
D Partic L. Disc Cas D Partic L Disc Cas
at ulars F. ount h at ulars . ount h
e e F
Au To 2 10, Au By 5 2,3
g.1 Capital 000 g 1 Purcha 00
____ ses ____
3 To _ 1,8 2 _ 500
Sales 00 By
254
7 To 2 798 5 Furnit 5 400
Navee ____ ure ____
8 n _ 50 6 _
By 100
Au To 8 Office 5
g 9 Sales equip 10
__
__ ment
To
balanc _ By 15
e b/d 12,6 Rent 5
48 By
__ 700
Legal
__ Expens 425
_ es
8,1
8,1 By 93
93 Wages
__
By __
Cartag _
e
12,6
By 48
purcha __
ses __
By
Suresh
By
255
 balanc
e c/d

CHAPTER-32: CLASSIFICATION OF ACCOUNTS 

Learning objectives
 To know rules for debit and credit in accountancy
 To explain  different types of accounts
RULES FOR DEBIT AND CREDIT

 Transactions in journal are recorded on the basis

of rules of debit and credit.
 For this purpose, business transactions have been
classified into three categories:
o Transactions relating to persons – Personal

Accounts
o Transactions relating to properties and assets

– Real Accounts
o Transactions relating to incomes and expenses

– Nominal Accounts.

Personal Real Nominal

Natural Personal A/C Tangible Expenses and
Losses

256
Artificial Personal A/C Intangible Incomes and
Gains
Representative personal
A/C

PERSONAL ACCOUNTS

Personal Accounts
 It includes the accounts of persons with whom the
business deals. There are three categories.

Natural Personal Accounts

 The term ‘Natural Persons’ means persons who
are creation of GOD. For e.g. Raja’s account,
Kumar’s account.

Artificial Personal Accounts

 These accounts include account of corporate
bodies or institutions which are recognised as
257
 persons in business dealings. E.g. The account of
a club, the account of Government, the account of
an insurance company etc.

Representative Personal Accounts

 These are accounts which represent a certain
person or group of persons.
 E.g: For salaries due to employees (not paid), an
outstanding salaries account will be opened. This
outstanding salaries account represents the
accounts of the persons to whom the salaries have
to be paid.
 The rule is
o Debit the receiver

o Credit the giver

 E.g: Ravi is giving cash to Rama.

 Then the account of Ravi will have to be credited
and Rama’s account will have to be debited.
REAL ACCOUNTS

 Real accounts may be of the following types.

Tangible real accounts

258
  Tangible real accounts are those which relate to
such things which can be touched, felt, measured
etc.
 E.g. Cash account, building account, furniture
account, stock account etc.

Intangible real accounts

 These accounts represent such things, which
cannot be touched, though they can be measured
in terms of money.
 E.g. patient’s account, good will account etc.
 The rule is
o Debit what comes in

o Credit what goes out

 E.g. when furniture is purchased for cash,

furniture account should be debited while the
cash account should be credited
NOMINAL ACCOUNTS

 These accounts are opened in the books to simply

explain nature of transactions.
 They do not really exist. For e.g. in a business,
salary is paid to manager, rent is paid to landlord,
while salary, rent as such do not exist.
 The accounts of these items are opened simply to
explain how the cash has been spent.
259
 In the absence of such information, it may be
difficult for a person concerned to explain how
cash was utilised.
 Nominal accounts include accounts of all
expenses, losses, incomes and gains.
 The examples of such accounts are rent,
insurance, dividends, and loss by fire etc.
 The rule is
o Debit all expenses and losses

o Credit all gains and incomes

FARM CREDIT SYSTEM

 Livestock farming in the country today is moving

towards high level of intensification.
  In this context, introduction of high yielding
breeds which demand a high dosage of biological
inputs such as concentrate feed and fodder,
medicines, growth promoters etc. have increased
the demand for money very tremendously.
 Since a majority of farmers are engaged in small
scale farming, they need money from outside
sources to meet their cash requirements for
various farm operations.
 They obtain such additional funds in the form of
loans from private moneylenders, cooperative
credit societies, or commercial banks etc.
CHAPTER-33: RECORDING OF BUSINESS TRANSACTIONS

260
Learning objectives
 To explain nature of business transactions.
 To understand  meaning and entry of ledger.
NATURE OF BUSINESS OPERATIONS

 Whatever may be the form of organization

business operations follow a certain common
pattern.
 Operations are all directed towards the
accomplishment of pre-determined business
goals.
 To achieve these goals the firm requires economic
resources or assets, as they are called in
accounting terminology.
 Cash is an important asset. Assets are economic
resources which a firm acquires in the course of
its operations for the accomplishment of its goals.
 Liabilities are the equity or interests of the
creditors in the assets of a firm. Assets are equal
to capital plus liabilities.
BUSINESS TRANSACTIONS

 A business transaction is an economic event that

has some effects on the resources of a firm or on
the sources of a firm’s assets.

261
 These economic events are important and
therefore must be recorded and reported to
decision makers.
 The following list summarises the business
transactions that a firm might have.
 Observe the cycle of business operations reflected
in these transactions.
o A firm acquires assets from its owners.

o The firm acquires assets from creditors.

o The firm invests resources in buying assets

needed to produce goods or services

o The firm uses the resources to produce goods

or services.
o The firm sells the goods or services produced.

o The firm returns assets to the creditors.

o The firm returns assets to the owner’s.

SOURCE DOCUMENTS

 Documents on the basis of the above transactions

are recorded in the books of account are known as
source documents.
 Examples of source documents are bills, invoices,
receipts, cash memos, vouchers etc.
 These documents provide written evidence of a
transaction or event that has taken place.

262
Accounting Equation

Assets = Equities
 The properties owned by business are called
“Assets”.
 The rights to properties are called “Equities”.
 Equities may be subdivided into two types: the
rights of creditors and the rights of the owners.
 The equity of creditors represents debts of the
business and are called liabilities.
 The equity of the owner is called capital.
o So,

 Assets = Liabilities + Capital (or)

 Assets – Liabilities = Capital.
 The Accounting Equation can be understood with
the help of following transactions.

Transaction 1
 A starts a business with a capital of Rs. 10,000.

263
  There are two aspects of transactions. The
business has received a cash of Rs. 10,000.
 It is its asset but on the other hand it has to pay a
sum of Rs. 10,000 to A. Thus:
Capital and Rs. Assets Rs.
Liabilities
Capital 10,000 C ash 10,000

Transaction 2
 A purchases furniture for cash worth Rs. 2,000.
The position of his business will be as follows:

Capital and Rs. Assets Rs.

Liabilities
Capital 10,000 Cash 8,000
Furniture 2,000
10,000 10,000

Transaction 3
 A purchases cotton bales from B for Rs. 5,000 on
credit.

264
  He sells for cash cotton bales costing Rs. 3,000
for Rs. 4,000 and Rs. 1,000 for Rs. 1,500 on
credit to P.
o As a result of these transactions the business

makes a profit of Rs 1,500 (i.e. Rs.5,500 -

Rs.4,000), this will increase A’s Capital from
Rs.10,000 to Rs.11,500.
o The business will have a liability of Rs.5,000 to

B and two more assets in the form of a debtor

P for Rs.1,500 and stock of cotton bales of
Rs.1,000. The position of his business will now
be as follows:

Capital and Rs. Assets Rs.

Liabilities
Creditor (B) 5,000 Cash(Rs.8000+4000) 12,000
Capital 11,500 Stock of cotton bales 1000
Debtor (P) 1500
Furniture 2000
16,500 16,500

Transaction 4
 A withdraws cash of Rs 1,000 and cotton bales of
Rs 200 for his personal use.

265
  The amount and the goods withdrawn will
decrease relevant assets and A’s capital. The
position will be now as follows.
Capital and Rs. Assets Rs.
Liabilities
Creditor (B) 5,000 Cash (Rs 12000-Rs 11,000
Capital 10,300 1000)
(Rs 11500-Rs 1200 Stock of cotton sales 800
___________ Debtor (P) Furniture 1,500 
15,300 2,000 
___________
15,300

 The result of applying the system of double entry

system may be summarized in the following rule:
o “For every debit there must be equivalent

credit and vice versa.”

Journal
 Journal records all daily transactions of a
business into the order in which they occur.
 A journal is defined as a book containing a
chronological record of transactions.
 It is the book in which transactions are recorded
under the double entry system. Thus journal is
the books, of original record.
 The journal does not replace but preceds the
ledger.
266
  The process of recording transaction in a journal
is termed as Journalising. A proforma of Journal
is given below.

Journal

Date Particular L.F Debit Rs Credit Rs

s
(1) (2) (3) (4) (5)

 Date: The date on which the transaction was

taken place is recorded here.
 Particulars: The two aspects of transaction
namely debit and credit are recorded here.
 L.F: It means Ledger Folio. The transactions
entered in the journal are later on posted to the
ledger.
 Debit: In this column the amount to be debited is
entered.
 Credit: In this column the amount to be credited
is shown.

Closing of accounts: (Closing entries)

267
 Closing entries are entries passed at the end of
accounting year to close different accounts.
 These entries are passed to close accounts relating
to incomes, expenses, gains and losses.
 In other words, these entries are passed to close
the different accounts pertaining to Trading and
Profit and Loss account.
 The accounts relating to assets and liabilities are
not closed but they are carried forward to next
year.
 Hence no entries are to be passed regarding those
accounts which relate to the balance sheet.
 The principle of passing a closing entry is very
simple.
 In case an account shows a debit balance, it has to
be credited in order to close it.
 For e.g. if the Purchases Account is to be closed,
the Purchases Account will have to be credited so
that it may be closed because it has a debit
balance.
 The closing entries are passed in the journal
proper.
LEDGER

 Ledger is a book, which contains various

accounts.
 In other words, Ledger is a set of accounts. It
contains all accounts of the business enterprise
whether Real, nominal or Personal.
268
  It may be kept in two forms
o Bound Ledger

o Loose leaf Ledger

 The term posting means transferring the debit

and credit items from the journal to their
respective accounts in the Ledger.
 Book keeping is mainly concerned with recording
of financial data relating to business operations in
a significant and orderly manner.
 A bookkeeper may be responsible for keeping all
records of a business or only of a minor segment,
such as a position of Customers’ accounts in a
departmental store.
 A substantial portion of bookkeepers work is of a
clerical nature and is increasingly being
accomplished through the use of mechanical and
electronic devices.
CHAPTER-34: ANALYSIS OF FINANCIAL STATEMENT AND
TRADING, PROFIT AND LOSS ACCOUNT

Learning objectives
 To know various concepts of income and expense
 To understand  income statement
 To explain the trading, profit and loss account
INCOME STATEMENT,REVENUE AND EXPENSES

269
 Income statement
 Simply stated, income statement is a statement
showing excess of revenue over expenses.
 If expenses exceed revenues, the result is a loss to
farm. Income statement is generally prepared for
one agricultural year, i.e. at the end of year.
 However it may also be prepared over a period of
time, so that one can know the trend in receipts
and expenses which indicates success or failure of
farm business. It shows whether farm is running
under loss or profit.
 Hence it is also called as Profit and Loss
Statement.
 It is different from balance sheet in that balance
sheet indicates about assets and liabilities but not
about the operational efficiency of farm business
in terms of receipts, expenses, profit and losses.
 The objective of preparing Income Statement is to
summarise income and expenses incurred in farm
throughout year and present them in a schematic
picture. This statement lists all farm expenses on
one hand and all receipts on the other. 

