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Farm Management

B.B.A. Semester V

For educational purposes only

Charanya Arora

Farm Management
Rational Resource Allocation
Farm Resources Ability Farm Objectives

Land Labour Farmland Building Working capital Farm equipment

Farmer Awareness

Increased net farm income Increased Return on Investment

B.B.A. Semester V

For educational purposes only

Charanya Arora

Farm Management Defined


Farm Management is that branch of agricultural economics which deals with the business principles and practices of farming with an object of obtaining the maximum possible return from the farm as a unit under a sound farming programme Farm Management is a branch of agricultural economics which deals with wealth earning and wealth spending activities of a farmer in relation to the organization and operation of the individual farm unit including some or all the functions of marketing for securing the maximum possible net income consistent with the maintenance of soil fertility Farm management is the science which deals with the analysis of the farming resources, alternatives, choices & opportunities within the framework of resource restrictions & social & personal constraints of farming business

B.B.A. Semester V

For educational purposes only

Charanya Arora

Features of Farm Management


Farm management deals with the organisation & operation of a farm with the objective of maximizing profits from the farm business on a continuing basis The farmer needs to adjust his farm organisation from year to year to keep abreast of changes in methods, price variability & resources available to him Farm Management takes into account the goals and objectives of the individual farmer other than income maximisation Farm management is a decision-making science, and is applicable to non crop farms as well eg: Dairy farms, poultry farms etc. With land as a scarce resource, efforts are made to intensify its use for maximising profits through multiple cropping. During a given period, the relative profitability of different crop rotations is evaluated & finally selected for adoption
B.B.A. Semester V For educational purposes only Charanya Arora

Basic Farming Business Decisions


What to produce or what combination of different enterprises to follow? How much to produce and what is the most profitable level of production? What should be the size of an individual enterprise, which, in turn, will determine the best overall size of the farm business? What methods of production (production practices or what type of quality of inputs and their combination) should be used? What and where to market?
B.B.A. Semester V For educational purposes only Charanya Arora

Basic Economic Principles of Farm Management


Principles of variables proportions or laws of returns Diminishing returns Constant returns Increasing returns Principles of substitution between inputs (Least cost combination) Principles of comparative advantage and absolute advantage Principles of equimarginal returns Principles of opportunity cost Principles of enterprise combination Cost principles

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Diminishing Returns


Level of agricultural production goes on increasing in initial stages with increase in quantity of variable resources applied to a fixed resource, then it remains somewhat constant for some time and than it declines If increasing amounts of one input is added to a production process, while all other inputs are held constant, the amount of output added per unit of variable input will eventually start declining This means a situation an increase in the capital and labour applied to the cultivation of land causes in general a less than proportionate increase in the amount of produce raised Three conditions which may delay the operation of the law in agriculture Improvement in technology Improvement in managerial ability Residual effect of previous doses

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Diminishing Returns


This principle should therefore, be helpful in making decisions such as The level to which yield/ha. Milk/Cow etc. should be pushed to secure maximum profit. The size of the farm one should operate with given resources of capital, labour and management

B.B.A. Semester V

For educational purposes only

Charanya Arora

Marginal cost and Marginal Returns Analysis


Total Product (TP) :- The amount of product which results from different quantities of variable inputs is called the total product Average Product (AP) :- The term AP refers to the average productivity of a resource. It is ratio of total product (TP) to the quantity of inputs used to producing that amount of product. AP (x)= Y Where, Y = Product & X = Input Marginal Product (MP) refers to the quantity when additional (Marginal) unit of factor input adds to the total product. The MP at any level of the variable input can be approximated by the addition to total output

B.B.A. Semester V

For educational purposes only

Charanya Arora

Marginal cost and Marginal Returns Analysis


Fertilizer Unit/Acre N. (50 Rs/can) 0 1 2 3 4 5 6 Yield of Paddy (Qtls) (T.P.) 2 6 9 10.5 11.5 12 11.5 Total cost @ Rs 30/unit (T.C.) 0 30 60 90 120 150 180 Marginal cost (Rs.) (M.C. 0 30 30 30 30 30 30 Marginal Product Qtls. (M.P.) 0 4 3 1.5 1 0.5 (0.5) Marginal Returns (Rs.) (M.R.) 0 200 150 75 50 25 (25) Total Returns @ Rs. 50 Qtl. (T.R.) 100 300 450 525 575 600 575 Profit Rs.

