1 The business of agribusiness
Objectives
Describe management’s role in agribusiness
Provide an overview of the functional responsibilities of management
Describe the unique characteristics of the food and agribusiness industries
Describe the size, scope, and importance of the food production and marketing system
Understand the farm-food marketing bill and what it means to producers and consumers
Provide an overview of the food sector, the production agriculture sector, and the input
supply sector
Outline trends in home and away-from-home food consumption, and trends among the
types of firms that serve these markets
Explore the production agriculture sector, and some of the key changes occurring on US
farms
Outline the major inputs used by the production agriculture sector and key trends in input
use
Understand the types of firms involved in producing and distributing inputs to production
agriculture
Discussion questions
1. List and define the four functions of agribusiness management.
Marketing management involves understanding customer needs and effectively
positioning and selling products and services in the marketplace.
Financial management involves managing the financial resources of the firm in order
to achieve a profit. This includes generating data for making good decisions,
analyzing alternatives and managing assets, liabilities and owners’ investment in the
firm.
Supply chain management involves the production and distribution of products in the
firm.
o Operations management focuses on the direction and control of the processes
used to produce goods and services.
o Logistics management focuses on the activities involved in storing and
transporting goods and services from manufacturer to buyer.
Human resources management involves managing the human side of the business,
both the mechanics of personnel administration as well as the finer points of
motivating people to offer and contribute their maximum potential.
2. What are five reasons the agribusiness sector may be considered unique? How or
why could agribusiness and firms outside the agribusiness sectors make different decisions
in similar situations?
Choices could include five of the following:
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 1
, Food as a product: Because food is a fundamental need for humans and provides the
foundation for economic development, it becomes a critical component of national
security. This results in a unique marketplace for agribusinesses with government
policies playing a bigger role in short-term and long-term growth of different
segments of the industry. Agribusinesses have to plan for changes in the US farm
policy as well as international policies impacting the trade of food products with other
countries.
Biological nature of production agriculture: This characteristic means agriculture is
susceptible to forces beyond human control, such as weather, pests, disease, etc. This
impacts agribusinesses by the amount of risk associated with their businesses, which
non-agribusiness firms do not need to consider.
Seasonal nature of the business: There is seasonality both in the demand and the
supply of agricultural products. With crops, the seasonality of production is apparent
in the harvest cycle. An example of demand seasonality is increased demand for ice
cream in the summer months. Seasonality impacts agribusinesses in many ways that
other firms may not have to consider—from financing decisions throughout the year
(both revenue and expenses are seasonal, though the cycles may not coincide) to
human resource management (hiring of temporary employees) to marketing programs
(timing of implementation).
Uncertainty of the weather: This uncertainty affects all of the players in the market—
from farm input suppliers to food retailers and consumers. Weather can have a large
impact on a firm’s sales, their day-to-day decisions, and the risk associated with doing
business in the agricultural industry.
Types of firms: There is a great variety in size and type of agribusiness firms—from
family farms to giants like ConAgra. The impact of this on agribusinesses is that their
strategic plan must be flexible enough to compete with and serve the variety of
businesses that they deal with in their market.
Variety of market conditions: The wide range of firm types and risk characteristics
results in a wide variety of market conditions; from perfect competition to duopolies.
Again, this impacts agribusinesses who have to work in several of these types of
markets so they are flexible enough to be able to deal with the types of markets their
firm works with.
Rural ties: Agribusiness is the backbone of the rural economy—many rural
communities depend on agribusinesses for jobs and income. Rural ties impact
agribusinesses in their whole approach to the market. The rural market poses
logistical challenges, human resource challenges, and financial challenges that firms
in other industries may not have to contend with.
Government involvement: The government has a fundamental role in food and
agribusiness. Many programs influence commodity prices and/or farm income. To be
successful, agribusinesses must include the impact of government involvement in
their planning process.
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 2
,3. In 2013, American consumers spent over $1 trillion on food for at home and away
from home consumption. While the marketing share percentage of the farm-food
marketing bill has stayed relatively the same over the years, the dollar amount has
increased from $441 billion to $852 billion from 1993 to 2013, respectively. What is
included in the marketing share of the farm-food marketing bill? How does the marketing
bill affect consumers? How does the marketing bill affect farmers?
