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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