Introduction to Agribusiness Agricultural Business Unit 1:The Meaning and Importance of Agribusiness

What Does Agribusiness Mean To You? Write in your notebook your definition of agribusiness. Turn to your neighbor and discuss answers. (Write your neighbors name down in your book) Write two things about your neighbor’s definition that you did not think about.

Agribusiness “The sum total of all business activities involved in the production processing and distribution of agricultural products for the consumer”

What Agribusiness Is… daily operation decision making planning evaluating must understand all aspects of the business maximize profit

Introduction to Agribusiness Agricultural Business Unit1: Agribusiness Sectors

Agribusiness Sectors Production Input Marketing Agriculture Business 1.2.2

Introduction to Agribusiness Agricultural Business Unit1: Goal Setting, Decision Making and their Importance

Characteristics of Decisions Importance: meet goals Frequency: daily, yearly Imminence: how soon Revocability: can it be reversed? Available Alternatives: choices

Strategies for Decision Making reduce number of daily decisions collect data for alternatives establish priorities

What are the steps in the Decision Making Process? 1) define the problem (own or rent machinery or land) 2) gather information about alternative solutions 3) Evaluate alternative solutions

What are the steps in the Decision Making Process? 4) make decisions consistent with goals and objectives 5) take action 6) evaluate and accept consequences of your decision

What are Goals? broad statements that show where you want to be after some period of time make a profit every year increase grain sales by 12% over 5 years

What are Objectives? the steps that must be taken in order to attain goals Some examples: - increase wheat production by 30% next year - keep accurate records

What are the advantages of setting goals? Provides “road map” Distinguishes between goals & objectives Makes it easier to get where you are going Prepares you to meet the future

What are the advantages of setting goals? You see the big picture & focus on critical relationships Gives you purpose and direction Frees you from worries and uncertainties about where you are headed

Guidelines for Setting Goals Your own your goals Goals in writing Realistic and attainable Target dates, time limits Goals should be compatible Remember SMART!

What are the types of Goals? Short Term Goals: attainable in less than 1 year Intermediate Term Goals: 1 to 10 years Long Term Goals: more than 10 years

Priorities of Goals Dollar Value Time Orderly Sequence

How Do you Reach your Goals? Review goals Use time and effort wisely Organize Check for slow moving goals Modify goals

Introduction to Agribusiness Agricultural Business Unit 1: Economic Systems

Three Economic Questions What goods and services will be produced? What do we have? How will they be produced? Hand > machine > elsewhere Who gets the stuff?

3 Economic Systems Economic system (economy) – an organized way of providing for the wants and needs of people. 1). Command 2). Market 3). Traditional

Command Economies Economic activity is planned out by the government, with people having little influence. Examples: Cuba North Korea Former Soviet Union

Command Economies - Pros Allows an economy to change direction very quickly. After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.

Command Economies - Pros Little uncertainty as to who will do what. No unemployment because the government gives everyone a job (whether it is needed or not).

Command Economies - Cons Not designed to meet the wants of consumers. Stalin’s Five Year Plan directed resources away from both agriculture and consumer goods. Provides strange incentives Do just enough to meet quotas.

Command Economies - Cons No rewards for individual performance. No flexibility to handle problems. Great Depression disrupted the USSR’s First Five Year Plan Requires a large decision making agency. Stalin’s Five Year Plans governed all economic activity in Russia…that’s a lot of paperwork!

Market Economies People and businesses act in their own best interests to answer the three basic economic questions.

Market Economies – How they work Lure of personal and financial gain leads consumers and businesses to interact in various markets. Each person acts as they see fit in order to advance their own interests.

The First Economist – Adam Smith “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

Market Economies - Pros Economy can adjust to change over time Businesses can adapt to changing consumer tastes by creating new/different products. High degree of individual freedom Businesses and individuals are free to do what they want.

Market Economies – More Pros Small degree of government interference (Mixed Economy) Economic decisions are made by all, not limited to government officials. Seemingly unlimited variety of goods and services available to consumers

Market Economies - Cons Does not provide for the basic needs of everyone. Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.

Market Economies – More Cons Does not provide certain services that people value. National Defense & Education. High degree of uncertainty Jobs going overseas Market Failures

Traditional Economies Economic activity is based on tradition with roles determined by previous generations. Examples: Medieval Europe Various hunting tribes in Africa and northern Canada

Traditional Economies – Pros Everyone knows what their role is. Life is generally predictable and stable.

Traditional Economies - Cons Discourages new ideas and new ways of doing things. Lack of progress leads to a lower standard of living.

The US Economic System Mixed Economy Capitalism Based on 4 important principles Private Property Freedom of choice Profit Competition

Economic Goals Economic Freedom Economic Equity Economic Security Price Stability

Economic Freedom Individuals have freedom to choose their own occupations, employers, and spending habits. Businesses have freedom to choose how and where to produce goods/services. Are we meeting this goal?

Economic Equity People should receive equal pay for equal work. People should receive adequate pay for the work they perform. People should all have the same opportunities to get ahead. Are we meeting this goal?

Economic Security We should have protection from negative economic events such as layoffs and injuries. Social Security – federal program that provides disability and retirement benefits. Everyone should have their basic needs met. Are we meeting this goal?

Price Stability We should have stable prices that protect against inflation. Inflation – a rise in the general level of prices. Are we meeting this goal?

When economic goals are not met… …People get mad!!!!!!!

Introduction to Agribusiness Agricultural Business Unit1: Free Enterprise

Free Enterprise System Freedom is the principle on which the United States was founded. Freedom is also the cornerstone of the American economic system. It is often called the free enterprise system because of the freedoms of the marketplace.

