© Mcgraw-Hill Companies, 2008 Farm Management Chapter 1 Farm Management in the Twenty-First Century

© Mcgraw-Hill Companies, 2008 Chapter Outline Structure of Farms and Ranches New Technology The Information Age Controlling Assets Human Resources Producing to Meet Consumer Demands Environmental and Health Concerns Globalization

© Mcgraw-Hill Companies, 2008 Chapter Objectives 1.Discuss how changes in the structure and technology of agriculture will affect the next generation of farm and ranch managers 2.Identify the management skills that future farm and ranch managers will need to respond to these changes

© Mcgraw-Hill Companies, 2008 Structure of Farms and Ranches Number of farms in U.S. decreasing Average farm size increasing

© Mcgraw-Hill Companies, 2008 Changes in Structure Caused by: Labor-saving technology Greater off-farm employment opportunities Desire of farm operators for higher income High fixed costs of some technology

© Mcgraw-Hill Companies, 2008 Four General Business Strategies Low Volume, High Value Producers High Volume, Low Margin Producers Specialty Product and Service Providers Part-Time Operators

© Mcgraw-Hill Companies, 2008 Figure 1-3 Alternative paths for farm and ranch businesses

© Mcgraw-Hill Companies, 2008 Table 1-1 Distribution of Farm Sales Source: 2002 Census of Agriculture

© Mcgraw-Hill Companies, 2008 New Technology Agricultural technology has been evolving for many decades Biotechnology offers possible gains in efficiency for crop production Livestock performance may improve through introducing new genetic characteristics or improving nutrient use Global positioning systems (GPS) increasingly adopted

© Mcgraw-Hill Companies, 2008 The Information Age Improvements in data collection Very specific data Automatic recording Personal computers A new problem of “too much” information?

© Mcgraw-Hill Companies, 2008 Controlling Assets Need for outside capital Vertical integration in traditional sources of farm credit Urban and rural financial markets will move closer together Increased need for documentation Need for standard accounting practices Increase in renting/leasing assets

© Mcgraw-Hill Companies, 2008 Human Resources Increased dependence on teams of employees or partners with division of labor Farm businesses will need to be competitive with off-farm employment Increased use of consultants and paid advisors

© Mcgraw-Hill Companies, 2008 Producing to Meet Consumer Demands More specialized and processed food Buyers are implementing stricter product standards Producers who can provide high-quality, uniform standard product will receive premium price More agricultural products will go to industrial uses Niche markets will also gain in importance

© Mcgraw-Hill Companies, 2008 Contracting and Vertical Integration Some producers will specialize in a phase of production Examples: raising dairy replacement heifers, custom harvesting crops, producing bedding plants Marketing contracts provide assured market for intermediate products Vertical integration occurs if buyer supplies some of inputs and management

© Mcgraw-Hill Companies, 2008 Environmental and Health Concerns Concerns about food safety and environmental preservation are high priority Increased rural population means more contact between farm and non-farm residents, increased concern about animal waste, air and water quality Environmental audits becoming routine in farm sales Each decision must be evaluated for its effect on the environment as well as profit

© Mcgraw-Hill Companies, 2008 Globalization Expansion of markets can occur through international trade Many governments, including U.S. government, have tried to protect their own farmers from foreign competition using trade barriers World Trade Organization (WTO) is dedicated to negotiating free trade

© Mcgraw-Hill Companies, 2008 Effects of Globalization Specialization in products that have a comparative advantage, e.g., those that can be produced most efficiently with given resources Example: Since implementation of NAFTA, the U.S. and Canada have sold more feed grains to Mexico and Mexico has sold more fresh fruits and vegetables to U.S. and Canada Globalization can affect consumer tastes and preferences Producers around the world increasingly compete for same resources Globalization can be seen as an opportunity or a threat

© Mcgraw-Hill Companies, 2008 Summary Farmers and ranchers of the future will be making the same basic decisions that they have made in the past. But they will make them faster and with more accurate information. Farm businesses will continue to grow larger, and their operators will need specialized skills in managing personnel, interpreting data, acquiring resources, and customizing products to meet consumer demand.