Which of the forms below would you expect at the halfway stage?
©P.L. Nuthall (2010). Farm Business Management: the Human Factor (P.L. Nuthall) 55
Introduction
Chapter 2 introduced a range of factors likely to be involved in creating a farmer’s managerial skill. It is known that a wide range of skill levels exists in any community. This variability can be used to relate these factors to outcomes achieved by using the data from any particular group of farmers. The impor- tance of each factor may depend on the environment, but to assess this would require many sets of observations. This chapter, however, contains a discussion on the results of quantifying the relationship between the basic factors and outcomes for a large sample of all types in all environments, thus providing a generalized relationship. The farmers in the sample are relatively sophisticated with approximately a third having some form of formal tertiary education, and certainly all have at least 3 years secondary education. The farms are relatively large in terms of the number of people fully employed relative to worldwide averages, and in terms of the output per person employed. Many would involve an investment of at least US$1,000,000.
Determining the importance of each factor enables working out where effort should be directed in improving managerial skill, and indeed, in deter- mining which factors can perhaps be left aside in such programmes. In assess- ing the success of a farm, it is necessary to counter the influence of resource quality to enable comparisons. A farm with high-quality soil, for example, would obviously have higher output per hectare relative to a poor-quality soil farm, even if the manager were rather poor.
Also relevant is the objective set held by the farmer. If a farmer has, say, an interest in maximizing leisure, it is not relevant to compare this farmer’s profit with one with a solely maximum-profit objective. Thus, it is important to allow for the different objectives when assessing the origins of managerial ability.
A farmer maximizing leisure might well be a very efficient manager, but when compared with the profit per hectare of other farmers he may well rank poorly.
3 The Origins of Managerial
Ability
Thus, ways of measuring the objectives is introduced as a prelude to its inclu- sion in a quantified model.
Similarly, a part of managerial skill could well be a farmer’s attitude to how much control he believes he has over outcomes. Some farmers believe, for example, that they have little influence due to the variability and impact of important factors such as the weather and markets. A measure of this control belief is called a farmer’s ‘locus of control’ (LOC). A test for measuring this belief is introduced and commented on. Furthermore, an assessment of how it relates to measures of success is introduced for a sample of farmers.
Objectives
As noted, to enable comparisons it is essential to quantify a farmer’s objectives.
Furthermore, it is possible that a farmer’s objectives will in their own right influ- ence managerial ability. A farmer who is quietly content to enjoy primary pro- duction for its intrinsic values might well be content to be an ‘average’ manager and spend little time improving his skills.
The results of quantifying a set of objectives through a formal questionnaire can be used in conjunction with the casual observations that anyone dealing with a farmer will inevitably make. The outcome should be a good assessment of the objectives. Observing the actual decisions made by a farmer will indicate the form the farmer’s objectives take. Furthermore, quantifying the objectives involves writing them down, and this is often a catalyst to reviewing and more carefully defining what the farmer is striving to achieve. This process in itself can be beneficial. This is particularly the case where the farmer has not formalized a list of objectives, simply preferring to follow their feelings on each issue. This is quite common.
A complicating factor is where there are many owners of a farm, or where a family is involved, each member of which may well have issues with the appro- priate objectives to follow. Clearly, a simple case of just one owner living on the farm makes deciding on the objectives very simple. Where this is not the case, it is useful for each interested party to write out their objectives and use the lists as a basis for a round table discussion in a move to obtain a consensus.
There are many formal question sets available in the literature that have been used to assess objectives. Listed below is one example in which the farmer is asked to rate the truthfulness associated with a series of statements. It will be noted that all the major aspects that might be of interest to a farmer and the family are included.
GOALS AND AIMS
Tick ONE box that best records your degree of belief in the statements.
