Farm Management: Key Concepts and Importance
Chapter One
Introduction to Farm Management
1
Chapter outline
1.1.
Definition of Farm management
1.2.
The importance of Farm management
1.3.
Scope of Farm Management and its relation with other field of study
1.4.
Basic Farm Management decisions
1.5.
Attributes and Functions of Farm Manager
1.6.
Farm Management Decision Making Problem in Ethiopian Case
2
Definitions of Farm Management
•
Farm Management
comprises of two words
i.e. Farm
and Management.
•
Farm means a
piece of land
where
crop and livestock
enterprises
are taken up under a
common management
and has
specific boundaries.
•
Farm is a
socio economic unit
which
not only provides
income
to a farmer but
•
also a source of
happiness to him and his family
.
•
It is also
a decision making unit
where the farmer has
many alternatives for his resources
in the production of
crops and livestock enterprises and their disposal.
3
Cont…
•
Management
is the art of getting work done
out of others working in a group.
•
Management is
the process of designing and
maintaining an environment
in which individuals
working together in groups accomplish selected
goals/objectives.
•
Management is
the key ingredient
. The
manager
makes
or
breaks a business.
4
Cont…
•
The
prosperity of any country
depends upon
the
prosperity of farmers
,
which in turn
depends upon the
rational allocation of
resources among various uses
and
adoption
improved technology.
•
Human race depends more on farm products
for their existence
than anything else since
food, clothing –
the prime necessaries are
products of farming industry
.
5
Cont…
•
Even for
industrial prosperity
, farming industry
forms the basic infrastructure (benchmark)
.
•
Thus,
the study farm management has got
prime importance in any economy
particularly
on agrarian economy.
6
Farm management
•
Farm Management
– a branch of Agricultural
Economics –
deals with the economics of
individual farm units
.
•
Farm management
is
concerned with the
organization of factors of production
for the
production of farm products.
•
FM is the
art of
applying economic principles
in
the management of a farm business
7
Cont…
1. The
art of managing a Farm successfully, as measured by
the test of profitablenes
s
is called farm management. (L.C.
Gray)
2. Farm management may be defined as
the science that
deals with the organization and operation of the farm in the
context of efficiency and continuous profits
. (Efferson)
3. Farm management is defined as
the study of business
phase of farming
.
4. Farm management is
a branch of agricultural economics
which deals with wealth earning and wealth spending
activities of a farmer
, in relation to the organization and
operation of the individual farm unit for securing the
maximum possible net income. (Bradford and Johnson)
8
Cont…
•
Economics is the
study of the
principles
that
determine the
allocation of scarce resources
among competing ends
,
for the maximization of
those chosen ends over time
.
•
Agricultural Economics is
the application of
economic techniques and principles to
agricultural industries
(solve agricultural
problems).
9
1.2.
Importance of Farm Management
•
Agriculture is
the science of converting productive
resources
to produce livestock, crops and fisheries.
•
The farmer
strives to combine the resources
in such
a way that he/she
minimizes their use hence his cost
while maximizing his output and hence his return
,
thereby ensuring that his income i.e. net returns or
profit
is as high as possible
.
10
Cont…
•
The millions of small farm operators have unique
objectives (other than profit maximization).
•
These could be maximization of objectives like
food
security
,
stability of cash income
and use of most
limiting resource.
•
Especially, the
provision of sufficient staple food for
family members
is very important in a subsistence
agriculture (farm family decision-making process).
•
This is why
in Farm Management
attention is
focused on the
decision-making processes of
individual farm units
.
11
Farm management is very
important not only in
developed and commercial agriculture
all round the
world
but also in
developing
and
subsistence
type of
agriculture
. And also/
A
farm manager
must
not only
understand different
methods of agricultural production
,
but also he/she must be
concerned with
their costs
and returns
.
FM/F
must
know how to allocate
scarce productive
resources
on the farm business
to meet his goals
and
at the same time
react to economic forces
that arise
from both within and outside the farm.
