Farm Management Introduction and Decisions

Farm Management Introduction

• Farm management involves making and implementing decisions to operate a farm for maximum production and profit.
• It relies on agricultural economics for information on prices, markets, agricultural policies, and economic institutions (like leasing and credit).

Decisions in Farm Management

• Key decisions include:
  • What crops or livestock to produce?
  • How much to produce?
  • The kinds and amounts of resources to utilize.
  • Which technology to use?
  • When to buy and sell?
  • How to finance the farm?

Decision Makers in Farm Management

• Farm operator
• Spouse
• Landlords
• Farm managers
• Farm advisors
• Government
• Financers
• Farm owner

Major Areas of Farm Management

• Planning
• Organizing
• Directing (leading)
• Staffing
• Controlling

Decision-Making Steps

• Define the problem
• List alternatives
• Analyze alternatives
• Select the best alternative
• Act on the decision
• Evaluate the decision

Good vs. Bad Managers

• Good Managers:
  • Take pride in their work
  • Are neat
  • Plan ahead
  • Have good record-keeping
  • Possess expertise
• Bad Managers:
  • Are careless
  • Are unorganized
  • Act impulsively (shoot from the hip)
  • Don't care about consequences
  • Lack records
  • Use outdated methods

Economics of Effective Management

• Identify goals and constraints
• Recognize the nature and importance of profits
• Understand incentives
• Understand markets
• Use marginal analysis
• Recognize the time value of money

Identifying Goals and Constraints

• Sound decision-making requires clearly defined goals.
• Achieving goals often involves facing constraints due to scarcity.

Agriculture Program Goals

• Improve the quality of life for the Gomao Afransi, Central Region, and the nation.
• Contribute to the goals and objectives of SHS (Senior High School) by providing an integral component of the school feeding program.
• Develop agricultural competency in individuals engaged in or preparing for agricultural occupations.

Program Goals (Further)

• Develop leadership, communication, and interpersonal skills enabling individuals to obtain employment and succeed in their chosen career paths.
• Generate awareness and literacy about the agricultural industry amongst community members.

Accounting vs. Economic Profits

• Accounting Profits: Total revenue minus the explicit costs (actual dollar costs of producing the goods/services)
• Economic Profits: Total revenue minus total opportunity costs (including explicit and implicit costs). They're usually smaller than accounting profits.

Opportunity Cost

• Accounting costs are the explicit costs of producing goods/services.
• Opportunity cost covers both explicit and implicit costs—what you give up when choosing one option over another.

Economic vs. Accountants

• Economists consider implicit and explicit costs, while accountants primarily focus on explicit costs.

Firm's Incentives

• Incentives play a crucial part in motivating individuals' performance and resource utilization within a firm.
• Managers actively need to understand the effect incentives have on operations and staff.
• Well-designed incentives can lead to increased production and profitability.

Market Interactions

• Consumers attempt to buy at the lowest possible price, while producers aim to sell at the highest.
• Scarcity of goods reduces consumer bargaining power.
• Producers compete amongst themselves for customers.
• The government regulates market processes when required.

Marginal Analysis

• Understand the implications of marginal changes in factors like output, price, product quality, advertising, and R&D.
• Essential to maximizing net advantages while using limited resources.

Time Value of Money

• Recognize that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
• Discounting takes into account this value.

Present Value (Time Value Calculations)

• The present value (PV) of a future amount is the equivalent amount needed to reach that amount today given a specific rate of return.
• The formula for PV is PV = FV/(1+i)^n).
• FV—Future Value
• "i"—interest rate
• "n"—number of years

Net Present Value (NPV)

• NPV determines whether a project's discounted future cash flows are greater or less than the initial investment required.
• If a project's NPV is positive, it adds value; negative NPV indicates it destroys value.
• Decisions should be based on NPVs, assuming no better investment alternatives.

Assignment I: (Specific Case Study)

• A corporation is deciding whether to pursue a new product.
• Startup and ongoing operation costs.
• Estimated annual after-tax cash inflows for six years.
• Calculating present values and NPV for evaluating the potential project. (Note: Page 22 has a detailed example. Be sure to study the given data.)

Quiz I (Scenario-Based Questions)

• A potential entrepreneur contemplates a business venture.
• Determine the accounting costs and opportunity costs of starting the health center.
• Calculate the revenue required for positive accounting and economic profit scenarios.

This quiz covers the fundamentals of farm management, focusing on decision-making processes to maximize production and profitability. It explores key decisions such as resource utilization, crop selection, and technology adoption, as well as the role of various stakeholders in farm management.