270
Revenue
 In the revenue realized through the sale of
following items are included.

A. Operating Receipts
 Crops and feed
 Livestock and Poultry sold
 Livestock and Poultry Products sold
 Custom work- cash
 Government payments and patronage dividends,
gifts etc.

B. Capital Receipts
 Breeding stock
 Machinery and equipment
 Appreciation in the value of assets

271
C. Non Farm Income
 Interest and dividends

Expenses
 Under the expenses column the following items
are included.

A. Operating Expenses
 Labour charges
 Repairs
 Rents and Leases
 Seed and Fertilizer
 Chemicals
 Livestock expenses (Breeding Vet., etc)
 Gas Fuels, Oil
 Insurance
 Utilities (Electricity, Gas, Telephone)
 Marketing and transport expense
 Interest on working capital
272
B. Live stock and Feed Purchase

C. Capital Expenditure/ Fixed expenses

 Machinery and Equipment
 Building and Improvement
 Depreciation
 Interest on fixed Capital
 Rental value of owned land

D. Other expenses
 By subtracting the expenses from the receipts
“Net income” for a year can be calculated.
o Operating ratio= Total Operating expenses /

Gross income
o Fixed ratio = Total Fixed expenses / Gross

income
o Gross ratio = Total expenses / Gross income

TRADING,PROFIT AND LOSS ACCOUNT

273
  ‘Final Accounts’ is the general name given for the
Trading and Profit and Loss Account and Balance
Sheet.
o Trading Account is prepared to find out the

Gross Profit or loss during the period.

o Profit and loss Accounts is prepared to find out

the net profit/ loss for the period and

o Balance sheet indicates the overall position of

the business at the every end of period.

Procedure for the preparation of Trading

Account
 Debit Trading Account with the opening stock,
net purchases and their direct expenses on the
goods by transfer of balances from the respective
ledger accounts. Thus, Trading Accounts will be
debited with the total cost of the goods sold and
unsold.
 Credit the Trading Account for the transfer of net
sales from the sales Account.
 Since the profit can be found out only in regard to
goods sold, the stock at close is credited to

274
 Trading Account on the basis of an Adjusting
Journal Entry.
 The Profit and Loss (gross) on the Trading
Account is transferred to the Profit and Loss
Account by means of a Journal Entry.

List of Expenses chargeable under Trading

Account or Profit and Loss Account:

 Wages: Productive and Manufacturing.
 Freight: Freight Inwards and Freight on
Purchases
 Carriage: Carriage Inwards, Carriage on Purchase
coal gas and water, oil, grease and waste.
 Customs duties, airport duties, dock dues and
clearing charges, all factory or manufacturing
expenses.

275
Procedure for preparing profit and Loss

Account
 Gross Profit or Loss will be brought down from
the Trading Account to the Credit or Debit side
respectively of Profit and Loss Account.
 Debit the Profit and Loss Account and Credit the
various nominal Accounts for bringing the various
expenses of the business proper into the Profit
and Loss Account.
 Credit the Profit and Loss Account and Debit the
various nominal Accounts for bringing the various
business incomes into the Account.
 The difference between the two sides of Profit and
Loss Account will represent the Profit or Loss
Account and since the Losses and Gains have to
be borne by the proprietor, Profit and Loss
Account will be closed by means of credit (net
profit) and a debit (net loss).
 It is most important to note that all business
expenses other than those transferred to Trading
Account will have to be transferred to the Profit
and Loss Account.

276
 Likewise, all business incomes will have to be
brought into profit and Loss Account after making
adjustments and Provisions if any.
 The indirect or selling expenses which find a place
in profit and Loss Account after include, among
others, the following:
o Unproductive wages, wages and Salaries,

Carriage on sales, Carriage outwards, Freight

on sales/ outwards, all office expenses, trade
expenses not accompanied by office expenses,
export duties and taxes other than income tax. 
EXERCISE

 Prepare Trading and Profit and Loss Account of

Mr. Kumar for the year ending 31st March 2007.
 Stock – 1st April, 2006

Sales 50,000
Sales returns 2,89,600
Purchases 9,600
Purchases returns 2,43,000
Freight inwards 3,000
Carriage outwards 4,000
Salaries and wages 6,000
Bank interest paid 30,000
Printing and stationery 2,000
277
 Discount received 7,000
Discount allowed 900
Audit fees 3,000
Insurance premium 600
Trade expenses 2,500
Stock on 31st March 2007 was 70,000
Particul Rs Rs Particul Rs Rs
ars ars
To Stock 2,43,0 50,000 By Sales 2,89,6 2,80,00
– 00 00 0
Opening 2,40,00 Less:
3,000 0 Returns 9,600 70,000
To
Purchase 4,000 By stock ______
s – __
56,000 Closing
Less: 3,50,00
______ By Gross 0
Returns __ Profit
To _____
3,50,00 b/d ___
Freight 0
inwards By
56,000
_____ Discount
To Gross ___ 900
profit
c/d 30,000 ______
_
(Transfe
278
rred to 2,000 56,900
Profit
and Loss 6,000  _____
A/C) _
7,000
To 600
salaries
and 3,000
wages
600
To Bank
2,500
interest
5,200
To
Carriage ______
outwards _
To 56,900
Printing
and ______
stationer _
y
To
Discount
To Audit
fees
To

279
Insuranc
e
premium
To Trade
expenses
To Net
profit
(Transfe
rred to
Capital
A/c)

PRACTICAL…………………..

EXERCISE-1: JOURNAL AND LEDGERS

Journals
 It is the book of original entry i.e. the entries of all
transactions are recorded in chronological order
in the book of prime or first entry.
 ‘Journal proper’ is used only when absolutely
necessary, i.e. when the other subsidiary books do
not serve the purpose and it becomes useful in the
following cases;
280
 o Opening entries
o Rectification entries

o Adjustment entries

o Closing entries

o Self- balancing entries for internal check

purpose
o Entries involving purpose and sale on credit of

items bought otherwise than for resale at a

profit
o Transactions for which there is no specific

subsidiary book eg. Consignment, joint

ventures and dissolution.
 These entries are written in a technical form.
 The process of making entries in the journal is
known as ‘journalizing’ and the entries are known
as ‘journal entries’.
 In a business, every transaction is passed through
the journal before making the final entries in the
ledger.
 The model ruling of a journal is as follows.
Date Particulars V.N L.F. Debit(Rs) Credit(Rs)
o

 A complete Journal Entry should contain the

following items
o Data of transaction

o Particulars of accounts to be Debited or

Credited
o The amount involved

281
 o Number of the voucher or evidence for the
transaction
o Page of ledger where it is entered
o The narration, i-e Circumstances for the
journal entry
LEDGER

 The Ledger is a book of final or ultimate entry and

is very important as it contains the essential
details of pecuniary transactions.
 The first/prime entry though made in the books
(Journal) is ultimately recorded in the ledger.
 Ledger contains the various accounts and shows
the final and actual effect of transactions.
 The method of entering details or information the
from the journals to the ledger is known as
posting.
 Postings are made not only from the journal but
also from the book of subsidiary journals.
 First of all, Opening entry should be posted as it
indicates the balances with which assets and
liabilities start the new period.
 The way to post the opening entry is to write as
the debit side of various assets (which have to be
debited according to the opening entry). ‘To
balance brought down’ or just ‘To balance b/d’
Dr. Cr.
Date Particulars Folio Amount Date Particulars Folio Amount

282
 0

CLASSIFICATION OF LEDGER

Personal Ledger
  Contains all other accounts of all persons with
whom trade transactions have been effected, i.e.
with whom purchase/sales have been made.

Impersonal Ledger
  Contains all other accounts and it is subdivided
into

Nominal Ledger
  All the fictitious and nominal accounts are
maintained.

283
 General ledger
  All the other accounts like property or Real
accounts are maintained.
ILLUSTRATION

 Journalize and make Ledger entries for the

following transactions of a trader in January
2004.
o 3 Started businesses with cash Rs.50000
o 4 Opened bank accounts with Rs.35000
o 7 Bought goods for cash Rs.1500
o 12 Bought furniture by cheque Rs.1750
o 14 Purchases from Mohan Rs.11000
o 17 Sales by cash Rs.2750
o 20 Retuned goods to Mohan Rs.1000
o 23 Withdrew cash from bank Rs.2500
o 25 Rent paid in cash Rs.500
o 28 Commission received in cash Rs.200

Solution: Journal
Date  Particulars V.No L.F Dr(Rs) Cr(Rs)
Jan 2004

284
3  Cash Account Dr. 50000 50000
 To Capital Account 
(Being the capital brought in cash)

4  Bank Account Dr 35000 35000

 To cash Account 
(Being cash paid into Bank)

7  Purchases Account Dr 1500 1500

 To Cash Account 
(Being Cash Purchase made)

12  Furniture Account Dr 1750 1750

 To Bank Account 
(Being Purchase of furniture by Cheque)

14  Purchases Account Dr 11000 11000

 To Mohan’s Account 
(Being credit Purchase from Mohan)

17  Cash Account Dr 2750 2750

 To sales Account 
(Being cash received on account of sales)

20  Mohan’s Account Dr 1000 1000

 To purchases return Account 
( Being returns to Mohan)

23  Cash Account Dr 2500 2500

 To Bank Account 
(Being cash drawn from Bank)

25  Rent Accounts Dr 500 500

 To Cash Accounts 
(Being the rent paid in cash)

28  Cash Account Dr 200 200

 To Commission Account
(Being Commission received in cash)

285
Solution: Ledger
Dr Capital Account Cr
2004 Rs 2004 Rs.
Jan 3 By Cash Account 50000
Dr Cash Account Cr
Jan 3 To Capital Account 50000 Jan4 By Bank Account 35000
Jan 17 To Sales Account 2750 Jan 7 By Purchase Account 1500
Jan 23 To Bank Account 2500 Jan25 By Rent Account 500
Jan 28 To Commission Account 200
Dr Bank Account Cr
Jan 4 To Cash Account 45000 Jan12 By Furniture Account 1750
Jan 23 By Cash Account 2500
Jan 25 By Capital Account 10000
Dr Drawings Account Cr
Jan 2 To Bank Account 250
Dr Furniture Account Cr
Jan 4 To Bank Account 1750
Dr Mohan’s Account Cr
Jan 20 To Purchase Return Account 1000 Jan 14 By Purchases Account 11000
Dr Purchases Account Cr
Jan 7 To Cash Account 1500

286
Jan14 To Mohan’s Account 11000
Dr Purchases Returns Account Cr
Jan 20 By Mohan’s Account 1000
Dr Rent Account Cr
Jan 25 To Cash Account 500
Dr Commission Account Cr
Jan 28 By Cash Account 200

EXERCISE-2: CASH BOOK

 The subsidiary book for all cash receipts and

payments other than for petty expenses (When
there is a separate petty cash book) is the Cash
Book.

Types of Cash Book

 The cash book can be any one of the following
types

Simple Cash Book

 Simple cash book is like an ordinary cash account.
 Its format is given below.

