farm management notes [economics]

By Michele Evans,2014-07-08 08:18
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farm management notes [economics]

Rural Economics Farm Management 1st Semester 2003


Basics of Management

    Management in general has varied definitions. In a broader sense “Management is viewed as those activities relating to the organisation and operation of a firm for the attainment of specific ends. It directs resources use after interpreting the goals of those controlling the firm”.

    The most common features of the most management definitions are: organisation of resources and decision-making process.

Management Responsibilities include:

    Operational Operational

    What to produce Method of production

    How much to produce Timing of jobs

    When to produce Selecting techniques

    How to produce Choosing of staff

Why do some managers/farmers make money then others?

    Why do some farm business grow and expand, while others struggle to maintain their size? Why the Difference? Usually this is due to the Management. Observation and analysis often had the same conclusion. The differences due to management can be shown in three main areas;

     1. Production differences

     includes choice of agricultural commodities to be produced and how they are produced.

     2. Marketing differences (includes)

     When, where, and how of purchasing inputs and selling commodities (prices differences)

     3. Financing covers not only borrowing money and related questions of when, where and

    how much, but also the entire area of how to acquire the resources necessary to produce

    agricultural commodities.

The risks have to be considered in all the three areas i.e. how a farm manager adapt to and handle

    the risks can have a major impact on profit.

    Good or bad luck cannot explain all the differences observed in the profitability of farms even among those, which have about the same amount of land and capital available.

    In every association or system, management is the key ingredient. The manager makes or breaks the business. In agriculture, management takes a different dimension especially with uses of many technological innovations, and mechanisation.

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Rural Economics Farm Management 1st Semester 2003

    If the management is so important, than we must ask some questions such as:

     What exactly is a management?

     What managers do?

     What are the differences between management and labour?

     What knowledge and skills are needed to become a better management?

     Why the difference among profits made by managers?


     Once the management decision is made, it has to be translated into activities, or most likely, a series of activities. In agricultural and forestry business management, such farm management activities may be grouped into technical, commercial, financial, and accounting categories. (Refer table 4.1)

a) Technical Activities

     These are comprised of all physical production activities. That is include responsibility for

    all production know how, seeing that productions accomplished on time, and adapting

    production processes to changing economic and technical conditions.

b) Commercial Activities

     These include all buying and selling activities of the farm/business. This are involves

    procurement of inputs in the quantities and combinations necessary for efficient production,

    plus orderly storage, handling, marketing of commodities produced. It also includes the

    task of market forecasting and contracting for services of others.

c) Financial Activities

     These are comprised of all activities related to the procurement of and use of financial or

    money capital. That is acquisition and use of capital, presumably in an optimal manner. This

    requires forecasting future investment needs and arranging for their financing. Such capital

    is normally used for the purchase of physical assets and running the farm/business.

d) Accounting

     These activities involve the establishment and maintenance of farm/business records,

    including records of buying and selling, etc. Include physical, human, business, and tax

    records. This area may involve setting standards for certain enterprises or segments of the


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    Rural Economics Farm Management 1st Semester 2003 Table 1 Classification of Agricultural and Forestry Business Activities.

    Classification Description/Nature of Activities Examples of Actual Decisions Made and

    of Implemented.


    Technical Production of goods and services . What to produce: enterprise choice and

    combination . How much to produce: Amount to produce of

    each crop

    . How to produce: Amounts of inputs to use on each crop. How to combine them, how to

    co-ordinate their production.

     Using land Capability-fertility

    Tillage practices - conservation Regulations -constraints

    Capital requirements Determining level of Availability of services mechanization Labour implications

    Commercial Acquiring inputs Purchase of inputs (source, terms, quality,

    quantity, financing, etc.)

    Marketing products Sale of produce (form of produce; time to sell;

     place to sell; type of market - open market,

     contract, etc.

    Forecasting costs and prices. Inputs and Outputs

    Financial Acquiring funds Purpose of funds/ quantity and terms

    Source of financing Lender position Using funds Equity position and liquidity position Repayment plan Forecasting future needs Depreciation of assets

    Expansion / contraction

    Changing technology

    Accounting Keeping production records Records of output of produce

     Records of use of resources

    Records of sales and purchases Recording commercial and Records of borrowing and repayments financial transactions

    Cash flow forecasting

    Income and other taxes, wages and depreciation Tax reporting

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Rural Economics Farm Management 1st Semester 2003

    Definition of Farm Management

    Management is a widely used term but which is subject to many individual definitions. Of the many Farm Management definitions if we take one:

    "Farm Management is the decision making process whereby limited resources are allocated to a number or production alternatives to organise and operate the business in such a way as to attain some objectives." Some of the definitions given by eminent farm Management authorities are: -

    1) Farm Management is that branch of agricultural economics, which deals with the business

    principles, and practices of farming with an object of obtaining the maximum possible return

    from the farm as a unit under a sound-farming programme.

    2) "Farm Management" is the study of the business principle in farming. It may be defined as the

    science of organisation and the management for continuous profit" - Warren

    3) "It is the science which considers the organization and operation of the farm from the point of

    view of efficiency and continuous profit"- (Effersen).

    4) "Farm Management as the sub-division of economics which considers the allocation of limited

    resources within the individual farm is a science of choice and decision making, and thus is a

    field requiring studied judgement" - Heady and Jenson.

Farm management has become complex due to;

; Frequent price changes in agri-commodities

    ; New Technology

     - Development of new seed varieties, new fertiliser.

     - New breeds of cattle

     - New chemicals for pests and weed control

     - New animal health product and feed activities.

    Changes like machinery, irrigation equipment, computers, govt. Policies. These are some of changing environment affecting the manager, and as a result the production is affected. Some managers respond it correctly, some incorrectly to the technology, price and other economic factors.

Role of Farm Management:

    The main role of farm management is to help in realisation of the maximum not profit from the various enterprises on a farm. A typical farm is a combination of two or more enterprises and the chief aim of the farm manager would be to get the whole unit give the maximum total returns. It is not the return from anyone enterprise that determine the financial success of a farm, but it is the total return from all enterprises that counts its success or failure. A proper