IFs estimates the net returns in agriculture (AGReturn) for each commodity, based upon production costs and net revenues. Agricultural profits (FPROFIT) depend on the gross returns to production (GReturn) relative to the costs of production. At some points in the evolution of IFs we have used these profits as a guide to rates of investment; the current formulation for investment does not use them.
The production costs for crops are estimated as the cost of cropland, priced at the cost of new land development (CLD), plus the investment in agricultural capital (KAG). The net revenues are given as total yield times the domestic crop price index. This results in
For meat, production costs are estimated by the value of the crop equivalents produced by grazing and the cost of feed, where the value is given by the domestic meat price index. The net revenues are based on the size of the herd and the domestic meat price index. This results in
For fish, the production costs are simply estimated by the total production of fish times the domestic meat price index. The net revenues are given as the total production of fish times the domestic fish price index. This implies
The net returns for each commodity can then be calculated as
These net returns are used to account for changes in profits over time, using the variable FPROFITR, which influences investment in agriculture. This variable is calculated for each commodity as
A similar variable (wfprofitr) is calculated at the global level as a production weighted average of country/region values, but only for crops.