AGRIC6: Farm Management Decisions

This unit looks at the farm management decisions.
AGRIC6: Farm Management Decisions 1
Farm Management decision chart

As farm management is the science which concerns with making decisions and choices about combining different enterprises and optimal utilization of resources available, it is necessary to understand the typical farming decisions.

Decisions can be classified into organizational management decisions, administrative management decisions and marketing management decisions which are discussed as below:

  1. Organizational management decisions: These are further sub-divided into operational management decisions and strategic management
  2. Operational management decisions: Those decisions, which involve less investment and are made more frequently, are called operational management decisions. The effect of these decisions is short lived. These decisions can be reversed without incurring a cost or with less cost. These decisions are what, how and how much.

a)   What to produce?

Every farmer has to decide at the beginning of the every crop season about the type of farm commodities to produce with the resources available on the farm. It means whether to produce crops alone or livestock enterprises alone or a combination of crops and livestock enterprises. While selecting the enterprises and their combinations, the farmer always aims at profit maximization.

b)   How to produce?

Once the decision about the enterprises and their combinations to produce is made, the next immediate operational management decision to be made is with regard to the manner in which resources are combined or the production technology to be chosen. In the selection of resources and their combinations, farmer is concerned with the cost minimization.

c)   How much to produce?

After having made the above two decisions, now the farmer has to decide about the amount of output to achieve in the production of farm commodities. This implies deciding upon the quantities of various inputs to be used in production as the level of production depends on amount of inputs used.

ii)   Strategic management decisions

These decisions involve heavy investment and are made less frequently. The effect of these decisions is long lasting. These decisions cannot be altered. However, in the case of reversal of these decisions farmer has to incur high cost. These decisions are also known as basic decisions. Size of the farm, machinery and labour programme, construction of farm buildings, permanent improvements on the farm like development of irrigation facilities, soil conservation, reclamation, etc. are some of the examples of strategic management decisions.

a)   Size of the farm

This decision assumes greater relevance to the farmer because of slow and low rate of capital turnover, but it is very difficult to decide on the most appropriate size of the farm to be operated, as it is influenced by several factors viz., availability of financial resources, state laws, managerial abilities, climate, type of farming, etc. There are advantages and limitations in operating the farm business on different scales. Large farms enjoy low cost of production, whereas productivity is high on small farms. The advantages and disadvantages of operating enterprises on different scales must be ascertained, while making decision on the size of the  farm.

b)   Machinery and labour programme

One of the important management problems is to choose appropriate resources and their combinations to produce output with minimum cost. Machinery and labour are substitutes. The availability and requirement of labour, the size of the farm, the financial resources, etc., are important factors in deciding the combination of labour and machinery.

c)   Construction of farm buildings

This decision involves huge capital requirements. Here the decisions are made on construction of farm sheds, poultry sheds, dairy sheds, storage buildings, etc. Once the decision is taken about the design of a farm building and implemented then it cannot be reversed, for it involves high penalty.

d)   Irrigation, conservation and reclamation programmes

All these programmes help in improving soil productivity. Adaptation of these programmes will have long lasting effect on the organization of the farm business. Size of the farm, availability of funds, availability of ground water, etc, influence the decision on development of irrigation facilities. Mulching, bunding, contouring, strip cropping, etc., are the various alternative measures of soil conservation. Chemical and cultural practices are adapted for soil reclamation. The farmer should choose most appropriate and economical method of conservation and reclamation programmes.

2.   Administrative management decisions

Besides organizational management decisions, the farmer also makes several administrative decisions like financing the farm business, supervision, accounting and adjusting his farm business according to government policies.

  1. Financing the farm business: Majority of the Indian farmers are capital starved, hence they have to depend on borrowed capital. For borrowing, the farmer has to examine the decisions like from whom to borrow, when to borrow and how much to
  2. Supervision: To get the desired results on the farm, farmers should keep a close watch on all the activities performed in the production of crop and livestock
  3. Accounting: Farmer should make a decision about the time and money to be allocated for the maintenance of farm records. Farm records provide control over the farm
  4. Adjusting the farm production programme: The decision of allocating farm resources in the production of farm products should be consistent with the price policies of the government. The government as a welfare state exercises its control over production and marketing of farm commodities according to the

3.   Marketing management decisions

Marketing decisions are the most important under the changing environment of agriculture. These decisions include buying and selling.

  1. Buying: Every farmer makes an attempt to purchase necessary inputs at the least cost. In buying resources, a farmer has to decide the agency, the timing and the quantity to be
  2. Selling: Though farm product prices are not under the control of the farmers, yet by adjusting the timing of sales, farmers can obtain better prices. What to sell, where to sell, whom to sell, when to sell and how to sell are the important selling decisions that are to be made.

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