Farming environment more complex FBM capability will be demand driven Future is positive
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The challenges facing canegrowers today are many and varied. Simple production matters such as cultivation strategies, varietal choice, fertiliser recommendations, pest and weed control options, harvesting strategies appear to becoming much more complicated than before. The choices associated with each of these operations are becoming far more extensive and they often require detailed information and understanding. On top of all this, growers have to face the unpredictability of the elements, the impact of changes in global affairs on the price of the product
and other uncontrollable issues. Further still, the sensitivities of environmental issues are becoming more noticeable and the concerns of local communities clearly appear to becoming louder. On top of all this, the financial circumstances of the farm dominate.
It is amidst this diversity of inputs and the complexity of the environment that the issue of Farm Business Management emerges.
What is "Farm Business Management"?
Volumes have been written on the definition of the word Management Typically, however, the word is considered to refer to the decisions and actions that are necessary to maximise the achievement of an objective. In this context, management includes the definition of the objectives, consideration of the various options that might be involved in the objective, a decision about which option to take (sometimes referred to as the Action Plan), the arrangement and deployment of the resources needed to undertake the plan, and the overseeing of the action itself. Inferred within this chain of events is the evaluation of previous experiences with similar challenges or
objectives, and a continual evaluation of the processes undertaken during the action plan. Ant, its all in a days work!
The term farm management is simply the application of these statements to the operation of a farm. Farm Business Management is the term which applies to the operation of these decision making processes on farms where the objectives simply relate to the business operation of the farm. Farm Business Management can be defined then as the integration of the technical and financial parameters involved in both the decision making and action taking process on the farm with a view of achieving a business outcome.
But why try to discuss Farm Business Management as something distinctly different to the traditional visions of Business management? Well, we aren't. The steps involved in the process probably are very similar. They have simply been enunciated in a step by step way. In fact, The time span for many of these activities can be extremely short - from milliseconds to months or longer. The environment of a farm however is certainly very different to that of some other businesses. The organisational structure and personnel relations of the farm would normally require a lot less input. However, the environment in which the farm operates as a business is probably the subject of far more variables than other small business operations. The farm manager also requires a greater array of skills to operate effectively and often the farm business is an integral part of a family life and management decision making has to take place within the circumstances of the family farm. All these issues simply relate to the complexity of the business environment on the farm.
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The act of management is usually a very informal process. As part of the management process a farmer may first seek information on the problem. This technical advice can come from a wide array of sources. The information available is discrete and accurate. Unfortunately, in some situations, the information about a particular farming problem may be limited and very uncertain.
In this case a grower may seek out several sources of information and develop a scenario that seems credible and convincing. In other cases a grower may employ or engage a source of information to assist in the management decision making process. In some primary producer operations, this approach is becoming more common and acceptable.
Having sought and understood the various data, farmers then face a complexity of considerations to utilise their information in a way that will maximise the opportunity of achieving the goal they have set. Not only is the process of management by farmers often very informal, the data set available to them is also informal. In many cases, the information required simply does not exist and the management decision has to be based on very incomplete data, further exemplifying the complexity of Farm Business Management process.
What is the interest in Farm Business Management?
The complexity of the farming environment and the nature and the context of the data available and required to make good management decisions has led to many growers seeking ways to handle such an array of issues. Canegrowers traditionally have utilised many industry organisations such as BSES, their accountants and other growers to supplement their own management skills and their knowledge base. However, as in all businesses, the business owner (canegrower) must remain the Farm Business Management decision maker and every endeavour is required to ensure that the canegrower has available to him the skills and data necessary for good farm business management decision making.
Ferguson (1993) in a report to SRDC suggested that, while the trend in the sugar industry is to increase, rather than reduce the level of self-reliance required by the canegrower, the strengthening of a position on Farm Business Management will require:
improving the management skills of farmers;
providing better/more relevant information to farmers;
providing better advice to farmers; and
providing better management tools and techniques.
Through the provision of an environment in which the strengthening of the financial and business management skills of the grower can occur, there will be an overall improvement in the industry production and profitability. This assumption however, is untested - even in the wider business community. Ferguson (1993) reports the literature as suggesting that there is little data to support the proposal that an individual's business management skills can be improved. What is often
suggested is that business managers who perform well are more likely to have undergone some form of training in the area of business skills. In this case then the opportunity exists to provide interested growers in training courses in the general area of farm business management skills.
