Keys To Management Control In Agricultural Companies

Keys To Management Control In Agricultural Companies

The general evolution of the economy inevitably forces companies in all sectors to improve their competitiveness constantly. This is especially important in companies in complex sectors, such as agri-food. Although, from the outside, it may appear to be a simple activity, agricultural companies are among those that pose the greatest management challenges to achieving operational excellence, and this must go hand in hand with a management control system adapted to the needs of this key sector. Today’s article will deal with some of these fundamental parameters to control agricultural companies. As we have stated in numerous previous articles, having a good management control system is essential for any company. 

Still, depending on the type or sector in which it operates, it should focus its efforts on recording and analyzing the key variables for good company management. Let’s start from the basis that there is no single type of agricultural company: there are those that only grow a single variety of fruit/vegetables on owned/leased farms and sell the product to processors, to those that grow on owned/leased farms at the same time that they buy the product from third parties, handle/package it in their facilities and distribute it to the customer (supermarkets, food stores.). Each link in the value chain implies management challenges of increasing complexity as more steps of the process are covered. Therefore, we will address the fundamental parameters to control each chain link.

Countryside the agricultural value chain begins in the field. Whether through the cultivation of own or leased farms, with fixed varieties each season or crops in rotation, land preparation, fertilization, sowing, irrigation, phytosanitary control, or quality control. Are necessary until the moment of harvesting. Some key indicators here are as follows:

  • Crop yield is measured as product units concerning resources, for example, Kg per hectare, Kg per tree, etc. They are specific to each cultivated species or variety and allow us to know if our crop is reasonably productive concerning the established reference.
  • Production cost, which can be broken down based on available information, must be associated with the production unit (euros/Kg, for example). It can range from the total cost (total euros invested in the crop) to broken down items (irrigation, phytosanitary products, harvesting.).
  • Field waste is the amount of product that, once harvested, is not useful for its continuity in the primary chain for quality reasons and must be diverted to the secondary chain. In an orange tree crop, discarded oranges are usually destined for the juice or pulp sector since they would not be acceptable in the fruit sector for wholesale (because of their appearance and weight.). It is generally measured in % of unit weight. It is a very important indicator since the cost of producing a culled piece is the same as that of a normal amount. Still, the sale price of the culled selection is just a fraction of that of the normal work, so it should be minimized in everything possible.

Handling and packaging once the basic fruit or vegetable has been collected (or purchased), the next usual phase is handling, which includes storage, grading, weighing, washing, selection, packaging and dispatch. You can even contemplate methods such as cutting, cleaning and combining with other varieties to produce products with greater added value (fourth range). This part of the value chain is closer to industrial activity, so many of the usual industrial indicators can be applied. Some relevant ones are the following:

  • Handling cost, which can be broken down based on the available information, must be associated with the production unit (euros/Kg, for example). It can range from the total cost (total euros invested in the handling) to broken down by items based on the successive phases.
  • Warehouse waste is similar to field waste in nature and is measured similarly. It is common for units to be discarded during the handling phase that has not been dumped in the gathering phase. It is important to minimize this ratio, which must be done in the harvesting step through exhaustive control of the handling company.
  • Surpluses, which is the amount of final product included in the sales container but for which there is no charge, is an important magnitude when packaging units make the sale. A 500g tray of tomatoes does not carry exactly 500g since the packaging is in whole pieces, and they will rarely add exactly that amount. Given that in no case can it take less than 500g, it will almost always have a few grams more, which means that in a production of thousands of units, this means several more kilograms of product included but not charged. It is measured as a percentage and must be controlled to detect the varieties or types of packaging that involve the most excess weight, in case it is possible to optimize or eliminate combinations of the product portfolio.

From here, the distribution of the final product can follow different routes, although it is usually derived from large distribution centers until it reaches the final consumer. We will not address this phase in this article. More indicators can be incorporated into an agricultural company’s control scorecard, which will depend on its scope in the chain and subsector. In general terms, it is recommended that the company build a performance map throughout the chain to supply the demand and properly plan supplies. 

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