12
N
eed for managing an individual farm arises due to
:
i.
Farmers have the twin objectives
, viz.
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
.
iii. The farm profit is influenced
by;
biological,
technological, social, economic, political and institutional
factors.
iv. The factors of production
can be put to alternative uses
.
13
I.
On one hand
,
a farmer has a set of farm resources
such as
land, labor, farm buildings, working capital, farm equipment
,
etc. that are
relatively scarce.
I.
On the other hand
, the farmer
has a set of goals or objectives
to achieve (
maximum family satisfaction
through increasing
net farm income and employment generation).
•
This
gap is bridged by taking a series of rational
decisions
in
respect of farm resources
having
alternative uses and opportunities
.
Thus, Farm management is
concerned with resource
allocation
.
14
•
The
study of farm management would be useful
to transmit
knowledge and skill for
optimizing
the resource use
and
maximizing the profit
.
•
That mean, FM
provides the basic decision
making tools
which
enable the millions of small
farms
in making decisions daily
regarding their
farm operations.
•
The
quality of these decisions
determine
to a
large extent the
outcome
and
productivity
of the
agricultural economy
.
15
•
Thus, an efficient Farm Management Decisions
can lead to;
1)
Increased agricultural output
and
2)
In turn, enable the sector
to make its rightful
contribution
to the
economic development
of the
country
;
i.
Supplying Food
to all sectors of the economy,
ii.
Supplying labor,
iii.
Source of savings,
iv.
Means of livelihood/ income
,
v.
Source of employment generation
vi.
Source of Foreign exchange earnings
and
vii.
Supplies raw material
meeting the demand for
industrial products
16
Thus,
the study of farm management is crucial and central
to the
whole discipline of agricultural economics.
•
The
extension agent
working with the farmers at the grass root
level
must be conversant with the principles and applications
of
farm management.
•
The
agricultural data recorder
must appreciate why he/she is
being requested to collect certain information from the farmer.
This appreciation
comes from the knowledge of farm
management
.
•
The
research scientist
that goes out to collect data
needs to
apply the tools of farm management
in analyzing the data.
Therefore,
the study of farm management enables
the students
to
appreciate its usefulness
to overall economic development of a
nation.
17
Nature of Farm Management
•
Farm management
deals with the
business principles of
farming
from an
individual farm
perspective
.
•
Its is limited
to the individual farm
as a unit and
it is
interested in
maximum possible returns
to the individual
farmer.
•
It
applies the
local knowledge
as well as
scientific
finding
to the individual farm business.
•
Also
called as
a science of choice or decision making.
18
1.3. SCOPE OF FARM MANAGEMENT
•
Farm Management is generally
considered to be
MICROECONOMIC in its scope.
•
It
deals with the allocation of resources
at the level of individual
farm.
•
The primary
concern of the farm management
is the
farm as a
unit.
•
Farm Management
deals with decisions
that affect the
profitability of farm business.
•
Farm Management
seeks to help the farmer in deciding the
problems
like what to produce, buy or sell, how to produce, and
how much to produce etc.
•
It
covers all aspects of farming
which have bearing on the
economic efficiency of farm.
19
Scope cont…
•
Farm Management is
broader than any of the
other areas of Agricultural Economics
since
knowledge of
production economics, marketing,
financing and government policy
is useful in
order to solve a farm management problem
.
•
Besides, the
farm manager may require
information from other discipline
s like Sociology,
Psychology, Mathematics and Law, when
confronted with a problem .
20
Scope Cont…
•
Thus,
there is a need to be knowledgeable
beyond
the subject matter
of Agricultural Economics per
se.
•
As a result, it’s called a “
Jack of all trades
”
discipline i
nvolving a knowledge of the
ARTS AND
SCIENCES
and
harmonizing them
into a useful
amalgam
for the purpose of
solving a particular
problem
.
