© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Agribusiness

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Define and describe agribusiness. Discuss the origins of agribusiness and trace its development. Understand the difference between agribusinesses and traditional businesses. Identify major components of agribusiness today.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recognize the changing face of U.S. agribusiness. Understand the importance of the management model to agribusiness. Appreciate the growing opportunities in agribusiness. Learning Objectives

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Changing Face of Agribusiness in the United States In today’s economic structure, agribusiness jobs are predominantly non-farm jobs. Ninety-eight percent of U.S. farms are family operations. “Family” designates type of ownership, not size of operation. Consolidation of operations is occurring.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agribusiness as an Opportunity Historically, agricultural productivity from two resources: land and labor. Today, productivity resources are from: – Biotechnology – Improved animal husbandry – Improvements in machinery and chemicals Future: application of management.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Agribusiness? Agribusiness: – Production, distribution, and consumption of food, clothing, and shelter. – All economic activity in food and fiber system. – One of the largest industries worldwide. – One-fifth of U.S. gross national product. – Employs one-quarter of U.S. labor force.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Agribusiness? The Core Industries – Inputs: seeds, fertilizer, financing, equipment used in production. – Intermediate activities: grading, storage, processing, packaging, distribution, pricing, marketing. – Final consumption activities: restaurants, groceries.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Agribusiness? The Core Industries – Input supply industries – Production agriculture (farming and ranching) – Value-added activities

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Agribusiness? The Chain of Agribusiness—The Value Chain – Begins with raw materials and commodities of relatively low value. – Each step in chain modifies material or commodity and adds value to product derived from its step. – Both food and non-food products involved.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Agribusiness?

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Development of Agribusiness The Early Influence of Agriculture – Egyptians and Mayans: agriculture afforded time and food to initiate huge “human resource” rich projects. – Switch from hunter-gatherer culture to agricultural- based culture great leap in technology.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Development of Agribusiness The Early Shift Toward Controlling Nature – Developing rule of law. – Land ownership and acquiring possessions. – Large families (cheap labor). – Astronomy to understand the seasons. – Leadership hierarchies or management. – Establishing towns. – Using subsidiary or support tradespeople.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Development of Agribusiness Mutually Supportive Relationship Between Agriculture and Local Communities – Support industries critical to agricultural development. – Towns/farms grew in conjunction with each other. – 1700s: virtually all households farmed. – Whole value chain essentially carried out on farm.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Development of Agribusiness Early Technological Innovations – Railroad and telegraph: infrastructure for conducting business. – Enlarged definition of “local market.” – Beginning of agribusiness. – Advent of greater competition within and among production regions. – Farming no longer limited to traditional lands.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Development of Agribusiness Increased Specialization from Innovations Related to Chemistry and Biology – New chemistries: fertilizers, pesticides. – New varieties of crops: early maturation, larger yields, greater capacity to withstand transportation. – Establishment of “land grant universities.”

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differences Between Agribusiness and Business Family Orientation or Intent – Almost all agribusiness ventures begin as family endeavors. – Intent of entrepreneurial founder is to keep agribusiness in the family.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differences Between Agribusiness and Business Initially Tied to Location or Commodity – Agribusinesses initial competitive advantage tied to a location and/or commodity. – Location determined nature of business. – Commodity: fungible good with little or no qualitative differences.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differences Between Agribusiness and Business Needs Risk Mitigation – Risk management: control uncertainties and dangers by assessing them and developing strategies and tactics to reduce them. – To mitigate risk: Formation of commodity trading industry. Development of forward sales and hedge industry. Introduction of “puts and calls” and derivatives.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Produces Ingestible or Wearable Products – Agribusiness products personal because you consume them or wear them. – Develop loyalties to products. Differences Between Agribusiness and Business

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differences Between Agribusiness and Business Produces Highly Perishable Products – Five characteristics in agribusiness firms: Family-orientation/intent Location/commodity-based Risk-management/mitigation Ingestible/wearable product Relatively high perishability

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agribusiness Today Connection to agriculture Connection to the sciences Connection to financial structures Subject to political considerations Characterized as economic paradox Close ties to natural resources

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Management Model Roles and skills Environments Planning Organizing Leading Controlling

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Management Model

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Agribusiness: all economic activity in food and fiber system. – Input supply industries – Agricultural production and post-harvest value-added activities – Food manufacturing – Food distribution Value chain: food and non-food items.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Industry shelf life important because agribusiness products are perishable. Agribusiness emerged as agriculture and went through disruptive technology that radically transformed markets, creating paradigm shift. Commodity and location orientation of agribusiness are distinguishing characteristics and lead to risk management. Chapter Summary