Such opportunities may lead to improved management capability amongst growers.
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What are the benefits of improved FBM skills?
It is virtually impossible to define the benefits of an increased level of Farm Business Management skills within the sugar industry. However, there is a number of indicators which point to the suggestion that the potential for improvement in on-farm decision making can lead to a successful outcome.
Despite the diversity of environment within which farmers operate Webb (1992) documented significant differentials between high and low yielding farms within geographical areas where the physical conditions could be regarded as similar. The three fold difference between the average of the bottom 20% of producers (in terms of sugar per hectare) and the average of the top 20%
of producers relates to some 8 tonne of sugar per hectare.
Information gathered in a number of industry surveys would indicate that some growers are thought to apply higher levels of inputs such as water and fertiliser than might be regarded as
"normal" for the circumstances. This situation is also reflected in some publications on variability of the costs of inputs within local areas as well as the variability that might normally occur between districts and regions. These variations in input costs lead to the assumption that there is
scope of improving the decision making and management operations on farms in many situations.
The benefits of improving the business management skills of the growers is likely to result in:
a redistribution in the inputs to the farming operation;
an increase in the production per unit of input;
faster adoption of available technology and opportunity; and a more inquisitive and challenged grower.
How to address Farm Business Management skills
This topic has been the subject of significant discussion within some sectors of the sugar industry over the last few years. It stems from the recognition that the normal technical skills associated with production are not the only issues involved in the development of a successful farm.
Furthermore, the advice and aims of financial deliberations alone also often fail to recognise the biological constraints within which the farming business operates.
The Sugar Research and Development Corporation (SRDC) has supported a number of initiatives in this general area to understand the options for the industry in addressing these matters.
There is a general suggestion that there are two issues involved in the activity of improving the Farm Business Management skills of growers. Ferguson (1993) suggests that these include:
the motivation of the growers to set (high) management goals; and
the strength and ability of their management performance to achieve these goals.
As in all business operations, the major constraint to the development of a good business is the motivation to succeed. Conservative production goals are regarded in all businesses as limiting the need of the business to achieve. Clearly there is a reason for this stance and this can often be
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associated with the philosophy of managing the farm operation in a risk-aversion environment.
In terms of the basic management skills of a decision maker it has been suggested that there is a need to provide an opportunity to engender a better understanding of Farm Business Management and develop a system where technical and financial advice can be effectively integrated.
Farm Business Management is not simply an involvement of the financial affairs of the farm. As has been mentioned previously, the environment in which the management decisions of the farm have to be made involve far more than simply the economic considerations and circumstances of the farm. More importantly, it involves both the physical and technical resources (inputs) and the determination of the most appropriate level of these for the situation under deliberation. For example, Farm Business Management is not simply about the amount of nitrogen to apply to the crop and the sourcing of the finance to cover this, but the decision about which mix of fertiliser will give the best return on investment fot the dollars spent and that, for the entire farming
operation, the next dollar to be spent will maximise the return on investment (for the level of risk acceptable) if it is spent on fertilisers.
Is there a demand for Farm Business Management?
Many claims have been made that Australian small business is renowned for little or poor use of management techniques, including the use of external consultancy advice regarding the operation
of the business. It has been suggested that canegrowers appear to be little different to this trend in small business.
Ferguson(1993) suggests that there are large but potentially under-utilised source of financial advice available to canegrowers. In his survey of growers and accountants in the sugar industry it was reported that most accountants indicated a willingness to provide information and expertise to growers but, with few exceptions, growers did not have a tendency to request not demand such information. Some attempts have been made to provide Farm Business Management advice to the industry but the response has not been as positive as might have been anticipated.
In terms of supply and demand for Farm Business Management skills and advice it is clearly the demand rather than the supply for Farm Business Management skills which limits the development in this area. Any intention to address Farm Business Management skills in the area must clearly concentrate on developing a demand for the service rather than simply provide the service.
The partnership for Farm Business Management delivery
Unfortunately, up until now, technical and financial data have often been dealt with quite separately. However, as information improves it is clear that management of the farming enterprise is in fact, a unique combination of considerations of both financial and agronomic data.
The union of these two aspects is not a complicated issue and can be handled through either expanding the technical information delivery system to encompass the financial aspects, expanding the financial information base to include the agronomic or technical considerations, or creating
a partnership between:
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the manager and his environment, financial advice; and
technical advice.