21
Relationship Of FM With Other Sciences
Thus, FM
integrates and synthesizes diverse piece of
information
from
physical and biological sciences
of
agriculture.
The
physical and biological sciences (
Agronomy, animal
husbandry, soil science, horticulture, plant breeding,
agricultural engineering)
provide input-output relationships
in
their respective areas
in physical terms
i.e.
they define
production possibilities
within which various choices can be
made.
Such information is
helpful to the farm management
in
dealing
with the
problems of production efficiency
.
22
Cont…
•
S
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.
•
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a
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z
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t
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.
•
P
s
y
c
h
o
l
o
g
y
p
r
o
v
i
d
e
s
i
n
f
o
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m
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t
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o
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o
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h
u
m
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n
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o
t
i
v
a
t
i
o
n
s
a
n
d
a
t
t
i
t
u
d
e
s
,
•
Example,
attitude towards risks depends on the
psychological aspects
of decision maker.
23
Cont…
•
The various pieces
of legislation and actions of
government affect the production decisions of
the farmer
such as land ownership, subsidy etc.
•
The
physical sciences
specify
what can be
produced
;
economics specify how resources should
be used
,
while sociology, psychology, political
sciences etc. specify the limitations which are
placed on choice
, through laws, customs etc.
24
Economic Principles Applied To Farm Management
•
The outpouring of
new technological information has 2 repercussions ( First it
m
akes the farm problems
increasingly challenging and second, it provides an
attractive opportunities
for maximizing profits).
•
Hence, the
application of economic principles to farming is essential
for the
successful management of the farm business
.
•
Some of the
economic principles that help in rational farm management
decisions
are:
1)
The Cost (minimum loss) Principle:
It explains
how losses can be minimized
during
the
periods of price adversity
.
2)
Principle of factor substitution:
It
solves the problem of ‘
how to produce
?.
It
guides in the
determination
of least cost combinations of resources
.
It
explains
FACTOR-FACTOR RELATIONSHIP
.
3)
Principle of product substitution:
It solves the problem of ‘
what to
produce
?’.
It
guides
in the
determination
of optimum combination of enterprises
It
explains
PRODUCT-PRODUCT RELATIONSHIP.
25
Cont…
4) Law of variable proportions or Law of diminishing returns:
It solves the problems of
how much to produce
?
It
guides in the determination of optimum input to use
and
optimum output to produce
..
It explains the basic production relationships viz.,
FACTOR-
PRODUCT RELATIONSHIP
5) Principle of equi-marginal returns/opportunity cost:
It
guides in
the allocation of resources
under conditions of scarcity.
6)
Time comparison principle:
It
guides in making investment
decisions
.
7) Principle of comparative advantage:
It
explains regional
specialization
in the production of commodities.
26
1.4. Basic Farm Management Decisions
What Management Produces?
•
Management
produces decisions.
•
Decisions
are made on
what to produce, how to produce and how to
utilize the produce
as well as what
amount of resources should be
allocated to each of these stages
.
•
The three basic factors of production – land, labor and capital –
cannot on their own result in production of any product
unless
organized by management.
•
Management, sometimes
considered as the fourth conventional
input
, is the one that
coordinates the use of the three factors
.
•
It
produces decisions on what to produce with the three factors
,
how much of each to use in production
,
when to use them and how
to distribute what is produced
between consumption, sale and
storage.
27
Cont…
•
Successful managerial performance rests on three basic elements
–
leadership, motivation and communication.
•
Contrary to other sectors of the economy,
IN THE SUBSISTENCE
FARM SETTING, the farmer is both manager and worker
, which
make decision making in small holder farm unique.
•
Thus, FM and/or Farmers
must be able to take
appropriate decisions
at appropriate time.
•
Incorrect judgment and decisions would result in the failure of
execution of farm plan
and
in turn economic loss
.
•
Eg.
Leadership characteristics of the farm manager
, among other
factors,
determine the success or otherwise of the farm business.
