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Proper management of farmland is vital for an investor to capitalize on the overall appreciation
of the asset. Farming today is more than just producing crops, it requires farmers and landowners
to address profitability, fertility, conservation, and tax issues to name just a few. The importance
of a knowledgeable and professional farm manager is essential for maximizing the appreciation
and income of investment farmland. All farmland is not created equal and a customized farm
management plan and oversight will align the interests of the farmer and landowner to optimize
their return on investment (ROI). The key to proper farm management includes focusing on the
following areas:
Profitability
Leasing
Production
Fertility
Conservation
Capital Improvements
Additional Revenue Opportunities
Insurance
Taxes
Communication
Profitability
Productive cropland is profitable on multiple levels by producing food to the growing population
and also providing its owner with intermittent cash flow with stable appreciation upside. Farm
management is essential for farmland owners to maximize annual ROI and long-term capital
appreciation. Any farmland should increase in value and produce annual income to land owners,
but with progressive farm management, landowners can expect much higher profitability.
Leasin A key part of the farm manager's duties are their relations with the tenant operator.
Choosing the appropriate operator can make or break an investment in farmland. The operator
will help determine the short and long-term fertility, production, conservation, and cosmetics of a
property. Even one mismanaged year of farming can cause significant damage to a property.
Production It is always important to track crop conditions, but for certain leases, including flex
and custom farming where the landlord has upside potential in the production of the property,
crop conditions are of utmost importance. Farm managers work with farmers to ensure planting
was successful and the correct seed varieties were planted for the climate forecasted during the
upcoming growing period.
Fertility Once harvest is complete and farmers begin to plan their input purchases for the
following year, farm managers will work with farmers to gauge the fertility of the property with
the use of soil samples. Farmers test soil fertility via soil samples at least every other year to
make sure the correct amount of fertilizer is used to achieve optimum yields.
2. Natural Resource Economics
Natural resource economics focuses on the supply, demand, and allocation of the Earth’s natural
resources. It’s goal is to gain a better understanding of the role of natural resources in the
economy. Learning about the role of natural resources allows for the development of more
sustainable methods to manage resources and make sure that they are maintained for future
generations. The goal of natural resource economics is to develop an efficient economy that is
sustainable in the long-run. Examples of areas of study in natural resource economics include:
welfare theory
pollution control
resource exhaustibility
environmental management
resource extraction
non-market valuation
environmental policy
Additionally, research topics of natural resource economists can include topics such as the
environmental impacts of agriculture, transportation and urbanization, land use in poor and
industrialized countries, international trade and the environment, and climate change.
The findings of natural resource economists are used by governments and organizations to better
understand how to efficiently use and sustain natural resources. The findings are used to gain
insight into the following environmental areas:
An externality is a benefit or cost that affects someone who is not directly involved in the
production or consumption of a good or service. The most common classification of externalities
is categorized as benefits or positive externalities (external economies) and cost or negative
externality (external diseconomies) based on the effect generated. Another classification is
production and consumption externalities based on whether it is caused by consuming or
producing a good, or by both processes. Production externalities can be further classified as
output externalities and input externalities. Agricultural externalities can be defined as
production externalities, including output externalities and input externalities. Externalities of
non-commodity outputs from agriculture cover the environment outputs such as providing
habitats for wild life, conserving rural landscape, and carbon sequestration, and the services for
the society and culture such as socio-economic viability of rural areas, food safety, national food
security, and the welfare of farm animals together with cultural and historical heritage
Pollution Taxes
One common approach to adjust for externalities is to tax those who create negative
externalities.
Introducing a tax increases the private cost of consumption or production and ought to
reduce demand and output for the good that is creating the externality.
In the ordinary sense, the risk is the outcome of an action taken or not taken, in a particular
situation which may result in loss or gain. It is termed as a chance or loss or exposure to danger,
arising out of internal or external factors, that can be minimised through preventive measures.
In the financial glossary, the meaning of risk is not much different. It implies the uncertainty
regarding the expected returns on the investments made i.e. the probability of actual returns may
not be equal to the expected returns. Such a risk may include the probability of losing the part or
whole investment. Although the higher the risk, the higher is the expectation of returns, because
investors are paid off for the additional risk they take on their investments. The major elements
of risk are defined as below:
Definition of Uncertainty
By the term uncertainty, we mean the absence of certainty or something which is not known. It
refers to a situation where there are multiple alternatives resulting in a specific outcome, but the
probability of the outcome is not certain. This is because of insufficient information or
knowledge about the present condition. Hence, it is hard to define or predict the future outcome
or events.
The difference between risk and uncertainty can be drawn clearly on the following grounds:
The risk is defined as the situation of winning or losing something worthy. Uncertainty is a
condition where there is no knowledge about the future events.
Risk can be measured and quantified, through theoretical models. Conversely, it is not possible
to measure uncertainty in quantitative terms, as the future events are unpredictable.
The potential outcomes are known in risk, whereas in the case of uncertainty, the outcomes are
unknown.
Risk can be controlled if proper measures are taken to control it. On the other hand, uncertainty
is beyond the control of the person or enterprise, as the future is uncertain.
Minimization of risk can be done, by taking necessary precautions. As opposed to the uncertainty
that cannot be minimised. In risk, probabilities are assigned to a set of circumstances which is
not possible in case of uncertainty.
Conclusion
There is an old saying, “No risk, No gain”, so if any enterprise wants to survive in the long run, it
has to take calculated risks where the probability of loss is comparatively less, and the chances of
gains are higher. Uncertainty is inherent in every business which cannot be avoided, and the
business person has no idea about what will happen next, i.e. the outcome is unknown.
BASIS FOR
RISK UNCERTAINTY
COMPARISON
Minimization Yes No