Financial Analysis In The Irish Farming Industry Its Uses And Its Usefulness

Barriers To A Changing Emphasis On Financial Analysis

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3.5 Barriers To A Changing Emphasis On Financial Analysis

Donaldson and Lorsch (1983) suggest that the longer a strategy has worked, it becomes increasingly difficult to adapt to a changing environment. Noorderhaven (1995, p. 138) also implies that this is an example of a structure needing to adapt to a new strategy, ‘if the structure is not adapted to the new strategy, inefficiency results’. While the authors refer to a large company structure, it can equally be implied to correspond to a sole farmer who needs to expand to maintain his income (strategy). To do this he needs to adopt the necessary support systems (structure) to make the transition successful. The use of more financial analysis in farming is part of the structure in need of change in the future; ‘organisations with an uncertainty-avoiding culture may also be expected to search predominantly for quantitative (or quantifiable) information’ (Noorderhaven, 1995, p. 156).

Noorderhaven (1995, p. 159) suggests that culture change is ‘time-consuming’ but can be achieved by:

  1. Socialisation: interaction with colleagues in special programmes

  2. Selection: hiring and promoting persons with the desired mental characteristics

3.6 Conclusion

Due to the perfect competition implications, control of farming industry revenues are largely determined by the market and government intervention. The farmer merely operates at the level of production that can be provided by his underlying capital resources. At this level, less financial analysis is needed than in a typical profit-seeking business. However, capital budgeting, cash flow analysis, comparing departmental profitability, eliminating non-value added activities and improving production processes are still aspects within the farmer’s control.

Due to the Common Agricultural Policy reforms, output levels will need to expand in most cases, prompting increased need for planning, control and decision-making in the life of the farmer. This makes cash flow and return on investment analysis an important part of decision-making. However, culture and tradition remain potential barriers to change.
This thesis will investigate how the details reviewed so far are currently verifiable in practice.

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