287
                                                                                             

                                        
Dr.  Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
0
0
0

Two columnar cash book

 Cash book with cash and discount columns only
 Cash book with bank and discount columns only

Three columnar cash book

 Cash book with cash, bank and discount columns
only

288
Multi-columnar cash book
 In practice, there are three main types of cash
books which are explained as follows

Two columnar Cash book

 Cash book with Cash and Discount Columns only:
In this case, a separate bank account will be
maintained in the general ledger. However all
transactions involving cash and/or bank must be
passed through the cash book.
 Model: Cash book with Cash and Discount
Columns
Only                                                                               
                                                         
0 Dr  Cr
Dat Recei V.N L. Discou Amou Dat Payme V.N L. Discou Amou
e pts o. F nt Rs nt  e nts o F nt  nt 
Rs Rs Rs
0
0

 The entries for cash receipts and payments are

made in the usual manner. However, wherever
289
 discounts are involved, they are entered in the
discount column in the same line.
 The other point is to be noted that the
transactions involving cheque payments are first
treated as withdraws of necessary cash from bank
and subsequent payment in the form of cash.
 It is also noted that at the end of each period, the
cash book is balanced with the words ‘By balance
c/d’. However, the discount columns are merely
totaled but not balanced.
PROCEDURE FOR POSTING FROM THE CASH BOOK

 For every item appearing in the debit side, other

than opening balance, a credit is given in the
corresponding account. If there is discount, it will
also be credited to that account.
 Likewise, items appearing on the credit side of
cash book will have their debits in the
corresponding accounts together with discount if
any.
 As for the discount columns, they are totally at the
end of each period, and the debit and credit totals
carried respectively to the debit and credit sides of
the discount account and posted as ‘To Sundries’
respectively.
 Cash book with Bank and Discount Columns
only: This type of cash book is maintained where
all cash received is banked at once and all

290
 payments other than petty items (Which met out
of petty cash) are made by cheques.
 As in the previous case, are taken to the two sides
of the Discount Account.

Model: Cash book with bank and Discount Columns

Only                                                                                    

                                                                                     
Dr Cr.
Dat Recei V.N L. Discou Ban Dat Payme V.N L. Discount  Bank 
e pts o. F nt Rs k e nts o F Rs Rs
Rs
0
0

Three Columnar Cash book

291
 Cash book with Cash, Bank and Discount
Columns only: This is most common and the best
from all points of view.
 Here, the entries are made in the respective
columns according as whether they increase/
decrease the cash or bank balance.
 At the end of the period , the cash bank balances
are balanced, while the discount totals are dealt
with as in the case of other types of Cash Book.
 Model: Cash book with Cash, bank and Discount
Columns
Only                                                                               
                                                                       
Dr Cr.
D Rec V. L Disc Ca Ba D Pay V. L Disc Ca Ba
at eipt No . ount sh  nk at ment N . ount  sh  nk
e s . F Rs Rs e s o F Rs
Rs Rs Rs
0
0

ILLUSTRATION

 The following information relates to a

businessman for the month of June 2005.
 Indicate how it would be recorded in the three
different types of cash book.
o 2005 June

o 1 Started business with cash Rs.25000

o 2 Opened a bank account with Rs.20000

292
 o 7 Purchases by cheque Rs.1200
o 9 Sales by cheque Rs.1000
o 12 Draw cheque for personal use Rs.1200
o 13 Raja paid into our bank account Rs.5000
and was allowed discount Rs.300
o 16 Drew cheque for personal use Rs.1000
o 20 Gave cheque of worth Rs.1000 to Ravi and
discount Rs.50
o 22 Bought furniture by cheque for Rs.2500
o 28 Sales by cheque Rs.5000
o 30 Above cheque paid into bank.

Cash Book (with Cash and Discount

Columns)
Dat Recei Discou Amou Da Payments Disco Amou
e pts nt  nt  te V.No L.F. unt nt 
V.No Rs Rs Rs Rs
L.F
200 20
5 05
Jun Jun
e e
1 To 25000 2 By Bank 20000
Capital account
accoun
t
4 To 1200 4 By 12000

293
 Bank Purchases
accoun account
t
7 To 1000 9 By Bank 1000
Sales account
accoun
t
12 To 1200 12 By Drawings 1200
Bank account(Pers
accoun onal use)
t
13 To 300 5000 16 By Drawings 1000
Raju’s account(Pers
accoun onal use)
t
16 To 1000 20 By Ravi’s 50 1000
Bank account
accoun
t
30 To 5000 22 By Furniture 2500
Sales account
accoun
t
30 By Balance 11500
c/d
300 39400 50 39400
200 To 11500
5  Balanc
Jun e b/d
e1

294
Cash Book (With Bank and Discount

Columns)
Da Receipt Discou Ban Date Payments Discou Ban
te s V.No nt  k  V.No L.F nt  k 
L.F Rs Rs Rs Rs
20 2005J
05 une
Jun
e
1 To 250 4 By 120
Capital 00 Purchases 0
account  account 
(Started (Cash
Business Purchases
with made)
deposit
in bank)
7 To Sales 100 12 By drawings 120
account( 0 account(Per 0
cash sonal use)
Sales)
13 To Raju’s 300 500 16 By drawings 100
account 0 account(Per 0
sonal use)
30 To Sales 500 20 By Ravi’s 50 100
account 0 account 0
22 By 250
Furniture’s 0
account
30 By Balance 291
C/d 00

295
 300 360 50 360
00 00
20 To 291
05 Balance 00
Jun b/d
e1

EXERCISE-3: PURCHASE SALES REGISTER

 The following subsidiary books are maintained for

credit transactions in goods for resale
o The Purchases Book for credit purchases of

goods for resale

o The Sales Book for Credit Sales of goods

o The Purchases Returns or Returns Outwards

Book for all returns of the goods bought

o The Sales Returns Books or Returns Inwards

Book for all goods returned by the customers

 In modern trade, some transactions are settled by
cash, some by cheques and some by documents
known as Bills of Exchange (B/E). Bills of
Exchange are documents which in effect
represent money receivable by one party and
money payable by another either on demand or
after a certain specified period.
 Since a bill of exchange represents money
receivable by one party, as far as that party is
concerned it is a ‘Bills Receivable’ (B/R) i.e. a bill
on which money is receivable.
 To the party who is liable to pay money on it, the
bill of exchange is a ‘Bill Payable’ (B/P).
296
 Generally, it may also be stated here, that a bill of
exchange is an order usually by a creditor upon
his debtor to pay money.
 There are two books for transactions of credit
instruments like Bills of Exchange and
Promissory note connected with trade and
accommodation.
o Bills Receivable (B/R) Book for all bills of

exchange received
o Bills Payable (B/P) Books for all bills for all

bills of exchange accepted payable and for all

other transactions; the journal proper.
 Significantly the above Subsidiary books are used
for Credit Purchases/Credit Sales and Return of
goods.
 Unlike the Cash Book and petty Cash Book, these
are merely day to day record or subsidiary books,
but do not function as Ledgers.
ADVANTAGES OF SUBSIDIARY BOOKS

  Time is saved by reducing the number of total

postings to be made, apart from the efforts
involved in making elaborate and individual
posting and individual journal entries for every
time.
 The possibility of mistakes arising from the
quantitative aspects of postings is minimized.

297
  It makes easy to extract the information with
regards to specific items such as credit purchases,
returns inwards, etc.
 Apart from simplifying the process of postings,
retains the major benefits of DES such as the
possibility of preparing a Trial Balance as a sort of
prime facie check on the accuracy of postings.

Procedure for recording Transaction

 Usual procedure is to record the transaction as
and when they arise in the appropriate subsidiary
books and credit or debit the personal accounts at
once according as they give or receive the goods in
each case.
 Periodically, these subsidiary books are totaled
and the totals carried to the concerned General
Ledger Accounts and posted on the side opposite
to that in which postings has been made in the
Personal Accounts.
 Thus the total credit purchases will be debited to
the Purchases Account, Sales credited to the Sales
Account and Purchases returns and sales returns
appropriately credited and debited respectively to
the accounts in terms of their periodical totals.
PROBLEM

298
  Show the method of recording and posting the
transactions during January 2004 given below in
the appropriate books of accounts:
o January 1 Bought goods from Kumar Rs.5500

o 4 Sold goods to David Rs.3750

o 8 Purchases from Kumar Rs.2750 and Rajesh

Rs.7500
o 11 Sales to David Rs.4650 and Anand Rs.3600

o 14 Returns to Rajesh Rs.500

o 17 Anand returns Rs.600 goods

o 19 David returned goods worth Rs.650

o 22 Anand brought goods worth Rs.3500

o 25 Kumar sold us goods worth Rs.5250

o 28 Returns from Anand Rs.1250

o 29 Returns to Kumar Rs.250

Solution

Purchases Book
Date Name of Particulars V.No L.F Amount(Rs)
January 1 Kumar 5500
8 Kumar 2750
Rajesh 7500
25 Kumar 5250

299
 21000

Purchases Return Book

Date Name of V.No L. Amount(Rs)
Particulars F
January Rajesh 500
14
29 kumar 250
750

Sales Book
Date Name of Particulars V.No L.F Amount(Rs)
January 4 David 3750
11 David 4650
Anand 3600
25 Anand 3500
15500

Sales Return Book

Date Name of Particulars V.No L.F Amount(Rs)

300
January 17 Anand 600
19 David 650
28 Anand 1250
2500
BILLS OF EXCHANGE

Problem 2
 Write the following particulars pertaining to the
month of February 2005 in  the appropriate
subsidiary book.  
o February 1 Draw a three-month bill on Babu

for Rs.7500
o 4 Accepted Krishna’s bill for Rs.5000 payable

at three months
o 8 Received from Shankar his acceptance for

Rs.2500
o 11 Sent Raja acceptance for 2250

o 17 Babu endorsed in Mohan’s favors an

acceptance for Rs.4500

o 20 Babu acceptance Mohan draft for Rs.7750

o 22 Krishna drew on Mohan at three months

o 27 Drew a bill at two months on Shankar for

Rs.2000
o 28 Shankar accepted Mohan’s draft for

Rs.6250

301
 Solution

Bills Receivable Book

Date Party from Whom Received Acceptor Period in months Amount Remarks
2005 Feb 3
1 Babu Babu 7500
8 Shankar Shankar 2500
17 Babu 4500
20 Babu 7750
27 Shanka Shankar 2 2000
28 Shankar Shankar 6250
30500

Bills Payable Book

Date Drawer’s name Period in months Amount Remarks
2005 Feb
4 Krishna 3 5000
11 Raja 2250
22 Krishna 3 5750
13000

302
 PROBLEMS

 To illustrate the given transactions during the

month of August 2005 in the appropriate books of
accounts by using the method of recording and
posting.
o August 2005

o 1 Purchases from Anbu Rs.3000

o 7 Purchases from Babu Rs.6000

o 10 Sold goods to Kumar Rs.4000

o 15 Bought goods from Babu Rs.2800

o 17 Sales to Anand Rs.3300

o 19 Sales to David Rs.4000

o 20 Returns to Babu Rs.500

o 21 Anand returns Rs.600 worth of goods

o 22 David return Rs.800

o 23 Anand bought of goods Rs.3000

o 24 Babu sold as goods for the value of good

Rs.8200
o 25 Returns from Anand Rs.1300

o 27 Returns to anbu Rs.300

 Write up the appropriate subsidiary books for the

following particulars during the month of July
2005
o July 1 Drawn a two months bill from Balu for

Rs.8000
o 6 Accepted Kannan’s bill for Rs.6000 payable

at two months

303
 o 8 Received from Sekar his acceptance for
Rs.3000
o 12 Sent Kumar acceptance for Rs.300
o 17 Rajesh endorsed in Sudhan’s favour an
acceptance for Rs.4500
o 18 Babu accepted Mohan’s draft for Rs.8500
o 25 Krishna drew on Mohan at three months
o 28 Drew a bill at two months on Shankar for
Rs.3000
o 29 Shankar accepted Mohan’s draft for Rs
5500
EXERCISE-4: TRADING, PROFIT AND LOSS ACCOUNT

 ‘Final Accounts’ is the general name given for the

Trading and Profit and Loss Account and Balance
Sheet.
o Trading Account is prepared to find out the

Gross Profit or loss during the period.

o Profit and loss Accounts is prepared to find out

the net profit/ loss for the period and

o Balance sheet indicates the overall position of

the business at the every end of the period.

