PROFIT CALCULATION

The decision by a European importer or retailer on whether to buy horticultural produce from smallholders or commercial producers depends in the final analysis on the price that must be paid, which is directly related to the cost of production, and on the reliability of supply. A significant proportion of horticultural exports from Zimbabwe, particularly of crops which require high labour inputs, originate from contracted smallholders. The following table compares the production costs and net returns of smallholder and commercial producers for a range of exportable horticultural crops (1998 figures).

It should be noted that:

• the smallholder costs cover only the value of seeds, fertilisers, agrochemicals and packing materials: the opportunity cost of family labour applied to the crops is not included;
• the additional costs incurred by commercial growers include irrigation, machinery, transportation and labour;
• crop yields and the value of production are assumed to be the same under smallholder and commercial cultivation;
• overhead costs incurred at the packhouse, export and distribution ends of the operation are assumed to be the same for smallholder and commercial producers, so are excluded from this comparison.

The smallholders' decision on which of these enterprises to adopt (if any) will depend on the returns which they might expect from alternative uses of their land and labour, and on the relative reliability of these returns. The opportunity cost which they attach to their family labour, which represents the net return on their investment, is thus the critical element in their profit calculation.

The buyer's decision on whether to source vegetables from smallholders, from contracted commercial growers or from the buyer's own farms will depend ultimately on which source is the cheapest and most reliable from the viewpoint of quality, regularity of supply and political, social, economic and environmental sustainability. Price determination, and the profit calculation which flows from it, cannot be separated from the way profit distribution between the different actors is decided.