Proceedings of Conference. 25

Financial accounts can, therefore, be of direct and immediate use to advisory economists in their everyday work of discussing farm management questions with farmers. While this immediate use is valuable, it is perhaps true that the greatest value from the study of financial accounts accrues to the advisory economist himself a t present, because the work is in its infancy. In the long run, however, the results of such studies will reach the farmer, and the data then available will be of such a representative and authoritative nature that advice d be able to be given individual farmers with much greater confidence. One word of caution may be sounded ; the " long run " should not be'too long. Advice on agricultural economic matters must be given as the science is being built up, and improved as the foundation becomes stronger.

DISCUSSION ON MR. DAWE'S PAPER. President :

In considering Mr. Dawe's interesting paper and the remarks with which he introduced it, there are one or two points on which I should like to comment. Mr. Dawe said that the farms whose records are brought to him t o consider in Somerset and Wiltshire were large farms only. I should like to ask him whether there is any other process of selection. Is it mainly the successful farmers who consult him-the good farmers who are proud of their results, or else perhaps the farmers who are losing money and want to make out a political case for " help to agriculture " ? I should like to know if there is any selection in that way as well as in the size of the farm.

Taken as a method of comparison, without care in their application, averages are certainly dangerous things. For instance we all know that the " average farm " comprises 68 acres, and we all know how useless that figure is for practical purposes. But I suppose if you take common groups of sufficient uniformity you can get useful results. In fact, I noticed that, in spite of his dislike of averages, Mr. Dawe continued using the word " average " throughout his paper.

I should think the best way of classifying farms would be by the percentage output of the various products. A milk farm might be defined as one where two-thirds, or some lower fraction. of the whole financial returns were obtained by the sale of liquid milk. I t would not much matter what the precise figure was so long as it was the same all over the country, and obviously you who are agricultural economic advisers ought to put your heads together and agree on uniform definitions of the various kinds of farm.

With regard to the relative advantages of survey accounts, financial accounts and cost accounts, personally I should be very sorry to see any of them done away with at the present stage. We want to go on a little further, getting information in all three ways, and in time we shall see which gives the most useful results. I do not feel we are yet ready to cut out any one of the three.

A . W . A s h b y : There are one or two particular points upon which I should like to make some remarks.

I am personally very much interested in the work Mr Dawe is doing in the correlation of items of farm accounts. In handling sets of farm accounts one is handling whole universes, and all causes and effects are within each universe. So that, when you are measuring all the causes and effects by correlation, your total for the lot must be unity. This is the case with the individual farm, but each is subject to its own special influences. The question is whether there are any influences common to all the universes. In the process of correlation one is separating what one supposes to be causes and supposes to be effects and selecting causes against supposed effects, i . e . , output against profits per acre or profit percentage on capital.

The great difficulty in handling the correlations a t present is that nearly all the correlations that one gets through selection of supposed causes and supposed effects are positive, of a plus character, and it is extremely rare to get one of a negative character, which one would expect to find in order to get a balance in the final result. That cir- cumstance 1 cannot explain, and as far as I know no expert statistician can explain tbe phenomenon. We also, like Mr. Dawe, have found that in the process of correlating certain supposed factors or causes with supposed effects in percentage return on capital, we have got complex and conflicting results.

In certain cases where one knows the quantity of certain contents of the mass one can compare the

As regards the value of average results.

There is one important point he has not mentioned.

There is a very much smaller thing in Mr. Dawe's criticism of averages.

26 The Agricultural Economics Society.

quantity of the same contents in the smaller group, and if there is a fair agreement between the known contents and the mass and the same items of the group sample, there is no need to apply any theoretical test to the sample. I do not remember whether if it is possible to get a test of the contents of any group against the contents of the mass to which the group belongs. One does not need to think of what is the theoretical statistical justification of the group averages as we get them. So that in some of these cases at any rate the question of the value of the group average is a matter of expediency. The test of the truth of the group average is sometimes to be had by a comparison with the figures published by the Statistical Branch of the Ministry of Agriculture.

Speaking of our own work, we have small samples where we can test the contents of the samples with those of the mass as far as they are known, and we seem to be justified in using the contents of the sample as being representative. And as to classification. we have not arrived at any better classification than the one suggested by our President. Different classifications are of course necessary for different purposes. Our present classification is perfectly simple. It is .based on the proportion of the gross output obtained from certain of the farm enterprises, such as cows, sheep, and what not. The gross output in that case is fairly simple to arrive at. The total sales from a givenenterprise are taken, and the purchases of live stock for that enterprise are deducted, so that the net figure represents the output of the farm for the enterprise for the given period-with some slight qualifications due to changes in the capital value of stock in the meantime.

