2001, Volume 4, Paper 42
ISSN: 2209-6612

Farm Management Economic Analysis: A Few Disciplines, a Few Perspectives, a Few Figurings, a Few Futures

Bill Malcolm – Institute of Land and Food Resources, University of Melbourne

Introduction

The request to write this paper whose working title was ‘Something about Farm Management Economics’ – a paper that was first presented to the year 2000 annual conference of the Australian Agricultural and Resource Economics Society – came from the President of the Australian Agricultural and Resource Economics Society David Pannell who, by making this request, unwittingly cast himself in the role of the piano player in the brothel: implicated but having no moral responsibility for the goings-on. My riding instructions from David Pannell were as follow:

What I’m after is someone who can speak to the large number of members whose job it is to worry about issues at the farm level, and give them something that they can take home with them and find useful in their work. I am worried that our invited speakers are virtually always on topics that are somewhat remote from the working lives of many members, particularly the younger members and rural-based ones. It’s great to stimulate them with all this interesting stuff, but just occasionally it would be nice to give them something that was directly relevant to them (Pannell, pers.comm.)

That is a contract. What follows, properly titled ‘Farm Management Economic Analysis: a Few Disciplines, a Few Perspectives, a Few Figurings, a Few Futures’, is intended to be about farm management economic analysis, with farm management economic analysis having both particular and general meaning. Though as is their wont, the deconstructionists will make of it what they want.

Farm management economic analysis refers to:

• the processes of managers of particular farm businesses responding to technical, economic, financial, human, risk and institutional changes;
• the processes involved in making some of the decisions about some of the significant changes that are made to how a farm business is operated;
• the processes of managers of particular farm businesses implementing decisions about changing how the farm business operates;
• analyses of how the managers of more than one farm business may operate their businesses;
• analyses of one or many unreal farm businesses in order to draw conclusions about the management and operation of one or many real farms.

If the essence of farm management processes is dealing with change and dynamics, strategically and tactically, what are some of the changes that managers of farms have to deal with? In any short time, as the future rapidly becomes the present, actual production parameters change from the expected levels on which plans were made, and tactical adjustments are being made continuously. Many such decisions do not involve much analysis. In medium term, and in the wider economic environment, major change occurs. Prices change, costs change, technical possibilities change, fashions change, incomes change. Deregulation of output markets transfers power to consumers.

Farmers face greater potential volatility of prices and costs than before, and have to take greater interest in marketing decisions than previously was the case for most products. Greater financial management skills and use of financial market instruments for managing risks are required. Further, changed public awareness of and concerns with resource quality issues within and beyond the farm gate mean that more considered use of inputs and farming methods is being demanded.

The implications of these changes for farm management in the next decade will be highly significant. Pressure on profits from rising real costs and falling real prices mean that farmers hoping to stay in business in the medium term face the imperatives of changing the scale and intensity of their business operations, as well as adjusting the composition and risk profile of their overall investment portfolio in accordance with the changes in risks, investment opportunities and family life cycle that are happening all the time.

Before looking where efforts might profitably go in farm management economic analysis to complement existing emphases in this area, it will be handy to have a look at where we have been. What follows next is a backward glance at the academic work undertaken in farm management in Australia.

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