100 270 390 435 455 450 395

7
B.B.A. Semester V

10.5

210

30

(1)

(75)

525

315
Charanya Arora

For educational purposes only

Law of Diminishing Returns


Relationship between Total and Marginal Products So long as MP moves upward or increases, the TP increases at increasing rate When the MP remains constant, the TP increases at constant rate When the MP starts declining, the TP will be increasing at decreasing rate At the point the MP becomes Zero the TP will be at maximum Relationship between Marginal Product and Average Product When the MP keeps increasing, the AP also keeps increasing As soon as Marginal Product goes below the AP, the AP starts decreasing When AP does not change with additional inputs used, the amount of product added by marginal or additional units of input is equal to AP

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Diminishing Returns


Marginal Product and Average Product When MP > AP AP is increasing When MP < AP AP is decreasing When MP = AP, AP is at a maximum Elasticity of Production :- The elasticity of production refers to the percentage change in output in response to the percentage change in input Relationship between Total and Marginal Products: The marginal product (MP) is a measure of rate of change. When TP is increasing, the MP will be positive. When the TP remains constant, the MP will be zero. If the TP decreasing, the MP will be negative

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Equimarginal Returns


Useful in a limited resource situation, where the farmer must plan and use the available resources in such a way that each and every unit of limited land, labour and capital will produce the maximum returns This principle says that returns from a limited resource will be maximized, if each unit of limited resource is used, where it will add the maximum return The farmer must use each acre of land, each day of labour, and rupee of the capital in those enterprises, where they add maximum to the net returns In other words, this principle states that resources should be used, where they bring not the greatest average returns, but the greatest marginal returns The adoption of specialized and diversified farming depends to a certain extent on the principle of equimarginal returns
B.B.A. Semester V For educational purposes only Charanya Arora

Marginal Returns to Capital on Three Crop Enterprises


Amount of Capital Used Rs. Groundnut Marginal Returns (Rs.) Jowar Paddy

1000 2000 3000

1300 1300 1200

1400 1200 1100

1500 1250 1100

4000
5000 Total Returns from Rs. 5000

1200
1100 6100

900
800 5400

1000
900 5750

Net Profit Average Returns Per rupee invested

1100 1.22

400 1.08

750 1.15

B.B.A. Semester V

For educational purposes only

Charanya Arora

Marginal Returns Comparison


Amount Crop Enterprises Added Returns

First

Rs. 1000/-

Paddy

1500

Second Rs.1000/-

Jowar

1400

Third

Rs. 1000/-

Groundnut

1300

Fourth Rs. 1000/-

Groundnut

1300

Fifth

Rs. 1000/-

Paddy

1250

Total Returns from Rs. 5000/Net Profit

6750/1750/-

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Substitution or Least Cost Combination


When two competing resources for practices can be used to produce a given output, farmer has to decide, whether to use one resource for the other or combination of the two e.g. A farmer may have to decide whether to grow local variety or high yield variety of crop, whether to apply chemical fertilizer or organic fertilisers to produce a given output of a crop In this case the farmer would select the least cost resource or practice, or least cost combination of resources and practices

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Substitution or Least Cost Combination


If the quantity of output is constant, it is economic to substitute one factor of production for the another factor of production, if the cost of first is less than the cost of second While minimizing the cost, the farmer may face two situations :
Two major resources or practices which substitute

for each other without changing the output level Many possible combinations of two resources or Practices which substitute at diminishing rate

B.B.A. Semester V

For educational purposes only

Charanya Arora

Law of Substitution or Least Cost Combination


Perfect Substitutes
Sr.No. 1 2 Particulars Bullock power threshing Mechanical Power Threshing Yield level / acre 10.00 10.00 Cost Rs. 50.00 45.00

From the above table, it is seen that mechanical power threshing costs Rs. 5/- less than the bullock power threshing. So, farmer should substitute mechanical power threshing for bullock power threshing.

Substitutes at a Diminishing Rate


When large number of combinations of two resources or practices are possible, the farmer should select the combination which will cost least

If two factors or resources are considered for a given output, the least cost combination will be such, where their price ratio is inversely equal to their marginal rate of substitution

B.B.A. Semester V

For educational purposes only

Charanya Arora

4 Steps to Find the Least Cost Combination


Calculate the added quantities of Berseem and replaced quantities of Concentrates and consider the two successive levels of each Compute the marginal rate of substitution (M.R.S.) by dividing the number of units of replaced resources by the number of units of added resources by the following formula. M.R.S. of X1, & X2 = No. of units of replaced resources/No. of added resources Compute the price ratio as follows P.R.= Cost per Unit of added resource/ Cost Per Unit of Replaced Resource For determining the least cost combination, field out the point where marginal substitution ratio and price ratio are equal. At the point the combination is least cost combination

B.B.A. Semester V

For educational purposes only

Charanya Arora

Principles of Comparative Advantage


There are two types of advantages which help to determine crop pattern
Absolute advantage Comparative or relative advantage

The principle of comparative advantage directs that the farm should select those drops and livestock enterprises in the production of which available resource have the greatest relative and not absolute advantage

B.B.A. Semester V

For educational purposes only

Charanya Arora

Opportunity Cost Principles


Opportunity cost is the value of the next best alternative foregone- the value of the product that was not produced, because resources were used for a different product The value of one enterprise sacrificed is the cost of producing another enterprise Example : If a cultivator has Rs. 800/- for investment in the farm business, he will make a choice from various alternative uses of this money
1. 2. 3.