304
Procedure for the preparation of Trading

Account
 Debit Trading Account with the opening stock,
net purchases and their direct expenses on the
goods by transfer of the balances from the
respective ledger accounts. Thus, Trading
Accounts will be debited with the total cost of the
goods sold and unsold.
 Credit the Trading Account for the transfer of net
sales from the sales Account.
 Since the profit can be found out only in regard to
goods sold, the stock at close is credited to
Trading Account on the basis of an Adjusting
Journal Entry.
 The Profit and Loss (gross) on the Trading
Account is Transferred to the Profit and Loss
Account by means of a Journal Entry.
 List of Expenses chargeable under Trading
Account or Profit and Loss Account:
o Wages- Productive and Manufacturing.

o Freight- Freight Inwards and Freight on

Purchases

305
 o Carriage- Carriage Inwards, Carriage on
Purchase coal gas and water, oil, grease and
waste.
o Customs duties, airport duties, dock dues and
clearing charges, all factory or manufacturing
expenses.

Procedure for preparing profit and Loss

Account
 The Gross Profit or Loss will be brought down
from the Trading Account to the Credit or Debit
side respectively of Profit and Loss Account.
 Debit the Profit and Loss Account and Credit the
various nominal Accounts for bringing the various
expenses of the business proper into the Profit
and Loss Account.
 Credit the Profit and Loss Account and Debit the
various nominal Accounts for bringing the various
business incomes into the Account.
 The difference between the two sides of Profit and
Loss Account will represent the Profit or Loss
Account and since the Losses and Gains have to
be borne by the proprietor, Profit and Loss
306
 Account will be closed by means of credit(net
profit) and a debit(net loss).
 It is most important to note that all business
expenses other than those transferred to Trading
Account will have to be transferred to the Profit
and Loss Account.
 Likewise, all business incomes will have to be
brought into profit and Loss Account after making
adjustments and Provisions if any.
 The indirect or selling expenses which find a place
in profit and Loss Account after include, among
others, the following:
o Unproductive wages, wages and Salaries,

Carriage on sales, Carriage outwards, Freight

on sales/ outwards, all office expenses, trade
expenses not accompanied by office expenses,
export duties and taxes other than income tax.
ILLUSTRATION

 The following are the balance taken from the

books of Mr. Suresh on March31, 2005

Rs Rs
Capital 30000 Sales 15000
Drawings 5000 Sales Returns 2000
Furniture 2600 Discounts 1600
Allowed

307
Bank overdraft 4200 Discounts 2000
Receives
Creditors 13300 Taxes 2000
Buildings 20000 General 4000
Expenses
Stock Opening 22000 Salaries 9000
Debtors 18000 Commissions 2200
Paid
Rent from Tenants 1000 Carriage 1800
Inwards
Purchases 11000 Bad debts 800
Reserve for Bad Debts 500 Closing Stock 20000
Depreciation Building Furniture by
by 25% 10%
Provide reserve for Unexpected 900
Bad Debts at 5% Taxes
interest on Capital at
5%

 Prepare (a) Trading Account and (b) Profit and

Loss Account for the year (As on Closing Date).

Solution
308
Trading Account

Particular R Rs Particular Rs Rs
s s s
To Stock 20000 By Sales 15000
0
To 11000 Less: 2000 148000
Purchases Returns
To Carriage 1800 20060
in
To Gross 34260
Profit
16806 16806
0 0

Profit and Loss Account of Mr.X for the year ending

31 March, 2005

Particulars Rs Rs Particulars Rs Rs
309
To interest By Trading 34260
on Capital Account
(g/p)
To Reserve 800 By Rent 1000
for b/d 900 received
Add: new
reserve
Less: Existing 1700 1200 By Discount 2000
500 Received
To 500 760
Depreciation: 260
Building
furniture
To Discounts 2000 1600
Allowed 900 1100
To Taxes
Less: Pre-
Paid
To General 4000
Expenses
To Salaries 9000
To 2200
Commission
Paid
To Net Profit 15900

310
 37260
37260 37260

PROBLEM

 Prepare trading, Profit and loss accounts as on

30.06.2005 of the following:
o Interest on Capital Rs.2000

o Discount allowed Rs.1700

o Commission Rs.2000

o Salary Rs.100000

o Opening Stock Rs.25000

o Wages Rs.12000

o Rent received Rs.5000

o Depreciation on Building Rs.750

o Depreciation on Furniture Rs.230

o Discount received Rs.2300

o Insurance Rs.1300

o Sales of 190000

o General expenses Rs.3500

o Taxes Rs.1000

o General Purchases Rs.115000

o Purchase for Rs.5000

o Provision for bad debit Rs.1800

o Closing stock Rs.15000

EXERCISE-5: INCOME STATEMENT AND REVENUE

311
  Simply stated, income statement is excess of
revenue over expenses. If the expenses exceed the
revenue the result is a loss to the farm.
 Income statement is generally prepared for one
agricultural year, i.e. at the end of the year.
However it may also be prepared over a period of
time, so that one can know the trend in receipts
and expenses which indicates the success or
failure of a farm business.
 It shows whether the farm is running under loss
or profit. Hence it is also called as Profit and Loss
Statement.
 It is different from balance sheet in that the
balance sheet indicates about the assets and
liabilities but not about the operational efficiency
of the farm business in terms of receipts,
expenses, profit and losses.
 The objective of preparing Income Statement is to
summaries the income and expenses incurred in
the farm throughout the year and present them in
a schematic picture. This statement lists all the
farm expenses on one hand and all the receipts on
the other.

Revenue

312
  In the revenue realized through the sale of
following items are included.

Opening Receipts
 Crops and feed
 Livestock and Poultry sold
 Livestock and Poultry Products sold
 Custom work- cash
 Government payments and patronage dividends,
gifts etc.

Capital Receipts
 Breeding stock
 Machinery and equipment
 Appreciation in the value of assets

Non Farm Income

 Interest and dividends
EXPENSES

313
  In the expenses column the following items are
included.

Opening Expenses
 Labour charges
 Repairs
 Rents and Leases
 Seed and Fertilizer
 Chemicals
 Livestock expense(Breeding Vet., etc)
 Gas Fuels, Oil
 Insurance
 Utilities( Electricity, Gas, Telephone)
 Marketing and transport expense
 Interest on working capital

Live stock and Feed Purchase

Capital Expenditure/Fixed expenses

 Machinery and Equipment
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  Building and Improvement
 Depreciation
 Interest on fixed Capital
 Rental value of owned land

Other expenses
 By subtracting the expenses from receipts the Net
income for a year can be calculated.
o Opening ratio = Total Operating expenses /

Gross income
o Fixed ratio = Total Fixed expenses / Gross

income
o Gross ratio = Total expenses / Gross income

PROBLEM

 Prepare a Net Income Statement for a poultry

farm operating with the following details. The
farmer has a capacity of 10,000/ layer birds. He is
operating in 4 hectare land with 10 dairy animals.
Last year, by sale of eggs he has received, Rs
22,45,985/. The casual labour charges were Rs.
2,18,555.00/. Sold paddy for, Rs.50, 000.00/. By
sale of culled birds he received, Rs.50,000.00/.
o Concentrate cost was, Rs.40,000/. Electricity

was, Rs25,455.00/and transport cost was, Rs.

2,45,455/. Milk sale was, Rs. 75,000.00/. He
315
 has sold old chaff cutter for Rs.10,000/ and
purchased newer one for, Rs.30,000.00/ and
by leasing it for other farmers he has obtained
Rs.5,450/. The value of land has appreciated
by, Rs.75,000. He has purchased 2 dairy
animals for, Rs. 30,000/. Fuel charges were,
Rs.7,780/. The farmer obtained dividends for,
Rs. 10,000/. Insurance charges were
Rs.11,000/. Depreciation value was Rs.25,
550/. The farm was Rs. 1, 55,550/. His own
land rental value was Rs. 45,000/. Permanent
labour charges was, Rs. 1,50,000
 Prepare a Net Income statement and work out the
operating ratio, fixed ratio and gross ratios for a
farm operating with the following details
Receipts Amount Expenses Amount
Kharif crops Casual labour 8900
Cotton 10500 Repair of building 5750
Ground nut 7000 Repair of equipment 2500
Sugar cane 24500 Seeds 4000
Rabi crops Purchase of chemicals 3500
Paddy 18000 Feed and Concentrate 6500
Vegetables 12000 Insurance 2200
Electricity 14500
Milk 12000 Transport cost 4500
Curd 500 Telephone charges 2000
Butter 1000 Land revenue 2000
Poultry 2400 Permanent labour charges 3500
Mutton 5000 Interest on fixed assets 3000

316
 Machinery sold 3000 Depreciation 1700
Sheep Sold 9000 Sheep purchased 4500
Desi birds sold 2500 Cross bred cow purchased 12000
Appreciation of 2000 Power tiller purchased 8000
assets
Decrease in asset value 3000

EXERCISE-6: BALANCE SHEET - MEANING

 Balance sheet is a statement that gives the assets

and liabilities together with a statement of net
worth of a farm/firm at a particular point of time.

Assets
  It is defined as anything of value that can be
owned. Assets can be classified into three types

Fixed Assets 
  Cannot be converted into cash to meet any
current obligation. (Eg.Land, Building etc.)

317
Working Assets 
  Are normally used during the life of business.

Current Assets
  May be liquidated within the normal operation of
business. (E.g. Cattle feed, Bank deposit,
Inventory, Debtors, Market securities etc.)

II. Liabilities
 It is defined as claim by other against the farm
business. It can be classified as three types.
o Long term Liabilities 

  do not require repayment during the

accounting period (above 7 years). (E.g.
Long term loan)
o Medium term Liabilities
  Can be postponed for the present but fall

due within certain years (1-7 years).

o Short term Liabilities 

318
   fall for immediate payment generally
within one year and which cannot be
postponed. (E.g. Accounts payable, taxes
payable, interest payable etc.)

III. Net Worth

 Total Assets - Total Liabilities.
o When the value of the asset is greater than that

of liabilities, the farmer is considered as credit

worthy; the new worth is stated on the
liabilities side of Balance Sheet.
o The Balance sheet can be used to measure the

ability to meet cash commitments without

disrupting the ongoing business.
CHARACTERISTICS OF BALANCE SHEET

 Balance sheet records values at a specific point of

time.
 It refers 3 essential components
o Assets

o Liabilities and

o Net worth.

 Only items owned or owed are included, e.g. Land

rented from others is not entered as an asset.
Assets Amount Liabilities Amount

319
 Fixed Long term
Workin Medium
g term
Current Current
Total Liabilities
Net Worth = Total Assets – Total Liabilities

 The most liquid current asset is cash in hand and

the least liquid current asset is inventory.
 The most liquid current liability is money at call
and the least liquid liability is long term loans.
 The total capital invested in the business is
worked out by the addition of total loans and net
worth.

