A major focus in today’s economic climate is efficiency. Efficiency in business and government is a catchall really meaning “Bang for the Buck.” What are we getting for our investment of money in the product whether the good or service a business provides or what is government providing for our tax dollars. With the concern over revenues for Kansas, the executive branch is asking many departments to determine and report the efficiencies of what they do. We throw the term efficiency around a lot, but what does it really mean.
A quick search reveals different definitions, for example:
• Reference.com - accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort
• Merriam-Webster.com - the ability to do something or produce something without wasting materials, time, or energy
• Wikipedia - Efficiency generally describes the extent to which time, effort or cost is well used for the intended task or purpose
• Freedictionary.com - The ratio of the effective or useful output to the total input in any system
• Businessdictionary.com - The comparison of what is actually produced or performed with what can be achieved with the same consumption of resources (money, time, labor)
This is just a brief sampling but in order to find money explicitly in the definition, you need to find an economic or business site. If you examine engineering definitions they are like the freedictionary.com definition. So in agriculture, what parameters do you use to determine “efficiency”?
Today we will consider what it is we need to examine and next week attempt to put the pieces of the puzzle together. The purpose here isn’t to provide a definitive answer but rather what options an agricultural producer has to determine efficiency.
What is being discussed here is economic product function or in English, what goes into producing a product, any product. There are four types of inputs (factors) for any output:
1. Land – This is self-explanatory in agriculture. It’s where you are producing the product and the resources it contains such as water or pasture. It may be owned or leased.
2. Labor – The workforce used to produce the product. In agriculture this may include hired help, businesses such as custom applicators or harvesters, family members, and the owner of the operation itself. Some of these receive direct compensation and some don’t.
3. Capital – This is the “stuff” or the assets used to produce the product such as machinery and technology. Capital represents the physical assets other than land.
4. Management – This component takes land, labor, and capital and is responsible for putting them together in the best combination possible to produce the output. This could be placed under human capital (labor) but we will consider it separately.
Next week how can we take these factors and begin to consider efficiency.