28
Cont…
•
Thus,
as a farm manager
,
i.
you have to be flexible
knowing the
today’s
decision
may be
wrong for tomorrow
.
i.
You have to face the challenges of new
technology
and
be ready to learn and adapt
if possible.
29
Cont…
•
The FM
should choose the enterprises based on availability of
resources
on the farms and
expected profitability of the enterprise
(
studied through
PRODUCT-PRODUCT RELATIONSHIP
)
.
•
Once the farmer decides on
what to produce
, he/she must also
decide on when to produce
, since most of the agricultural
commodities are season bound in nature.
•
Then, he/she
should decide
how much of each enterprise to
produce
, since the supply of agricultural inputs is limited (studied
through
FACTOR-PRODUCT RELATIONSHIP
).
•
In order
to minimize the cost of production
, i.e., decisions relating
to
how to produce
,
FACTOR-FACTOR RELATIONSHIP
has to be
studied.
30
iii) The
FM should also take
marketing decisions
like;
a) What to buy?
b) When to buy?
c) How much to buy?
d) How to buy?
e) What to sell?
f) When to sell?
g) How much to sell? And;
h) How to sell?
Buying Decision
Selling Decision
31
Factors Influencing Farm Management Decisions
•
Some of the
factors which influence the decision making
process
are:
a)
Economic factors
like prices of factors and products
(
change in price
).
b)
Biological process and weather
(
Laws of nature place
limits on manager’s decisions
).
c)
Small size:
Often
one person serves as management and
labor
32
c)
Technological factors (change in technology)
like
technological advancements
in the field of agriculture
and
suitability of different varieties and farm practices
to
varied
agro - climatic conditions.
d) Institutional factors
like
availability of infrastructural
facilities
which include
storage, processing, grading,
transport, marketing of inputs and outputs,
etc,
government policies
on farm practices, input subsides,
taxes, export and import, marketing, procurement of
produces and so on.
e) Personal factors
like customs, attitude, awareness, and
personal capabilities and so on.
33
Thus,
•
One or more
changes of the above categories
in the
environment
around the farmer may
cause
imperfections in decision-making
.
34
Functions of the Farm Manager
What is the managerial function?
•
Management
is a decision-making process which
coordinates the factors of production
to produce desired
output.
•
The
four major function of management
includes;(
PODC
)
1)
Planning,
2)
Organizing,
3)
Directing
4)
Controlling.
These are explained in detail below.
35
1) Planning Function
Planning
means choosing a course of action.
is
a basic but complex management function.
TO PLAN
,
a manager must;
E
stablish organizational goals (
short, medium
or long
run
with their respective strategy
for
accomplishment)
I
dentify resources, and
A
llocate the resources
among
competing
ends (uses).
36
2) Organizing Function
•
Organizing
is
an operational function which
depends heavily on the coordinated efforts
of
an
entire organization.
•
Involves
arranging people and other resources
together
in the most effective way. This include:
Setting up the structure
Determining the job to be done.
Selecting, allocating and training of
personnel
37
3) Directing Function
•
It is the responsibility of the farm manager to direct
resources.
•
Directing implies routing resources to where they are
mostly needed to ensure proper implementation of
the plan.
•
It involves
o
establishing the result to be achieved,
o
delegating authorities where necessary,
o
creating conducive working environment and
o
carrying out the assigned duties effectively.
38
4) Controlling (Feedback) Function
•
Monitoring
and
evaluating
plans and process to
ensure that they are meeting the established
goals
.
•
For example, prices and other changes, which
occur after the plan had been implemented
, can
cause the result to deviate from the expected.
•
Controlling function, therefore
monitors and
makes adjustment
for the managers to stay on
business.
39
Characteristics of a Good Farm Manager
Be
a goal oriented
individual
He must be
hardworking and dedicated
.
He
must possess scientific and analytical mind
to think through and solve a problem.
