Agricultural Economics and Rural Sociology and Rural Sociology The Agribusiness ManagementSimulation John Foltz and Leroy Stodick

The Agribusiness Management Simulation  Computer simulation of business environment

 Firms attempt to achieve management goals The Agribusiness Management Simulation

 Management teams encounter a market:  Partly predictable

 Management teams encounter a market:  Partly predictable  Also marked with uncertainty ?

 Management teams encounter a market:  Firms compete to purchase raw material A, used in production of finished products B and C  Partly predictable  Also marked with uncertainty ?

Decisions  Each team makes management decisions concerning:  Production  Insurance

Decisions  Each team makes management decisions concerning:  Production  Pricing  Insurance  Workforce $

Decisions  Each team makes management decisions concerning:  Production  Pricing  Advertising  Insurance  Workforce  Expansion For Sale $

Objectives  Develop an understanding of market forces which characterize competitive business environment. PDS Q

Sales COGS Expenses Salaries Utilities Net ProfitObjectives  Develop an understanding of market forces which characterize competitive business environment.  Enhance ability of using tools such as:  Balance Sheet  Financial Ratios  P &L Statement 13,200 1,467 58,969 73,636 5,350 19,245 24, , , ,636 35,232 65,865 Debts Assets P DS Q

Objectives  Hone teambuilding skills.

Instructor Variables  1. Business cycle – will vary through the following range:  Rapid Expansion  Moderate Expansion  Slight Expansion  Neutral  Slight Contraction  Moderate Contraction  Severe Contraction

Instructor Variables  2. Short-term interest rate.

Instructor Variables  2. Short-term interest rate.  3. Long-term interest rate.

Instructor Variables, Cont.  4. General dividend yield rate.  Firm’s yield rate > General yield rate, then  market value of stock tends to rise, and vice versa.

Instructor Variables, Cont.  4. General dividend yield rate.  Firm’s yield rate > General yield rate, then  market value of stock tends to rise, and vice versa.  5. Probability of disaster.

Firm Variables  1. Bid price of raw material A:  Firm always gets amount requested up  to firm’s production capacity.  Purchase price depends on competition.  Local market & natl. market.  If firm is forced to buy on the natl. mkt.,  Cost of A = natl. price + $15.00 shipping.

Firm Variables  2. Bid price of finished product B:  B is a fairly homogeneous product,  which has relatively elastic demand.

Firm Variables, Cont.  3. Price of finished product C.  C is a differentiated product, which has  relatively inelastic demand.

Firm Variables, Cont.  3. Price of finished product C.  C is a differentiated product, which has  relatively inelastic demand.  4. Quantity of A to purchase.  Cannot be more than production  capacity (measured in units of A).

Firm Variables, Cont.  5. % of A used in production of B  (and implicitly % of A used in C).  1 unit of A =.73 units B if only B produced  1 unit of A =.65 units C if only C produced  Increase efficiency by producing both. 

Firm Variables, Cont.  6. Change in unskilled labor -- takes effect  immediately:  10 initially, $15,000/yr.  If no addtl. skilled workers hired:  each addtl. unskilled hire =  + 1,000 units A capacity.  If addtl. skilled workers hired:  1st addtl. unskilled hire = 2,000 units  A capacity, and each addtl. unskilled  hire = + 1,500 units A capacity.

Firm Variables, Cont.  7. Change in skilled labor -- takes effect  immediately:  4 initially, $25,000/yr.  1st addtl. hire = +3,000 units A capacity  2nd addtl. hire = +2,500 units A capacity  3rd and above = +2,000 units A capacity

Firm Variables, Cont.  7. Change in unskilled labor -- takes effect  immediately:  4 initially, $25,000/yr.  1st addtl. hire = +4,000 units A capacity  2nd addtl. hire = +3,000 units A capacity  3rd and above = +2,000 units A capacity  8. Change in sales personnel -- takes effect  immediately:  0 initially, $40,000/yr.

Firm Variables, Cont.  9. Advertising $ for B.  Affects this period only. Advertising for  this product is kind of like “check-off”  dollars for dairy producers. The  advertising $ spent help your firm, but  also help everyone else in the industry.

Firm Variables, Cont.  10. Advertising $ for C.  Carries over some to future periods.  Advertising affects only demand for  your product. You are building “brand  equity.” In addition, the carry-over effect  is mimicking what happens in the real  world with frequency of advertising  building awareness and demand.

Firm Variables, Cont.  11. Purchase of increased production  capacity for A -- takes effect NEXT period:  10,000 units initially  Can purchase additional capacity for  $60,000/unit -- EACH UNIT can process  1000 units of A.

Firm Variables, Cont.  12. Purchase of new storage for B & C --  takes effect next period:  1,000 units capacity initially  If inventory of B & C exceeds capacity,  rent = $6.50/unit.  Can purchase additional 500 unit  warehouse for $22,500/warehouse.

Firm Variables, Cont.  13. Disaster insurance premium:  $15,000

Firm Variables, Cont.  14. Payment on short-term notes:  Long - term debt is repaid through short -  term notes. A firm can pay up to  maximum reported on results sheet.

Firm Variables, Cont.  14. Payment on short-term notes:  Long - term debt is repaid through short -  term notes. A firm can pay up to  maximum reported on results sheet.  15. Dividends to be paid.

Firm Variables, Cont.  14. Payment on short-term notes:  Long - term debt is repaid through short -  term notes. A firm can pay up to  maximum reported on results sheet.  15. Dividends to be paid.  16. Investment in money market.

Firm Variables, Cont.  14. Payment on short-term notes:  Long - term debt is repaid through short -  term notes. A firm can pay up to  maximum reported on results sheet.  15. Dividends to be paid.  16. Investment in money market.  17. Investment in stock market.

Firm Variables, Cont.  18. Consulting fees.  If your firm is really stuck for what to do,  instructor will help for a price!

What You Do  1. Each team will be given a user ID and  password, with which to access the  Agribusiness Management Simulation  on the Internet. Each firm should decide  who will be their data entry person  (However, all team members can access  the program).

What You Do  1. Each team will be given a user ID and  password, with which to access the  Agribusiness Management Simulation  on the Internet. Each firm should decide  who will be their data entry person  (However, all team members can access  the program).  2. The data is entered on the Internet Site,  and the simulation will be run at a time  specified by the instructor.

What You Get  1. After a simulation is run, the results are  available for displaying or printing.

What You Get  1. After a simulation is run, the results are  available for displaying or printing.  2. If your instructor has not made them  available at the outset, Balance sheets,  income statements and financial ratios  will be available for viewing during a  later time period.

Examples of Output

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