Free Enterprise System Features Owning private property is one of the most basic freedoms of the free enterprise system. Individuals and businesses in the United States (US) are free to enter into contracts.

Free Enterprise System Features Individuals in the US are free to make personal choices and communicate those choices through the price system. Individuals in the US are free to engage in free enterprise and competition. The American economic system is relatively free from government interference.

Goals for Free Enterprise A major goal of the American economic system is to maintain economic freedom. Another goal of the free enterprise system is efficiency.

Goals for Free Enterprise A sense of justice for all is part of America's heritage, and in economic terms this goal is known as economic equity. Economic security is another goal the government works toward. The last aim of the free enterprise system is economic growth.

Introduction to Agribusiness Agricultural Business Unit1: Sole Proprietorships, Partnerships, Corporations, LLCs, and Cooperatives

A Business Organization Should: Be simple Provide access to sufficient resources such as capital, land, labor Encourage planning ahead for as many years as possible

A Business Organization Should: Increase efficiency - land - labor - capital - machinery Distribute benefits fairly on the basis of contributions to the business

Factors to Consider Who owns the business organization Ability to acquire resources Life of organization What is the Liability of the owners

Factors to Consider Who makes Management Decisions? How to transfer ownership Problems for tax planning? Problems for estate planning?

Types of Farm Business Organizations Sole Proprietorship Partnership Corporation LLC Cooperatives

Sole Proprietorship Most business use this 85.7% of US farms Easiest to form Few government restrictions

Sole Proprietorship Sole management decisions May quickly expand or contract bus. Receive all the profit, thus more work incentive No disagreements with partners

Sole Proprietorship Raising capital may be difficult May not have time to make careful management decisions Must like to make decisions Responsible for all debts May be physically unable to continue an enterprise

Raising Capital under Sole Proprietorship Lease rather than own Owner/Manager does all the work Parents may cosign loans Rent parents equipment Off-farm income

Partnership An association of two or more co-owners Death dissolves the partnership unless other arrangements made Each member liable for all debts Property may be owned by partnership or individual owners Profit/loss divided according to specific agreements

Partnership Goals of all partners should be same Must respect opinion of partners Business large enough to support all partners Complete records, sound management, common sense with $ Written agreement Pooling of capital and knowledge

Partnership Share management and labor Each partner is liable for the other’s wrong doings Unlimited liability of each partner may restrict credit use

Partnership Agreement Written document Transfer of ownership at the termination of the partnership Machinery lease Life insurance to help buy out partner upon death

Partnership Agreement Purchase Liability Insurance Who makes management decisions Who does records How are partners paid based on contributions to partnership Partnerships fail because of misunderstandings

Limited Partnership One or more partners liable for debts and obligations Limited partner can not participate in the management of business Limited partners name can not appear in the partnership name In writing Specifically indicate share of profit Consult an attorney “Silent Partner”

Farm Corporations

Farm Corporation Advantages Possible access to more capital Pool money together

Farm Corporation Advantages Separation of ownership and management Ex: One or two children can manage the farm, while all the siblings share in the ownership

Farm Corporation Advantages Ease of continuing in business Upon death of a stock owner, only the stock is subject to probate, not the assets

Farm Corporation Advantages Easily transferred ownership Sell or give away stock in the bus. Gifts of stock do not have to be recorded with the county clerk (more private)

Farm Corporation Advantages Opportunity for tax savings Some benefits (insurance, profit sharing plans) are tax deductible

Farm Corporation Advantages Limited Liability Shareholder’s liability limited to the amount of their contribution

Farm Corporation Disadvantages Complicated and costly to organize Filing fees Articles of incorporation Initial legal and accounting expenses

Farm Corporation Disadvantages Continuing costs to maintain a corporation

Farm Corporation Disadvantages May be difficulty in obtaining credit lenders may be unfamiliar with the corporation more complicated borrowing procedures

Farm Corporation Disadvantages May be no freedom of action Corporation money can not be spent on personal things Management decisions must be made in accordance with corporation policies, bylaws

Farm Corporation Disadvantages Lawsuits If personal items are transferred to the corporation, they may be taken as assets of the corporation if sued

Farm Corporation Disadvantages Minority stockholder problems Second generation stockholders may not be satisfied with dividends and rights

Farm Corporation Disadvantages Income tax laws are unique

Farm Corporation Disadvantages Corporations may cause complicated and expensive termination Only incorporate if you intend the business to continue indefinitely

S-Corporation Mostly the same as a regular corporation Is not taxed as a separate entity All the tax items are passed on to the stockholders much like a partnership

Cooperatives

Cooperatives Not intended to make a profit Owned and controlled by the member-patrons Profits are returned to the members based on patronage

Kinds of Cooperatives Marketing Coops Purchasing Coops Service Coops grain elevators, dairy products, orange juice Purchasing Coops feed, fuel, fertilizer, supplies Service Coops food buying, feeder pigs, electricity Processing Coops Credit Coops PCA, Federal Land Bank, Bank of Cooperatives

Purposes of Cooperatives Improve economic well-being of farmers Securing higher market prices Securing more favorable input prices Provide new or improved services Provide credit Become involved in processing

Characteristics of Co-op Owned by members who use them Member control each member has voice in business affairs each member helps select board of directors Non-profit basis Mutual interest and needs of members

Characteristics of Co-op Members share risk in proportion to amount of business they do Members select board of directors responsible for management, policy, insuring that coop is managed according to the wishes of the majority of members

Financing a Cooperative Sell stock in the Co-Op stock can not appreciate in value Use Co-Op funds to finance and invest in long-term assets