He
must have imagination, insight, and
initiatives
necessary
to gather new knowledge
and the
willingness and ability to learn.
40
Cont…
He
must be ready to take useful advice from his
fellow colleagues
when taking some vital
management decisions.
Be a risk taker.
Be a good leader.
Be able to motivate workers.
Be an effective communicator.
Be technically competent, i.e. know
what to do
and how to do it
.
41
Cont…
Be
able to manage his time
.
Define his problems clearly
after identifying them.
Sort out problems into big and small, urgent and
pending.
Be able to take corrective steps (action)
.
Be full of energy and readiness
to face risk and
uncertainty
.
Be flexible knowing the
today’s decision may
be wrong for tomorrow.
Face challenges of new technology
and be
ready to learn and adapt if possible.
42
43
Farm management is the strategic organization of resources and decision-making processes on a farm to ensure efficiency and profitability. This involves managing factors of production, making crucial decisions, and aiming for the prosperity of farmers and the economy as a whole. The discipline of farm management is rooted in agricultural economics and plays a vital role in sustaining agricultural industries worldwide.
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Presentation Transcript
Chapter One Introduction to Farm Management 1
Chapter outline 1.1. Definition of Farm management 1.2. The importance of Farm management 1.3. Scope of Farm Management and its relation with other field of study 1.4. Basic Farm Management decisions 1.5. Attributes and Functions of Farm Manager 1.6. Farm Management Decision Making Problem in Ethiopian Case 2
Definitions of Farm Management Farm Management comprises of two words i.e. Farm and Management. Farm means a piece of land where crop and livestock enterprises are taken up under a common management and has specific boundaries. Farm is a socio economic unit which not only provides income to a farmer but also a source of happiness to him and his family. It is also a decision making unit where the farmer has many alternatives for his resources in the production of crops and livestock enterprises and their disposal. 3
Cont Management is the art of getting work done out of others working in a group. Management is the process of designing and maintaining an environment in which individuals working together in groups accomplish selected goals/objectives. Management is the key ingredient. The manager makes or breaks a business. 4
Cont The prosperity of any country depends upon the prosperity of farmers, which in turn depends upon the rational allocation of resources among various uses and adoption improved technology. Human race depends more on farm products for their existence than anything else since food, clothing the prime necessaries are products of farming industry. 5
Cont Even for industrial prosperity, farming industry forms the basic infrastructure (benchmark). Thus, the study farm management has got prime importance in any economy particularly on agrarian economy. 6
Farm management Farm Management a branch of Agricultural Economics deals with the economics of individual farm units. Farm management is concerned with the organization of factors of production for the production of farm products. FM is the art of applying economic principles in the management of a farm business 7
Cont 1. The art of managing a Farm successfully, as measured by the test of profitableness is called farm management. (L.C. Gray) 2. Farm management may be defined as the science that deals with the organization and operation of the farm in the context of efficiency and continuous profits. (Efferson) 3. Farm management is defined as the study of business phase of farming. 4. Farm management is a branch of agricultural economics which deals with wealth earning and wealth spending activities of a farmer, in relation to the organization and operation of the individual farm unit for securing the maximum possible net income. (Bradford and Johnson) 8
Cont Economics is the study of the principles that determine the allocation of scarce resources among competing ends, for the maximization of those chosen ends over time. Agricultural Economics is the application of economic techniques agricultural industries problems). and (solve principles agricultural to 9
1.2. Importance of Farm Management Agriculture is the science of converting productive resources to produce livestock, crops and fisheries. The farmer strives to combine the resources in such a way that he/she minimizes their use hence his cost while maximizing his output and hence his return, thereby ensuring that his income i.e. net returns or profit is as high as possible. 10
Cont The millions of small farm operators have unique objectives (other than profit maximization). These could be maximization of objectives like food security, stability of cash income and use of most limiting resource. Especially, the provision of sufficient staple food for family members is very important in a subsistence agriculture (farm family decision-making process). This is why in Farm Management attention is focused on the decision-making processes of individual farm units. 11
