In this chapter, readers are introduced to the nature of the tasks and challenges of managing agricultural businesses in a modern market economy. Understanding the business of farming involves understanding the ‘whole farm’ business system, as well as the economic system beyond the farm gate.

The ‘Whole Farm’ Business System

Introduction

The main components of the farm business system are:

• human elements – goals, labour, management, attitudes to risk and uncertainty;

• technical elements

• economic, financial, growth and investment aspects; and

• risks and uncertainties of the farm system.

The main components of the economic system beyond the farm gate that impact on farm business systems are:

• the behaviour of people and firms in competing businesses;

• suppliers and customers;

• non-agricultural economic sectors; and

• institutional, political and social forces.

In this environment, farmers and their counterparts in the agricultural and input supply chains have to ask themselves, and answer, key economic questions about their businesses. Farm management economic questions a farmer or farm family will want to answer about their business will include:

• What is likely to be the return on all the capital invested in the business, as it currently operates? This is also known as the efficiency, or productivity, of the resources invested in the business.

• What is likely to be the return on our own capital invested in the business, as it currently operates?

• How much is our net worth likely to grow?

• How might we improve the most likely future return on the capital invested in the business?

• Of the alternative means of improving the productivity of the resources in the business, which means are likely to be best?

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