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An Introduction to Economics for Students of Agriculture
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An Introduction to
FARM ORGANISATION
and
MANAGEMENT
SECOND EDITION
by
MAURICE BUCKETT,
B.Sc. (Hons), C.Biol., M.I.Biol., F.R.Ag.S.
Head of Agriculture and Farm Director
The West of Scotland Agricultural College, Ayr, U.K.
PERGAMON PRESS
OXFORD • NEW YORK • BEIJING • FRANKFURT „
(
SAO PAULO • SYDNEY • TOKYO • TORONTO ff)
U.K. Pergamon Press, Headington Hill Hall,
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U.S.A. Pergamon Press, Maxwell House, Fairview Park,
Elmsford, New York 10523, U.S.A.
PEOPLE'S REPUBLIC Pergamon Press, Room 4037, Qianmen Hotel, Beijing,
OF CHINA People's Republic of China
FEDERAL REPUBLIC Pergamon Press, Hammerweg 6,
OF GERMANY D-6242 Kronberg, Federal Republic of Germany
BRAZIL Pergamon Editora, Rua Eca de Queiros, 346,
CEP 04011, Paraiso, Sao Paulo, Brazil
AUSTRALIA Pergamon Press Australia, P.O. Box 544,
Potts Point, N.S.W. 2011, Australia
JAPAN Pergamon Press, 8th Floor, Matsuoka Central Building,
1-7-1 Nishishinjuku, Shinjuku-ku, Tokyo 160, Japan
CANADA Pergamon Press Canada, Suite No. 271,
253 College Street, Toronto, Ontario, Canada M5T 1R5
Copyright © 1988 Pergamon Books Ltd.
All Rights Reserved. No part of this publication may be
reproduced, stored in a retrieval system or transmitted in
any form or by any means: electronic, electrostatic,
magnetic tape, mechanical, photocopying, recording or
otherwise, without permission in writing from the pub
lishers.
First edition 1981
Second edition 1988
Library of Congress Cataloging in Publication Data
Buckett, M.
An introduction to farm organisation and management
Bibliography: p.
Includes index.
1. Farm management. I. Title.
S561.B78 1987 630'.68 87-18982
British Library Cataloguing in Publication Data
Buckett, Maurice
An introduction to farm organisation and manage
ment.—2nd ed.
1. Farm management
I. Title
630-.68 S561
ISBN 0-08-034203-5 (Hardcover)
ISBN 0-08-034202-7 (Flexicover)
Printed in Great Britain by A. Wheaton & Co. Ltd., Exeter
PREFACE
THE aim of this book is to provide a basic introduction to the study of farm
management. It has been primarily designed for students following post-certificate
and diploma courses. The text should also be appropriate as background reading for
students at undergraduate level, and it is hoped that many farmers will find the work
of value.
Management is a subject which has to be practised to be fully appreciated. Its
function is primarily decision making, in the short and long terms, both at the general
husbandry and the overall business levels. Hypothetical decisions are more easily
taken than those in a real life situation which can have an impact on one's future
livelihood. Anyone who aspires to management should therefore take every
opportunity to practise decision making, and the more real the circumstances the
better.
Many decisions have to be taken with incomplete information. The biological
nature of farming and the variation in climate between years make it a business which
cannot be run entirely by a set of rules. Plans made in the comfort of an office can
appear to be tarnished when things are going wrong in the field or, for example, the
cows are still housed long after normal turnout dates, winter fodder supplies are
exhausted, the grass is not growing, and the bank overdraft is already high. Yet it is on
just such occasions that good managers can distinguish themselves by their
determination and ability to take sound decisions.
The book is comprehensive, ranging from basic economic principles, through
records and accounts, to planning, implementation and control. An example business,
"Church Farm", is used to illustrate many of the sections.
Generally, principles relating to farm business management change little, but in a
dynamic industry such as agriculture many other aspects, and in particular prices,
change rapidly. Thus, many of the data used for illustration in this book will be dated
by the time it is available in print. Several annual publications are available which
give up-to-date financial information. It is suggested that one of these be used in
conjunction with this book, and that the reader uses this text to learn the basic
principles.
The book has been designed to be used in association with teaching courses. Many
readers may read it in stages as their course progresses. For this reason it has been a
deliberate policy to have a minor element of repetition, with further development, of
certain topics to provide reinforcement of important information.
Book knowledge is no substitute for experience, and the acquisition of experience
requires time, sometimes many years. However, book knowledge can make the learner
more observant and thus enable experience to be acquired more quickly.