Purchase of buffalo giving net returns Rs. 80/- i.e. 10% returns on the funds invested. Purchases of a water lift on 5 acres farm net returns Rs. 100/- (12.5% returns on investment). Invest on a bullock cart for transporting his produce to the market, thereby increasing share in the consumers rupee net return of Rs., 60/- (7.5% returns)

B.B.A. Semester V

For educational purposes only

Charanya Arora

Principle Of Combining Enterprises


Whether a farmer should combine one enterprise with another enterprise or replace one enterprise with another, depends partly on the inter relationships, between different enterprises and the prices of products and inputs Types of Enterprise Relationships
Independent Enterprises Competitive Enterprises Supplementary Enterprises Complementary Enterprises Joint Enterprises

B.B.A. Semester V

For educational purposes only

Charanya Arora

Independent, Joint and Competitive Enterprises


Independent Enterprises: Independent enterprises are those which have no direct bearing on each other, an increase in the level of one neither helps nor hinders the level of other Joint Enterprises: Joint produces are those which are produced together. The quantity of one product produced decides the quantity of the other product. Competitive Enterprises: Competitive enterprises are those which compete for use of the farmers limited resources. Use of resource to produce more of one necessitates a sacrifice in the quantity of other product Three things determine the exact combination of the product which would be most profitable

The rate at which one enterprise substitutes for the other Prices of the products The cost of producing the product

B.B.A. Semester V

For educational purposes only

Charanya Arora

Supplementary and Complementary Enterprises


Supplementary Enterprises do not compete with each other but add to the total income Complementary enterprises are those which add to the product of each other
Two products are complementary when the

transfer of a variable input from the production of one product to the production of the other results in an increase in the production of both products

B.B.A. Semester V

For educational purposes only

Charanya Arora

Types of Farming
Specialized Farming: An specialized farm is one on which 50% or more receipts are derived from one source Advances of Specialized Farming Better Use of Land: It is more profitable to grow a crop on a land best suited to it e.g. Jute cultivation on Swampy land in West Bengal Better Marketing: Specialization allows better assembling, grading, processing, storing, transporting, and financing of the produce Better Management: When there are fewer enterprises on the farm, they are liable to be less neglected and sources of wastage can easily be detected Costly And Efficient Machinery Can Be Kept : A wheat harvester or a mechanized thresher can be maintained in a highly specialized wheat farm Efficiency And Skills Are Increased

B.B.A. Semester V

For educational purposes only

Charanya Arora

Types of Farming
Disadvantages of Specialized Farming
There is greater risk Failure of crops and market

together may ruin the farmer Productive resources land, labour and capital are not fully utilized Fertility of soil cannot be properly maintained for lack of suitable rotations By-products of the farm cannot be fully utilized for lack of sufficient livestock on the farm Farm returns in cash are not generally received more than once a year General knowledge of farm enterprises becomes limited
For educational purposes only Charanya Arora

B.B.A. Semester V

Types of Farming
Diversified or General Farming: A farm on which no single product or source of income equals or exceeds 50% of the total receipt is called a Diversified or General farm Advantages of General Farming: Better use of land, labour and capital: Better use of land through adoption of crop rotations, steady employment of farm and family labour and more profitable use of equipment are obtained through diversified farming Business risk is reduced due to a crop failure or unfavourable market prices Regular and quicker returns are obtained from various enterprises

B.B.A. Semester V

For educational purposes only

Charanya Arora

Types of Farming
Disadvantages of Diversified Farming

Marketing is insufficient, unless the producers arrange for sale of their produce on co-operative basis Because of varied jobs in diversified farming a farmer can effectively supervise only limited number of workers Equipment interoperability may not be smooth

Mixed Farming Mixed farming is a type of farming under which crop production is combined with livestock raising In mixed farming at least 10% of its gross income must be contributed by livestock activities, the upper limit being 45%

B.B.A. Semester V

For educational purposes only

Charanya Arora

Types of Farming
Advantages of Mixed Farming

Cattle provide draught animals for crop production and rural transport. Mixed farming helps in maintaining soil fertility It tends to give a balanced labour load throughout the year for the farmer and his family It enables effective use of farm by-products It provides greater changes for intensive cultivation It offers the highest returns on farm business

Ranching: A ranch differs from other type of crop and livestock farming in that the livestock graze on natural vegetation. Ranchers have no land of their own and make use of public grazing land
B.B.A. Semester V For educational purposes only Charanya Arora