1. It is very important to pass on the property
to family members. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
2. It is important to earn the respect of
farmers/growers in the local community. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
3. Making a comfortable living is important. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 4. It is very necessary to keep debt as
low as possible. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
5. It is essential to plan for reasonable holidays
and plenty of leisure time. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 6. Attending field days and farmer/grower
meetings is vital. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
7. It is very important to reduce risk using techniques like diversification, farming
conservatively, keeping cash reserves, etc. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 8. Developing facilities and systems that
give good working conditions is crucial. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 9. It is very important to ensure employees
enjoy their jobs. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
10. Doing jobs that I enjoy is a very important
part of the operation. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 11. Minimizing pollution is very important. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 12. I enjoy experimenting with new products
and production systems. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 13. Proper retirement planning is a major
consideration. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
14. You must always be striving to increase
the total value of assets. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 15. Constantly expanding the size of the
business is absolutely necessary. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 16. Aiming for maximum sustainable net
cash returns is very important. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 17. Maintaining a presence in local community
activities is important. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 18. It is very important to improve the
condition of the property
(fertility, facilities, etc.). TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 19. Giving assets to the children so they can
pay for education and/or set up businesses
is very important. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
20. While I don’t particularly enjoy farming, I carry on as I don’t have a background
that allows shifting into another occupation. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
As an example of the goals held by a particular farming community (from a New Zealand sample covering all farm types and regions), the results for two sample surveys using this questionnaire are given in Table 3.1. The table contains the mean scores and standard deviations (a measure of the variability around the Table 3.1. Mean score and standard deviation for a range of objectives (1 = true to 5 = not true) Results from two random surveys.
Survey one Survey two
Mean Standard Mean Standard
score deviation score deviation
1. It is very important to pass on the property 3.15 1.45 2.73 1.46 to family members
2. It is important to earn the respect of farmers/ 2.66 1.30 2.51 1.25 growers in the local community
3. Making a comfortable living is important 1.47 0.74 1.45 0.69 4. It is very necessary to keep debt as low 2.26 1.35 2.26 1.38 as possible
5. It is essential to plan for reasonable holidays 2.24 1.20 2.35 1.27 and plenty of leisure time
6. Attending field days and farmer/growers 2.84 1.27 2.89 1.30 meetings is vital
7. It is very important to reduce risk using 2.44 1.89 2.38 1.18 techniques like diversification, farming
conservatively, keeping cash reserves, etc.
8. Developing facilities and systems that give 1.71 0.81 1.66 0.78 good working conditions is crucial
9. It is very important to ensure employees 1.57 0.75 1.47 0.78 enjoy their jobs
10. Doing jobs that I enjoy is a very important 1.83 1.01 1.78 0.98 part of the operation
11. Minimizing pollution is very important 1.67 0.86 1.69 0.90 12. I enjoy experimenting with new products 2.53 1.13 2.51 1.16 and production systems
13. Proper retirement planning is a major 2.28 1.20 2.25 1.25 consideration
14. You must always be striving to increase 2.18 1.12 2.20 1.18 the total value of assets
15. Constantly expanding the size of the business 3.38 1.31 3.39 1.29 is absolutely necessary
16. Aiming for maximum sustainable net cash 1.92 1.01 2.00 1.07 returns is very important
17. Maintaining a presence in local community 2.79 1.24 2.54 1.23 activities is important
18. It is very important to improve the condition 1.52 0.73 1.48 0.71 of the property (fertility, facilities, etc.)
19. Giving assets to the children so they can pay 2.60 1.22 2.47 1.26 for education and/or set up businesses
is very important
mean) for the goals and aims listed in the questionnaire. Clearly there is a range within the community. The scale used was 1 to 5, where 1 records that the goal or aim is true for the respondent, through to a 5 for ‘not true’.
The most highly ranked goal is ‘making a comfortable living’, and this was relatively consistent across most respondents (0.74 and 0.69 SD). You would expect 95% of all observations to fall within the range ±1.96 SD. In contrast, the goal of ‘constantly expanding the size of the business’ was scored the low- est at 3.4 with a 1.3 SD so there is some variation between people. While
‘reducing risk’ is scored between these extremes (2.4), it does have a higher standard deviation (1.9) indicating the respondents’ views vary significantly.
Other important aims include:
● improving the condition of the property;
● ensuring employees enjoy their jobs;
● minimizing pollution;
● facilities for good working conditions;
● job enjoyment; and
● maximizing sustainable net cash returns.
Note that the latter goal is only seventh on the priority list, though ‘making a comfortable living’ does appear first. It should also be noted that the mean scores were significantly different (F = 190.25), indicating the priority ranking was meaningful. It is clear farmers, on average, tend to be ‘way of life’ people in contrast to simple profit maximizers. However, each individual farmer will have a different ranking for each objective.
In the interests of summarizing the goals and aims, a correlation analysis of the combined surveys was conducted to give the basic factors representing the farmer’s core objectives and goals.
Factor one featured:
● good facilities;
● enjoyable jobs;
● minimizing pollution; and
● employees’ enjoyment (work enjoyment factor).