The questions which Mr. Dawe has raised about management and climate are inter- esting, especially the climatic one. But again one might say that all the effects of climate that influence farm accounts are shown by items in the accounts. But if you are thinking of the climate in physical terms, what we have found up to the present is simply that we had not-as far as we could tell not even agriculturists had-any knowledge of what are the climatic factors to look for. Rainfall, sunshine, temperature, are all factors that vary in importance a t different times of year. It appears to me that the study of agri- cultural meteorology has not gone far enough to enable us to use its results for economic purposes.

I would like to suggest to Mr. Dawe that his paper does contain just one little contradiction. He is inclined to be a little superior about people who have extended the study of agricultural economics outside accounting, and outside the sphere of the farm (p. 22). And then he himself says a t the top of page 24, that some day their work is going to lead them into that very same type of study. Well, the position seems to me to be this : the farmer is working in a complex economic and social organisation ; that if you approach the farm merely as an economic unit (as you are sometimes perfectly justified in diong) you are, in fact, isolating it from the whole of its economic and social environment. And I would say that if the different sorts of studies are camed along together, as far as the interests and the training of the staff will allow you to do, you are going to keep a much more balanced view of the situation. I do not myself regret any of the work I have done on the social economics of agriculture. I believe it is just as valuable in reviewing conditions on groups of farms as the details we can get on those farms.

E. Thomas: We have now had three papers read to us : one on Cost Accounts, one on Surveys

and now this one on Financial Accounts. I was glad to hear the Chairman say that he would regret to see any one of these methods discarded at the present juncture.

In our work a t Reading, we have come to the conclusion to use each of the three methods. Although we have not yet worked out our plans, we shall work, I think. somewhat on these lines : In the first place we shall conduct a survey of a district, visiting every farm, so as to obtain our broad picture of the area. From the survey data we hope to select a sample of farms for our financial accounts, and from our financial accounts we may select one or two for cost accounting purposes if we think i t necessary.

It seems to me that the Cost Accounting method can only be used economically as the " case " method, and as such i t is very valuable. For instance, we have been keeping the cost records of a Dorset arable sheep farmer for the past six years, and we shall continue to do so for so long as we can retain the farmer's co-operation. We are satisfied that this farmer is typical of an important group, and his records over many years will be extremely valuable. Incidentally the problem of averages does not arise when the case method is used.

It seems to me that one of the strongest points in favour of Financial Accounts is that the farmers themselves do most of the work. Whatever doubts we may have about the value of the national results to be obtained from the use of all these methods, I think we shall all agree that to get the farmer himself into the habit of keeping systematic records is to have done something to help him to improve his efficiency.

Only ju,st one other little point.

Proceedings of Conference. 27 W . H . Long :

Thus it is claimed that the financial account suffers neither from being too complex and costly, nor, on the other hand, from being too superficial,” which, I think, implies that the cost account is too complex and the survey account too superficial. Others may speak of cost accounting, but my own experience is that the survey method is no more superficial than financial accounting. I am not sure whether Mr. Dawe means that the same amount of information is not collected or that i t is not so valuable, applying only t o one year. In either case, my experience is that the survey method can be more detailed than the financial accounting method, while you can continue a survey year after year in the same way as you can record financial accounts for successive years. The financial account is more accurate than the survey record, but I should say it was the most superficial method of all three.

I had intended to ask a question, but in his explanatory remarks Mr. Dawe has, I think, already answered it. On pages z and 3 he asks what is all this collecting of accounts leading to. And he says : ” The answer, at least as far as present work goes, is that advisory economists are endeavouring t o show a small number of farmers how t o improve their profits, either (a) by reducing costs, the output remaining the same, or (b) by in- creasing the output to a greater extent than any increase in costs that may be thereby incurred.” I wanted to ask Mr. Dawe whether he finds that by showing how outputs and costs compared with average, or any other, figures he could show the farmer how to increase his profit, and the impression he gave me was that he finds it difficult to do so. It has always seemed to me that the financial account is composed of so many items and factors that it is very difficult to base any definite advice to farmers on it. You can tell him that he is not making as big a profit as the average farmer, but I always feel diffident in advising him on the strength of the financial account what steps to take in order t o do better. M r . Dawe has been more fortunate in being able in some cases to make definite suggestions, but I think the pure financial account hardly gives enough data in many cases to give the farmer advice on. In the examples he gives a t the end of his paper he rather indicates that many farmers do work out their own salvation, which is all to the good, but I doubt whether the economist could in many cases make concrete suggestions, and the point is whether it would not be possible to augment the financial data by some physical data such as, for instance, the amount of productive work there was on a farm. Cambridge has produced some figures, their cost accounts showing average labour requirements on crops and stock. And Wales has produced similar figures. These might be of considerable use in helping the analysis of financial accounts.

In the second paragraph of page z of his paper, Mr. Dawe says :

He did not get sufficient precise data to advise in most cases.

