Gross Margin

The gross margin formula: GM = (price × yield) − variable costs. Variable costs include inputs directly tied to production — seeds, fertilizer, pesticides, irrigation water, contract labor, fuel for in-season operations. Fixed costs — land rent, permanent labor, equipment depreciation, insurance, loan interest — are excluded from gross margin because they exist regardless of which crop is grown.

Example: A hectare of wheat with 6 tons × €220/ton revenue (€1,320) minus €700 variable cost gives GM = €620/ha. Tomato in the same season might generate €40,000 gross revenue but with €25,000 variable cost, GM = €15,000/ha — 24× higher per hectare than wheat. This is why high-value crops are worth the higher input spend when market access and skill allow.

Gross margin drives crop-selection decisions. A farmer allocating 50 hectares compares the GM per hectare of candidate crops, weights by risk (yield variability, price volatility, labor requirements), and picks the mix that maximizes expected farm-wide GM. Gross margin per hour of labor is often a better metric for labor-constrained smallholders than per-hectare GM — cucumber may have €3,000/ha GM versus €600 for wheat, but if cucumber requires 300 labor hours and wheat requires 30, the hourly GM is similar (€10/hr vs €20/hr). Farm budgeting software like WiseYield calculates rolling GM automatically as sales and costs are recorded.