Teaching/Communication/Extension/Profession,

Brown, Thomas G.

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF  AGRICULTURAL  ECONOMICS  JULY,  1975
EXTENSION  ECONOMICS:  AN  EFFECTIVE  RESEARCH
INDUSTRY  INTERFACE-  A  DISCUSSION
Thomas G. Brown
Our  colleagues  have  presented  three  useful  and  growing  desire.  Often it  comes  from  some  of papers.  Lampher  points  out  that  farm  enterprise  the  younger,  better  educated  farmers,  often  re- budgets  have  been  an  essential  component  in  the  ferred  to as  the "young tigers."
Extension  Agricultural  Economist's  kit  of  tools
for a long time.  Researchers  have  tended  to blow  BUILDING  BUDGETS
hot and cold in development  of enterprise  budgets.  Budgets  look to the future;  records  look to the
During  the  heyday  of  the  regional  adjustment During  the  heyday  of  the  regional  adjustment  past.- Budgets  can  be  reasonable  approximations studies,  we  had  them  coming  out  our  ears.  Most  of  what  wl lkel  happen.  e  approximations of  what  will  likely  happen.  The  important  ques- Extension  Economists  found  this  flurry  of budget  tion  is-reasonable  to  whom;  the  answer  is
building  to  be  of  little  value  As  I  look  back  I building  to  be  of  little  value.  As  I  look  back,  I  the person who will use the budget.  Our experience think the main  value  that accrued  was the number  is  that  farmers  have  confidence  in  budgets  pre-
of my  friends  and  colleagues  who  earned  Ph.D.'s  pared  from  information  about  their  businesses.
wokn  pared  from  inforkingmation  abouton  theirse  projectinesses. working  on these  projects.  They have  less  confidence  in  budgets  based  upon
EXTENSION  FARM  MANAGEMENT  information  from other farmers  in  the community.
PREPARES  BUDGETS  They  have  little  confidence  in  information  from
P~REPARES  BUDGETS  other states  and  none in that coming  from  Wash- Extension  Farm Management  specialists  have  ington.
undoubtedly  spent  more  time  in  preparation  and  The  reasonableness  of a budget projection  de- use of farm enterprise  budgets than  anyone  in  our  pends  upon  an  understanding  of  the  information profession.  Such  budgets  interest  them  because  it  contains,  and  upon  the  degree  of  confidence they  provide  a  fertile  opportunity  to  teach  farm-  placed  in  those  parts  of  it which  one  cannot pre- ers  how  to  be  better  managers.  Our  job  is  edu-  cisely  specify.  We  are  discussing  the  credibility  of cation;  our product  is  change  in  people.  the budget.  The farmer who  builds  a  budget from Long before the current interest in cost of farm  his  own  information  has  more  confidence  than production  was  generated  by  the  newest  agricul-  he would  in one  prepared  by  somebody  else  from tural bill,  farmers  had been  demanding  enterprise  information  about  other  farmers  in  his  area.  A accounts and budgets  for their businesses.  general  budget  prepared  to  represent  the  situation
More  than five  years  ago,  University  of  Mis-  for a  number  of farmers  over a  large  area will  be souri Farm Management  specialists  began in  earn-  of little  value  or  interest  to an  individual  in  mak-
est  to  redesign  all  farm  record  books  and  com-  ing  decisions  regarding  his  farming  operation.
puterize  farm  analysis  programs  so  that  farmers  While  it  is  true  that  the  major  emphasis  in could  get  cost  and  return  data  on  their  different  budgeting  by  Extension  Farm  Management  spe- farm enterprises.  These revisions in programs  were  cialists  has  been  on  a  micro  level,  Extension made  at  farmers'  insistence.  Don't  think  for  a  specialists  are interested  in aggregate  budgets.  The minute  that  all  farmers  appreciate  the  need  for  crucial  question  is  how  can  we  utilize  the  effort this  kind  of  information,  but  there  is  a  strong  expended  in  developing  individual,  area,  or  even
Comments  by  Dr.  Thomas  G.  Brown,  University  of  Missouri.  A  discussant  of  the  papers  presented  by  Lanpher,  Krenz,  and Kletke.
39state budgets for effective  use  by individual  farm-  The  aggregate  budget  would  be  better  than
ers in preparation  of  aggregated  budgets  that  can  anything  currently  available,  but  it could  also  be
be used for macro analysis.  an  inaccurate  budget.  We  need  to  do  everything
All  speakers  suggested  that  the  format  for  possible  to  examine  such  budgets  and  compare
classifying  and organizing  budget  report  informa-  them with other information in an attempt to make
tion be standardized.  This  should not be  a  serious  the  relationship  built  into  our program  represent
problem, providing there is  ample  opportunity for  farming  as it actually  is.
involving  persons  concerned with  budget prepara-  It is  well known that  computers  can  add  and
tion in the decision  as to what format to  use. The  multiply  and  make  fewer  errors  than  human
budget  format  should  be  as  flexible  as  possible.  beings.  Randomly  sampled groups  of farmers  can
The  initial  step  could  be  simply  cash-cost  with  be  interviewed  and  asked  questions  about  their
everything  else  in  the  residual.  Next,  move  step  cost and  returns.  But  are  we  confident that,  with
by  step  to  a  greater  degree  of  refinement  by  al-  this information and the proper mix of engineering
locating  fixed  machinery  costs,  labor,  land,  and  data,  etc.,  we  can  build  superior  budgets  that
finally management.  should  replace  the  inefficient,  incomplete,  and
There  is  need  for  considerable  discussion  in  highly local budgets  of the past?
our  profession  on  how to  handle  the  costing  of
some inputs, particularly  land, labor  and manage-  NEED  FOR  CONSISTENT  BUDGETS
ment. Lampher questioned the desirability of using