V
PREFACE TO SECOND EDITION
THE interval between the production of the first and second editions of this book
witnessed a significant change for food producers in the European Economic
Community. They moved from a period when there was a stimulus, through the
Common Agricultural Policy, for increased production to an era of food surpluses and
pressure for a reduction in food supplies. This is shown in one way by the fact that in
the chapter on budgeting in the first edition it was possible to illustrate an example by
the expansion of a dairy herd whilst in this edition it was necessary to consider a
reduction in herd size to comply with milk quotas.
This overall change in the fortunes of the agricultural industry, and the challenges
which it produced, increased the need for sound business management. The viability
of some farms was put into jeopardy and a number did not survive. The importance of
establishing realistic business objectives, of undertaking sound strategic and tactical
planning supported by appropriate investment appraisal, and of exercising control at
all stages of production was increased. Whilst the "economic" pressure faced by
individual businesses differed with such things as the amount of interest they had to
pay on borrowed capital, and the type of product being produced, it was clear that
there was a more positive need for all farmers to consider how to make optimal use of
the resources available to them if they were to maintain or increase profits.
vi
ACKNOWLEDGEMENTS
I WISH to take this opportunity to thank the following people who have been of
assistance in the preparation of the second edition of this book:
David Arnot, Stuart Ashworth, Roger Evans, Alan Gill, Joy Gladstone, David
Godfrey, Rod Gooding, Chris Groves, D. Howat, Robert Laird, Andrew Leggate, J.
Turnbull and Gary Wallace.
In addition I am particularly grateful to Miss Vivien France for her work in typing
the manuscript.
vii
CHAPTER 1
THE FARMER AND HIS
MANAGEMENT FUNCTIONS
CONTENTS
1.1. The Processes and Functions of Management 1
1.1.1. Introduction 1
1.1.2. The Processes of Management 2
1.1.3. The Functions of Management 2
1.2. The Farmer and Management Skills 4
1.2.1. The Source of Management 4
1.2.2. Objectives 5
1.2.3. Differences between Farmers 5
1.2.4. Diversification and Specialisation 6
1.2.5. The Real Significance of Management 7
1.1. THE PROCESSES AND FUNCTIONS OF MANAGEMENT
1.1.1. Introduction
Those who are new to the study of management frequently venture the opinion that
it is concerned with making decisions which will result in more profit. Whilst this is
basically true there are several shocks in store. It comes as a great surprise to find that
it is possible for a farmer to be making what, in some circumstances, might be
described as a satisfactory profit and still be in financial difficulties. Management
lecturers frequently tell their students that technical skill in the production of crops
and livestock, whilst being very significant, does not necessarily ensure financial
success. Disappointment may then result when the students find that the so-called
principles and techniques of management will not always produce absolute solutions
to problems but simply provide guidelines to assist in the formation of a sound
judgement. Occasionally surprise is evoked by the discovery that there is more than
one solution to a problem, each of which is suitable in appropriate circumstances.
At the outset in the study of management it has to be recognised that whilst farms
must be planned and run on business lines, the biological nature of agriculture,
together with an inherent variability and uncertainty, frequently requires decisions to
be taken and implemented on the basis of incomplete information. However, it is
important to obtain as much information as possible to increase the chances of
success.
1
2 An Introduction to Farm Organisation and Management
1.1.2. The Processes of Management
Each farmer has objectives for his business. Management is concerned with
ensuring that these objectives are attained. Every business has three primary
resources; capital, which is used to obtain other resources; land (including buildings);
and labour. Superimposed on these is what might be termed the key factor—manage
ment ability.
Assuming that the farmer has completed the essential first step—that of defining his
objectives—the rest of the processes of management can be conveniently summarised
in diagrammatic form (Fig. 1). Every farmer has to consider the "organisation" of his
resources into a suitable plan. At each stage he must take particular notice of the
amount of capital required and the possibilities of obtaining it. Next the plan has to be
put into operation and "managed". Hence the term "organisation and management"
is frequently used for this subject.
Once the plan is in operation the results have to be recorded. These are then
analysed and appraised to establish what they indicate. Such results can be used as a
basis for control of the plan. They may suggest that modifications are desirable to
exploit strengths and remove weaknesses. Any changes have then to be put into
operation if deemed appropriate.
Sometimes minor amendments to the plan are insufficient to enable the business to
comply with the objectives. It may then be necessary to undertake a complete
replanning exercise for the whole farm.