Capital invested = Total loans + Net worth

 The gross working capital is the total current
assets.
 Net working capital is

Total current assets – Total current liabilities

 Negative working capital is

320
Current liabilities - Current assets
 The important test ratios that can be worked out
from the balance sheet are as follows
o Net Capital Ratios = Total assets / Total

liabilities
o Percent of equity = {Equity / Total assets}*100

o Current ratio = Total current assets ./ Total

current liabilities
o Quick ratio or = Quick assets/ Total current

liabilities
 Acid test ratio

(Quick assets = Total current assets – Inventory)

 5. Debt – Equity ratio or Leverage ratio = Total
debts / Equity
PROBLEM

321
 Prepare a balance sheet for a farm from the

information given below (as on 1st January 2005)

prepares the Balance sheet for a farm. The

farmer has got a medium term loan of Rs.6000

towards the purchase of an electric motor. The

outstanding loan against land is Rs.15000. He

borrowed Rs.2500 as crop loan from PACS. The

322
farmer has to repay Rs.2000 to his

neighborhood at the end of the year. He

possesses two pairs of bullocks valued Rs.3000

per pair and electric motor Rs.5000, bullock cart

Rs.1800,milck animal Rs.7000 and a thrasher

for Rs.7000. Besides the farmer has Rs.3000 as

cash in hand and Rs.1500 in bank in current

323
 account. The farmer has to pay the land tax of

Rs.80. The farmer own 6 acres of land valued at

the rate of Rs.10000 per acre, farm buildings

Rs.8000 and a cattle shed Rs.2500.

EXERCISE-7: BILL OF EXCHANGE - MEANING

 A bill of exchange is a written acknowledgement

of debt, given by the debtor to his creditor, for the
sum due and the time of payment as well as the
date and place of payment being set down.
 A bill of exchange has been defined as an
“instrument in writing containing an
unconditional order signed by the maker directing
a certain person to pay a certain sum of money
only to or to the order of certain person or to the
bearer of the instrument.”

324
  When such an order is accepted by writing on the
face of the order itself, it becomes a valid bill of
exchange.
 For example, suppose Ram order Shyam to pay
Rs. 50,000 three months after date and Shyam
accepts this order by putting his signature and
name on it, then it will be a bill of exchange
SPECIMEN

 The following is a specimen of a property drawn

bill of exchange.

Bill of Exchange

NEW DELHI
Rs.
50,000                                                    
September 20, 1997
Three months after date pay to
Stamp
M/s Zaveri
& Sons or order the sum of Rupees
Fifty thousand
only for value received.

325
 Rameshwar Prasad
To,
M/s Dilpat & Bros.,
Kamla Nagar,
DELHI-110007.

 This is called a ‘draft’. This order will be sent to

M/s Dilpat & Bros. for acceptance. If it is accepted
by them, they will write across the order as
follows:
o Accepted

o For M/s Dilpat & Bros,

o Dilpat Raj

o Partner

PARTIES TO A BILL OF EXCHANGE

 There are three parties to a bill of exchange:

o Drawer, i.e., the person who draws the bill.

He is the creditor to whom the amount is

owing.
o Drawee, i.e., the person to whom the bill is

addressed or on whom it is drawn. He is the

debtor who owes the amount. After he accepts
the bill, he is called the ‘Acceptor’ .
o Payee, i.e., the person to whom the sum of

money is payable. Sometimes, the drawer

326
 requires the amount to be paid to himself, in
which case, the drawer and the payee are the
same person.

Essential characteristics of a bill of exchange

 The essential characteristics of a bill of exchange
are as follows:
o A bill of exchange is an unconditional order.

o It must be in writing.

o It must be dated.

o It is addressed by one person to another.

o It must contain an order to pay a fixed amount

of money.
o The amount must be payable to a specified

person or to his order or to the bearer of the

bill.
o The draft must be accepted by the party on

whom the order is drawn and addressed.

ADVANTAGE OF A BILL OF EXCHANGE

  The advantage of the use of a bill of exchange

may be enumerated as follows:
o An accepted bill of exchange is a written and

signed acknowledgement of debt and it affords

conclusive proof of indebtedness.

327
 o Payment can be enforced on a bill of exchange
in a court of law.
o The date of maturity of bill ensures the
creditor when of expect his money and the
debtor or acceptor also knows when he will be
called upon to pay.
o The debtor enjoys the full period of credit. He
can never be called upon to pay the amount of
the bill before the due date.
o The creditor need not lock up his funds
because he can, if he so desires, convert it into
cash by discounting the bill. Discounting
means converting the bill into cash with a bank
or financier after deducting a small sum known
as discount from the total amount of the bill.
o It is negotiable instrument and can be
transferred from hand to hand in settlement of
debts.
o It is easy and convenient method of
transmitting money from one place to another.
o Accommodation bills enable the businessmen
to obtain funds from the market at cheap rates
to meet their temporary financial
requirements.
MATURITY OF A BILL OF EXCHANGE

 The maturity of a bill is the date on which it falls

due for payment.

328
 A bill not payable on demand, at sight or on
presentation, is at maturity on the third day after
the day on which it is indicated to be payable.
These three days are known as Days of Grace.
These are added to the term of the bill and the bill
becomes due and payable on the last day of grace.
 Where a bill is payable at a specified period after
date, the time of payment is determined by
excluding the day from which the time is to run
and by including the day of payment.
 For example, a bill of exchange drawn on
15th March at three months after date would
mature on 18th June.
BILLS RECEIVABLE AND BILLS PAYABLE

 For accounting purpose, bills of exchange and

promissory notes are treated alike, i.e., similar.
 For the drawer or the payee, a bill of exchange
duly accepted is known as a bill receivable
(B/R).For the drawee, the same is known as bill
payable(B/P).
 A bill receivable is an example of current asset for
the business while a bill payable is a current
liability.
 On the other hand, a promissory note is a bill
receivable for the payee and a bill payable for the
maker for the promisor.

329
 Thus, a bill is regarded as a bill receivable by one
who is entitled to receive the sum of money due
on it.
 It may have been drawn by him and accepted by
his debtor, or it may be a bill which his debtor has
endorsed over to him in lieu of payment of his
debt.
 Similarly, a bill of exchange is treated as a bill
payable by one who is liable to pay the amount on
the due date.
 Thus, the same bill is a bill receivable to one party
and a bill payable to the other.
EXERCISE-8: SYSTEM OF BOOK KEEPING - MEANING

 Book Keeping is mainly concerned with recording

of financial data relating to business operations in
a significant and orderly manner.
 A book keeper may be responsible for keeping all
records of a business or only of a minor segment,
such as a position of Customers’ accounts in a
departmental store.
 A substantial portion of book keepers work is of a
clerical nature and is increasingly being
accomplished through the use of mechanical and
electronical devices.
ACCOUNTING EQUATION

330
Assets = Equities
 The properties owned by business are called
“Assets”. The rights to properties called
“Equities”.
 Equities may be subdivided into two types: the
rights of creditors and the rights of the owners.
 The Equity of creditors represents debts of the
business and are called liabilities.
 The Equity of the owner is called capital.

So, Assets = Liabilities + Capital

Or Assets – Liabilities = Capital

 The Accounting Equation can be understood with
the help of following transactions.
TRANSACTION FOR SYSTEM OF BOOK KEEPING

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Transaction 1
 A starts a business with a capital of Rs.10000
 There are two aspects of transactions. The
business has received a cash of Rs.10000. It is its
asset but on the other hand it has to pay a sum of
Rs.10000 to A. Thus:
Capital and Rs Assets Rs
Liabilities
Capital 10000 Cash 10000

Transaction 2
 A Purchase furniture for cash worth Rs.2000. The
position of his business will be as follows:
Capital and Rs Assets Rs
Liabilities
Capital 1000 Cash 8000
0
Furniture 2000
1000 10000
0

332
Transaction 3
 A purchase cotton bales from B are Rs.5000 on
credit. He sells for cash cotton bales costing 3000
for Rs.4000 and Rs.1500 on credit to P.
 As a result of these transactions the business
makes a profit of Rs 1500(i.e. Rs.5500 –
Rs.4000), this will increase A’s capital from
Rs.10000 to Rs.11500.
 The business will have liability of Rs.5000 to B
and two more assets in the form of a debtor P for
Rs.1500 and stock of cotton bales of Rs.1000.
 The position of his business will now be as
follows:
Capital and Rs Assets Rs
Liabilities
Creditor(B) 5000 Cash(Rs.8000+4000) 12000

Capital 11500 Stock of cotton bales 1000

Debtor(P) 1500

Furniture 2000
16500 16500

Transaction 4
333
 A withdraws cash of Rs.1000 and cotton bales of
Rs.200 for his personal use. The amount and the
goods withdrawn will decrease relevant assets and
A’s capital.
 The position will be now as follows.
Capital and Rs Assets Rs
Liabilities
Creditor(B) 5000 Cash(Rs.12000+Rs 1000) 11000

Capital 10300 Stock of cotton bales 800

(Rs 11500-Rs 1200) Debtor(P) 1500

Furniture 2000
15300 15300

 The result of applying the system of double entry

system may be summarised in the following
rule:“The every debit there must be equivalent
credit and vice versa.
EXERCISE-9: BANK RECONCILIATION STATEMENT

 The Bank Reconciliation Statement is as the same

suggests, a statement setting for the bank balance
as per the Cash book and Pass book and
reconciling the two by stating how such
differences have arisen. Is important to note that
the bank Reconciliation Statement is
reconciliation as on a specified data.
 The customer may have money with the bank,
then he is said to have a favourable balance or in
334
 other words, a balance to his credit. This implies
that in Cash book there will be debit balance in
the bank columns, while in the pass Book it will
be a credit.
 On the other hand, where the customer has drawn
more from the bank then it is said to what extent
the corresponding entry has not been made.
 It is important to remember very clearly that the
differences between Cash book and Pass book
balances arise because of entries made partly or
wholly in, and only in one of the two books.
 In order to do the entries satisfactorily one should
be clear in one’s mind as to where (Cash book or
Pass book), the first record of transaction is made
and therefore where and to what extent the
corresponding entry has not been made.
 It is important to remember very clearly that the
differences between Cash book and Pass book
balance arise because of entries made party or
wholly in, and only in one of the two books.
ILLUSTRATION

 Using the following particulars, prepare the Bank

Reconciliation Statement as on 31 December
2005.
o Bank balance as per Cash Book on that date

was Rs.45000.
o Cheques paid into bank, but not collected

before that date amounted to Rs.12250.

335
 o Cheques drawn but not presented before that
date were of the value of Rs.7900.
o There were the following entries in the
Passbook for which there were no entries in
the Cash Book: Bank Interest Rs.150 and Life
Policy Premium Paid by the bank on standing
order Rs.750.
o Cheques for Rs.4500 were entered in the Cash
Book as banked but had been omitted to be
banked.

