A CIMA 2009 report on the UK agriculture industry reports how farmers in general do not prioritize cost management. This may be partly due to EU subsidies, which distracts farmers from a business/cost focus, and partly due to a lack of product visibility through the supply chain to end consumers. The report cites earlier work by Prof. Lisa Jack, who found that farmers were in some cases ‘designing to cost’, which affected how farmers tilled their fields, organized their milking parlours and reduced waste. While farmers did not call it so, Jack points out that what they are doing is target cost management. She defines target cost simply as the anticipated price less the required return. While a simple concept, a number of problems are posed for agriculture. First, the price of agricultural produce fluctuates.

Second, the concept of return is not something farmers frequently use in typical farm accounts. Jack argues, however, that if farmers can get a better understanding of their costs, and what is a fair return, they may be able to increase their profits or cut costs to match the prevailing price for their produce.

Questions 

1 Would a good understanding of the food supply chain help farmers embarking on a target costing exercise?

2 Could a collaborative approach, whereby farm costs are shared with others, help improve profit margins?