Farm management is very important not only in developed and commercial agriculture all round the world but also in developing and subsistence type of agriculture. And also/ A farm manager must not only understand different methods of agricultural production, but also he/she must be concerned with their costs and returns. FM/F must know how to allocate scarce productive resources on the farm business to meet his goals and at the same time react to economic forces that arise from both within and outside the farm. 12
Need for managing an individual farm arises due to: i. Farmers have the twin objectives, viz. 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. iii. The farm profit is influenced technological, social, economic, political and institutional factors. by; biological, iv. The factors of production can be put to alternative uses. 13
I. On one hand, a farmer has a set of farm resources such as land, labor, farm buildings, working capital, farm equipment, etc. that are relatively scarce. I. On the other hand, the farmer has a set of goals or objectives to achieve (maximum family satisfaction through increasing net farm income and employment generation). This gap is bridged by taking a series of rational decisions in respect of farm resourceshaving alternative uses and opportunities. Thus, Farm management is concerned with resource allocation. 14
The study of farm management would be useful to transmit knowledge and skill for optimizing the resource use and maximizing the profit. That mean, FM provides the basic decision making tools which enable the millions of small farmsin making decisions daily regarding their farm operations. The quality of these decisions determine to a large extent the outcome and productivity of the agricultural economy. 15
Thus, an efficient Farm Management Decisions can lead to; 1) Increased agricultural output and 2) In turn, enable the sector to make its rightful contribution to the economic development of the country; i. Supplying Food to all sectors of the economy, ii. Supplying labor, iii. Source of savings, iv. Means of livelihood/ income, v. Source of employment generation vi. Source of Foreign exchange earnings and vii. Supplies raw material meeting the demand for industrial products 16
Thus, the study of farm management is crucial and central to the whole discipline of agricultural economics. The extension agent working with the farmers at the grass root level must be conversant with the principles and applications of farm management. The agricultural data recorder must appreciate why he/she is being requested to collect certain information from the farmer. This appreciation comes from the knowledge of farm management. The research scientist that goes out to collect data needs to apply the tools of farm management in analyzing the data. Therefore, the study of farm management enables the students to appreciate its usefulness to overall economic development of a nation. 17
Nature of Farm Management Farm management deals with the business principles of farmingfrom an individual farm perspective . Its is limited to the individual farm as a unit and it is interested in maximum possible returns to the individual farmer. It applies the local knowledge as well as scientific finding to the individual farm business. Also called as a science of choice or decision making. 18
1.3. SCOPE OF FARM MANAGEMENT Management is generally MICROECONOMIC in its scope. It deals with the allocation of resourcesat the level of individual farm. The primary concern of the farm management is the farm as a unit. Farm Management deals with decisions that affect the profitability of farm business. Farm considered to be Farm Management seeks to help the farmer in deciding the problems like what to produce, buy or sell, how to produce, and how much to produce etc. It covers all aspects of farming which have bearing on the economic efficiency of farm. 19
Scope cont Farm Management is broader than any of the other areas of Agricultural Economicssince knowledge of production economics, marketing, financing and government policy is useful in order to solve a farm management problem. Besides, the farm manager may require information from other disciplines like Sociology, Psychology, Mathematics confronted with a problem . and Law, when 20
Scope Cont Thus, there is a need to be knowledgeable beyond the subject matter of Agricultural Economics per se. As a result, it s called a Jack of all trades discipline involving a knowledge of the ARTS AND SCIENCES and harmonizing them into a useful amalgam for the purpose of solving a particular problem. 21