Types of Farming
Dry Farming: Refers to a type of farming that depends upon conservation of soil moisture Timely preparation of the land to a condition in which, it is best able to receive and conserve the available moisture Timely and proper interculturing during growth period of the crop Improving the water holding capacity of the soil by the profitable application of organic manures Use of such implements as are capable or rapidly breaking of the surface of the soil immediately after harvest as the optimum condition of the field for tillage operation is of a very short duration Bonding of fields sloppy places should be bunded into small level fields Use of small seed rate per hectare Mixed cropping

B.B.A. Semester V

For educational purposes only

Charanya Arora

System of Farming
System of Farming refers to the method of agriculture and the type of land ownership
Co-operative Farming Collective Farming Capitalistic Farming

State Farming
Peasant Farming

B.B.A. Semester V

For educational purposes only

Charanya Arora

Co-Operative Farming

Co-Operative Farming is a farming system in which land is jointly cultivated, and members pool their labour and resources Need for Co-operative Farming

To increase agricultural Production and make the country selfsufficient: Owing to the low yield per acre, small and scattered holdings & inability of farmers to adopt mechanized farming, cooperative farming would seen to be an effective means for increasing production To enable a farmer to get a fair price for their produce It will enable a considerable increase in the marketable surplus and thus help capital formation in the individual sector Efficient and economic management It would enable introduction of better techniques in Agriculture, land improvements and progressive agriculture in a planned manner Savings made under this could be used to introduce better farming techniques, long term improvements and effective planning The objectives of the liquidation of landlords zamindars and the consequent emergence of many peasant proprietors can be achieved by way of co-operative farming
For educational purposes only Charanya Arora

B.B.A. Semester V

Types of Co-operative Farming


Joint farming societies Collective farming societies. Co-operative better farming societies Co-operative Tenant farming societies

Joint farming societies


Land is pooled and cultivated jointly and the

produce is raised collectively and also disposed collectively the individual ownership of land is retained even though land is jointly cultivated
B.B.A. Semester V For educational purposes only Charanya Arora

Co-operative Joint Farming Society


Joint farming societies
Each member gets wages for his daily labour

irrespective of the nature of work A member receives a return for ownership of land pooled by him according to its fertility, location and production capacity A part of the net profit is utilized for the payment of bonus to the members, and a substantial portion of it is paid on the basis of work done by them

B.B.A. Semester V

For educational purposes only

Charanya Arora

Co-operative Collective Farming Society


This type of society has all features of a joint cooperative farming society, except that in the former the land belongs to the society as freehold or leasehold, while in latter the land is hold by the members as owner or tenants. Land is pooled and cultivated jointly and the produce is raised collectively and distributed among the workers in proportion to labour and other resources contributed by them Each member receive wages for the work done by him Net profits are divided in collective farming society

B.B.A. Semester V

For educational purposes only

Charanya Arora

Co-operative Tenant Farming Society


The society holds land in freehold or leasehold The entire land is divided into smaller plots and each is leased a tenant cultivator, who is a member Each member cultivates the land given to him and is entitled to get the produce of his land but has to pay a stipulated rent to the society The society undertakes supply of credit, seeds, manures, implements etc., but it is not compulsory for members to avail of these facilities After meeting all expenses and providing for resources the profits of the society are usually distributed among the members in proportion to the rent paid by them

B.B.A. Semester V

For educational purposes only

Charanya Arora

Co-operative Better Farming Society


Such societies are organized with a view to introduce improved method of agriculture In this farm the agricultural land is not pooled, but each member owns his land and cultivates it independently He agrees to follow a plan of cultivation laid down by the society The society provides credit, marketing, land development, irrigation, joint harvesting and different resources to the members

B.B.A. Semester V

For educational purposes only

Charanya Arora

Forms of Co-Operative Farming


Type of Co-operation Farming Co-operative better farming Co-operative joint farming Type of Ownership Individual Individual Type of Operation Individual Collective

Co-operative tenant farming


Co-operative collective farming

Collective
Collective

Individual
Collective

B.B.A. Semester V

For educational purposes only

Charanya Arora

Collective Farming
In collective farming, the members of collective surrender the land, livestock and input stock to the society The collectives cannot refuse to admit other members having the required qualification Members are governed by a management committee elected by themselves The committee directs farm management in the matter of allocation of work, distribution of income and marketing surpluses and ensures that members work efficiently Payment of workers is in terms of work day units -standard quota for each kind of farm operation is fixed in relation to one working day The amount of work done by each farmer in a day is calculated accordingly, both in respect of quality and quantity The unskilled worker has to put in more hours than the skilled one to fill his quota of work day

B.B.A. Semester V

For educational purposes only

Charanya Arora

Capitalistic Farming
Factory owners have their own farms improved methods of agriculture are followed and the application of capital input is high The workers on these farms can get better wages, better housing facilities and other social services However, the same challenges associated with industries will prevail in this system

B.B.A. Semester V

For educational purposes only

Charanya Arora