W . H . Coates : I believe I am one of the people for whom the first page of the paper was specially

written : I am not an economist but just a practical farmer interested in this question of agricultural economics.

I wanted to raise three points :-(I) regarding accounts ; (2) regarding advice from the economist ; and (3) regarding management. I consider myself fortunate in having heard these three papers on Survey Accounts, Cost Accounts, and Financial Accounts. The first thing that struck me was that in Financial Accounts, which deal with facts, and tell you whether you have made a profit or loss for the period under review, you get uniformity as to the method in which they are presented. In the survey method you have a rough and ready way of finding out the farmer’sposition compared with other farmers in similar positions, but I do not think it helps the particular farmer very much. Take the case of Output per LIOO Wages. My own records show an output of L340, the Bristol figures give L345. while the Leeds figures give L320, which shows that my output is about the average, but it does not show me what my output ought to be. In other cases the information may be definitely misleading. Imagine the following Balance Sheet :-Credit side, Sundry Creditors (including Bank Overdraft) L500, Capital L3,000, total Liabibties &3,500 ; on the Debit side, Valuation &,500, Profit and Loss Account Balance (loss) LI,OOO. The sales for the period under review are L1.500, or a Turnover of 50% on the Capital, which is not considered very good; but you may say, the real Capital is not L3,000, but only ~2,000, as the Profit and Loss Balance should be deducted, in which case the Turnover is increased to 75% which is better. Now i t does not need much imagination to visualise the Balance Sheet a few years later, when the Creditors might become L3.000, while the Capital was reduced to L500, the Valuation and Sales remaining the same ; in this case the Turnover would be 300% which would compare favourably with many businesses.

Now Cost Accounts could tell one a great deal, but owing to the many schools of thought as to the manner they should be presented, they really only represent the opinion

Total Assets L3.500.

28 The Agricultural Economics Society.

of the cost accountant who has produced them. The point I want to make is that on the one hand we have Financial Accounts which relatively tell you nothing, and we have uniformity, on the other hand we have cost accounts which could tell you everything, and we have no uniformity. We are always being told that the reason we cannot have more cost accounts is because they are.so expensive ; but after all is said and done, it is. the Cost Accountant who is responsible for the expenses. We have had mention at these meetings of its costing LIOO to produce a set of Cost Accounts ; I have also been told it costs L60. I wish Mr. Wyllie had been with us to-day, because I believe he has worked out that a costing system for a farm of 150-200 acres should not exceed A20, which agrees with the figure I had worked out. I would suggest that the standard charge should b e Lzo the first year, A15 the second and LIO or even below that the following years. In my opinion there is at present much too much unnecessary detail in Farm Costings, which is responsible for a great deal of the expenses. The most difficult thing in Costing is to apportion Labour and Feeding Stuffs. A sheet of paper hung up in the granary or food room, with columns for the different classes of stock for which the foodstuffs are taken, will enable the food problem to, be dealt with, while suitable wages cards, with the farmer’s own diary, should settle the wages. Other economies are, to have one account for Meadow and Seeds H a y ; Manurial Residual Values to be left in the Balance Sheet and treated like Goodwill ; farm-yard manure, if the arable is worked on a 4-course rotation and the land gets treated once every four years, could have 25% of its cost charged to each crop in the rotation, .instead of its being all charged to, say, the Root crops, and then a portion of this camed over to the following crops. In four years the results will be the same either way.

Farming is very difficult at present, but I do not think i t is anything like as difficult a job as yours is, that of advising farmers how to manage their farms. especially as every farm in this country can be compared to one of three cisterns. First we have a cistern which is nearly empty, but has sound sides and a sound bottom ; while that cistern is being filled, the farmer will have to put more into it than he takes out of it, so the accounts for this period will probably show a loss. Then we have a cistern which has sound sides but no bottom at all ; in this type of farm which can be bought any day in the week, and which fills the pages of the “ Farms to Let ” in the papers, the farmer never will be able to make anything out of it, and again his accounts wi l l show a loss. The third type of cistern is the one with sound sides and bottom and which is full ; this farm is never in the market, and the farmer is generally enabled to hold his own, without calling in our assistance. One can easily imagine the case where two farmers have farms representing the first two cisterns, their account-books tell the same story, they have the same capital, output per IOO acres, etc., grow the same crops, have the same stock, etc., while their accounts show similar losses for the period under review. When they come t o the Economist for his advice, the farmer of the first farm should be told t o persevere, while the other should be told t o clear out before he has lost all his capital. Now you do not know the history of the farm until you have been living on it for at least four years, which of course is out of the question for people like you who have t o deal with IOO or more farms. The point is the accounts will never by themselves tell one the whole story.

