Farm
Management:
Introduction
to farm management — definition, nature, and scope (Lecture 1)
1.
Meaning:
Farm management comprises
two words i.e. farm and management where Farm is a piece of land where crop and
livestock enterprises are taken up under a common management and has specific
boundaries while management is an art or act of managing.
Farm management is concerned
with the smooth and efficient running of the farm.
It includes:
·
The day to day organization of labour,
crops, husbandry, machinery;
·
Financial matters
·
The decision making process in the long
run concerning changes in investment
·
Costs, performance, way of living etc.
Farm management is the
branch of agricultural economics which helps to coordinate the limited
quantities of land, labour and capital, with their alternative uses, on a farm
in order to achieve the specified ends of continuous maximum profits or
satisfaction. Thus, Farm Management is a
science that deals with the organization and operation of a farm as a firm from
the point of view of continuous maximum profit consistent with the family
welfare of the farmer.
2.
Definitions
of Farm Management:
·
The first group of farm management
economists comprising of Andrew Boss, H.C.Taylor and L.C. Gray viewed farm
management as “an art of organization and operation of the farm successfully as
measured by the test of profitableness”.
·
The second group comprising of G.F. Warner
and J.N. Effersen considered farm management “as a science of organization and
operation of the farm enterprises for the purpose of securing the maximum
profit on a continuous basis”.
·
The third group of economists like L.A.
Moore house and W.J. Spillman defined farm management “as a study of the
business phase of farming”.
·
Farm Management is a science that deals
with the organization and operation of a farm as a firm from the point of view
of continuous maximum profit consistent with the family welfare of the farmer.
Thus, in an environment where a farmer desires to achieve objectives like
profit maximization and improvement of family standard of living with a limited
stock of factors of production which can be put to alternative uses, farm
management in an essential tool.
3.
Nature
of Farm management:
From above three views on
farm management, it can be said that farm management is both science and art of
managing farm resources for business motive.
Practical
Science: FM is a practical science because while dealing with the
facts of other physical and biological sciences, it aims at testing the
applicability of those facts and findings and showing how to put these results
to use on a given farm situations. In
any farm, economic problems i.e. problems regarding decision making arise due
to limited resources, unlimited wants/need or objectives and alternative use of
the resources. Thus the farm manager should make a rational decision on
allocation of the scarce resources so that the use of the resources could be
optimized.
Micro
approach: Farm management deals with the business principles of
farming from the point of view of an individual farm. Its field of study is
limited to the individual farm as a unit & is interested in obtaining
maximum profit. It applies both the local knowledge and scientific finding to
the individual farm business and is practical in nature. In short also called
science of choice or decision making.
Profitability
oriented: FM is
Profitability oriented as it deals cost involved in producing each unit of
output in relation to returns and decide optimum level of production. FM
integrates needy results to reach optimum combination practices.
Integrating
science and broader field: FM decisions are made by getting
information from more than one disciplines (Business principles of farm
management). FMS is “Jack of many trades and master of one”. FM as micro
approach of economics as it treats every farm unit unique in an available
resources, problems, and potentialities. It treats the farm as an operational
unit and tailoring the recommendations to fit into its resource position. Two
farms are not exact in soil types, production resources, farmers and managerial
ability.
Farm
as a whole: Farm as a whole is considered to be the unit for
making decisions because the objectives is maximize the returns from whole
farm. It considers many or alterative profitable enterprises combination to
obtain maximum income from the farm as a whole on a continuous basis,
exploiting the advantages of complementarity and supplementary in the farm
enterprises. Example: total crop productivity instead one’s.
4.
Objectives
of Farm management:
The need for managing an
individual farm arises due to the following:
i) Farmers have the twin
objectives, viz., and maximization of farm profit and improvement of standard
of living of their families.
ii) The means available
to achieve the objectives, i.e., the factors of production, are scarce in
supply.
Farm management is
concerned with resource allocation. On one hand, a farmer has a set of farm
resources such as land, labour, farm buildings, working capital, farm
equipment, etc. that are relatively scarce. On the other hand, the farmer has a
set of goals or objectives to achieve may be maximum family satisfaction
through increasing net farm income and employment generation. In between these
two ends, the farmer himself is with a specific degree of ability and
awareness. This gap is bridged by taking a series of rational decisions in
respect of farm resources having alternative uses and opportunities. The study
of farm management would be useful to impart knowledge and skill for optimizing
the resource use and maximizing the profit.