Marketing includes the value added from processing, packaging, transportation, retail
trade, food services, energy, financial and insurance, and other category to make
agricultural products ready for the consumer. In 2013, for every dollar spent on food,
$0.83 was spent on marketing the product while $0.17 went to the farmer (Figure 1.2).
The marketing portion of the farm-food marketing bill benefits consumers who are
increasingly demanding convenient, highly processed food products. More food is
consumed away from home and there is an increase in the prices of many of the
components of the marketing bill as compared to the farm value of consumer food
expenditures.
Because the food marketing bill is inversely related to the farm marketing bill, the
production agriculture sector has been receiving a smaller and smaller share of the food
dollars spent by consumers. This effectively gives more control and market power to the
food sector as it controls a larger proportion of the final value of the food produced.
Farmers have responded in part by looking for opportunities to forward integrate into the
processing industries. Farm prices have been kept low due in part to increases in farm
productivity while the prices of different components of the food sector, such as labor and
transportation, have increased (see Figure 1.3).
4. One significant trend facing food retailers is the growing interest in local foods.
Interpret this trend. Do you expect this trend to continue? Why or why not?
There are a number of reasons for this trend including: increased interest in
environmental and community concerns, freshness, and taste. Consumers have expressed
a desire to support local farmers, the local economy and a desire for access to healthful
food. Farm operations with direct-to-consumer sales have increased from 116,733 to
144,530 between 2002 and 2012 (Low et al. 2015). Additionally, consumers are being
offered more opportunities to purchase directly from producers through farmers’ markets,
roadside stands, pick-your-own, on-farm stores, and community-supported agriculture
arrangements. In 2014, there were 8,268 farmers’ markets operating, up 180 percent from
2006 (Low et al. 2015). It is estimated that in 2012, local food sales totaled $6.1 billion.
It is very likely that this trend will continue as opportunities to purchase local foods
increase as well as campaigns such as “Know your famer, know your food.” Additionally,
there have been increased interest and programs designed to get more local produce into
public school systems and other institutional food service firms.
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 3
, 5. Larger and more specialized farming operations have evolved. What are the positive
dimensions of this trend? What are the negative dimensions of this trend? How does this
trend impact the food sector and the input supply sector?
The positive dimensions of this trend are that the larger, more specialized farms result in
significant increases in productivity and lower costs of production. Some of the
negatives, however, are that risk increases as farms become less diversified and debt
financing increases. Another negative is that fewer farm families can be perceived as a
loss of traditional American lifestyle. Environmental problems have been associated with
certain types of large farming operations, especially large swine, beef, and dairy farms.
This increase in farm size impacts the food sector in that there are fewer transactions
necessary to get the products produced on the farm. It also results in less expensive farm
products for use in providing food to the consumer.
For the input supply firms, it makes the market more competitive as fewer numbers of
farms exist to sell to (but with more sales per farm), and more sophisticated demands for
inputs. This can result in consolidation of input suppliers as well.
6. The US agriculture sector is incredibly efficient. What are some of the reasons for
this efficient and effective food production and marketing system? What social issues and
implications of the issues do you see for firms working in this sector?
The highly efficient and effective food production and marketing system in the US is the
result of a favorable climate and geography; abundant and specialized production and
logistics capabilities; intense use of mechanical, chemical, biological, and information
technologies; and the creative and productive individuals who lead and manage the firms
which make up the food and agribusiness industries. The US food production and
marketing system produces enormous supplies of food and fiber products. The products
not only feed and clothe US consumers but are also exported to the international
marketplace to fulfill the needs of consumer around the world.
The overall efficiency of the US food and fiber sector is illustrated by the proportion of
personal consumption expenditures allocated to food consumed at home. For the average
US consumer, less than 7 percent of their total personal expenditures are for food
consumed at home (Table 1.2). The efficiency of the US system is quite remarkable. With
8.3 percent of the world’s agricultural land and 4.4 percent of the world’s population, the
US food system produces 14 percent of the world’s livestock and 14 percent of the
world’s crops.
Social issues may include pollution, use of GMOs, pesticides, herbicides, drones, etc.
Some of the key implications of environmental regulations for firms manufacturing and
distributing inputs to farmers include the following:
Some regulations may target the manufacturing and distributing firms directly
(i.e., emissions control for chemical manufacturers and regulations on
transporting hazardous materials).
