2. introduction to agribusiness

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Introduction to Agribusiness

MGMT 222



What is Agribusiness? - Definition

Agribusiness: an industry engaged in the

producing operations of a f arm, the

manufacture and distribution of farm

equipment and supplies, and the

processing, storage, and distribution of farm products.

Agribusiness: all activities from the

paddock to the consumer that are

relevant to the eventual production,

transformation / value adding,

distribution and retailing of food and fibre

and their associated products.



How important is Agribusiness



Is this Agribusiness?



Is this Agribusiness?

Treatment of gun-shot defectof the foot with bovine collagen

matrix application

Bovine collagen matrix is ideal

biological dressings used inwound treatment



Land based physical constraints, limited resource, difficult to change Capital good and production good is the same

Product is harvested (not produced or mined) when remove the product you

also remove some of the production unit. Trees forestry, grass/grain

Increasing capital good (breeding stock) requires limiting short term

production

Biological product

Annual production cycle constraint Time (cant speed up time)

Reproduction constraint Amount (1 f awn/year)

Part of ecosystem pests & diseases

Climate solar radiation, wind, temp, rain

Historical and Emotional



MRS GREN

Here are the seven activities of all living things.

Movement - Even plants move, such as opening and closing petals, and turning to

f ace the sun.

RespirationBreathing. - Animals breathe in oxygen, and breathe out carbon

dioxide. Plants breathe in carbon dioxide, and breathe out oxygen.

Sensitivity - Plants are sensitive to light and gravity (stems grow up and roots grow

down). Animals are sensitive to many things such as noise and light.

Growth - Do I need to explain this?

Reproduction - Babies! Plants and animals can make more of themselves.

Excretion - All living things give off waste, such as moisture (eg. sweat) or going tothe toilet!

Nutrition Food. - Animals need to eat food, but plants make their own food using

light.



Natural & Social System



Carrying Capacity



Human Population Growth



Can we increase agricultural production before population catches or arewe already affecting carrying capacity by environmental damage?

Ability to Increase Carrying Capacity



Loss of Carrying Capacity



What is Agribusiness?



Five characteristics

1. Long investment cycles

2. Production uncertainty

3. Many small-scale producers of commodity products

4. Perishable products and issues of food safety5. Substantial trade barriers



Long investment cycles

The time from initial investmentto production outcomes is long

Perennial crops (3 10 years)

Forestry products (30 years+)

Pasture seed

Beef cattle, deer industries



Long investment cycles

Implications: Consumer demand can change

between investment decisions

and production outcomes

The supply situation can change

due to investment decisions by

competitors (most common)

Government po licy, Exchange

rates, Inf lation etc

Business strategies must belong-term



Production uncertainty

Level of production is inf luencedby climate, pests, and diseases

Implications:

Amount of product that enters the market varies

Where uncertainty can be minimised, large-scale production is easier

to achieve



Small-scale producers of commodity products

What are commodities?

A commodity is something for which there is

demand, but which is supplied without

qualitative differentiation across a market. Un

branded

What is small? Owner needs knowledge and

understanding of production. Large capital

cost, risk, low returns

Implications:

Management of R&D difficulty raising

funding and capturing benefits



Issues of quality management

Perishability (Seed loses germination, fresh fruit spoils)




Food safety (food safety issues reduce shelf-life, traceability, bio-security costs and delays)

Obama on Food Safety

http://www.youtube.com/watch?v=WjX0iJU3vtY

Friday 1 May 2009 Sesame seed products recalled because of salmonellaSome own-brand sesame seed products sold by Asda, Co-op, Tesco and Waitrose have been recalled

because of the presence of salmonella. Salmonella is a bacterium that causes food poisoning. The Agency

has issued a Food Alert for Information.




Implications: Storage

Product information f lows

Nature of business interactions



Trade barriers

Examples: Import tariffs

Import licenses

Import quotas

Non-tariff barriersto trade

Export restitutions

(subsidies)



Trade barriersAverage tariffs in industrialised countries

0

10

20

30

40

50

1940 1950 1960 1970 1980 1990 2000 2000

Agric.



Subsidies

Total Producer Support of Farm Income Support as a Share

European Union $133.4 33%

Japan 48.7 56

United States 46.5 18

South Korea 19.8 63

Turkey 11.6 27

Switzerland 5.8 68

Canada 5.7 21

Mexico 5.4 17

Australia 1.1 4

New Zealand .3 3

Total $279.5 30%

*Producer support estimate, in billions U.S. $

Source: Organization for Economic Cooperation and Development

Table 1: Government Support for Farm Production in 2004



Reasons for Agricultural protection

Secure food supply (self-sufficiency)Guarantee high quality standards

Positive impact of agriculture on society

(preserve cultural heritage, landscape

management, generation of bio-energy,agro.tourism,...)

Strong lobbying groups

Growing populations will demand more

agricultural commodities in the future.



Other characteristics?

Seasonality of supply Examples:

Fruits and vegetables

Grains

Dairy

Lamb



Other characteristics?

L

and-based? Quality of land andclimate important to production,

difficult to change, cant shift to near

markets

High share of labour in agriculture

relative to GDP

Does this mean that the agricultural

sector is less industrialised? Less capital

intensive?

Traditional and industrial practices co-

exist? Diversity of production

methods?

2. introduction to agribusiness

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