Proceedings

PR – The Use Of Relevant Cost Analysis To Assess Production Viability Following The Decoupling Of Support Payments In England

Relevant cost analysis is a well recognised technique in management accounting used to decide whether production is viable in the short run. The removal of production-related subsidies following the reform of the CAP has left many farm enterprises with net margins that show a substantial loss. Relevant cost analysis is used to determine whether nevertheless it remains worthwhile continuing to produce in the short run. Relevant margins were calculated from industry costings for combinable crop, beef and sheep enterprises for 2004/5. These show that costed on this basis it is only the beef enterprises that look financially unviable. The paper argues that relevant cost analysis not only provides a very useful aid to farm level decision-making but also represents a very useful tool for guiding policy makers and industry analysts on the vulnerability of production and the potential for resultant structural changes.

Keywords: relevant cost; viability; decoupling; subsidies; production.

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Author(s): Jones, J.V.H.

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Organizations(s): School of Business, Royal Agricultural College, Cirencester, Gloucestershire