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 4
Objectives
Describe management’s role in agribusiness
Provide an overview of the functional responsibilities of management
Describe the unique characteristics of the food and agribusiness industries
Describe the size, scope, and importance of the food production and marketing system
Understand the farm-food marketing bill and what it means to producers and consumers
Provide an overview of the food sector, the production agriculture sector, and the input
supply sector
Outline trends in home and away-from-home food consumption, and trends among the
types of firms that serve these markets
Explore the production agriculture sector, and some of the key changes occurring on US
farms
Outline the major inputs used by the production agriculture sector and key trends in input
use
Understand the types of firms involved in producing and distributing inputs to production
agriculture
Discussion questions
1. List and define the four functions of agribusiness management.
Marketing management involves understanding customer needs and effectively
positioning and selling products and services in the marketplace.
Financial management involves managing the financial resources of the firm in order
to achieve a profit. This includes generating data for making good decisions,
analyzing alternatives and managing assets, liabilities and owners’ investment in the
firm.
Supply chain management involves the production and distribution of products in the
firm.
o Operations management focuses on the direction and control of the processes
used to produce goods and services.
o Logistics management focuses on the activities involved in storing and
transporting goods and services from manufacturer to buyer.
Human resources management involves managing the human side of the business,
both the mechanics of personnel administration as well as the finer points of
motivating people to offer and contribute their maximum potential.
2. What are five reasons the agribusiness sector may be considered unique? How or
why could agribusiness and firms outside the agribusiness sectors make different decisions
in similar situations?
Choices could include five of the following:
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 1
, Food as a product: Because food is a fundamental need for humans and provides the
foundation for economic development, it becomes a critical component of national
security. This results in a unique marketplace for agribusinesses with government
policies playing a bigger role in short-term and long-term growth of different
segments of the industry. Agribusinesses have to plan for changes in the US farm
policy as well as international policies impacting the trade of food products with other
countries.
Biological nature of production agriculture: This characteristic means agriculture is
susceptible to forces beyond human control, such as weather, pests, disease, etc. This
impacts agribusinesses by the amount of risk associated with their businesses, which
non-agribusiness firms do not need to consider.
Seasonal nature of the business: There is seasonality both in the demand and the
supply of agricultural products. With crops, the seasonality of production is apparent
in the harvest cycle. An example of demand seasonality is increased demand for ice
cream in the summer months. Seasonality impacts agribusinesses in many ways that
other firms may not have to consider—from financing decisions throughout the year
(both revenue and expenses are seasonal, though the cycles may not coincide) to
human resource management (hiring of temporary employees) to marketing programs
(timing of implementation).
Uncertainty of the weather: This uncertainty affects all of the players in the market—
from farm input suppliers to food retailers and consumers. Weather can have a large
impact on a firm’s sales, their day-to-day decisions, and the risk associated with doing
business in the agricultural industry.
Types of firms: There is a great variety in size and type of agribusiness firms—from
family farms to giants like ConAgra. The impact of this on agribusinesses is that their
strategic plan must be flexible enough to compete with and serve the variety of
businesses that they deal with in their market.
Variety of market conditions: The wide range of firm types and risk characteristics
results in a wide variety of market conditions; from perfect competition to duopolies.
Again, this impacts agribusinesses who have to work in several of these types of
markets so they are flexible enough to be able to deal with the types of markets their
firm works with.
Rural ties: Agribusiness is the backbone of the rural economy—many rural
communities depend on agribusinesses for jobs and income. Rural ties impact
agribusinesses in their whole approach to the market. The rural market poses
logistical challenges, human resource challenges, and financial challenges that firms
in other industries may not have to contend with.
Government involvement: The government has a fundamental role in food and
agribusiness. Many programs influence commodity prices and/or farm income. To be
successful, agribusinesses must include the impact of government involvement in
their planning process.
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 2
,3. In 2013, American consumers spent over $1 trillion on food for at home and away
from home consumption. While the marketing share percentage of the farm-food
marketing bill has stayed relatively the same over the years, the dollar amount has
increased from $441 billion to $852 billion from 1993 to 2013, respectively. What is
included in the marketing share of the farm-food marketing bill? How does the marketing
bill affect consumers? How does the marketing bill affect farmers?
Marketing includes the value added from processing, packaging, transportation, retail
trade, food services, energy, financial and insurance, and other category to make
agricultural products ready for the consumer. In 2013, for every dollar spent on food,
$0.83 was spent on marketing the product while $0.17 went to the farmer (Figure 1.2).