Relationship Of FM With Other Sciences Thus, FM integrates and synthesizes diverse piece of information from physical and biological sciences of agriculture. The physical and biological sciences (Agronomy, animal husbandry, soil science, horticulture, agricultural engineering) provide input-output relationships in their respective areas in physical terms i.e. they define production possibilities within which various choices can be made. plant breeding, Such information is helpful to the farm management in dealing with the problems of production efficiency. 22
Cont Statistics is another science Statistics is another science that has been used extensively by the agricultural economist. extensively by the agricultural economist. has been used This science is helpful in providing methods and helpful in providing methods and procedures procedures by which data by which data regarding specific farm problems can be collected can be collected, analyzed and evaluated evaluated. , analyzed and Psychology provides information of human Psychology provides information of human motivations and attitudes motivations and attitudes, Example, attitude towards risks depends on the psychological aspects of decision maker. 23
Cont The various pieces of legislation and actions of government affect the production decisions of the farmer such as land ownership, subsidy etc. The physical sciences specify what can be produced; economics specify how resources should be used, while sociology, psychology, political sciences etc. specify the limitations which are placed on choice, through laws, customs etc. 24
Economic Principles Applied To Farm Management The outpouring of new technological information has 2 repercussions ( First it makes the farm problems increasingly challenging and second, it provides an attractive opportunities for maximizing profits). Hence, the application of economic principles to farming is essential for the successful management of the farm business. Some of the economic principles that help in rational farm management decisions are: 1) The Cost (minimum loss) Principle: It explains how losses can be minimized during the periods of price adversity. 2) Principle of factor substitution: It solves the problem of how to produce?. It guides in the determination of least cost combinations of resources. It explains FACTOR-FACTOR RELATIONSHIP. 3) Principle of product substitution: It solves the problem of what to produce? . It guides in the determination of optimum combination of enterprises It explains PRODUCT-PRODUCT RELATIONSHIP. 25
Cont 4) Law of variable proportions or Law of diminishing returns: It solves the problems of how much to produce ? It guides in the determination of optimum input to use and optimum output to produce.. It explains the basic production relationships viz., FACTOR- PRODUCT RELATIONSHIP 5) Principle of equi-marginal returns/opportunity cost: It guides in the allocation of resources under conditions of scarcity. 6) Time comparison principle: It guides in making investment decisions. 7) Principle of comparative advantage: It explains regional specialization in the production of commodities. 26
1.4. Basic Farm Management Decisions What Management Produces? Management produces decisions. Decisions are made on what to produce, how to produce and how to utilize the produce as well as what amount of resources should be allocated to each of these stages. The three basic factors of production land, labor and capital cannot on their own result in production of any product unless organized by management. Management, sometimes considered as the fourth conventional input, is the one that coordinates the use of the three factors. It produces decisions on what to produce with the three factors, how much of each to use in production, when to use them and how to distribute what is produced between consumption, sale and storage. 27
Cont Successful managerial performance rests on three basic elements leadership, motivation and communication. Contrary to other sectors of the economy, IN THE SUBSISTENCE FARM SETTING, the farmer is both manager and worker , which make decision making in small holder farm unique. Thus, FM and/or Farmers must be able to take appropriate decisions at appropriate time. Incorrect judgment and decisions would result in the failure of execution of farm plan and in turn economic loss. Eg. Leadership characteristics of the farm manager, among other factors, determine the success or otherwise of the farm business. 28
Cont Thus, as a farm manager, i. you have to be flexible knowing the today s decision may be wrong for tomorrow. i. You have to face the challenges of new technology and be ready to learn and adapt if possible. 29
Cont The FM should choose the enterprises based on availability of resources on the farms and expected profitability of the enterprise (studied through PRODUCT-PRODUCT RELATIONSHIP). Once the farmer decides on what to produce, he/she must also decide on when to produce, since most of the agricultural commodities are season bound in nature. Then, he/she should decide how much of each enterprise to produce, since the supply of agricultural inputs is limited (studied through FACTOR-PRODUCT RELATIONSHIP). In order to minimize the cost of production, i.e., decisions relating to how to produce, FACTOR-FACTOR RELATIONSHIP has to be studied. 30
