Financial Reporting in Practice (Volume 2): Chapter 3: Financial Reporting by Sector — Agriculture

Financial Reporting in Agriculture

Agriculture is one of the most complex sectors to account for because its underlying assets are living, biological and often subject to significant changes in value. Crops grow, livestock reproduce, produce is harvested, prices fluctuate, and weather and market conditions can materially affect financial performance. These features create accounting issues that are very different from those encountered in many conventional businesses.

This chapter provides a practical guide to financial reporting in the agricultural sector, with particular focus on the application of IAS 41 Agriculture, IFRS 13 Fair Value Measurement, IAS 16, IAS 2, IFRS 15 and other relevant IFRS requirements. It explains how agricultural businesses should account for biological assets, agricultural produce, bearer plants, inventories, revenue, borrowing costs, leases, impairment and fair value movements.

The chapter goes beyond the standards to show how these requirements work in real agricultural operations. It uses practical examples and illustrations covering crop production, livestock, poultry, plantations, fisheries, agricultural processing and integrated agribusinesses. It also examines the financial reporting implications of harvest, changes in fair value, costs to sell, financing arrangements and the transition of biological assets into other categories of assets.

Readers will also gain insight into the financial and operational risks that shape agricultural reporting, including commodity price movements, weather risk, foreign exchange exposure, working capital pressures, financing structures and market access.

This chapter is particularly useful for CFOs, finance managers, accountants, auditors, consultants, investors, agricultural business owners and finance professionals who need to understand how IFRS works in the agricultural sector.



It is designed to bridge the gap between the accounting standard and the practical realities of running and reporting an agricultural business.

See the content coverage below:

3.0 Financial Reporting by Sector — Agriculture 1

3.1 Introduction 5

3.2 Overview of the Agricultural Sector & Markets 5

3.2.1 The Global Agricultural Market 7

3.2.1.1 Major Agricultural Producers 7

3.2.1.2 Key Drivers of Global Agriculture 8

3.2.1.3 Global Agricultural Commodity Exchanges 9

3.2.1.4 Comparative Context – Global vs. Nigeria 9

3.2.2 The Nigerian Agricultural Market 10

3.2.2.1 Structure of Nigerian Ecosystem 10

3.2.2.2 Major Agricultural Subsectors in Nigeria 11

3.2.2.3 Major Agricultural Export Commodities 13

3.2.2.4 Major Agricultural Companies in Nigeria 13

3.2.2.5 Economic Significance of the Sector 14

3.2.2.6 Key Challenges Facing Nigerian Agriculture 14

3.2.3 The Regulatory Environment 15

3.3 Business Process 16

3.3.1 Business Operating Cycles in Key Agriculture Verticals 16

3.3.1.1 The Crop Farming Cycle 16

3.3.1.2 The Poultry Cycle 16

3.3.1.3 The Palm Plantation Cycle 16

3.3.2 How Agricultural Businesses Generate Revenue 17

3.3.3 Cost Profile of Companies in Agriculture Business 17

3.3.4 Asset Profile of Companies in Agriculture Business 19

3.3.5 Emerging Trends in the Agriculture Industry 20

3.3.6 Technical Terminologies Relevant to Financial Reporting in the Sector 21

3.4 Strategy And Governance Models in Agriculture Business 23

3.4.1 Business Growth Strategy Initiatives 24

3.4.2. Governance Models & Organisational Structures 24

3.5 Getting into Large-Scale Farming 27

3.5.1 Define Your Agricultural Value Chain Position 27

3.5.2 Choose the Right Commodity 28

3.5.3 Conduct Rigorous Feasibility Studies 29

3.5.4 Secure and Prepare the Right Land Asset 29

3.5.5 Establish the Corporate Business Model 29

3.5.6 Raise Capital and Align Structure 30

3.5.7 Recruit a Multidisciplinary Management Team 30

3.5.8 Secure Market Access Before Production Begins 31

3.6 Sources of Financing for Agricultural Companies in Nigeria 31

3.7 Biological Assets 35

3.8. Bearer Plants 37

3.9 Agricultural Produce 39

3.10 Revenue Recognition 40

3.11 Inventories 45

3.11.1 Inventories Across the Agricultural Classes 46

3.12 Trade Receivables 47

3.13 Property, Plant and Equipment 47

3.13.1 Land Assets 48

3.13.2 Agricultural Infrastructure 48

3.13.3 Processing Plants and Factories 48

3.13.4 Machinery and Equipment 49

3.13.5 Warehousing and Storage Facilities 49

3.14 Leases (Right-of-Use Assets) 51

3.15 Government Grants 51

3.15.1 Grants on biological assets at fair value 51

3.15.2 Grants on other assets 52

3.16 Borrowing Costs 53

3.17 Intangible Assets 54

3.18 Taxation 54

3.18.1 The five-year agribusiness tax holiday 54

3.18.2 The Economic Development Tax Incentive 54

3.18.3 Capital Allowances 55

3.18.4 VAT 55

3.18.5 The Mature Agribusiness 55

3.19 Fair Value Measurement of Biological Assets under IFRS 13 56

3.19.1 Inputs for the Fair Value Measurement 57

3.19.2 The Three Valuation Approaches 57

3.19.3 The Fair-value Hierarchy and Valuation Governance 58

3.20 Practical Financial Reporting Scenarios 65

3.20.1 Crop Accounting — A Rice Farm from Planting to Sale 65

3.20.2 Livestock Accounting 67

3.20.3 Plantation Accounting — Bearer Plants and Their Produce 70

3.21 Agricultural Risk Management 71

3.22 Internal Controls 74

3.23 Formats of Financial Statements 75

Supplementary exhibit — herd movement analysis 77

Supplementary exhibit — biological asset movement analysis (IAS 41:51) 80

3.24 Presentation of Financial Statements under IFRS 18 80

3.25 Performance Metrics in Agribusiness 82

3.25.1 Production & Yield Metrics 82

3.25.2 Financial & Cost Metrics 83

3.25.3 Supply Chain & Cold Chain Metrics 83

3.25.4 Quality, Food Safety & Biosecurity 84

3.25.5 Risk & Market Execution Metrics 84

3.26 Case Studies: Key Agricultural Companies 84

3.26.1 Presco Plc 85

3.26.2 Okomu Oil Palm Plc 85

3.26.3 Flour Mills of Nigeria Plc 85

3.26.4 Olam Nigeria 85

3.27 References 86