Some aspects of financial management in farming

Abstract

The chapter makes a general approach to the capital situation in agriculture, which is significantly different from industry. This is basically due to the inevitable weak position of agriculture in its product market. The result is the difficulty of maintaining a sufficient income compared with other industries.

The large proportion of capital invested in land creates an additional capital problem. This particular investment inherently causes liquidity problems in a low profit industry.

Inflation, technology and taxation are the main causes of a higher capital demand in agriculture. In order to allow more capital into agriculture the capital structure will have to adjust accordingly. This can be seen from the balance sheet and flow-of-fund analysis.

The importance of agricultural credit and the various sources of credit are discussed. .Also at farm level the capital demand has its implications. Suggestions are put forward of how the degree of separation of ownership of resources, borrowing capacity and liquidity may have effect on the adjustment of the organisational form.

Taxation is an important aspect and will be a main influence on the farm structure. Taxation together with credit supply and internal revenues are under direct or indirect government control. This means that government legislation will be able to determine the direction in which agriculture will develop.