Lecture 5: Stages in farm planning
Enterprise and whole farm physical plans
ANALYSIS - THE PAST
PLANNING AND BUDGETING - THE FUTURE
relationship between Planning and Budgeting
PLANNING: OUTLINING THE FARM ACTIVITIES
BUDGETING: ATTRIBUTING COSTS AND
RETURNS TO THESE ACTIVITIES
The responsibilities of farm managers includes:
COMPETING PHYSICAL PLANS
COSTING COMPETING PLANS
SELECTING THE MOST APPROPRIATE PLAN
SKILLS NEEDED TO CONSTRUCT AND INTERPRET WHOLE FARM PLAN
KNOWLEDGE OF INPUT / OUTPUT RELATIONSHIPS
PLANNING:
needed whenever considering a change to the farming system
for example:
Acquiring a new farm (purchase or lease)
Considering a new enterprise
Large investments building/machine
land purchase/rent
contract farming
Financing support a loan application
Budgetary control
Good plans are essential if the business is to survival as a viable farm.
STAGES IN FARM PLANNING
I |
® |
II |
® |
III |
OBJECTIVES (goals, inc. standard of living, leisure time) |
RESOURCES (capital, knowledge, experience) |
PLAN (estimate size of enterprises, farming system) |
||
¯ |
||||
VI |
¬ |
V |
¬ |
IV |
FIXED COSTS (overheads items) |
£ PRICES AND COSTS FOR EACH PLAN |
PHYSICAL PRODUCTIVITY (input and output quantities) |
||
¯ |
||||
VII |
® |
VIII |
® |
IX |
FINANCIAL BUDGET (presentation of all information in a standard form) |
THIS WILL GENERATE ESTIMATES OF PROFITS (sensitivity analysis) |
CASH FLOW (liquidity during the cropping cycle) |
I to III PLANNING
IV TO IX BUDGETING
THE PLANNING PROCESS
COMPARE ALTERNATIVE PLANS
SENSITIVITY ANALYSIS (which assumption is the most critical to determine the budgeted outcome: assure yourself that you assumptions on this variable are realistic)
HOW RISK AVERSE ARE YOU?
PLANNING IS AN ITERATIVE PROCESS
(1) SET UP PHYSICAL PERFORMANCE PLANS
COST ALTERNATIVE PLANS
(2) REVISE PHYSICAL PLANS
COST NEW PLANS
CONTINUE - until you arrive at a plan that is feasible, workable and profitable.
STAGE 1 PLANNING OBJECTIVE
MUST OBTAIN HONEST ACCOUNT OF FARMERS OBJECTIVES
(i.e. learn how to obtain an honest response)
(1) PROFIT
(2) INVESTMENT
(3) HAND OVER TO NEXT GENERATION
(4) LEISURE/PROFIT TRADE-OFF
(5) RISK (EXPOSURE TO TOTAL LOSS)
(6) PHILOSOPHY (RURAL LIFESTYLE, CLEAN LIVING IMAGE)
MOST FARMERS NEED TO ACHIEVE AN ACCEPTABLE LEVEL OF PROFIT BEFORE OBJECTIVES 2-6 ARE POSSIBLE.
N.B. THE NON-PECUNIARY BENEFITS OF FARMING.
STAGE II:
PLANNING FIXED RESOURCE USELAND (fertility, "heart", aspect, drainage)
BUILDINGS (usefulness, diversification)
CAPITAL (own capital, credit lines)
MANAGEMENT (human capital, husbandry skills,
financial acumen)
INSTITUTIONAL (quotas, IACS registered land)
ACCESS (road access - e.g. MILK collection charges)
LOCAL/REGIONAL MARKETS (marketing)
DO NOT FORGET
WATERN.B. PLANNING HORIZON WILL CONDITION ACCEPTABILITY OF PLANS
Application to "Church Farm"
GIVEN:
A MAP OF CHURCH FARM
A MAP OF THE STEADING
Documentation may answer some questions regarding resource availability, but can not answer all. Farm visits are essential when constructing a farm plan.
Enterprises: predominately dairy (with dairy replacements, sheep)
Buildings:parlour, cow cubicles, silage, slurry.
Capacity; state of repair; vintage (technology)
Bulk tank capacity
AAP & Quota: area of eligible land: milk & ewe quota
Soil fertility, drainage and aspect
Labour: annual days of labour available
Human capital:
What skills are available
What interests are present in the labour force
What are the incentives and motivations of labour force
Cropping: rotations, leys/permanent pasture
STAGE III: PLANNING THE FARM PLAN
Answering the question: How much of what?
The answer depends on the resources available
Buildings |
Land |
Management expertise |
Capital |
||
capacity |
Fertility (= productivity) |
knowledge experience expertise |
|||
livestock |
arable |
grass |
arable |
||
(fertility) |
(fertility) |
â |
|||
housed/ grazed |
Storage |
permanent |
eligible area |
||
Handling access |
temporary |
eligible crops |
|||
housed livestock numbers |
cropping |
stocking rate |
crop mix |
â |
|
arable compatibility (crops, cropping mix) |
manage rotations |
||||
livestock comparability (numbers and area) |
integrate resources |
||||
can you develop synergism between crops and livestock |
cropping rotation |
â |
|||
the plan must be financially secure and afford adequate return for farmers labour, management and return on capital |
|||||
IS THE OVERALL PLAN FEASIBLE? |
STAGE IV:
DECIDING ON THE ENTERPISE MIXINPUTS/OUTPUTS
OUTPUTS
(1) YIELDS
(2) TONNES/HA,
(3) LAMBING %
(4) LITRES PER COW/HA etc.
(5) QUALITY
INPUTS:
(1) VARIABLE INPUTS (fixed resources q.v.)
(2) MISCELLANEOUS INPUTS
SOURCES OF DATA ON ENTERPRISE RESOURCE REQUIREMENTS
NIX, SAC, BANKS, INDEPENDENT CONSULTANTS, ADAS, GOVERNMENT STATISTICS
NB. YOU WILL NEED TO ASSESS EACH PARTICULAR FARM SEPARATELY, THEY WILL NOT ALL BE AVERAGE FARMS !
YOU ARE ASSESSING THEREFORE BE REALISTIC
STAGE V:
BUDGETING (£) PRICES AND COSTSFIRST APPEARANCE OF
£ IN THE PLANNING SEQUENCEBE REALISTIC
BE COMPREHENSIVE
ASSESSMENT OF MARKET RETURNS:
(1) WILL BE AFFECTED BY POLICY
(2) WILL BE AFFECTED BY EXCHANGE RATES
ASSESSMENT OF DIRECT PAYMENTS:
(1) AFFECTED BY EXCHANGE RATES
(2) AFFECTED BY THE POLICY PROCESS
Commission pronouncements
MAFF/UK discretion
SOURCES OF INFORMATION
Meat and livestock commission
Home grown cereals authority
Internet access, world markets