agricultural economics

1. ADVANCED FARM
BUSINESS
MANAGEMENT
(AGE 311)

2. Lecture times: Monday 11h40 – 13h20
Wednesday 09h50 – 10h35
Friday 08h00 – 08h45
Practical: Monday 14h00

3. TEST DATES:
Test 1: Monday 28/03/2022
Scope: Everything up to 23/3/2022
Test 2 : Monday 11/04/2020
Scope : From 20/03/2020 to 29/04/2020
Main Test : To be announced

4. Learning Outcome &
Assessment Criteria
1. LO: Maintain control of the farm business
AC: Explain the role of control function
2. LO: Risk management in Agriculture
AC: Compare risk and uncertainty
Nature and causes of uncertainty
Decision makers, attitudes and influences.
Various procedures to be used to easy the problem
associated with risk and uncertainty.

5. Learning Outcome &
Assessment Criteria
3. LO: Concept of subjective probabilities
AC: Use of basic probability theores
4. LO: Capital investment
AC: Define and identify the different types of capital
investment.
Explain how time value of money affect decicions
Explain conceptual problems
Calculate the net present value (NPV)

6. Learning Outcome &
Assessment Criteria
5. LO: Explain Principles of Linear Production Theory
AC: Dertemine the economic, optimum using of the model.
6. LO: Apply the Principle of Lenear Production Theory
AC: Define Programme Planning
Able to identify feasible enterprises.
Determine the economic optimum by applying the
planning data to the Programme Planning procedure

7. CONTROL OF THE
FARM BUSINESS

8. CONTROL
“…INVOLVES MEASURING PERFORMANCE
AND CORRECTING DEVIATIONS
FROM EXPECTED BEHAVIOUR
TO ENSURE THAT PLANS ARE CARRIED OUT.”
(VAN ZYL et al, 2005)

9. THE DEVIATIONS REFERRED TO MAKE THE CONTROL
FUNCTION NECESSARY. WHY DO THEY OCCUR?
1. UNCERTAINTY
• Planning is based on expectations concerning the future
operation of the farm business;
• Expectations are based on assumptions regarding future
events e.g. rainfall, hail, floods, drought, pests, consumer
attitudes, etc.
• Some assumptions will be correct. However, many will be
incorrect, leading to deviations from expectations, making
adjustments and modifications necessary.

10. THE DEVIATIONS REFERRED TO MAKE THE CONTROL
FUNCTION NECESSARY. WHY DO THEY OCCUR?
2. DYNAMIC BUSINESS ENVIRONMENT
• Prices of inputs (to a lesser extent) and of outputs (to a
greater extent) are continually changing;
• Such variations result in deviations from expectations;
• Large variations have a significant effect on price ratios;
• If these variations persist a plan can become out of date;
• Previously less profitable enterprises could become more
profitable making enterprise substitution necessary.

11. THE DEVIATIONS REFERRED TO MAKE THE CONTROL
FUNCTION NECESSARY. WHY DO THEY OCCUR?
3. OBJECTIVES
• Planning requires a clear set of objectives which set
targets, guide decision making and aim to attain efficient
use of resources;
• Should objectives not be met, it means there will be
deviations from expectations;
• If any objectives are NOT met, it would be necessary to
determine why not and take remedial action;
• Causes could include 1 and 2 above as well as changes in
technology and methods of production;
• The wants (objectives) of the individual can also change
over time.

12. TYPES OF CONTROL
PRELIMINARY CONTROL:
• Preventive control – a physical action is taken before an
unfavourable event occurs in order to prevent it occurring
or to reduce its impact;
• Progressive control – improve an event’s chances of
occurring if it is likely to be favourable;
• Unfavourable events – animal diseases, crop diseases,
pests, hail, etc. - can inoculate livestock, spray crops,
insurance;
• Favourable events – higher yields, better ADG in
livestock – irrigation, fertilisation, feed supplementation,
improved management practises.

13. CONCURRENT CONTROL:
• Actions are taken at the same time an event occurs in
order to ensure it concurs with expectations;
E.g.
• Monitor soil water content to ensure it is neither too high
nor too low;
• Frequently weigh feedlot animals to ensure that the
desired ADG’s are being maintained by feeding
programmes.
TYPES OF CONTROL

14. TYPES OF CONTROL
ANALYTIC (DIAGNOSTIC) CONTROL:
• Embraces all the major control tasks;
• Carried out after events have occurred.
 Farm records are analysed;
 Determine significant deviations from expectations;
 Diagnose causes of deviations;
 Remedy undesirable deviations in future planning and
build on those that are desirable.
Successful analytic control is heavily dependent on efficient
record keeping.

