Farm Management

...................
 Learning Outcome
After this presentation you will be familiar with:
1. The concept of farm
2. Problems associated with actual farming
3. Definition of farm management
4. Scope of farm management
5. Farm management decision
6. Farm management wrt other science
7. Farm Management problems in India
8. Principles of variable proportions
9. Land management
10.Factors determining types of farming
11.Systems of farming
12.Special features of Indian farm labor
13.Labor management and efficency of labour
 Background
Small farmers generally depend on mono-
commodity farming, mainly on crop. They are
poor and lack proper training, skill and know-
how knowledge in toiling the lands.
Apparently, there are still certain constraints
barring the adoption of new technology,
resulting in very low productivity.
Farm means a piece of land where crops
and livestock enterprises are taken up
under common management and has
specific boundaries.
 Farm Management

It is a science which deals with the proper

combination and operation of production factors,
including land, labour and capital and the choice
of crops and livestock enterprises to bring about a
maximum and continuous return to the farmer. It
therefore seeks to help the farmers in deciding the
problems like
i) what to produce, buy or sell
ii)How to produce, buy or sell
iii)When to produce
iv)And organisational and managerial problems
relating to decisions
 Problems associated with in actual
farming
In actual farming, F.Mgt is concerned with the following
problems
1.Improving practices on existing enterprises
2.Re-organising existing enterprises & including new
enterprises
3.Determining time horizon of production
4.Adopting a farm practice which gives either
immediate return or long term returns
5.Deciding the best size of the farm
6.Deciding capital goods required and labour to be hired
7.Marketing probs including in what forms, when, where
and at what terms to buy inputs and sell output
8.Expectation of factor input and product prices
9.Credit requirement and sources of credit
 Definition
F.Mgt is that branch of Agricultural economics which deals with the
business principles and practices of farming with an object of
obtaining the maximum possible returns from the farm as an unit
under a sound farming programme.
Warren : Farm Management is the study of the business principles of
farming. It may be defined as the science of organisation and
management of the farm enterprise for the purpose of securing the
greatest continuous profit.

Efferson : is the science which considers the organisation and

operation of the farm from the point of view of efficiency and
continuous profit.

Bradford and Johnson : Farm Management is a branch of agricultural

economics, which deals with wealth earning and wealth spending
activities of a farmer, in relation to the organisation and operation of
the individual farm unit for securing the maximum possible net
income.
 Scope of Farm Management
Generally considered to be microeconomic in
scope. It deals with the allocation of resources at
the farm level of an individual farm interlinked
with the problem of resource allocation in the
agri sector or even in the economy as a whole.
It covers all aspects of farming, which have a
bearing on the economic efficiency of the farm.

Thus, the types of enterprises to be combined, the

types of crops to be grown, the dosage of
fertilizers to be applied, the types of implements
to be used, the way the farm operations are to
be carried out, the manner in which continuous
farm profits are obtained – all these fall within
the purview of farm mgt.
 Farm Management decisions
Farm mgt is called the science of decision making or a
science of choice. It is a choice in the efficient utilisation
of the available but limited farm resources among
competing ends. These decisions are made at farm
level.
Principal farm mgt decisions to be made by most farmers
are:
1.Strategic Management Decisions
a) deciding the best size of the farm: type of farming
area, types of business, land under irrigation,
mechanisation, ability of the farmer to manage etc
b) decisions on farm labour and machinery programmes
c) decisions on construction of building
d) decision regarding irrigation, conservation and
reclamation programmes.
 Contd……
2. Operational management decisions – the frequency
of this decision in day-to-day operations of the farm
business is more as compared to strategic mgt decisions
but the investment involved is relatively small. The
decisions are:
What to produce - selection of enterprise
How much to produce - enterprise mix
How to produce - selection of least cost-efficient methods
When to produce - timing of production
3. Administrative decisions
a) financing the farm business
b) supervision of work
c) accounting and book keeping
d) adjustments to govt progs and policies
e) production for home consumption and the market
 Contd …..