5.
Scope-farm
management
Farm management is
generally considered to be microeconomics in its scope. It deals with
allocation of resources at the level of individual farm operation and
organization. It deals direct and
indirect effect of economic efficiency of individual farm business. Farm
management seeks to help farmers in decision making what to produce, buy or
sell, how to produce and how much to produce. It helps in determination of most
efficient production method of selected enterprises and also helps in
Organization of agricultural resources and farm enterprises so as to make a
complete farm unit. FM helps in maintenance of farm records, account and
determination of various efficiency parameters and it helps in adjusting
against time and uncertainty elements on the farm and around it. It covers all aspects of farming which have
bearing on the economic efficiency of farm. The scope of farm management also includes:
·
Farm
management research: Solution to farm problems faced by farmers by identifying
and analyzing problems and providing remedial measures.
·
Farm
management teaching: FM teaching is popular as a younger discipline and has
come to its own recently.
·
Farm
management extension: Once the result of research and study they are made
available to farmers through adoption or application. Short course of FM can
help progressive farmers to develop their skills in managing farm and
developing entrepreneurship.
Importance
of farm management in Nepalese context are as follows;
i. Farm resource
allocation and to improve farm economic efficiency
ii. Systematic assessment
of farm problems to identify causes and appropriate remedial solutions is vital
for commercialization of agriculture. This is one of the important aspects of
farm management.
iii. Improved
productivity, profitability and efficiency through better farm management and
rational decision on farm problem.
iv. Modernization of the
agriculture through development of appropriate farm planning.
v. It also helps to
assess policies, plan and strategies related to agriculture
Farm
management in relation to other science, farm management and farming systems
(Lecture 2)
1. Relation of Farm management with
other science:
Farm management is an
integral part of agricultural production economics. Farm management is an intra
farm science whereas agricultural production economics is an inter farm or
inter region science. The distinction sometimes made between production economics
and farm management is based on macro and micro level contents respectively. In
so far as various agricultural economic problems regarding agricultural
finance, land tenure, marketing, etc, are concerned at farm level, the field of
specialization related to each problem becomes an integral part of farm
management.
Economic
theory: Farm management as a subject matter is an application
of business principles from the point of view of farming of an individual
farmer. The tools and techniques for farm management are supplied by general
economics. It is an integral part of agricultural production economics.
Agronomy,
Horticulture, Plant breeding, Agri-engineering: These
physical and biological sciences are not directly concerned with economic
efficiency. They provide input-output relationships in their respective areas
in physical terms, i.e., they define production possibilities within which
various choices can be made. It is the task of the farm management specialist
and agricultural economist to determine how and to what extent the findings of
these sciences should be used in farm business management.
Statistics:
science that helps in providing methods and procedures by which data regarding
specific farm problems can be collected, analyzed and evaluated.
Psychology:
Farmer’s ability to bear risk and uncertainty is influenced by his
psychological characteristics
Sociology:
decisions are also influenced by the customs, habits and cultural values of the
society in which he lives
Political
Science: The acceptance of new production techniques and
methods in farming is influenced by political decisions of the government like
restriction or encouragement of growing of crops (minimum support price),
ceiling on land holding, price policies, etc
.
Farm
management decision making process:
The farm management
decisions or functions can be categorized into production, administration and
marketing functions.
1)
Production and Organization Decisions: The farm manager has to
take vital decisions on production of enterprises and organization of his
business. His decisions center on what to produce and how to produce. Such
decisions can be further classified into i) strategic and ii) operational
decisions.
i.
Strategic Management Decisions: These are the management
decisions, which involve heavy investment and have long lasting effect. These
decisions give shape to overall organization of the business.
a)
Deciding the best size of the farm: The size of farm depends
upon type of farm business, irrigation potential, level of mechanization,
intensity of usage of land and managerial ability of the farmer. The economic
efficiency of each crop/or livestock enterprise and their combinations, when they
are operated on different scales, are considered to decide upon the optimum
size of the holding.
b)
Decisions on farm labour and machinery programmes: Deciding
the most profitable combination of the factors to be used in producing a
commodity is one of the important farm management decisions. What combination
of farm labour and machinery should be adopted to get maximum returns? Would it
be profitable to vary labour or land to better utilize a given set of
machinery? These decisions are to be taken so as to reduce the cost of
production.