Factor two featured profit and assets (the ‘wealth’ factor).
Factor three involved the family and community (‘people’ factor).
Factor four was about fun and leisure (‘leisure’ factor).
Factor five involved debt and risk minimization goals (‘risk-aversion’ factor).
In summary, the factors are called
● work enjoyment;
● wealth;
● people;
● leisure; and
● risk.
They clearly cover most aspects. Any one farmer or family will have an impor- tance ranking for each. This ranking may well influence their attitude to mana- gerial skill improvement.
From the results of dairy farmer Hank’s answers to the questionnaire it was clear he was very interested in the wealth factor as an objective, but he also believed ‘family and community’ was reasonably important in guiding his deci- sions. For ‘fun and leisure’, Hank had an average score as did the ‘work enjoy- ment’ factor. His responses reinforced his answers to the risk attitude test with the ‘minimize risk’ objective featuring quite strongly. It is interesting, and reas- suring, to compare his objectives with his actions. Currently Hank is developing an additional farm purchased not long ago, thus helping satisfy his wealth objective. He works long hours, but does get involved in community affairs, so again complying with the questionnaire answers.
Margrave responded similarly over the wealth factor. Of course, you would expect excellent and ambitious managers to have this objective. But there again, some excellent managers might well be more interested in family, work enjoyment and community and therefore they must be judged on what their objectives are, not an observer’s assumptions on profit maximization. For
‘work enjoyment’, Margrave had a score in the middle of the road, but he found ‘family and community’ not particularly important. This probably reflected in part that his spouse was in full-time work in the latter years. ‘Fun and leisure’ was similarly not very important, reflecting his passion for agricul- ture in contrast to other activities. Finally, his ‘minimize risk’ score showed this was not a major concern when making decisions. This also reflects his risk attitude.
Note that a further more detailed examination of objectives, their origins and the relationship between objectives and families is provided in Chapter 7.
Locus of Control
For farmers who have little confidence in their ability to control outcomes, the inference is that risky events, such as the weather, the state of the market, and the international exchange rate, are more important in the success of their farm than the decisions made. For exactly the same environment, how- ever, some farmers will believe they have a reasonable degree of control over outcomes. Of course, just where the truth lies will depend on the environ- ment and situation each farmer finds himself in. Certainly, in situations where the weather, markets and all the other uncertain areas are extremely variable and prediction is not possible, and where the number of alternate products and production methods is minimal, the farmer will have less control com- pared with an environment more stable and predictable with a wide range of choices.
Despite the environmental situation, it is useful to know just how much control a farmer believes is possible. This belief will impact on efficiency and skill. The reasons a farmer holds any one belief will depend on past experi- ences and the ability to relate decision with outcome. Comparisons with neigh- bouring farms also help formulate a conclusion. In addition, the lessons learnt while acquiring managerial skill, and the influence of other managers and par- ents will have influenced the attitude.
A test for assessing the degree of control belief is called the ‘locus of control’
(LOC). A farmer is classified as an ‘internal’ if he believes he has considerable control in contrast to a farmer who has an ‘external’ LOC. Of course, the situa- tion is not as black and white as this, with a continuum existing from one end of the spectrum to the other. A wide range of question sets to assess the LOC have been developed for a wide range of interest areas (e.g. control of a person’s health, work place safety, motor accident control, and so on). Listed below is a question set designed for agriculture that is based on one of the first general tests developed, but with the terminology and situations changed to relate to farmers.
QUESTION SET TO ASSESS A FARMER’S LOCUS OF CONTROL For each of the following statements indicate how true it is. Each statement has five boxes beside it – tick only the ONE that best describes your degree of belief in the statement.
1. So far I have managed to largely achieve
my goals. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
2. I never try anything that might not work. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 3. I’m using exactly the same production
methods that I have used for many years
as they have stood the test of time. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE Fig. 3.1. Distribution of the respondents’ ‘locus of control’.