The marketing portion of the farm-food marketing bill benefits consumers who are
increasingly demanding convenient, highly processed food products. More food is
consumed away from home and there is an increase in the prices of many of the
components of the marketing bill as compared to the farm value of consumer food
expenditures.
Because the food marketing bill is inversely related to the farm marketing bill, the
production agriculture sector has been receiving a smaller and smaller share of the food
dollars spent by consumers. This effectively gives more control and market power to the
food sector as it controls a larger proportion of the final value of the food produced.
Farmers have responded in part by looking for opportunities to forward integrate into the
processing industries. Farm prices have been kept low due in part to increases in farm
productivity while the prices of different components of the food sector, such as labor and
transportation, have increased (see Figure 1.3).
4. One significant trend facing food retailers is the growing interest in local foods.
Interpret this trend. Do you expect this trend to continue? Why or why not?
There are a number of reasons for this trend including: increased interest in
environmental and community concerns, freshness, and taste. Consumers have expressed
a desire to support local farmers, the local economy and a desire for access to healthful
food. Farm operations with direct-to-consumer sales have increased from 116,733 to
144,530 between 2002 and 2012 (Low et al. 2015). Additionally, consumers are being
offered more opportunities to purchase directly from producers through farmers’ markets,
roadside stands, pick-your-own, on-farm stores, and community-supported agriculture
arrangements. In 2014, there were 8,268 farmers’ markets operating, up 180 percent from
2006 (Low et al. 2015). It is estimated that in 2012, local food sales totaled $6.1 billion.
It is very likely that this trend will continue as opportunities to purchase local foods
increase as well as campaigns such as “Know your famer, know your food.” Additionally,
there have been increased interest and programs designed to get more local produce into
public school systems and other institutional food service firms.
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 3
, 5. Larger and more specialized farming operations have evolved. What are the positive
dimensions of this trend? What are the negative dimensions of this trend? How does this
trend impact the food sector and the input supply sector?
The positive dimensions of this trend are that the larger, more specialized farms result in
significant increases in productivity and lower costs of production. Some of the
negatives, however, are that risk increases as farms become less diversified and debt
financing increases. Another negative is that fewer farm families can be perceived as a
loss of traditional American lifestyle. Environmental problems have been associated with
certain types of large farming operations, especially large swine, beef, and dairy farms.
This increase in farm size impacts the food sector in that there are fewer transactions
necessary to get the products produced on the farm. It also results in less expensive farm
products for use in providing food to the consumer.
For the input supply firms, it makes the market more competitive as fewer numbers of
farms exist to sell to (but with more sales per farm), and more sophisticated demands for
inputs. This can result in consolidation of input suppliers as well.
6. The US agriculture sector is incredibly efficient. What are some of the reasons for
this efficient and effective food production and marketing system? What social issues and
implications of the issues do you see for firms working in this sector?
The highly efficient and effective food production and marketing system in the US is the
result of a favorable climate and geography; abundant and specialized production and
logistics capabilities; intense use of mechanical, chemical, biological, and information
technologies; and the creative and productive individuals who lead and manage the firms
which make up the food and agribusiness industries. The US food production and
marketing system produces enormous supplies of food and fiber products. The products
not only feed and clothe US consumers but are also exported to the international
marketplace to fulfill the needs of consumer around the world.
The overall efficiency of the US food and fiber sector is illustrated by the proportion of
personal consumption expenditures allocated to food consumed at home. For the average
US consumer, less than 7 percent of their total personal expenditures are for food
consumed at home (Table 1.2). The efficiency of the US system is quite remarkable. With
8.3 percent of the world’s agricultural land and 4.4 percent of the world’s population, the
US food system produces 14 percent of the world’s livestock and 14 percent of the
world’s crops.
Social issues may include pollution, use of GMOs, pesticides, herbicides, drones, etc.
Some of the key implications of environmental regulations for firms manufacturing and
distributing inputs to farmers include the following:
Some regulations may target the manufacturing and distributing firms directly
(i.e., emissions control for chemical manufacturers and regulations on
transporting hazardous materials).
© 2016 Freddie L. Barnard, Jay T. Akridge, Frank J. Dooley, John C. Foltz, and Elizabeth Yeager 4