15. FLOWCHART OF THE MANAGEMENT PROCESS
Compilation
Planning
Implementation
Control
Are planning
objectives met?
Can the farmer
control the
situation?
No Yes
Yes
No

16. EXCERCISE:
Relate the different types of control
to the various components of the
management function and explain
how, and why, the full control cycle
is carried out.

17. ANALYTIC CONTROL
Distinguish between:
 Financial analysis;
 Diagnostic analysis;
 Sustainability analysis.

18. FINANCIAL ANALYSIS
Determines and controls the financial position,
strength and growth of the farm business.
Indicates the ability of the farm business to meet financial
liabilities, carry risk and utilise and safely apply the
capital available to the business.
Uses ratios calculated mainly from the balance sheet as
well as some measures obtained from other farm
records. Ratios are classified under solvency, liquidity,
profitability, efficiency and debt-servicing (dealt with later)

19. DIAGNOSTIC ANALYSIS
After completing the financial analysis, a farm manager will
have a good idea of the financial status and performance of
the farm business.
Whatever the outcome is – good or bad – it is necessary to
diagnose how and why it turned out that way.
The annual results are compared with past results as well
as with standards and criteria to evaluate the success or
otherwise of the business, individual enterprises or
specific farming practices, and to identify and rectify
any deviations.

20. COMPARATIVE CRITERIA
o Based on own farm records for yearly comparisons;
o Averages for a region or area obtained from groups of
farmers (study groups);
o Performance of the top achievers in study groups;
o Generally accepted norms, developed from a broad
base and adjusted for specific farm circumstances;
o Results from research on physical and financial
performance.

21. EFFICIENCY CRITERIA
Diagnostic analysis is based on the use of efficiency
measures (criteria). Selected examples follow:
GENERAL CRITERIA:
Efficiency measures related to the whole farm.
• Net Farm Income per hectare
• Net Farm Income per R100 capital investment
• Total farm Gross Margin (TFGM)
• Fixed costs per hectare
• TFGM per hectare

22. EFFICIENCY CRITERIA
INVESTMENT CRITERIA:
Investment in land, fixed improvements, machinery and
equipment, breeding livestock.
• Total farm value per hectare
• Value of fixed improvements per hectare
• Value of livestock per hectare
• Value of machinery and equipment per hectare
(can be itemised e.g.value of implements per
hectare {of arable land})

23. EFFICIENCY CRITERIA
UTILISATION OF MACHINERY AND LABOUR:
• Vehicle costs* per hectare
• Tractor costs* per litre of fuel used
• Labour costs per permanent labourer per month
• Net Farm Income per R100 labour costs
* Only variable costs are used e.g. fuel, lubrication, maintenance, repairs, etc.

24. EFFICIENCY CRITERIA
FIELD CROPS, FRUIT AND VEGETABLE ENTERPRISES:
• Gross margin per hectare
• Yield per hectare
• Cultivation costs per hectare of arable land
• Kilograms seed used per hectare
• Fertiliser cost (or application) per hectare

25. EFFICIENCY CRITERIA
LIVESTOCK ENTERPRISES:
 Gross margin per LSU / ssu / sow / poultry batch
 Birth rate (e.g. calving percentage)
 Mortality rate
 Weaning percentage
 Weaning mass
 Litres milk produced per lactating cow
 Wool production
 Feed costs per litre of milk produced
 Margin over feed costs
 Price per kilogram of meat, wool, mohair, etc. or per litre of milk
 Stocking rates

26. DIAGNOSTIC ANALYSIS
Usually diagnoses enterprises using GROSS MARGIN
ANALYSIS:
Uses efficiency measures as previously identified.
Careful attention must be paid to measures used in
calculating variable costs – related to production
methods used.

27. Variable costs are affected by the following factors:
• resource quality
• management (ability and experience)
• knowledge
• environmental conditions (topography, climate, social)
• techniques of production
• input levels (capital availability)
GROSS MARGIN ANALYSIS:
Must also consider enterprise relationships to fixed costs
– specific and general.

28. ADDITIONAL READING:
Finance & Farmers (2005)
Pages 70 - 83