Solution

Bank Reconciliation Statement as on 31 December

2005
Particulars Rs Rs
Bank balance as per Cash Book 45000
Add Cheques drawn but not cleared to data 7900
Add Bank interest credited in Passbook 150 8050
53050
Less Cheques banked but not collected date 12250

336
 Less Life Policy Premium debited in Passbook 750
Less Cheques wrongly recorded as banked 4500 17500
35550
PROBLEM

 The Passbook of a trader showed a bank balance

of Rs.85400 to his credit.
 On comparing the Passbook entries with those in
the Cash Book, the following facts were noticed:
o Out of cheque worth Rs.12000 paid into bank

for collection, only Rs.8000 has been collected

during the same financial Period.
o Out of cheques worth Rs.6250 issued during

the period, cheques worth Rs.5000 had not

been presented for payment.
o There were entries only in the Passbook for

Rs.150, bank charges and Rs.1200 interest on

investment collected by bank.
o There was a wrong debit for Rs.5250 in the

Passbook in respect of a cheque drawn by

some other party.
 Prepare a Bank Reconciliation Statement as on
that date and derive the Bank Balance as per the
Cash Book.
EXERCISE-10: PROJECT-DAIRY UNIT (10 COWS)

337
Assumptions
 Cost of cow yielding 10 liters of milk / day is taken
at Rs.15,000/.
 Floor space required / cow is 50 sq.ft, cost of
construction of shed is taken @ Rs.150/ sq.ft and
cost of equipment is taken @ Rs.600/ cow.
 Depreciation on building and equipments is taken
@ 10% and 20% per annum respectively.
 One labourer will be employed and paid @
Rs.15000/ annum.
 Insurance charge is assumed as 6% of the value of
animals.
 Each animal will be fed with 4kg of concentrate,
which will be reduced to 2kg during dry period.
 Cost of one kg of concentrate is taken @ Rs.800/.
 Intensive cultivation of greens in 2 acres of land
will satisfy the necessary green fodder
requirement of the cows.
 Since it is annual project, project life is assumed
to be one year to know the cost involved and
return. 

Fixed Investment
338
 Particulars Rs
Cost of 10 cows @ Rs.15000/ cow 1,50,000
Cost of building @ 50sq.ft / cow @ 75,000
Rs.150/sq.ft
Cost of equipment @Rs600/ cow 6,000
Total fixed Investment 2,31,000

Fixed Cost

Particulars Rs
Interest on fixed investment @ 15% / 34,650
annum
Depreciation on building @ 10% / annum 7,500
Depreciation on equipment @ 20% / 1,200
annum
Insurance charges @ 6% of value of 9,000
animals
Cost of labour @ Rs.14400 annum 15,000
Cost of cultivation of fodder 40,000
Total Fixed cost 1,07,350

339
 Variable Cost

Particulars Rs
Cost of concentrate @ 4kg / cow/ day for 300 1,06,400
days and 2kg / cow / dry 13300*Rs.8 for 65
days
Veterinary charges @ Rs.400 4,000
Electricity charges @ Rs.150 / month 1,800
Miscellaneous cost @ Rs.100 / cow / year 1,000
Total Variable cost 1,13,200

Total Cost (III+IV) Rs.2,20,550

Returns

Particulars Rs
Sales of milk @ 10 litres / cow / day for 2,85,000
300 days @ Rs. 9.50 / litre

340
Sale of manure @ Rs. 300 / cow / yr. 3,000
Sale of empty gunny bags @ Rs.8 / bag 2,660
Gross returns 2,90,660

 Net return / year (VI-V)  Rs. 70,110

Problem
 Prepare one model project with 20 dairy animals
at the cost of Rs.20,000 per cow with yielding
15lts per day.
EXERCISE-14: PROJECT FEASIBILITY REPORT - MEANING 

 Generally in agricultural and livestock/ animal husbandry  projects, the

investment is made during different time periods and the associated benefits
were also spread overtime.
 These investments and returns are not comparables as such without adjusting
for their time value.
 Thus the time value of money has to be necessarily taken into reckoning in the
investment analysis of agricultural projects.
 The project appraisal techniques are broadly classified under two heads
namely,
o Undiscounted Measures
o Discounted Measures

UNDISCOUNTED MEASURES

 They are the naïve (Simple) methods of ranking agricultural projects.

 The three important undiscounted measures are
o Payback period
o Proceeds per rupee of outlay
o Average annual proceeds per rupee outlay

341
Pay Back Period

 Payback period is a simple technique of ranking project based on the actual

period of time in which one can get back total investment.
o Where, P is payback period.
o I is the total investment made is the projects and
o E is the net cash revenues / net revenues per annum.

Proceeds per rupee of outlay

 This is measured by dividing the total proceeds by the total investment.

 The projects are tanked by the highest by the higher magnitude of the
parameter.

Average annual proceeds of rupee outlay

 This  is an another method choosing between the projects and measures by

the following formula 

 The projects are estimated by the magnitude of the estimate

 The major drawback of the undiscounted measures is that for the same details
of the project, it is possible to get different rankings.
 Thus undiscounted measures are inconsistent and incompatible in ranking.

DISCOUNTED MEASURES

 Here the cash flows which are accrued in the project over the project period
are discounted with an appropriate discount rate.
 Generally the exiting interest rate is taken as discount rate for this purpose.
 The discount rate cash flows are the best estimates to measure the worth of
the projects.
 The following are  three important discounted  measures followed in project
feasibility  studies
 Net Present Worth (NPW)
o Benefit Cost Ratio (BCR)
o Internal rate of Returns (IRR)

342
Net Present worth (NPW)

 The Net Present worth which is also called as Net Present Value (NPV) is
nothing but the present value / worth of the cash flow stream in the project.
 The cash flow in the project is the different between cash inflow and cash
outflow.
 The investments made in the projects are generally called costs or cash
outflows or gross returns.
 The cash flow discounted with an appropriate discount rate will give the net
present worth of the project.

o Bt is cash flows in tth year,

o Ct is cash outflows in tth year, t is 1 to 10 years that is life span of the
project and r is the rate of interest.
 The choice criterion using NPW is that the project with positive NPW is
accepted for implementation and the project with negative NPW is rejected.
 If the NPW is NPW is zero, the entrepreneur is left in indifference. If he is to
choose among different projects, the project with highest NPW has to be
chosen.

Benefit Cost Ratio (BCR)

 The Benefit Cost Ratio is worked out by dividing the present value of cash
inflows by the present value of cash outflows.
 If the BCR is more than one, that project is accepted and if BCR is less than
one the project is rejected.
 Among the different projects, the project with highest BCR is to be selected.  

PROBLEM

Undiscounted measures

343
  Total investment / outlay is Rs.50,000/, average net benefits per year is Rs.
12,500/, life span of the project is 7 years. Find out, pay back period, proceeds
per rupee of outlay and Average annual proceeds of rupee outlay.
 In a project, the cash outlay is Rs.20000/ and the average annual returns are
Rs.8000, 7000, 4000 and 3000 in 4 years.  Calculate pay back period,
proceeds per rupee of outlay and Average annual proceeds of rupee outlay.

Discounted measures

 Find out NPW and BCR for the following project. Discount rate is 12% and life
span is 5 years.

Year 1 2 3 4 5
Cash outflows 38900 9239 10575 11952 12858
Cash inflows - 28475 32550 35610 39802

 Work out the NPW and BCR for the following data of an agricultural project.
Discount rate is 12%.

Year 1 2 3 4 5 6 7
Cash outflows 25000 4250 4792 5368 5975 6456 7187
Cash inflows - 10260 12550 14530 16275 19396 21470

EXERCISE-15: PROJECT FEASIBILITY REPORT - IRR 

 It is the rate of return per rupee invested in an agricultural project over its life
span.
 For example if the IRR is 30 percent in a livestock project, it means that this
project gets an average annual return of Rs.30/ per Rs.100/ invested in the
project over its life span.
 It is the rate of return at which the present value of total cash flows in a
project over its life span.
 It is the rate of return at which the present value of total cash flows in a
project is equal to zero.
 In other words, it is the discount rate at which NPW of the project is zero i.e.

344
  Present worth = Future value / (1+r) t
 For a project to be viable it should have a BCR of one or greater than one at
the opportunity cost of capital and NPW of zero or greater than zero at the
opportunity cost of capital and the discount rate for IRR should be greater
than the opportunity cost of capital.
 The NPW is inversely related with the discount rate. Higher the NPW lower
the discount rate and lower the NPW higher the discount rate and vice versa.

HOW TO FIND OUT INTERNAL RATE OF RETURNS?

 First one should discount the total cash flows in a project with a certain
discount rate and find out NPW.
 If the NPW is positive we should discount the cash flows with a higher
discount rate and see whether the NPW is positive or negative. If the NPW is
still positive we should go on discount the cash flows with higher discount
rates until NPW becomes negative. Then using interpolation method the IRR
can be found out.
 For a given project if IRR is greater than the opportunity cost of the capital,
then the project is accepted.
 If the IRR is less than the opportunity cost of the capital then the project has
to be rejected that means.
o If IRR > C – Project is accepted
o If IRR<C - Project is rejected
 For choosing among various alternate projects the project with the highest
IRR is to be selected.

Find out NPW, BCR and IRR for a dairy project with following details and draw
inferences. (Interest rate = 12%).

Years Cash outflow Cash inflow

1 38900 -
2 9230 28475
3 10525 32500
4 11952 35610

345
 5 12858 39800

Work out NPW, BCR and IRR for a dairy project with following details and draw
inferences.

(Interest rate = 20%).

Yea Cash Outflow Cash Inflow

r
1 1040 43940
2 38350 30126
3 41452 32987
4 44683 34372
5 50668 34768
6 77513 24179

EXERCISE-16: FIXED COST, VARIABLE COST AND TOTAL COST

 A resource or input is called a fixed resource if its quantity does not vary
during the production period.
 An input is a variable input if its quantity varies during the production period.
 In general, costs associated with the fixed inputs are called fixed costs and the
costs associated with variable inputs arte called variable costs.
 Fixed costs have to be incurred even when the production is not undertaken.
It  does not vary with level of output.
 Variable costs vary with the level of production.
 Total costs of production will include both fixed and variable costs.
 Fixed cost is also called as sunk cost or overhead charges.

UNIT COSTS

 Unit costs are average fixed cost (AFC), average variable cost (AVC), average
total cost (ATC or AC) and marginal cost (MC).
 These unit cost curves are more important than total costs in decision-making
process.

Average fixed cost (AFC)

346
  It is worked out by dividing the total fixed cost by the amount of output.
 Hence as output increases, average fixed cost (AFC) continues to decline.

AFC = TFC/Y

Average variable cost (AVC)

 It is worked out by dividing the total variable cost by the amount of output.
 Average variable cost decreases, reaches a minimum and increases thereafter.

AVC = TVC/Y

 Shut down point is the output level corresponding to minimum point of

average

VARIABLE COST

Average total cost (AC)

 Average total cost, as Average variable cost, first decreases, attains a

minimum and increases thereafter.
 AC is the cost of producing one unit of output.

AC = TC/Y

Break-even point

 It is the output level corresponding to minimum point of average total cost.

MARGINAL COST (MC)

 Marginal cost is the change in total cost in response to a unit increase in

output.
 It is found out by dividing the change in total cost (or total variable cost,
because total fixed cost is not going to change) by change in output.
 As output increases, Marginal cost first falls, reaches the minimum and then it
slopes upwards and passes through average variable cost and average cost at
their minimum points.
 In other words, average variable cost and average cost will slope downwards
and keep falling as long as the marginal cost is below them.

347
MC = ∆ TC/∆ Y

DEFINITIONS

 From the following data, graphically present the Total Cost curves and Unit
Cost curves and identify the Break even and Shut down point of a dairy farm.

Y 0 2 5 9 14 19 23 26 28 29 29 28 26
TFC 10 1 10 10 10 10 10 10 10 10 10 10 10
0
TVC 0 2 4 6 8 10 12 14 15 18 20 22 24

 From the given data, graphically present the Total Cost curves and Unit Cost
curves and identify the Break even point and Shut down point.

