Farm Management

• Concepts of Farm Management and

Decision Making
• Production Resources and
Management
• Analysis of Farm Records and Accounts

• Production Functions and Relations

• Farm Planning and Budgeting
• Risk and Uncertainty in Agriculture
 Objectives of the course
• Apply management science and economics tools to
solve farm related problems,
• Analyze farm business investment opportunities for
effective farm planning,
• Apply farm planning and budgeting techniques in farm
management decision-making,
 UNIT- ONE
Concepts of Farm Management and Decision
Making
 Introduction
 Agriculture is the art and science of cultivating crops, raising
livestock, provision of raw materials for industries and
agricultural products for man’s use.
 branches of agriculture includes: agricultural economics, crop
science, soil science, animal science, fishery, forestry and
agricultural engineering.
 Agricultural economics involves the application of economic
principles in agriculture.
 One of the important branches of agricultural economics is farm
management.
 1.1. Definitions
Farm management is defined as:
 Farm management is a science which deals with the proper
combination of and operation of production factors including
land, labor and capital and the choice of crop and livestock
enterprises to bring about the maximum of continues return to
the most elementary operation units of farming
 Is a sub-branch of agricultural economics which deals with
decision making on the organization and operation of a farm for
securing maximum and continuous net income consistent with
the welfare of farm family.
 Cont….
• Farm management to help the farmer in deciding problems
like:
 What to produce? (e.g. selection of profitable enterprises)
 How much to produce? (e.g resource use level)
 How to Produce? (e.g. selection of least cost production method)
 When to buy and when to sell,
 and in organization and managerial problems relating
to these decisions.
 Farm Management tries to answer the basic economic
questions related to a given farm conditions.
 Cont….
Agriculture is refers to :
• the sum total of the practices of crop production and livestock
raising on individual farms.
 Agricultural production is the sum of contribution of the
individual farm unit, and
 Development of agriculture means their sum of developments
of millions of farm units.
 Cont….
Farm: A farm is the smallest unit of agriculture which
may consist of one or more plots cultivated by one farmer
or group of farmers in common for raising crop and
livestock enterprise.
• It is both a producing unit as well as a consuming unit.

Family farm: A family holding (farm). either to a plough

unit or to a work unit for a family of average size.
 Cont….
Farm Firm: The farm is a firm because production is
organized for profit maximization.
 it is a business unit of control over factors of
production.
 it is a household unit demanding maximum satisfaction
of the farm family.
 The manager of the farm comes to understand the twin
objectives by linking one with the other.
 Cont…
Stock and flow inputs
 Stock inputs

 is a resources which are consumed during the production period,

like seed, fertilizer, pesticide.
 if not used currently, the resource can be stored for future use.

 Flow inputs

 Is a resource that cannot be stored for the next season if not used
currently.
 like labor and management are not stored for future.
 Cont…
Nature and Characteristics of Farm Management
 The nature of Farm Management is both an applied and pure
science.
 It is a pure science because it deals with the collection, analysis
and explanation of factors and the discovery of principles (theory).
 It is an applied science because the ascertainments and solutions
of farm management problems (technology) are within its scope.
 Cont…
Farm management science has the following distinguishing
characteristics from other fields of agricultural sciences.
 Practical science: It is a practical science, because while dealing
with the factors of other physical and biological sciences.
 Profitability oriented: Farm management is interested in
profitability.
 Integrating science or interdisciplinary science: The facts and
findings of other sciences are coordinated for the solution of
various problems of individual farmers with the view of achieving
 Cont…
 Broader field: It uses more than one discipline to make decisions.
It gathers knowledge from many other sciences for making
decision and farm management.
 Micro-approach: In farm management, every farm unit is
considered as unique in terms of available resources, problems
and potentialities.
 Farm unit as a whole: a farm as a whole is considered to be the
unit for making decisions because the objective is to maximize the
returns from the whole farm instead of only farm.
 1.2. The concept of farm management
 Farm Management as:
 it is the sub branch of agricultural economics.
 It deals with decision making on the organization and
operation on a farm for securing maximum continuous net
income consistent with the welfare of the family.
 Cont…
• Farm management is a science which deals with the proper
combination of and operation of production factors (including
land, labor and capital) and the choice of crop and livestock
enterprises to bring about the maximum return from operation
units of farming.
 Cont…
 FM may in short called a science of decision making or a
science of choice.
• Why We Study Farm Management?
• The central theory of farm management is the theory of
optimal decision making in the organization and operation
of a farm for profit maximization.
 Scope of farm management
• FM is generally consider to fall in the field of microeconomics.
 The primary concern of FM is the farm as a unit
 It deals with the allocation of resources at the level of an
individual farm.
 Farm Decision Making
• FM is concerned with the allocation of limited resources
among a number of alternative uses which requires a manager
to make decision.
• Important steps in farm decision making process are:

1. Identifying and defining the problem

2. Collecting relevant data, facts and information
3. identifying and analyzing alternative solutions
4. making the decision –selecting the best alternative
5. implementing the decision
6. Evaluation
 Classifying Decision
• Organizational decisions are those decisions made in the general
areas of developing plans for the business, acquiring the necessary
resources and implementing the overall plan.
Some of such decisions include:
 decisions regarding
 selection of the best size of the farm,
 what scale should be the farm operation
 how much land to purchase or lease
 how much capital to borrow
 the level of mechanization
 construction of buildings and irrigation facilities, etc.
 1.6. Problems of FM in developing countries

• FM problems in developing countries may vary from place to

place depending on
 the degree of agricultural development and the availability of
resources.
• The most common problems in the field of farm management
1. Small size of farm business:
2. Inadequate Capital:
3. Under-employment of factors of production
4. Slow adoption of innovation
5. Inadequate of input supplies
6. Managerial skill
7. Communication and markets
 Characteristics of farming as a Business

• Farming as a business has many distinguishing features from

most other industries in its management methods and practices.
• The major differences between farming and other industries are:
1. Primary forces of production
2. Size of the production unit:
• Farming is a small sized business as it gives little scope for the
division of labor
3. Heavy dependency upon climatic factors:
4. Frequency and speed of decisions
 Farming requires many and speedy decisions on the part of
the farmers and the farm workers.
5. Change in price
6. Fixed and variable costs:
• Of the total costs, portion of fixed costs is more in agriculture
than in other industries.
• This high proportion of fixed costs tends to make the
adjustments in production more difficult.
7. Inelastic demand for farm products
 Cont…
• Operational decisions are made more frequently than the
organizational decisions and related to the many details made on
a daily, weekly or monthly basis and are repeated more often
than the organizational decisions as they follow the routines and
cycles of agricultural production.
• Operational decisions are frequent which involve relatively
lower investment and their effect is short lived. Some of such
decisions include:
 Cont…
 Selecting fertilizer and seeding rates for a given field and year
 Making changes in livestock feed ration
 Selecting planting and harvesting dates
 Marketing decisions and daily work schedules
 What to produce (selection of enterprises)
 How much to produce (enterprise mix and production process)
 How to produce( selection of least cost method)
 When to produce (timing of production)