In practice once the plan is operating most of the above processes are going on at the
same time and are closely interrelated. These processes are applied to the "subjects" of
the management, i.e. the capital, land, labour, crop, stock, and machinery.
Environmental factors, which can be physical, economic, political, and sociological,
may influence these management subjects and the way in which the management
processes are applied to them. To run a business effectively an additional process must
be added. This involves forecasting both the performance of the management subjects
and the influence of the environment. Thus, there are five main processes: (i)
forecasting; (ii) planning; (iii) implementation, which is allied to operation; (iv)
recording; (v) controlling.
1.1.3. The Functions of Management
The functions of management can be presented diagramatically (Fig. 2). They are
primarily concerned with the decision making involved in the processes given above.
(i) Planning
Long term strategic planning and shorter term, day-to-day, tactical planning
are both necessary. Thus, under the heading of production the farmer has to decide
which products, together with the quantities, that he will produce. Later, when the
plan is operating he has to take tactical decisions involving such things as the timing of
operations, e.g. sowing in relation to soil conditions, and time of year; technique
of operation, e.g. sowing method and depth of sowing; adjustments within production
processes, e.g. fertiliser levels or concentrate usage; and adjustments to production
processes, e.g. if the price of bacon pigs falls relative to that of pork, the bacon
producer may decide to change to pork production for a limited time.
The Farmer and his Management Functions 3
FIG. 1. The processes involved in farm management.
Objectives Decisions
Planning Controlling Decisions
!V
Decisions
Production Financing Marketing Staffing
FIG. 2. Functions of management—decision areas.
In essence, the farmer, having formulated his plan, has to put it into action. He has
to control his resources and exercise his judgement to ensure that the production
processes are carried out with as little friction as possible between the different
activities in their demand for resources at the one time, and to ensure that production
takes place to comply with the plan and the objectives for the business.
lii) Financing
With regard to financing, at the planning stage it is necessary to examine all the
sources of capital, to decide how much capital is required, when it is wanted and
which source should be used, and how and when it has to be repaid.
At the operational stage the capital has to be deployed in accordance with the plan
and allocated to those activities which produce greatest benefit to the business. It is
necessary to ensure that money is available to meet the demands for continuing
4 An Introduction to Farm Organisation and Management
production, to see that there is sufficient finance for living expenses, taxation, and
interest plus repayment of capital. At the same time the farmer must consider the
future needs for capital to develop the business.
The farmer has to keep within his borrowing limits and he has to ensure that the
capital is put to work effectively. This requires a great deal of skill in timing
production and marketing to ensure that money is available when required.
(Hi) Marketing
Successful marketing, both buying and selling, is one of the key functions of
management. At the planning stage it is essential to ensure that the markets are, and
will remain, available. At this point cognisance must be taken of the type and quality
of the product which it is intended to produce. Consideration must also be given to the
timing of sales.
At the operational stage it is necessary to make use of every opportunity to market
to best advantage. Marketing contracts may be negotiated. Produce has to be selected
for sale and presented in the right condition, when it is in demand, at the right market.
Equal care has to be taken in the purchase of goods required for production.
fiv) Staffing
When planning labour it is necessary to consider the number of staff required, the
skills that will be necessary, the availability of workers, the degree of authority and
responsibility which will be given to each person, and the wages and conditions which
will be provided.
Once the plan is in operation, quite apart from managing his own time, the farmer
has to direct the staff he has selected, supervise their work, keep them motivated, and
maintain good labour relations. Many factors are involved in successful man
management, and these will be covered in Chapter 8 on labour. It is essential to
recognise that farm staff can markedly influence the results obtained from a farm.
The farmer may do all his own recording but many staff are motivated by
monitoring the progress of the enterprises that they work with. After recording has
been undertaken, the point may arise when it is necessary to consider changes in
strategy or tactics so that the business best complies with its objectives.
This book is primarily concerned with the processes and functions of management,
but first it is necessary to consider the difference between farmers and the managerial
skills which may be available.
1.2. THE FARMER AND MANAGEMENT SKILLS
1.2.1. The Source of Management
On many farms the owner of the business, or the person who carries the ultimate
risk, provides most of the management skills, either as tenant of his own land or of
someone else's. On other farms management staff are employed, but the amount of
authority delegated to them differs enormously from business to business. For
convenience, this book will use the term farmer unless there is a point requiring
qualification.
The success of management is very much determined by the quality of judgement in
