What is an example of a fixed cost in an agricultural business?

In an agricultural business, fixed costs are those expenses that do not change regardless of the level of production or output. Property taxes on farmland clearly exemplify a fixed cost, as they are incurred regularly and are based on the value of the property rather than on any specific business activity or agricultural production level. This means that regardless of how much the farm produces in a given year, the property taxes remain constant and will still need to be paid.

In contrast, water usage during production, labor costs that vary by month, and fertilizer costs based on yield are all variable costs. Water usage can fluctuate depending on irrigation needs or crop growth, labor costs may rise or fall based on the number of workers required during peak seasons, and fertilizer costs often depend on the quantity needed which can change based on the anticipated yield of the crops. These expenses fluctuate with the farm's level of activity and production, distinguishing them from fixed costs.