Factors In Financial Success

Press, Volume XCIX, Issue 29401, 31 December 1960, Page 9

Factors In Financial Success

/AN the basis of a survey of; farms between Burnham and i Aylesbury undertaken by the 1 farm management and rural valuation department at Canter- 1 bury Agricultural College, the i indications are that on this light ’ land the most significant in- j creases in net profit can be I achieved where total incomes ' are below about £lO an acre :

and where carrying capacity is raised to about two ewe equivalents to the acre. “Farm management work at the college this year has had two main objectives,” says Mr George Mason, research officer iir the department. “That has been (1) to determine the levels of financial success achieved on farms and (2) to establish the contribution which various farm management practices are making towards financial success.” The first survey of farms to provide information for these investigations was made in the area of light soils between Burnham and Aylesbury. This project, Mr Mason said, was an extension of an earlier survey of the area which he conducted from the college in 1957 while on study leave from the Department of Agriculture. The excellent response of farmers in this area was evident from the fact that from a total of 42 properties eligible for inclusion in the survey, records for five years were obtained from 39. Indicating the average level of financial success achieved, with related figures for features of farming in the district, a summary of the information collected shows that on average the farms had an effective area of 853 acres and a carrying capacity of 1.8 ewe equivalents to the acre on non-cropped land. Some 6.2 per cent, of the area on average was under lucerne and only 3 per cent, in cash crops. The offturn of lamb meat was 691 b to the acre and of wool 191 b to the acre.

Gross income per acre was £8.4, expenditure per acre £5.5, interest surplus (the difference between the gross income and expenditure and represents the surplus available as an interest return on capital involved in the farm) was £23 . per acre and this was on average 9.4 per cent, of total farm capital. Further, the gross income per labour unit was £4079 and the interest surplus per labour unit was £1406. Expenditure on fertiliser averaged 13.4 s per acre and total superphosphate usage per acre was o.s3cwt with the average lime usage 3.2 cwt to the acre. “The second objective is the most significant part of the project,” said Mr Mason, “as farming efficiency depends on a knowledge of the relationships between the various farm management practices and the achievepienit of financial success. Unlike the chemist or physicist who is often able to conduct experiments and examine the effects of any one factor in isolation, the farm management research worker must observe the effect of many factors in varying combinations as they exist on a group of farms. That iqany of the statistical techniques m determining the net effect of any one factor are complex and still subject to refinement provides further difficulties, but these are now being tackled with the help of

Professor B. P. Philpott, of the department- of agricultural economics at the college. “As far as the BurnhamAylesbury project is concerned this phase of the work is still in progress and any results given at this stage can only be of a tentative nature. However one interesting feature of the relationship between the intensity of farming and the attainment of net profit per acre has been established as shown in the ■accompanying graph. Each of the 39 farms is represented by a small dot, the larger dots indicating the averages if the farms were divided into nine groups according to total farm income per acre. These averages give a basis for determining the relationship between total farm income per acre and net profit per acre which is shown by ,the curve drawn through these points. (For the statistically minded it may be added that the curve accounts for significantly more variatio.n among net profit than if a straight line was used to describe the relationship). “The essential feature brought out by the graph is that there is a range of rapidly increasing net profit followed by a diminishing rate of increase. The practical application of this is that signficant increases in net profit may be achieved on farms where total incomes are below about £lO per acre, with the maximum rate of increase in net profit being attained at about the £9 to the acre total income mark. On the other hand the increases to be gained are smaller at; the higher levels of income per acre. . “As the incomes of these properties are predominantly from sheep, carrying capacities of one, two and three ewe equivalents per acre are comparable with farm incomes per acre of £4.5, £9 and £l4. Relating this to the graph it appears that big increases in net profit may be obtained by raising carrying capacity on these soils to about two ewe equivalents per acre. Beyond this level the rate of increase starts to drop off until at about three ewe equivalents further increases are unlikely to be obtained. “The diminishing earnings of net profit are, of course, associated with the diminishing gains in farm income made with each additional level of expenditure. “The remaining analysis of the survey will be to establish the relationships between total .farm income and the individual items which together make up the total farm expenditure. It has long been recognised that there are diminishing returns to farm inputs. For example the .first cwt of super is likely to result in greater gains in pasture growth than the second cwt and so on. “The results of the present analysis is aimed to show just what varying' levels of fertiliser and other factors mean in terms of pounds, shillings and pence.”