c)
Decisions on construction of buildings: Decisions on size and
type of buildings involve heavy investment, which become fixed resource for the
business. Type of buildings, for the present pattern and level of production
depends upon the kind and level of crops or livestock produced.
d)
Decisions regarding irrigation, conservation and reclamation programmes:
As improvements of alkalinity, salinity and other soil defects require heavy
investments, soil conservation and reclamation programmes often have to be
spread over years. The choice of most economical method or a combination of
methods of reclamation has to be made from among mulching, contouring, bunding,
terracing and application of soil amendments, laying down of proper drainage
and so on. Decision on irrigation programme is also very crucial because it
involves heavy investment and it gives a flow service over long period of time
and also improves the productivity of other related inputs.
2.
Operational Management Decisions: Operational management
decisions are continuously made to carry out the day-to-day operations of the
farm business. The investment involved in such decisions is relatively small
and hence, the impact of such decisions is short-lived. These decisions are
generally: i) what to produce? ii) how
much to produce? how to produce? and when to produce? A brief discussion is
made on these decisions below:
i) What to produce?
(Selection of enterprises): The objective of the farm business, i.e.,
maximization of returns, could be achieved through the best combination of
different enterprises. The relative profitability of these enterprises will be
useful to determine what to produce and what not to produce.
ii) How much to produce?
(Enterprise mix): This decision has two aspects: Enterprise mix and resource
use.
a)
Enterprise Mix: Combination of crop and livestock
enterprises will depend upon the level of resources available, fertility of the
soil, prices of factors and products in addition to the existence of
complementary and supplementary relationship. Principle of substitution is used
to decide the level of each enterprise, i.e., the scarce farm resources are
first used for the most profitable enterprise and then the next best profitable
enterprise is considered for inclusion. However, apart from profitability of
each enterprise, factors like labour availability for each enterprise, size of
land holding, use of by-products, maintenance of soil fertility, relative
risks, distribution of incomes over time and efficiency in the use of machine
power and building are considered to decide the level of each enterprise.
b)
Resource Use: The best combination and optimum level of
inputs can be determined based on the substitution principle and these have to
be decided for minimizing the cost of production and maximization of returns.
iii) How to produce?
(Selection of least - cost / efficient method or practice): Decisions, here,
are made on the best practice or combination of practices and methods, which
involve the least cost. The choice making from among the various alternatives
has become a management problem. Although the objective generally is to select
the least cost combination of inputs methods, consideration has to be given on
the availability of resources in required quality and quantity at right time.
iv) When to produce?
(Timing of production): Since the agricultural production is season-bound, it’s
timing has to be properly decided. However, farmer faces difficulty in
selecting season, i.e., normal, early or late, for a particular crop due to
non-availability of inputs in time and as a result he could not fetch maximum
price for the produce.
3.
Administrative Decisions
Along with production and
organization decision, the former has to see that the work is done in a right
way. Such administrative decisions are briefly discussed below:
i) Financing the farm
business: While some farmers have their own sufficient funds, others may have
to borrow. The problem is twofold, viz., a) utilization of funds within the farm
business, and b) acquisition of funds, i.e., proper agency, time, type, and
terms of credit. Cash flow analysis would be used to decide the timing and
quantum of credit required.
ii) Supervision of work:
The farm manager has to ensure that each job is scrupulously done as planned.
iii) Accounting and book
keeping: Collection, analysis and evaluation of data have to be done in order
to assess the performance of the farm at any point of time. Here decision is to
be made on the kinds of farm records, time allocation and money to be spent on
this activity.
v) Adjustments to
government programmes and policies: Government programmes and
policies on food zones,
restriction on product movements, price support policy, input subsidy, etc.
influence farm production and marketing. The farmer has to decide on the level
of production and resource-use with the maximum economic efficiency at the farm
level consistent with the government policies concerned.
4.
Marketing Decisions
A farm manager has to buy
various farm inputs and sell out the produces in which he has to take rational
decisions. While purchasing inputs he has to consider the following aspects: a)
what to buy? b) when to buy? c) from whom to buy? d) how to buy? and e) how
much to buy? Similarly, in selling out the farm produces he has to carefully
ponder over the following points in order to maximize his farm income: a) what
to sell? b) when to sell? c) to whom to sell? d) how to sell? and e) how much
to sell?
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