Y 0 1 2 3 4 5 6 7 8
TFC 50 50 50 50 50 50 50 50 50
TVC 0 20 35 60 100 145 190 237 284

EXERCISE-17: BREAK-EVEN
POINT

 Break-even point is the output level corresponding to minimum point of

average total cost.
 A farmer must produce at least this amount of product to cover the total cost
of production. Whatever is produced above this point will be the profit for the
farmer.
 The point where the farmer recoups his investment is the Break-even point.
 The investment is in the form of fixed cost and variable cost, which constitutes
the total cost.
 When the total cost is equal to total revenue it is Break-even point. It can be
calculated by,

 Service charge = How much one gets by selling an individual unit of output.
 The Break-even point nearer to the origin indicates less loss and more profit
zones.
348
  The Break-even point away from the origin indicates more and more loss zone
and less and less profit zone.
 Nearness of Break even point to the origin also indicates whatever the farmer
is producing is market worthwhile.
 Due to this the farmer will recoup his investment even by producing less
number of units of output.
 The Break even point away from the origin indicates to recoup the investment
the farmer has to produce larger number of units of output which is an
indication that whatever the farmer is producing is not so market worthwhile.

SHUT DOWN POINT

 Shut down point is the output level corresponding to minimum point of

average variable cost.
 A farmer must produce at least this amount so that he will be able to cover the
variable cost of production.
 If the total revenue curve goes below this point, it is better to close the
business instead of incurring losses. So this point is called as Shut down point.
 Margin of Safety = Output – BEO

Particulars Problem 1 Problem 2 Problem 3 Problem 4 Problem 5

Total Variable Rs.16,000 Rs.40,000 Rs.60,000 Rs.6
Cost
Total Cost Rs,24,000 Rs.30,000 Rs.50,000 Rs.8,000
Total Fixed Cost Rs.10,000 Rs.10,000
Milk Production 3,000 lts 3,500 lts
Gross Income Rs.30,000 Rs.35,000 Rs.60,000 Rs.1,00,00
0
Meat Production 500 Kg.
Number of sheep 100 100
Service charge Rs.15/unit

DEFINATIONS…………………..

A
Account
:

Account is the summary of similar elements in the transactions relating to a person, thing or service

349
Accounting
:

Accounting is the process of recording, classifying, summarizing, analyzing and interpreting the financ
transactions and communicating the results thereof to the persons interested in such information
Accounting equation
:

Accounting equation is a mathematical form of saying that in any business the total assets always equa
equity + creditors equity
Altered feed conversion efficiency
:

Feed conversion efficiency is the ultimate measure of influence of disease on the production process, b
requires accurate measurement of feed intake which is possible only under controlled feeding.
Altered production of dung for fuel and fertilizer
:

Dung is used as cooking fuel in most developing countries, apart from using it as fertilizer. Disease whi
high metabolic rate will indirectly influence rumen metabolism by reducing the supply of dung.
Animal health economics
:

At present, animal health management become more complex phenomenon involving multiple issues i
optimize livestock production. In dealing with animal health issues, economic evaluation has become i
important as the effects of diseases which remain to be controlled are far more subtle than was the case
problem. It is necessary to define the ways in which a particular disease lowers productive efficiency.
Animal Welfare
:

Animal disease control is an important issue in protecting the welfare of managed animals. There have
surprisingly few efforts to qualify welfare effects of diseases and most of the information available is op
solid evidence. Greater biological understanding will be required before quantitative assessments of ef
on animal welfare.
Artificial Personal Accounts
:

These accounts include accounts of corporate bodies or institutions which are recognised as persons in
dealings
Assets
:

Assets is the material and non-material things or possessions or properties of the business including th

350
due to it from others
B
Balance sheet
:

Balance sheet is a statement of financial position of a business at any given time

Bills payable book
:

In this book bills passed or promotes passed or accepted are recorded.

Bills receivable book
:

In this book bills already drawn or acceptance received are entered

Book keeping
:

It is mainly concerned with recording of financial data relating to business operations in a significant a
manner
Books of accounts and entry
:

Books of accounts and entry is the various books wherein transactions of varied nature of a business ar
the books of account
Break even output
:

In any business, there is a point where total costs become equal to total revenues and that point is calle
Even Point and the corresponding output is known as Break even output.
Break-Even point
:

Output corresponding to minimum of average total cost

Buyer
:

The person who makes the actual purchase.

C
Capital
:

351
Capital is a stock or fund existing at a given moment. Capital is man made. Man constructs capital equ
him in the production of other goods and services. Hence capital is defined as produced means of
production. Interest is known as reward of capital.
Cash book
:

Cash book meant for recording all cash transactions

CCBFs
:

Central Cattle Breeding Farms

Closing Entries
:

Closing Entries are entries passed at the end of the accounting year to close different accounts. These e
passed to close the accounts relating to incomes, expenses, gains and losses
Comfort
:

Goods that lead to easy living and make our life pleasant
Commercial invoice
:

Issued by the seller for the full realisable amount of goods as per trade term.
Complex division of labour
:

The work is split up into different processes and each worker is assigned a definite part of the work. Th
division of labour proper. Eg. Manufacturing of pins, making of bread etc.,
Constant returns
:

An each additional unit of the variable input produces an equal amount of additional product. i.e. The
product increases by the same magnitude for each additional unit of input.
Consumer behaviour
:

It refers to those acts of individuals directly involved in obtaining and using economic goods and servic
the decision processes and determines these acts.
Consumer’s surplus
:

352
Consumer’s surplus  is the excess of price, which a person would be willing to pay rather than go witho
CPM
:

Critical Path Method

Credit
:

In this column the amount to be credited is shown

Creditor
:

Creditor is one to whom a debt is owed or creditor is a person to whom some money is to be paid for th
service obtained or goods bought
Customs Declaration Form
:

It is prescribed by the Universal Postal Union (UPU) and international apex body coordinating activiti
postal administration. It is known by the code number CP2/ CP3 and to be prepared in quadruplicate,
sender.
D
DADF
:

Department of Animal Husbandry. Dairying and Fisheries

Debit
:

In this column the amount to be debited is entered

Debit and credit
:

Debit and credit are symbols used while recording transactions. Debit (Dr) refers to the receiving accou
(Cr) to giving account
Debtor
:

Debtor is one who owes debt or money is a debtor, i.e., one who owes money to a business is a debtor
Decider
:

353
A person who ultimately determines any part or the whole of the buying decision -Whether/What/ Ho
Where to buy?
Decreasing returns
:

An each additional unit of input add less and less to the total product than the previous unit.
Demand
:

Demand is the desire for something plus the willingness and ability to pay a certain price in order to po
Division of labour
:

It means dividing large tasks into smaller packages of work to be distributed among several people. Th
specialisation allows an employee to master a task in the shortest time with a minimum skill.
Double Entry System
:

 This system recognises that every transaction has a two – fold effect.
 If someone receives something then either some other person must have given it, or the first me
person must have lost something, or some service etc. must have been rendered by him

Drawings
:

Drawings is the value of the cash or goods withdrawn by the owner or proprietor for his personal or do
purposes or use. It is opposite of capital
E
Elasticity of Demand
:

Elasticity of Demand is the proportionate change in quantity demanded in response to proportionate c

Elasticity of production
:

Elasticity of production can be defined as the percentage change in output in response to the percentag
input.
Elasticity of supply
:

It measures the rate at which the quantity supplied changes due to changes in price

354
Engel’s Law
:

Proportion of personal expenditure devoted to necessities decreases as income rises

Entry
:

Entry is the record of a transaction of a business in a journal

Equilibrium price
:

The price at which the quantity demanded and quantity supplied in a given time are equal to each othe
Equities
:

Equities is the rights to properties

Equity
:

The any rights or claims to assets or any interest in property or in a business is known as equity
F
Financial accounting
:

Financial accounting is primarily concerned with record-keeping directed towards the preparation of p
account and balance sheet
Financial resources
:

 Financial resources are as important for the economic development of the country as natural an
resources.
 It is of vital importance that the limited financial resources should be utilized with utmost care a
wasteful expenditure be avoided.
 Financial resources are sources for the purchase of capital goods. These may include share capit
debentures, bonds, loans, etc., 

Fixed costs
:

Costs associated with fixed inputs

355
Fixed ratio
:

Total Fixed expenses / Gross income

Folio
:

Folio means the page (number) of a journal or a ledger (J.F and L.F)
Forced sale
:

Majority of subsistence producers are compelled to sell their produce immediately after harvest in orde
pressing claims of their lenders even if the prices are not remunerative. Most producers sell their produ
debts, face a shortage, and fall in debt again. Thus they sell to repay debt only to fall in debt again.
Form utility
:

Form utility is added when the processor of the goods transforms the material into finished products r
consumption
G
GATT
:

General Agreement on Tariffs and Trade was formed in 1947 has three major objects i) to reduce existi
barriers ii) to eliminate discrimination in international trade and iii) to prevent the establishment of fu
barriers.
Giffen paradox
:

Giffen paradox is the demand curve instead of sloping downwards may rise upwards when there is an i
price showing that more quantity would be demanded when the price rises
Goods
:

It refers to those material and non-material objects which satisfy human wants. Free goods do not com
value. Economic goods command money value
Grading
:

Grading is the act of separating goods into different lots according to established specifications
Gross loss
:

356
Gross loss is the difference between cost price and selling price of goods
Gross profit
:

Gross profit is the difference between selling price and the cost price of the goods is the gross earning o
of the businessman
Gross ratio
:

Total expenses / Gross income

H
Human resources
:

Human resources comprises of four things, acquisition (getting the people), development (preparing th
motivation (activating the people) and maintenance (keeping them).
I
Income effect
:

Income effect defines consumer is able and willing to buy more of a good when its price falls. Because,
price of a good is equivalent to an increase in the income of the consumer, i.e with the commodity bein
consumer's real income increases which can be used for purchasing some total satisfaction to the consu
Income Statement
:

Income Statement is to summarise the income and expenses incurred in the farm throughout the year
them in a schematic picture. This statement lists all the farm expenses on one hand and all the receipts
Increasing returns
:

An every additional or marginal unit of input adds more and more to the total product than the previou
addition to total product is at an increasing rate.
Indifference curve
:

Indifference curve is the locus of various combinations of two commodities which yield the same total
the consumer. This curve is also known as iso-utility curve (Iso means same)
Influencer
:

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A person who explicitly /implicitly carries some influence on the final decision.
Initiator
:

The person who first suggests or thinks of buying the particular product.
Intangible assets
:

Intangible assets are assets with no physical existence. But, their possession gives rise to some benefits
Intangible real accounts
:

These accounts represent such things, which cannot be touched, though they can be measured in term
ITO
:

International Trade Organization

J
Journal
:

It is defined as a book containing a chronological record of transactions. It is the book in which transac
recorded under the double entry system. Thus journal is the books, of original record.
Journalising
:

It is the process of recording transaction in a journal is termed as Journalising

L
Labour
:

Labour defines any exertion of mind or body undertaken for a monetary consideration. Any work done
of pleasure does not fall under labour in economic sense
Labour efficiency
:

Efficiency means the ability to do work so that the productivity is increased with minimum cost. The ef
labour is a great national asset. The following are some important factors, which affect efficiency of lab
Lack of producer's organization
:

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Farming community is more or less disorganized at the village level. Except for a few, till now no such
has developed which may prove a sound basis for strengthening the bargaining power of the farmers.
Law of Demand
:

