Whole-farm Planning
1. Which enterprises to include?
2. How many units for each?
3. For the upcoming year or for a
representative year
4. Done as a short-term or long-term plan
AGEC 407
Whole-farm Planning
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Six steps involved:
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Review goals and objectives
Inventory resources
Identify possible enterprises and their
requirements
Calculate the gross margins for each
Select a plan (combination of enterprises)
Develop a whole-farm budget
AGEC 407
Inventory Resources
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Need to know what is available
Most important to know what the
constraints are
AGEC 407
Inventory Resources
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Things to inventory
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Land
Buildings and machinery
Labor
Capital; position and availability
Management ability
AGEC 407
Identify Enterprises
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Likely choices are often known
Might pay to “think outside the box”
Resource requirements
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Land
Labor
Capital
From enterprise budgets
Resource availability
AGEC 407
Estimate Gross Margins
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Income over variable costs
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From enterprise budgets
For short-run planning
fixed costs are constant, does not affect
profit-maximizing plan
contribution of enterprise to farm fixed costs
and to profits
AGEC 407
Choose a Plan
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Combination of enterprises
Must be feasible
Want most profitable combination
Can analyze selected scenarios
Can use linear programming
AGEC 407
Develop a Budget
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Why?
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Estimate profit and cash flow
Evaluate changes in the plan
Needed to acquire capital
AGEC 407
Develop a Budget
Sum from each enterprise:
# of units * gross margin
gross margin = income - variable costs
For whole farm:
other income
indirect costs
Result:
Net farm income
AGEC 407
Linear Programming
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Uses to find best combinations of
enterprises
Optimizes an objective subject to certain
specified constraints
AGEC 407