4. Marketing decisions
a) buying – when to buy, where to buy and
how to buy the farm inputs
b) selling – when, where and how to sell
farm products
 Farm mgt in relation to other science
1. Agronomy – for developing physical input-output
relationships in crop production, fertilizer, irrigation use etc.
2. Chemistry – ways and means of improving soils & their
productivity
3. Botany – supplies knowledge of crops, varieties & their
ecology
4. Plant breeding – provides knowledge of seeds and their
varieties
5. Agricultural engg – provides knowledge pertaining to the use
of machinery, power and equipment & their efficiency
6. Animal husbandry – knowledge of animal feeding and
maintenance and breeding
7. Sociology – understanding cultural traits, community
environment & social forces wrt agri enterprises and farm
grps
8. Psychology – provides information on human motivation and
attitudes towards new techniques of agricultural prdn and
their adoption.
 Farm Management problems in India
1. Subsistence type of farming and more family
oriented farms: farm as a household
2. Predominance of small farms-small size of farm
business
3. Transitory stage from traditional farming to
scientific and commercial farms
4. Regional variations in farm practices, productivity
and cost structure and thereby farm incomes
5. Improved technology and adoption to location
specific probs, slow adoption of innovations
6. Major farming resources human and bullock labor,
crop, land and irrigation water are available in a
combination-labor plentiful and capital scarce
7. Under-employment and unemployment
8. Lack of communication systems & regulated mkt
orgs.
 Contd …

From farm mgt viewpoint, optimising

resource use calls for
1.Fuller use of more plentiful resources
specially labor
2.More intensive use of land and water for
year round cropping
3.Adding operating capital and technical
inputs in careful combinations to
maximise their benefits
4.Developing suitable farm plans to obtain
continuous higher net incomes to the
farmers
 Evaluation of farm mgt through economic principles
applied in F.Mgt

F.Mgt is application of agricultural sciences and economic principles to the

org and operation of a farm business. F.Mgt principles serve as a
guideline for collecting and using requisite information for rational
decision making. Also provides set of tools for preparation of farm
budgets and prdn progs. 7 basic principles involved in making rational
decisions
1. Principle of variable proportions or laws of returns
2. Cost principle - explains how losses can be minimized during the periods
of price adversity
3. Principle of factor substitution/principle of substitution between inputs - It
solves the problem of ‘how to produce?. It guides in the determination of
least cost combinations of resources. It explains facot-factor relationship.
4. Principle of substitution between products - It solves the problem of ‘what
to produce?’. It guides in the determination of optimum combination of
enterprises (products). It explains Product-product relationship.
5. Principle of equi-marginal returns/opportunity cost principle - It guides in
the allocation of resources under conditions of scarcity
6. Principle of comparative advantage- explains regional speclsn in the prdn
of commodities
7. Time comparison principle - It guides in making investment decisions
Principle of variable proportions - this principle helps in making
decisions such as :

a) The level to which yield per acre, milk per

cow etc should be pushed to secure
maximum profit
b) The size of the farm one should operate
with d given resources of capital, labor &
mgt.
c) The amount of fertilizer, labor or type of
machinery one should use.
The relationship is determined by the law of
variable proportions as explained in table
given in the next slide
 Principle of variable proportions - this principle helps in making
decisions
The relationship is determined by the law of variable proportions as
explained in table
[physical
Nitroge Estdand economic
Addl efficiency
Addl Margl of Margin
resource application]
Total Total Margin Net
n yield of input output prodtvt al cost cost Returns al Returns
input[k rice X Y y [MC], [TC], [TR], Returns [NR],
g/ha] [kg/ha] [delta [delta deltaY/ Rs. Rs. Rs. [MR], Rs.
X] Y] deltaX Rs.
0 4437 0 3727.08 3727.08