Greater quantity of a commodity is demanded at a lower price and a smaller quantity is demanded at a
This inverse relationship between price and quantity demanded is called the law of demand
Law of diminishing marginal utility
:

Additional benefit which a person derives from a given increase of his stock of a thing diminishes with
in stock that he already has
Law of Diminishing return
:

If the quantity of one productive service is increased by equal increments, with the quantity of other re
services held constant, the increments to total product may increase at first but will decrease after a ce
Law of supply
:

Law of supply means Other things remaining constant (ceteris paribus), the higher the price of a comm
larger will be the quantity supplied and lower the price the smaller will be the quantity supplied
Ledger
:
It is a book, which contains various accounts. In other words, Ledger is a set of accounts
Less accurate genetic selection
:

If a disease alters any of the components of productivity which are the subject of genetic selection pres
herd (milk or wool yield), it will affect efficiency with which animals of superior genetic merits are iden
Liabilities
:

Liabilities denote the amounts, which a business owes to others (other than the proprietor/s) on differ
Liability
:

Liability is equity of creditors which represents debt of the business

Livestock business
:

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It includes both livestock and its products under business transaction. Livestock generally includes all
animals which are meant for human welfare. It includes primary activities of rearing all kinds of anima
and other uses. Business of livestock and its products encomposes various activities involved in directi
resources from point of production to consumption point.
Livestock business process
:

It includes all the functions and processes involved in the movement of the produce from the livestock
consumers.
Livestock business scope
:

It includes both input and output trading. These are subject mater of livestock marketing includes mar
function, agencies/ traders, channels, efficiency and costs, price spread, market integration, productio
government policy and research, training and market statistics.
Long Run
:

It refers to a period of time in which the supply of all the inputs is elastic, but not enough to permit a ch
technology. That is, in the long run, the availability of even fixed factor increases. Therefore, in the lon
production of commodity can be increased by employing more of both, variable and fixed, inputs.
Long-run production function
:

Those input-output relations which permit variation in all inputs or all factors (none is fixed) can be te
run production function.
Loss
:

Loss is depletion or decrease in the value of any asset without resulting in any revenue or benefit
Luxuries
:

Goods and services, which are generally non-essential and very expensive
M
Management accounting
:

Management accounting is the reproduction of final accounts in such a way as will enable the managem
decisions and to control activities
Margin of Safety

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:

Margin of safety means the output minus Break even output

Marginal utility
:

Change in total utility resulting from unit change in consumption of commodity per unit time
Market
:

'Market' is a derivative of latin word 'marcatus' meaning merchandise wares, traffic, trade or place whe
conducted
Market Price
:

Market price is determined by the equilibrium between demand and supply in a market period of very
The market period is a period in which the maximum supply is limited by the existing stock. This perio
hour, a day or a few days or even a few weeks depending upon the nature of the product.
Market risks
:

Market risks is the risks which occur due to the changes in product prices and changes in consumer de
products
Marketable surplus
:

Marketable surplus is that quantity of produce which can be made available to non-farm population of
is a theoretical concept of surplus. The marketable surplus is the residual left with producer-farmer aft
requirements for family consumption, payment to labour, payment to landlord as rent, and social and
payments in kind.
Marketed surplus
:

Marketed surplus is that quantity of the produce which the producer-farmer actually sells in the marke
of his requirements for family consumption, farm needs and other payments.
Marketing channel
:

It can be defined as a path through which product moves from producer to consumer. Hence a short ch
distribution will be an effective tool to reach the target consumers. However, distribution of products h
unit value and high turn over like eggs involves a large number of middlemen.
Marketing Opportunities

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:

It means, companies must look internally for strength and weakness and externally to the environmen
opportunities and threats. Most opportunities and threats evolve from Changes in the demographic, ec
political, legal and cultural environment.
Merchandising
:

It is the barometer of efficiency in buying and selling and it is closely related to several aspects of buyin
management.
Methods Study
:

This can be defined as the systematic procedure for analysing the existing methods of doing work inclu
various human movements involved in it with the main objective of evolving the best or the most econo
methods of doing the work.
Money Income
:

Income expressed in terms of money

N
Natural or material resources
:
Effective management of natural or material resources is of prime importance. Natural resources comp
water, air and other material resources.
Natural Personal Accounts
:

 The term ‘Natural Persons’ means persons who are creation of GOD
Necessaries
:

Necessaries are goods that are essential for human existence and to maintain our efficiency
Net profit
:

Net profit is the surplus remains after charging against gross profit all expenses including depreciation
provisions properly attributable to the normal activities of the particular group
Nominal accounts
:

These accounts are opened in the books to simply explain the nature of transactions. They do not really

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Non perishable goods
:

Non-perishable goods are goods that can be used again and again in the process of production. They ar
goods that normally survive many uses. They don't loose their utility or shape after their first use. They
provide utility over a long period of time, of course their utility over a long period diminishes in value a
Example factory buildings, machines and equipment are durable. Refrigerators, machine tools and clo
perishable.
Normal price
:

Normal price or Natural value of a commodity is that which economic forces would tend to bring abou
run. Normal prices are those prices to which one may expect the actual price to tend. They will not only
by fortuitous fluctuations and oscillation, but will also take into account of the general trend towards th
price".
O
O.I.E
:

International Animal Health code of World Organization for Animal Health.

Opening ratio
:

Total Operating expenses / Gross income

Optimization of labour input
:

Optimization of labour in the actual sense means to obtain the most efficient or optimum use of labour
be confined with the other factors of production and cannot be discussed in isolation. Proper labour m
policy will depend on particular farming situation.
Organisation
:

Organisation combines the factors of production. Viz. Land, labour and capital and decides on what to
P
Perishable goods
:

Most of the livestock products are perishable in nature and the period of perishability varies from a few
months. Selling of perishable products like fruits, vegetables, and livestock products (milk, meat, and e
fast movement of the commodities from the producers to the ultimate consumers.
Personal Accounts
:

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It includes the accounts of persons with whom the business deals
Personnel management
:

It is the sub area of the general management. It concentrates on the human activity element of the gen
management. It is concerned primarily with manpower resource or inputs. Personnel management is t
organizing, directing and controlling of procurement, development, compensation, integration and ma
people for the purpose of contributing to organisation, individual and social goals.
PERT
:

Programme Evaluation and Review Technique

Possession utility
:

Possession utility is added to the product when its ownership is transferred to the final consumer
Posting
:

Posting means transferring the debit and credit items from the journal to their respective accounts in t
Price
:

Value is expressed in terms of money it is called price

Producer’s Surplus
:

Producer’s surplus is the quantity of produce which is, or can be, made available by the livestock farme
farm population.
Product planning
:

It covers a broad area of decisions including product-line planning, introduction of new products, dele
product from product-line, product modification, packaging, labeling, branding etc.,
Production function
:

Production function is the relationship between inputs and outputs.

Profit and loss accounts
:
Profit and loss accounts is prepared to find out the net profit/ loss for the period

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Purchase returns book
:

It contains the records of returns of goods purchased by the trader for which no cash is received
R
Real income
:

When we express income in terms of commodities, it is called real income

Receipt
:

Receipt is a written acknowledgement of a receipt of cash/money/goods, etc. It is an accounting docum

physical receipt of something acquired/got
Reduced Capacity for works
:

The most important use of animal in developing country is as a source of traction. There are certain dis
causing reduced capacity to work.
Reduced Live weight Gain
:

It is well known fact that diseased animal gain weight more slowly than equivalent disease free animals
Reduced Productive life of animal
:

Reduced productive life of animal is due to increased culling which might be due to reason of low yield
unawareness of facts to farmers.
Representative Personal Accounts
:

These are accounts which represent a certain person or group of persons

S
Sales book
:

In this book only credit sales of goods dealt by the traders are entered
Sales return book
:

It records the goods returned by customers out of the sales already made and for which no cash is paid
Seasonality in production

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:

Much of farm production is highly seasonal. The production varies from one season of the year to anot
seasonality in production thus, raises costs of marketing through demand storage facilities. The season
in production of items like milk, egg, butter etc is not as acute as it used to be years ago.
Service charge
:

How much one gets by selling an individual unit of output.

Short Run
:

The short run refers to a period of time in which the supply of certain inputs (e.g. plant, building and m
is fixed or inelastic. In the short run, therefore, production of a commodity can be increased by increas
variable inputs, like labour and raw materials.
Short -run production function
:

Production function, which relates to factors and products where some resources are fixed can be term
run production function (Regardless of the number of fixed resources and level at which each is held fi
Shut down point
:

Shut down point is the output level corresponding to minimum point of average variable cost . A farme
produce at least this amount so that he will be able to cover the variable cost of production. If the total
goes below this point, it is better to close the business instead of incurring losses. So this point is called
point.
Shut-Down point
:

Output corresponding to minimum point of average variable cost

Simple division of labour
:

A work is done by the combined efforts of a group of workers. It is difficult to say how much Work each
carrying a heavy, lead by a number of people.
Single Entry System
:

 It is a system of book keeping in which only records of cash and personal accounts are maintain
incomplete double entry, varying with circumstances.
  This system has been developed by some business houses, who keep only essential records.

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Substitution effect
:

 If the price of a good falls. it tends to be substituted wholly or partly for other commodities raising the
demanded of this good
Superfluous middlemen
:

Since the farmer sells a substantial portion of his surplus produce in the village and nearby markets, th
intervention of a number of middlemen between him and the consumer and naturally share of the con
received by the producer is reduced.
Supervision
:

Supervision is referred to as the key stone in the organizational arch, supporting the structural membe
together the management and workers (Keith Davis). Supervisors are so to speak, the ligaments and te
views of an organization (Peter Drucker).
Supply
:

The various amounts of commodities, which the products are willing and able to make available for sal
prices during a given time
T
Tangible assets
:

Tangible assets are assets having physical existence like cash, furniture, land, building etc
Tangible real accounts
:

Tangible real accounts are those which relate to such things which can be touched, felt, measured etc
Territorial division of labour
:

This term refers to certain localities or cities or towns specialising in the production of some commodit
making in Dindugul and match factories in Sivakasi.
Time utility
:

Time utility is added when products are stored from the time of production to the time of consumption
Trading account
:

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Trading account is prepared to find out the Gross Profit or loss during the period.
Transaction
:

Transaction is the exchange of cash, goods or services in a business

U
User
:

The person (s) who consume or use the product or services.

Utility
:

Utility means capacity to satisfy wants, i.e. want satisfying power

V
Variability in Output
:

The quantity of farm products available depends upon several factors. With the gambling nature, one c
the quantity of products that would be produced as livestock production is mainly biological depending
rainfall etc for its main inputs like feed, fodder etc.,
Variable costs
:

Costs associated with variable inputs

Voucher
:

Voucher is a written document in support of a business in respect of a transaction, represented on a ca

counter copy of a cheque or a receipted bill or an acknowledgement receipt received
W
Wants
:

Desires of consumers to obtain and use various goods services, which give pleasure and satisfaction
Wealth
:

The state of economic goods at a particular time

Work Measurement
:

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This is the technique of assessing the time content of the work performed by an operator. The techniqu
determination of the proper time required for the work and so popularly known as time study.
Work Study
:

Work-study can conveniently be defined as the tool in the hands of the management for achieving high
efficiency in the organisation.
WTO
:

The World Trade Organization was established in January 1st, 1995 to make international trade smooth
hindrance. It is the only global international organization dealing with the rules of trade between natio
are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified
parliaments. The goal is to help producers of goods and services, exporters, and importers conduct the

369