This chapter discusses farm management and decision making. It outlines the functions of management, which include planning, implementation, control, and adjustment. Strategic farm management involves developing a long-term plan by defining goals, assessing resources, and selecting strategies. Tactical decision making refers to short-term actions to implement the strategic plan. The chapter also describes characteristics of decisions in agriculture and notes that factors like weather and land supply impact decision making. Good management is key to a farm earning a profit.

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Farm Management
Chapter 2
Management and Decision Making

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Chapter Outline
• Functions of Management
• Strategic Farm Management
• Tactical Decision Making
• Characteristics of Decisions
• The Decision-Making Environment in
Agriculture

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Chapter Objectives
1. Understand the functions of management
2. Present the steps in developing a strategic
management plan for a farm or ranch
3. Identify common goals of farm and ranch
managers, and to explain the steps in the
decision-making process
4. Explain the steps in decision making
5. Describe some unique characteristics of the
decision-making environment for agriculture

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Table 2-1
Comparison of Low- and High-Profit Farms
in Iowa
Item Highest Third Lowest Third
(Average) (Average)
Value of farm production $584,618 $220,433
Net farm income $171,054 $24,519
Return on assets 13.9% 0.7%
Crop acres farmed 537 365
Machinery value $148,212 $102,565
Months of labor utilized 18 11
Source: 2005 Iowa Farm Costs and Returns

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Functions of Management
• Planning
• Implementation
• Control
• Adjustment

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Planning
Planning means choosing a course of
action.
To plan, a manager must establish
goals, identify resources, and allocate
the resources to competing uses.

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Implementation
Once a plan is developed, it must be
implemented, or set in motion.
To implement, the manager must
acquire the resources needed for the
plan and oversee the process.
Coordinating, staffing, purchasing, and
supervising fit under this function.

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Control
Control is the “feedback” function.
To control, the manager must monitor
results, record information, compare
results to a standard, and take
corrective action as needed.

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Adjustment
If outcomes are not meeting the
objectives, adjustments need to be
made. Adjustment may involve fine-
tuning the technology or changing
enterprise. In some cases, additional
information will be needed to diagnose
the problem.

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Strategic Farm Management
• Strategic management consists of
charting the overall long-term course of
the business
• Tactical management consists of
taking short-run actions that keep the
business moving along that course
until the destination is reached

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Steps in Strategic Management
1. Define the mission of the business
2. Formulate the goals for the farm and family
3. Assess the resources available to the
business (internal scanning)
4. Survey the world surrounding the business
(external scanning)
5. Identify and select appropriate strategies
6. Implement and refine the selected strategies

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Table 2-2
Common Values Among Farmers and Ranchers
Do you agree or disagree?
1. A farm is a good place to raise a family.
2. A farm or ranch should be run as a business.
3. It is acceptable for farmers to borrow money.
4. A farmer should have at least two weeks of vacation.
5. It is better to be self-employed than to work for someone else.
6. It is acceptable for a farmer to also work off the farm.
7. It is more enjoyable to work alone than with other people.
8. Farmers should strive to conserve soil and keep water and air
resources clean.
9. A family farm should be passed on to the next generation.
10. All family members should be involved in the operation.

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Goals
• Goals should be written
• Goals should be specific
• Goals should be measurable
• Goals should have a timetable

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Possible Goals
• Survive, stay in business
• Maximize profits
• Maintain or increase standard of living
• Increase equity
• Maintain stable income
• Pass farm to next generation
• Increase free time
• Increase farm size (“growth”)
• Maintain or improve environmental quality

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Assessing Resources
• Physical resources: land, buildings,
fences, breeding livestock, machinery
and equipment, established perennial
crops
• Human resources: skills of the
operator and other employees, likes
and dislikes of individuals
• Financial resources: cash, other
capital and available credit

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Surveying the Business Environment
• Called “External scanning”
• The major types of crops produced
haven’t changed much, but their
characteristics are changing
• A change may provide an opportunity
or a threat

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Identifying and Selecting Strategies
Some businesses have more potential
routes for reaching their goals than
others because resources are more
flexible. As the number of alternative uses
for resources increases, so does the
complexity of the manager’s decisions.

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Implementing and Refining
• Manager must formulate action steps
to implement the plan
• Manager must decide which
information to collect to evaluate the
success or failure of the plan
• Strategic management is an ongoing
activity

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Tactical Decision Making
1. Identify and define the problem or
opportunity
2. Identify alternative solutions
3. Collect data and information
4. Analyze the alternatives and choose one
5. Implement the decision
6. Monitor and evaluate results
7. Accept responsibility for the decision

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Characteristics of Decisions
• Importance
• Frequency
• Imminence( Urgent )
• Number of alternatives

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The Decision-Making Environment
in Agriculture
• Fixed supply of land: Land base is
essentially fixed, making decisions about
land use, sale, or acquisition critical
• Biological processes and weather: Laws
of nature place limits on manager’s
decisions
• Small size: Often one person serves as
management and labor
• Perfect competition: Producers are price
takers

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Table 2-3
Types of Farms and Ranches
in the United States
Source: 2002 Census of Agriculture
Type Percent
Family or individual 89.7
Partnership 6.1
Corporation 3.5
Other 0.7

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Summary
Good management means the
difference between earning a profit or
suffering a loss. The overall direction
is defined through strategic planning.
The strategic plan is carried out via a
number of tactical decisions.
Agricultural managers operate
in an environment that differs from that
of most other businesses.

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FARM AS A BUSINESS
“The agriculture sector needs to be
developed with a new spirit. We have
committed RM11.4 billion to bring about a
successful new agriculture”
Dato’Sri Abdullah Ahmad Badawi
NST 10 July 2007

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FARM AS A BUSINESS
“Agriculture is a business. Whatever
you plant, grow or rear, if it makes
money, it’s a business”
Tan Sri Dato’ Hj Mahyuddin Hj Mohd
Yassin
Minister of Agriculture and Agro Based
Industry