Locus of control (%)
80.00 60.00
40.00 20.00
Frequency
100
80
60
40
20
0
Mean = 66.96
SD= 8.525 N = 657
4. It’s no use being stubborn about a job or management approach that doesn’t
initially work. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
5. I reckon ‘good luck’ doesn’t exist – ‘luck’
is really good management, and ‘bad luck’
poor management. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
6. It is safer not to rely on others to get the
job done well and on time. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 7. I’m able to get others to do the jobs my way. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 8. Too often I end up having to run my
property to suit others’ demands. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 9. While being a good manager involves
some training, experience and reading, management skill is mainly determined by
your genes. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
10. You can work hard at creating good relationships between neighbouring
managers, but often your efforts fall on deaf ears as people are commonly uncooperative
and self-interested. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
11. I find most employees work hard and finish the tasks set very adequately after a bit of
training where necessary. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 12. The years when the property has shown
poor production and profit have been due
to circumstances totally out of my control. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 13. In local body affairs it’s easy for a
hard-working and dedicated individual to have an impact in getting changes
for the better. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
14. Often I get frustrated as circumstances beyond my control impede thesmooth progress of my management plans
and decisions. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
15. Some people seem to be just lucky and everything works out for them, but it hasn’t
happened to me much. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
16. I tend to carefully plan ahead to ensure my goals are achieved, andoften do budgets and
commit my ideas to paper. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
17. I seldom change my management and production systems unless I’m doubly sure the change will be positive. So much
depends on chance. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE
18. When things go wrong it is so often due to events beyond my control – the weather ruins the hay, the wool auction I choose has
a sudden price dip, etc. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE 19. When I know I’m right I can be very
determined and can make things happen. TRUE❑ ❑ ❑ ❑ ❑NOT TRUE In developing an overall score for a respondent’s belief, the score on each ques- tion is added after the score is reversed for the statements where ‘true’ means low control so a high total score means a strong belief in controlling outcomes.
The scores can then be converted to a percentage figure, so a score of 100 indicates a very strong control belief.
As an example of the kind of control scores that are typical over a wide range of farming types in a temperate climate (New Zealand), the distribution data obtained from a sample survey is given in Fig. 3.2 together with the nor- mal distribution.
The average score was 67%, and the standard deviation 8.5.
Clearly a wide range of control beliefs existed in the community, though the majority falls within the 55–80% band.
Fig. 3.2. A structural model of managerial ability.
Personality
(management style) Intelligence Objectives
Background
– genotype – family experiences – culture
Education and training
Managerial and work experience
Managerial ability/skill
As there are similarities in some of the control statements, it is useful to look at the correlations between statements to explore whether there are groupings that summarize the basic components of the farmer’s control belief. This analy- sis suggested that seven factors underlie the beliefs. These can be called:
● beyond control;
● conservative traditionalist;
● determined despite bad luck;
● flexible achiever;
● gene-based traditionalist;
● careful and determined planner.
Producers with a high proportion of factor one have little control belief and accept that outcomes are largely luck, whereas people with a high proportion of factor two believe you make your own luck through using tried and tested methods. Factor three relates to being able to ride through bad luck, whereas factor four involves a belief that it is possible to achieve if you are flexible. In complete contrast, factor five embodies an acceptance that your genes determine ability, but despite this good achievement is possible. Finally, factor six is the belief that careful planning does work and will have beneficial pay-offs.
Any one manager will have a mix of these factors leading to an overall con- trol belief. If a farmer’s LOC is low, or excessively high, thought should be given to whether efforts to change it are appropriate. This is achieved by discussing the farmer’s beliefs with examples of what is possible. Use of case examples to show what is in fact possible may well assist this process of creating a more realistic attitude. An excessively high LOC may lead to excessive risk taking where tech- niques to reduce risk are not deployed. An example is diversification.
Research has indicated that age does correlate with the LOC with youth tending to overestimate just how much control is possible. As in most things, appropriate experience, and an ability to learn from this experience, is a very valuable part of becoming a skilled manager as will be shown and discussed in following sections.
Margrave, who operates in a very variable climate, has a LOC of 57%, which is somewhat less than the population average of 67%. Yet he is certainly positive in his view of management with constant change to improve the out- comes. Margrave comments that ‘with high risk levels you need to be creative’
and ‘you can mitigate many things if you think out of the square’. Hank, per- haps due to the high level of irrigation, has a score of 73%, expressing the control he certainly does have. This is also reflected in his purchase of extra land with huge investments in infrastructure.
As for the future, Hank asks ‘How can I exert more control?’. Hank believes there will be increasing volatility in prices and markets as the years roll by due to the rapid communication systems that now abound. In the past, the happen- ings in a market 20,000 km away was hardly noticed, and only affected prices in the next season. However, now manufacturing and supply corporations are watching the daily movements in key markets and altering farmer payouts accordingly. The same sort of thing is happening in input markets. A good