Such a trilogy goes a long way in terms of encompassing the wider context of the operation of a farm and the financial and biological constraints and influences which govern its operation and ultimate success.
Current activities in Farm Business Management
The current Farm Business Management delivery systems for canegrowers fall into a number of categories:
financial advice alone;
technical advice alone;
partnership of financial and technical advice; and development of Farm Business Management skills.
In the delivery of financial advice there is a range of services provided by the traditional accountant market. These services range from the provision of taxation returns and investment advice through to the development of financial management strategies for the farming enterprise.
In some areas benchmarking of performance indicators associated with the farming operation is provided to clients using the entire database available. This has led to considerable interest amongst growers of their performance compared to that of their peers.
In support of the delivery of appropriate financial advice to growers a number of financial record keeping packages have also been developed and promoted within the industry. These vary from a standardised paper-oriented system such as the BSES system and those provided to clients by some Accountants, to the computer-based systems available from Accountants, CANEGROWERS (Cash Magic*), or BSES (Quicken*).
A number of benchmarking systems have also been set up in recent years covering simply agronomic or production data. The performance indicators commonly used in theses systems have centred on outputs such as yield and related this to cane varieties, soil types of geographical locations. Such indicators are intended to identify the potential performance capability for specific situations and are used in an extension role to provide a description of opportunity for a grower should the desire be there. Supporting these systems there is a number of computer based packages developed, primarily associated with the use of mill productivity data (CAPA, PRODIV
and other in-house packages). BSES is now releasing a CANEMAN, a block recording package to assist in the keeping of accurate and appropriate agronomic data relevant to the performance
and operation of the farming business.
Both the financial and technical delivery systems alone are limited by their failure to recognise the extent of the management decision making environment within the farming business. In some cases, the decision to undertake financially motivated actions on the farm may not be in the long term agronomic interest of the business, or vice versa. To address this problem a number of projects have been undertaken to investigate the marriage of both the technical and financial
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advice functions. These include (amongst others) a pilot scheme between BSES and Bennett Partners in Mackay and a partnership between SRDC, BSES and RCS Hassall Pty Ltd in four
canegrowing districts (Maryborough, Bundaberg, Burdekin and Ingham). Both of these cases involves the development of a number of relevant business indicators, the benchmarking of these against appropriate standards, and the involvement of technical support staff in the interpretation and use of the comparison figures.
Finally, in terms of the issue of developing Farm Business Management skills in the industry, SRDC has recently sponsored a program of work to engender a wider understanding of the Farm Business Management in the industry. This program will commence in the next few months and will be centred here in the Central Queensland district. An officer is to be appointed shortly to drive the program which will centre on the development of a scheme to provide growers with an opportunity to learn and understand the issues involved in Farm Business Management and to challenge them in applying these skills to their farming enterprise.
What is the future for Farm Business Management in the sugar industry?
As canefarming enterprises turn to the challenges of the future, the problems associated with price fluctuations, increasing costs of the major inputs, technical opportunities to increase production becoming more complex and the influence of the wider community on the way in which the farm can operate, the need for a higher or more stringent level of management of the farm and its operation becomes critical. Unfortunately the experience of many other business enterprises is that the complexity of the environment in which the manager is to operate is not going to become
simpler. In this situation larger businesses have found that an awareness of, and the provision of data to describe the complexity of the environment is of significant help in making the most appropriate management decision. The data involved may include a clearly enunciated business goal of the farming operation and understanding of the problem requiring a management decision
and of any possible options to solve the challenge (including the costs, advantages and disadvantages of each option). From that point on the resources, skills and motivation of the manager will drive the operation.
The future for Farm Business Management in the industry is a function of the interest within the industry to seek out these skills and of the industry and its supporting infrastructure to supply the skills and expertise required. A number of Farm Business Management activities involving BSES indicate that there is a significant level of interest within the industry in the general area. There will be a demand for better management skills, more detailed and easily accessible information regarding options for the various farming operations and the interpretation of these details. The challenge to the industry and its support groups is to ensure that they are strategically positioned to provide such data.
References
Ferguson, G. (1993) - Farm Business Management. A report to SRDC
Webb, Bill (1992) » Role of Management in canefarm productivity. BSES Bulletin No 40
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Increasing Cane Production What Are Your Options?
Paper presented by Mark Schuurs Administrative Grower Services
Canegrowers
Introduction