Profit-Capital Relationship

Press, Volume CII, Issue 30158, 15 June 1963, Page 6

Profit-Capital Relationship

■•rpHE first point Of interest J is the degree of change in the proportion with which land, and capital are combined as the intensity of irrigation increases,” says the survey. "Irrigation farms are more capital intensive because irrigation involves higher investment in farm improvements aind stock perunit of land. “The measure of financial success used in this analysis, owner's surplus, should be considered in relation to total farm capital rather than to area in acres for if all the differences in managerial skill were eliminated it would be reasonable to expect average owner’s surplus to increase as we moved from farms with lower farm capital to farms with higher farm capital “In the groupings where there are sufficient farms to give a meaningful average this is not the case. On the contrary there is some indication that the opposite applies and that as the intensity of irrigation increases, with corresponding increases in capitalisation owner’s surplus tends to decrease But this hypothesis is not in all cases sustained by rigorous tests of statistical significance.

‘The most that can be asserted from the results given is that there is no indication of higher returns to the average farmer resulting from more intensive irrigation and the associated higher levels of farm investment. There is some indication that the opposite may apply.” The report also noted that the seven medium and heavy

irrigating farms in the 200 to 299-acre farm size range were deriving very low returns after interest on total farm capital was deducted and they must be regarded as very doubtful economic units at current costs, prices, capitalisation and technology. In the farms ranging from 300 to 499 acres there would be units which had resulted from State development and settlement. The implication was that the minimum economic irrigation unit was in this size category. The results of the analysis did not dispute this, although it would be noted that the average heavy irrigator in this grouping was barely making a farm worker’s wage after allowing for interest on capital —the surplus was £772. Rather surprisingly the overage non-irrigaition farmer in this farm size range was achieving better results with less capital—the surplus here was £1328. There were not enough farms on medium land under survey to permit an analysis on the same lines as on the light land. In the case of the five non-irrigated farms on this class of land, owner’s surplus ranged from £2O to £5130 and from £0.62 per £lOOO of total farm capital to £104.13 and on the 17 irrigation farms the surplus varied from £46 to £2415 or from £2.49 per £lOOO of farm capital to £77.43. When returns from irrigation farms were arranged in order of intensity of irrigation it was found that there was no systematic relationship between irrigation intensity and owner’s surplus per £lOOO of total farm capital.