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 USE

LAND (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 WATER

N.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 MIX

INPUTS/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 COSTS

FIRST APPEARANCE OF £ IN THE PLANNING SEQUENCE

BE 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


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