iii) The FM should also take marketing decisions like; a) What to buy? b) When to buy? c) How much to buy? d) How to buy? Buying Decision e) What to sell? f) When to sell? g) How much to sell? And; h) How to sell? Selling Decision 31
Factors Influencing Farm Management Decisions Some of the factors which influence the decision making process are: a) Economic factors like prices of factors and products (change in price). b)Biological process and weather (Laws of nature place limits on manager s decisions). c) Small size: Often one person serves as management and labor 32
c) Technological factors (change in technology) like technological advancements in the field of agriculture and suitability of different varieties and farm practices to varied agro - climatic conditions. d) Institutional factors like availability of infrastructural facilities which include storage, processing, grading, transport, marketing of inputs and outputs, etc, government policies on farm practices, input subsides, taxes, export and import, marketing, procurement of produces and so on. e) Personal factors like customs, attitude, awareness, and personal capabilities and so on. 33
Thus, One or more changes of the above categories in the environment around the farmer may cause imperfections in decision-making. 34
Functions of the Farm Manager What is the managerial function? Management is a decision-making process which coordinates the factors of production to produce desired output. The four major function of management includes;(PODC) 1) 2) 3) 4) Planning, Organizing, Directing Controlling. These are explained in detail below. 35
1) Planning Function Planning means choosing a course of action. is a basic but complex management function. TO PLAN, a manager must; Establish organizational goals (short, medium or long run with their respective strategy for accomplishment) Identify resources, and Allocate the resources among competing ends (uses). 36
2) Organizing Function Organizing is an operational function which depends heavily on the coordinated efforts of an entire organization. Involves arranging people and other resources together in the most effective way. This include: Setting up the structure Determining the job to be done. Selecting, allocating and training of personnel 37
3) Directing Function It is the responsibility of the farm manager to direct resources. Directing implies routing resources to where they are mostly needed to ensure proper implementation of the plan. It involves o o o o establishing the result to be achieved, delegating authorities where necessary, creating conducive working environment and carrying out the assigned duties effectively. 38
4) Controlling (Feedback) Function Monitoring and evaluating plans and process to ensure that they are meeting the established goals. For example, prices and other changes, which occur after the plan had been implemented, can cause the result to deviate from the expected. Controlling function, therefore monitors and makes adjustment for the managers to stay on business. 39
Characteristics of a Good Farm Manager Be Be a goal oriented a goal oriented individual individual He must be He must be hardworking and dedicated hardworking and dedicated. . He He must possess scientific and analytical mind must possess scientific and analytical mind to think through and solve a problem. to think through and solve a problem. He He must have imagination, insight, and must have imagination, insight, and initiatives initiatives necessary necessary to gather new knowledge to gather new knowledge and the and the willingness and ability to learn. willingness and ability to learn. 40
Cont He He must be ready to take useful advice from his must be ready to take useful advice from his fellow colleagues fellow colleagues when taking some vital when taking some vital management decisions. management decisions. Be a risk taker. Be a risk taker. Be a good leader. Be a good leader. Be able to motivate workers. Be able to motivate workers. Be an effective communicator. Be an effective communicator. Be technically competent, i.e. know Be technically competent, i.e. know what to do and how to do it and how to do it. . what to do 41
Cont Be Be able to manage his time able to manage his time. . Define his problems clearly Define his problems clearly after identifying them. after identifying them. Sort out problems into big and small, urgent and Sort out problems into big and small, urgent and pending. pending. Be able to take corrective steps (action) Be able to take corrective steps (action). . Be full of energy and readiness Be full of energy and readiness to face risk and uncertainty uncertainty. . to face risk and Be flexible knowing the Be flexible knowing the today s decision may be wrong for tomorrow. be wrong for tomorrow. today s decision may Face challenges of new technology Face challenges of new technology and be ready to learn and adapt if possible. ready to learn and adapt if possible. and be 42
