Defining and Characterizing Approaches to Farm Management
McBride, William D., Johnson, James D., Journal of Agricultural and Applied Economics
Exploratory factor analysis was used to identify approaches to farm management based on a list of management questions posed to a sample of U.S. cash-grain farmers. Three approaches were identified by the factor analysis: price negotiation, long-term cost control, and input adjustment. Estimated factor scores regressed against farm and operator characteristics indicate a profile of producers using each approach that is closely related to stage-of-life of the farm operator and farm business. In addition to operator age and planning horizon, operator risk preference and farm organization and location were other important determinants of the approach to management.
Key Words: cash-grain farms, factor analysis, farm management, latent variables, management approach
JEL Classifications: Q12, Q10, D21, C40
Differences in management affect the financial performance and environmental impact of farms facing similar resource and production conditions. These relationships, however, are not easily discerned because management is difficult to define and measure. Further complicating the matter is that management varies from farm to farm because of differences in farm size, enterprise mix, resource situation, and climate, among other reasons. Even farms of a similar type, size, and location are managed differently. Human-capital characteristics of farm operators, such as age, education, and off-farm employment, influence farm-operator goals for the business and thus the approach to management. Understanding what influences farm management is important for understanding how differently farmers may respond to changing economic conditions and farm programs.
Success in farming requires a clear sense of what the business is about and the direction in which it is headed. The study of successful farm management has increasingly focused on the importance of strategic planning for positioning the farm business. Miller, Boehlije, and Dobbins characterize strategic planning as a different way of thinking about management. In the past, farming success depended primarily on the ability of management to develop an efficient operation, such as achieving a cost of production lower than the industry average. The continued introduction of new products and/or technologies provided significant rewards for concentrating on efficient production or "doing things right." Miller, Boehlije, and Dobbins argue that, while important, efficient production will not be sufficient to assure success in an increasingly industrialized environment. Their point is that the continued industrialization of farming makes strategic decisions such as farm product mix, market linkages, financial structure, and relationships with input suppliers and product buyers more important. In this environment, success in farming will continue to require that operations be efficient, but there will be a growing payoff to strategic decisions or "doing the right things."
This study attempts to define and characterize approaches to farm management according to the strategic decisions made by farm operators as indicated by the set of management practices and techniques employed by farmers. Objectives of this study are to describe the management approaches employed by farmers and to characterize the farms that use each approach. The empirical procedure uses data from a sample of U.S. farmers to define measures of latent, or unobservable, approaches to management, and then examines the characteristics of farms that utilize each approach. Results of this analysis add to the understanding of the different management approaches used by farm operators and how the approaches are related to the unique organizational and human capital traits of individual farms. The results also provide insight about defining and characterizing management for the study of successful farm management.
Several attempts have been made to define and measure farm management in order to relate management to farm business success. …