10 4648 10 211 21.1 40.2 40.2 3904.32 177.24 3864.3

20 4809 10 161 16.9 40.2 80.40 4039.56 135.24 3959.16

30 4918 10 109 10.9 40.2 120.6 4131.12 91.56 4010.52

40 4976 10 58 5.8 40.2 160.8 4179.84 48.72 4019.04

50 4982 10 6 0.6 40.2 200.1 4187.40 5.04 3987.30

60 4937 10 -45 -4.5 40.2 240.12 4147.08 -37.80 3906.96

70 4842 10 -95 -9.5 40.2 280.14 4067.28 -79.8 3787.14

80 4695 10 -147 -14.7 40.2 320.16 3948.80 -123.48 3623.64

Fertilizer data obtained from a farm where output of paddy depends upon the appln of nitrogen input while other inputs
are held constant. The farmer can determine the most profitable level of nitrogen use [or economic amt of paddy
output] by equating marginal product to the input –output price ration; deltaY/deltaX=Px/Py. Here, price of
paddy, Py=Rs.0.84/kg and price of nitrogen resource Px=Rs. 4.02. The most profitable level of nitrogen use is in
between 30 & 40 units by applying the above principle. If the farmer uses more than this, the marginal value
derived is Rs.5.04 whereas marginal cost of fertiliser is Rs.40.20 incurring loss to the extent of Rs. 35. total return
= yield*price, net return = total return-total cost. Marginal return = present total return – previous total return.
Principle of diminishing returns is otherwise known as principle of added cost and added returns.
 2. Application of the Fixed and Variable cost
principle
Variable or added costs are relevant costs to be considered in order
to maximize net revenue. In short run, gross returns must cover
the variable costs. Maximum net revenue is obtained when
marginal cost equals the price of the product.
MC = MR. If the gross returns are less than total costs, but are still
larger than the variable costs, guiding principle should be to
keep increasing production as long as added returns (MR) are
greater than added costs.
Illustration of maximising profits and minimising losses on a farm
a) Total fixed costs --------------Rs. 1000
b) Total variable cost ------------Rs. 300
c) Total costs [FC+VC]----------Rs. 1300
d) Gross Returns ---------------- Rs. 4000
e) Net Returns -------------------Rs. 2700
If price of product declines to one fourth which results to a gross
return of 1000 only. The farmer may still operate as he is able to
at least minimise the fixed cost to 300 only instead of 1000 by
operating the farm.
 Farm Resource Management

LAND MANAGEMENT:
Selection of Farm : choice of farm arises when
there is sufficient cultivable land for use or there
is no restriction for sanction of purchase of land
Factors to be considered in selecting a farm
1.Physical factors : climate, rainfall, topography,
soil, water supply, drainage
2.Economic factors – transport and market
facilities, institutional facilities like co-
operatives, bank, ATMs etc; local taxes, land
values and productivity.
3.Social factors – accessibility to schools and
hospitals, type of neighbors and community,
tradition and customs
 Contd…………………..

Size of farm – is understood in terms of physical

area, volume of production and value of
production in terms of economics
Minimum efficient size – should be such that it will
keep the farmer fully employed and will just
provide him with an income sufficient to sustain
himself and his family.
Economic size of a farm – economic size of a farm
should allow a man the chance of producing
sufficient to support himself and his family in a
reasonable comfort after paying his necessary
expenses. Determination of economic size
depends on fertility, location, irrigation facilities,
nature of crops grown, amount of capital available
for investment, managerial capacity of the
farmers.
 Acquiring and appraising the value of a farm
Following factors are to be considered while acquiring a farm
i) Farm layout – fields, location and arrangement of other fixtures such as
irrigation & drainage system, bldg & sheds as farm layout affects cost &
efficiency in manpower and machinery use, irrigation, drainage, fencing.
ii) Cropping pattern and cropping scheme that is possible – cropping
pattern refers to adoption of a particular type of crops by the farmers in
a particular region. Cropping system refers the sequence of crops grown
to maintain the fertility status of the soil. Factors influencing cropping
pattern are – climate, popln intensity and labor availability, consumption
habits and socio-economic factors of the people in the region,
institutional set up, transport, communication, storage, market facilities.
iii) Physical factors
iv)Economic factors
v) Personal likes and dislikes
Cropping scheme – the plan according to which crops are raised on
individual plots of a farm with the object of getting maximum returns
from each crop and without impairing soil fertility is called cropping
scheme. To increase returns from a given area of land – multiple
cropping, relay cropping, intercropping, and mixed cropping can be
followed in the cropping scheme.
 Factors determining the type of farming
There are two factors
1. Physical factors – climate, soil, topography
2. Economic factors –
a) marketing cost – look for farm products with high producer’s share
b) changes in relative value of farm products – such as cash crops like
cotton, tobacco, sugarcane etc are prone to changes in a cyclical
manner
c) availability of labor and capital – farm enterprise requiring intensive
operations require a good amt of labor & capital. Migration of labor from
MH to Guj sugarcane regions etc.
d) land value – low land values attract enterprising farmers to settle and
develop new type of farming in those areas.
e) cycles of over and under-production – agricultural enterprises are
frequently subject to cycles of over and under-production resulting in
surplus/scarcity of production and low/high prices.
f) competition between enterprises –
g) personal likes and dislikes of the farming groups – attachment to the
crop
h) prevalence of pests and diseases – result to new type of farming
[cotton to oilseed crops]
 Systems of farming
Refers to the methods of agriculture and the type of ownership of land.
Farming classified on the basis of economic and social functioning
1. Co-operative farming – a system under which all agricultural operations
or part of them are carried on jointly by the farmers on a voluntary basis,
each farmer retaining the right on his own land. Farmers would pool their
land, labor and capital which would be treated as one unit and cultivated
jointly under elected mgt’s direction. A part of the profit would be
distributed in proportion to the land contributed by each farmer and the
rest of the profit in proportion to the wages earned by each farmer. 4 types
a) co-operative better farming –each farmer cultivate own land but here
arrangement for purchase of seeds, manure, jt use of machinery,
irrigation, mktg of produce is done
b) Co-operative joint farming –ownership is individual but operationship is
collective, land of members pooled for joint cultivation [pay dividend on
ownership]
c) Co-operative tenant farming –ownership is collective and operationship
is individual, land is held by society which is divided into plots leased out
for cultivation to individual members. Society arranges for agri reqts like
credit, seeds, manures, mktg of produce etc. Member pays the rent for the
plot and sell produce at his will.
d) Co-operative collective farming – both ownership and operationship is
collective, land owned by society and cultivation done jointly.
 Contd……

