Farm

management
AEM 208
SDGs related to Agricultural Production
 Goal of
Farm
management
 A Farm

• 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.
• a decision-making unit where the farmer has many alternatives for his
resources in the production of crops and livestock enterprises and their
disposal.
• are the micro units of vital importance which represents centre of dynamic
decision making about guiding the farm resources in the production process
 Management
• Management is the art of getting work done out of others working in a group.
• the process of designing and maintaining an environment in which individuals working together in
groups accomplish selected aims.

• Management is the key ingredient.

• The manager makes or breaks a business.

• Management takes on a new dimension and importance in agriculture which is mechanized, uses
many technological innovations, and operates with large amounts of borrowed capital.

prosperity of farmers
 depends upon the rational allocation of resources among various uses and adoption improved technology
 Farm management …defined
• a science that deals with the organization and operation of the farm in
the context of efficiency and continuous profits.
• the study of business phase of farming.

• 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
• Is limited to the individual farm as a choice or decision-making unit which is
interested in maximum possible returns to the individual farmer.
 SCOPE OF FARM MANAGEMENT
• the allocation of resources at the level of individual farm.
• management of a farm as a unit.
• decisions that affect the profitability of farm business.
• deciding the problems like
• what to produce,
• buy or sell,
• how to produce,
• buy or sell
• how much to produce etc.
• covers all aspects of farming which have bearing on the economic efficiency of
farm
• integrates and synthesizes diverse piece of information from physical and
biological sciences of agriculture.
 What is the objective of farming as a
business?
1. How to make farming profitable ?
2. How to choose best variety/crop/cropping pattern ?
3. How to minimize input cost?
4. How to increase production and productivity ?
5. How to enhance quality ?
6. How to plan market-driven production?
7. How to choose the market that offers the optimum price ?
8. How to choose the better source of finance and better avenues for investment?
9. Efficient risk management?
 FARM MANAGEMENT DECISIONS
• Farmers must be able to take appropriate decisions at appropriate time.
• decisions can be broadly categorized into two ways.
1. Nature of decision
a) Importance
b) frequency
c) Imminence
d) Revocability
e) Alternatives available.

2. What needs to be decided

a) what to produce?
b) when to produce?
c) how much to produce?
d) how to produce?
 Decisions always guided by goal…………SMART goals
Factors Influencing Farm Management Decisions
1. Economic factors
• like prices of factors and products.
2. Biological characteristics of plants and animals.
3. Technological factors
• like technological advancements in the field of agriculture and suitability of different
varieties and farm practices to varied agro - climatic conditions.
4. 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.
5. Personal factors
• like customs, attitude, awareness, personal capabilities and so on.
 Decision Making Process
1. Traditional method
• decision is influenced by traditions in the family or region or community.

2. Technical method
• decisions require the use of technical knowledge. For example, a decision is to be
made about the quantity of nitrogen requirement to obtain maximum yield of paddy.

3. Economic method
• all the problems are considered in relation to the expected costs and returns.

• the most useful of all the methods for taking a decision on a farm.
Decision Making Process ..8steps
Classification of Farm Decisions
1. Strategic Management 2. Operational Management
Decisions Decisions

1. Deciding the best size of the farm 1. What to produce?

• maximization of returns,
2. Decisions on farm labour and 2. How much to produce?
machinery programmes
• Enterprise mix
• Resource use.
3. Decisions on construction of
buildings 3. How to produce?
• least cost combination of inputs
4. Decisions regarding irrigation, methods,
conservation and reclamation 4. When to produce?
programmes • Timing of production
3. Administrative Decisions

• Financing the farm business:

• Supervision of work

• Accounting and book-keeping

• Adjustments to government programmes and policies

 4. Marketing Decisions
4.1 Purchasing to minimize costs
a) What To Buy?
b) When To Buy?
c) From Whom To Buy?
d) How To Buy?
e) How Much To buy?

4.2 To Maximize His Farm Income

A) What To Sell?
B) When To Sell?
C) To Whom To Sell?
D) How To Sell?
E) How Much to sell?
 Characteristics of Farming as Business
1.Biological in nature
2.Heavily dependency on agro-climatic conditions
3. Mostly in small - sized holdings
4. Frequent and speedy decisions
5.Prices and production usually move in opposite direction
6. Lack of standardization of practices and products
7.Slow turn –over to recover the investment
 Characteristics of Farming as Business
8. Financing is highly risky due to drought, pest and disease attack, yield variations,
etc.
9. Fixed cost is high and so adjustment and substitution of resources are more
difficult.
10. Inelastic income demand for farm products:
11. Perishable and bulky nature of agricultural commodities cause storage,
processing and transportation problems
12. Lack of knowledge latest developments in agricultural technologies
13. Agricultural markets are not regulated properly
14. Agriculture is considered not only a means of livelihood but also a way of life to
the farmers
Common Problems In Farm Management
1. Small size of farm business:
2. Farm as a household:
3. Inadequate capital
4. Under employment
• small size of farm,
• large supply of family labour,
• seasonal nature of production
• lack of subsidiary or supporting rural industries
5. Slow adoption innovations
6. Inadequacy of input supplies
7. Lack of managerial skill
8. Lack of infrastructural facilities
 What are functions of a farm manager?

1. Diagnosis:
• Analysis of past performance of farm, for both its weaknesses and strengths.

2. Planning:
• Planning for future crops and animals considering the opportunities and threats.

3. Implementation:
• Efficient implementation with least cost.

4. Monitoring:
• Reduce the losses and increase the profits by reducing the costs and choosing better technologies
based on the observed opportunities.

5. Evaluation:
• Evaluating the actions for repeating the success in future
 ECONOMIC PRINCIPLES APPLIED TO FARM MANAGEMENT

1) Law of variable proportions or Law of diminishing returns:

2) Cost Principle
3) Principle of factor substitution
4) Principle of product substitution
5) Principle of equi-marginal returns
6) Time comparison principle
7) Principle of comparative advantage
TOOLS OF DECISION MAKING

Economic Principles
Choosing production levels
 TOOLS OF DECISION MAKING

1. Skills,

2. Information

3. Intuition,

4. Rational,

5. systematic/scientific methods

6. Economic principles/rules: accounts, budgets, records, prices.

 Economic Principles

• Provide a set of procedures and rules for decision making

• Transform acquired data and information into usable
information and for analyzing the potential alternatives.

• Are a set of rules for making a choice or decision that will max
profit
 Economic Principles

Steps:

1. Acquire physical & biological data and observe how

certain resources create marketable products

2. Acquire price data for both resources and products

3. Apply the appropriate economic decision-making rule to

maximize profit
 Economic Principles
1. 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.

2. Cost Principle:
• It explains how losses can be minimized during the periods of price adversity.

3. 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.
 Economic Principles
4. Principle of product substitution:
• It solves the problem of ‘what to produce?
• It guides in the determination of optimum combination of enterprises (products).

5. Principle of equi-marginal returns:

• 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 specialisation in the production of commodities.
 opportunity cost

• It is an economic concept closely related to the equi-marginal principle.

• recognizes the fact that every input has an alternative use.

• Once an input is committed to a particular use, it is no longer available for any

other alternative use and the income from the alternative must be foregone.

‘Opportunity cost is the returns that are sacrificed from the next best
alternative.’

• also known as real cost or alternate cost

Production Relationships