A s regards management-if one divides the world into farmers and non-farmers. one cannot help being aware that the majority of the non-farmers seem convinced that managment or rather the lack of management is responsible for all the farmer’s troubles. Provided management is satisfactory he can ignore details like prices for his produce. A t a conference the other day, farmers were being advised to manage their pasture on the intensive system and keep more stock. One farmer present said he had seen some cattle kept on this system, and the result was awful. The lecturer’s reply was :-“ Well Sir, in your case obviously the management was at fault.” Now no self- respecting farmer will admit that ; his version is, “ My management is all right, i t is the poor material you give me which is the trouble.” I was very glad to see in this paper that Mr. Dawe had come down on the side of the farmer (see middle of page 24). When I read that I could not help thinking of the last session, when Mr. Orr had some remarks to make about landlords being business men. I wondered, i f Mr. Orr were my landlord, and on the advice of M r . Dawe (who said my management was satisfactory) I applied for a reduction of rent, what would Mr. Orr’s reply be, and’assuming he would not give me a reduction, what would the advisory economist then advise me to do ?

Secondly-advice to the farmer.

I should like to thank Mr. Dawe for his very interesting paper.

C. V. Dawe:

for the helpful.criticism, and in some cases assistance and advice, given. a few points in some detail.

I am afraid I am unable to answer all the points raised, although I am very grateful I will try to take

Proceedings of Conference. 29

Our President raised the question about increased output coming up against inelastic demand. I think the only hope here is to reduce costs of production as prices fall through these increased supplies, with the ultimate aim of maintaining profits to those engaged in production.

The President also asked whether the selection of farms whose records we keep depended on whether the farm was good or bad. I think the County Organisers will tell you ours are a very mixed lot. Some show very low costs, high outputs and high profits. Some (one in particular) are farms losing ;6700 to L1.000 a year.

One or two people seem to think (probably I put it too strongly) that I have no use for cost accounts or survey accounts. Both are useful, but in Bristol we could not do them with our staff. We do better with financial accounts. If we could turn our 250 financial accounts into cost accounts we should do it a t once. But if i t is a choice (as is the case of Bristol) between 250 financial accounts, and the small number of cost accounts we should be able to record with our existing facilities, I feel that better results are to be obtained from financial accounts.

Professor Ashby raised many points which I cannot very well answer now-and some I could not answer. These correlation figures are making us do a lot of thinking a t Bristol. Probably nobody in the country knows what is meant by an adequate statistical sample, or knows how much reliance you can place upon statistical formulae when you have calculated them. Professor Ashby also raised the point of classifying farms by gross output. We have done that at Bristol. But the point I want to make is : if we are to classify farms according t o proportion of output, let us decide what proportion we are to take. Let us have a figure to work on, and let us agree upon it for the sake of making comparisons between different areas.

Mr. Thomas said we are rather fortunate in getting farmers to ask us to help them with their farm accounts. I do not want him to imagine we are inundated with requests to undertake farm accounts, but it is the case that we have had to refuse .a number of farmers lately who wanted us to cost them. The membership of the Wiltshire Agricultural Accounting Society is growing steadily, but this deals only with financial accounts.

He said something about whether we can definitely advise the farmer how to increase his output. Well, I do not know whether I really meant that. I did, of course, say we are endeavouring to show a small number of farmers how to improve their profits. But we have, after all, other experts in the advisory service ; county organisers, grass experts, cattle-feeding experts. He also raised the question of including physical data in the financial account book. I do not wish you t o think we are satisfied with purely financial accounts, which give all the results in money. I should like to draw up our financial accounts ignoring money altogether, but I am afraid we shall not be able to do that.

Mr. Coates, I think it was, who raised many questions, to all of which I do not think I can reply. He raised the question whether the economist should run the farm for the farmer. We all know farmers do not like State interference and this might mean State interference, and the economist would have t o turn himself into a psychologist and all the other “-ologists.” With regard to my advice to the farmer who could not get a reduction in rent, I should say : “ You have done better than your neighbours. You have the choice between the frying-pan and the fire. You can stop here or take another farm, or clear out altogether.” It is not the purpose of this paper to discuss cost accounts. But as regards the records of food for stock, we have considered that scheme and several times suggested to farmers that they should put up a chart and let the men fill in the figures, but the farmers always raised objections- their men would not put down the figuies, too many people went to the same stack, they either would not put down figures or took more than they put down. And as regards wages cards or labour sheets the same objections were made-also the farmers often preferred to fill them up themselves. In anv case, the cost account to a farmer is a big piece of work. A lot of these discussions sekm to be based on the assumption that you only have to tell the farmers in your area you want 50 or 60 cost accounts and you wi l l get them. If you say : “ Keep the records and I will do the work,” even then it is with the greatest difficulty that you get cost accounts from farmers.

I do not think that is the case.

Mr. Long raised several points.

That is up t o him. Again, the question of cost accounts.

It is far easier to get financial accounts or survey accounts.

I thank you all very much for the kindly criticisms you have made.