2. Collective Farming – members of collectives surrender their land,

livestock and dead-stock to the society. The members work together
under a mgt cttee elected by themselves. [both collective type of
ownership & operationship]

3. Capitalist Farming – farm production is market and profit oriented.

Improved methods of agriculture are followed and application of
capital input is high as landlords [non cultivating owner] happen to
be a capitalist and provide necessary fixed and working capital.

4. State Farming – farms are managed by government officials where

workers are paid wages on weekly or monthly basis. All state farms
are governed by an independent body [State Farms Corporation],
various research can be facilitated. Type of operation is paid
management.

5. Peasant Farming – farmers follow agricultural practices in their

own way, manage and organise their farm business. Members of the
family are involved in this. Type of ownership and operationship is
individual.
 Farm Labor Mgt

Farm labor is classified into

1. Unpaid labor – farmer’s own labor, family labor
2. Paid labor [hired labor] – permanent or attached labor,
casual-hired labour or seasonal labour. Also classified as
skilled and unskilled labor. Farm manager’s labor, farm
family’s labor and permanent hired labor are fixed
resources whereas casual labor is a variable input.
Farm manager’s Labour – Indian farmer is a manager. Family
labor is the main source of labor in Indian farms.
Permanent hired labor – hired on cash, kind or crop share
basis for a fixed period.
Casual labor – hired from time to time according to the
demand for agri operations.
Skilled labor – specialised and trained labor for specific jobs is
known as skilled labor.
Unskilled labor – ordinary labor employed for manual work
which does not need any training of specialised nature.
 Special features of Indian Farm Labour

1. Mostly underemployed
2. Disguised unemployment
3. Growing average size of labor families
4. Low productivity
5. Lack of organisation
6. Low bargaining power and low standard of living
7. Low wages and seasonal nature of employment

Farm Wages – are of three kinds

a) Time basis
b) Piece basis
c) Share basis
 Labour Management
Following points are to be considered under labor
management
1.Preparation of labor calendar to know
approximately total labor reqts of crops and
livestock enterprises at various seasons on the
farm.
2.Making suitable arrangements for the
employment of hired and family labor during
slack season
3.Planning work for rainy day to employ the hired
labor on indoor jobs
4.Adjustment of crop and livestock programme to
meet the problem of shortage of labor
5.Time and motion study to engage labour
efficiently
 The efficiency of Labor
Labor efficiency in agri refers to the amt of productive work
accomplished per man on the farm per unit of time. Depends on
1. Physical condns of labor and interest taken by him in his work
2. The type of tools, implements, equipments he uses
3. Condition under which he is working
4. The skill with which he works
Measures of labor efficiency
1. Marginal analysis in a specific situation – output produced by
additional unit of labor input
2. Conventional measures – return per labor day = family labor
income/no of family labor days: return per worker = [output value-
input cost]/total workers
3. Labor efficiency index = [normal labor cost/actual labor cost]x100
[ say eg, normal labor cost of a farm is 2000 but actual labor cost
is 2500, efficiency index is 2000/2500*100 = 80% which means
the efficiency is below normal [100]
expressed as % of normal cost =2500/2000*100 = 125% that is
the cost is above normal.
………..

END
 Disguised unemployment

 This is type of unemployment unusually found in overpopulated

underdeveloped countries, and more particularly in agricultural
sector. Due to use of family labour in agriculture (which is not
paid wages in the usual sense), sometimes the number of
persons working on land may be far in excess of those who are
really required to produce the given volume of output.
 Thus, some of these workers are surplus as they do not add
anything to the volume of production. Their marginal
productivity, i.e., the addition] to production made by an
additional unit of labour, is zero from the point of view of the
society such person is unemployed because he does not
contribute to output. Hence, his unemployment remains
disguised.