current market  value of  land  and current  interest  Krenz  suggests in his summary that the budget
rates  to  determine  the  land  charge.  He  correctly  enterprise data system would be useful to our pro-
concluded  that  this  procedure  would  result  in  a  fession  and  we  should  support  it.  I  concur,  but
cspiraling  of production cost.  w  ewould  offer  this  suggestion-if  you  want  people
Traditional  budgets  used  in  farm  planning  to  support  something,  they  must  understand  it,
showed  a residual  above the specified  costs  as  re-  and they must be involved.
turn to land and other  unspecified  costs,  e.g.,  risk  Krenz  also made  an  important point when  he
and management.  While  this  procedure  may  seem  suggested  we may  be  moving towards  use  of  cost
less  precise,  it may more accurately  reflect actual  of production  information  in setting target prices.
conditions.  And,  it would be  desirable to have  a uniform  and
consistent  set  of  cost  of  production  estimates.  I
agree  with  this  statement  and  believe  any  differ-
AGGREGATE  BUDGETS  ences in our budgets  may well be exploited.
Krenz  and  Kletke  have  a  valid  concern  for  Farm  groups  may  shop  around  for  the  most
comparability  of  budgets  between  commodities  advantageous  budget they can find. If this happens
and  regions,  but  I  am  not  ready  to  accept  com-  to be a USDA prepared budget, fine. If it isn't, the
parability  at  any  price.  It undoubtedly  would  be  USDA  budget  will  be  dismissed  by  simply  "this
easier to develop  a group  of average  relationships  is further  proof that  the  USDA  policy  is  to  take
that  more  nearly  describe  the  typical  farm,  the  advantage  of farmers  and  keep  food prices  down
region, the state, the nation, and then update these  for consumers."
with  the  most  current  estimate  of  prices  and  Having spent a number of years trying to teach
costs.  This procedure  would  provide  a convenient  farmers  how  to build  budgets  and utilize  them,  I
means  for building  aggregate  budgets.  have  formed  a  few  opinions.  In  the  first  place,
Aggregate budgets  will not substitute  for indi-  we  tend  to underestimatecosts  and  overestimate
vidualized budgets  currently being used by  Exten-  income.  Costs  occur  at  many  different  times,  and
sion  workers.  They  can  complement  each  other.  it  is  easy  to  forget  some  of  these.  Any  omission
Krenz  suggests  that data  will  always  be  a  major  tends  to  hold  cost  down.  Income,  on  the  other
problem;  the difficulty  is getting the  data uniform  hand, usually  comes  in  at  a few  times.  Therefore,
across  regions.  While  this  is true,  I would  like  to  income  is  much less  frequently  overlooked  or in-
think  that  the  major  problem  will  be  getting  ac-  accurately  reported.
curate data that truly represent  farms  as  they  are  The  second  observation  is  that  the  average
now operated,  and then placing this information  in  farm  manager  is  never  able  to  get  as  much  pro-
a  uniform  format.  It  is  reasonable  today,  with  duction  from  a  given  unit  as  engineering  speci-
computer  capabilities,  to  build  typical  enterprise  fications  or the advertisements imply, or even what
budgets  from  many  representative  sample  areas  the farmer  thinks  he  gets.  Therefore,  I think it is
and construct  an  estimated  aggregate  budget.  impossible to add information from separate enter-
40prises and come  up with the sum  of the total  farm  believe  USDA budgets  are  comparable  with their
business.  budgets,  they  will  develop  confidence  in  FED
In  our enterprise  budgeting  work  (using  farm  budgets.  If  the  budgets  are  not  comparable,  we
records),  we  start  with  a  total  farm  record  and  need to discover why they are not.
then  allocate  all  costs  and  income  back  to  the  My personal  opinion  is that  to date  there  has
enterprises.  All  costs  must  be  paid  by  some  en-  not  been  adequate  discussion  of  this  matter  by
terprise.  The  sum  of  an  individual  enterprise  in-  USDA and university people.  I believe that poten-
come cannot  exceed  its total.  Farmers  continue to  tially serious problems could be avoided by further
be  surprised  at  the  difference  between  what  their  discussion.  Perhaps  Extension  Farm Management
records  show  and  what  their  casual  observation  in  Missouri  is  different,  but I doubt  it.  We  have
was.  invested  large  amounts  of  money  and time  in de-
^T~~SUMMARY  ~velopment of enterprise  records  and budgets.  We
SUMMARY  use  them  widely  throughout  the  state  and  are
In  summary,  I  think it  is  urgent  that  we  all  pleased  with their acceptance  by farmers  and agri-
work together to develop  the best  farm enterprise  business.  We would like to make them  better;  but,
budgets  possible.  We  will  not  have  enough  re-  we  are not interested  in  having  them  replaced  by
sources  to do  the  job  adequately,  but  we  should  an inferior product.
try our  best  to  use  what  resources  we  have  effi-  I  assume  there  will  be  some  representative
ciently. The FED system  will not materially  affect  budgets  prepared  for  enterprises  in  Missouri.  To
the  Extension  program  of  record  keeping,  budget  date,  we have had no communication,  no  involve-
development,  and use.  If the FED  system  makes  ment,  and  no  indication  of  any  opportunity  to
maximum  use  of  information  coming  from  the  jointly  work  on  preparation  of  farm  enterprise
record  programs,  I feel  it will materially  improve  budgets for Missouri.  Somehow this  does not  seem
the  quality  of  FED  budget  estimates.  If  farmers  like  the most  desirable  procedure.
41

EXTENSION ECONOMICS: AN EFFECTIVE RESEARCH INDUSTRY INTERFACE - A DISCUSSION

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