Structure of the Food & Fiber Industry Linkages to the Farm Business Sector LESE 306 Fall 2008

The Farm Business Sector

General Economic Influences

Impacts of Macro economic Policy Interest rates Inflation Economic growth Unemployment Budget deficits National debt Exchange rates Trade balance

General Economic Influences

Impacts of International Trade Comparative advantage Trade deficit Trade agreements WTO rulings Importance to agriculture Energy related issues

General Economic Influences

Impacts of Domestic Economy Consumer spending is 70% of GDP Income affects the demand for food and fiber Energy and and other prices Population Tastes and preferences

Food And Fiber System

Impacts of Farm Input Supply Sector Source of new technology and productivity Increased consolidation of suppliers Price setters to farmers Firms have become more diversified in recent years

Food And Fiber System

Impacts of Processing and Manufacturing Sector Add value to raw farm products Price setters to farmers Contracts with farmers Narrow profit margins Compete for shelf space

Food And Fiber System

Impacts of Wholesale and Retail Trade Interface with consumers Price setters to consumers Just in time inventories Changing structure over time. Food safety Packaging trends

Unique Policy Influences

Impacts of Farm Policy Commodity policy sets rules for farm subsidies Price and income important historically Storage of surplus production

Unique Policy Influences

Impacts of Environmental Policy Conservation programs Chemical application regulations Water pollution Air pollution Global warming concerns

Important Market Linkages

Impacts of Farm Credit Markets Indicators of financial stress Cost and availability of farm operating and mortgage loans Subsidized credit programs Financial crisis in the 1980’s

Important Market Linkages

Impacts of Labor Markets Cost and availability of hired farm labor Importance of off-farm employment to farm operator families. Impact on consumption

Important Market Linkages