TOPIC 1

PPT 3201
Principles of Agribusiness
Management

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THE AGRI-FOOD
SYSTEM

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THE SCOPE AND SIZE OF THE AGRI-FOOD
SYSTEM
• The agri-food system is made up of a variety of different
agribusiness firms and includes more than just farmers
and ranchers.

• Component industries of the agri-food system include:

 Input suppliers
 Producers
 Commodity Processors
 Food Manufacturers
 Food Distributors
 Food Retailers

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 Food
Product Flow Consumers
in the Global
Agri-Food System cts
d u
r o Food Retailers
d P
o o
F
Food
Manufacturers
ors
s ut
i e Commodity i b
it t r
od Processors i s
n t
o mm d
D a
C o W
ri Fo s
Ag er
Farms and Ranches s um
o n
t C
h a
W
Input Suppliers 6
WHAT IS AGRI-FOOD SYSTEM?
• The term agri captures all the activities
associated with the production of agricultural
commodities.

• The term food captures all the activities

between production and final consumption of
food products.

• The term agri-food system is used to capture

the full dimension of interaction between all
these parts.

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PEOPLE BUY FOOD FOR A HIERARCHY OF
REASONS

Status and Causes

Living Well
Promoting Health

Convenience

Tastes Good and Variety

Nutritious, Safe, and Affordable
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 The
The Processing-
Productio Manufacturing
n Sector
Sector

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 THE INPUT SECTOR
• Agricultural chemicals – fertilizer manufacturers,
pesticides manufacturers
• Agricultural credit – farm credit system, commercial
banks
• Energy – oil companies, electric utilities
• Feed – Feed manufacturers
• Farm machinery – farm equipment manufacturers
• Labor – Contract labor, migrant workers
• Livestock and poultry – farmers, ranchers
• Management information – cooperative extension
service, farm consultants
• Real estate – individuals, realtors
• Seed – seed manufacturers
• Water – water districts, private wells 11
THE PRODUCTION SECTOR
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 THE PRODUCTION SECTOR
Also known as the farm sector.

Farmers – commodity crops, fruit and

vegetables, poultry
Ranchers – Cattle, sheep
Nurseries – Flowers, ornamentals
Fisheries – ocean fish, fish farms

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 THE PROCESSING-
MANUFACTURING SECTOR

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 THE PROCESSING-MANUFACTURING
SECTOR
“Transforming commodities to food products”

• Food processors – grain millers, food

manufacturers
• Foodservice distributors – broad line
foodservice distributors, specialty foodservice
distributors
• Food retailers – supermarkets, convenience
stores
• Foodservice establishments – restaurants,
institutions
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We will focus on the concept of
Agri-food System as a subset of
Agribusiness System

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Agribusiness System/Agri-food System

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AGRIBUSINESS MANAGEMENT

Simple Definition - The making of

business decisions that tend to
maximize net income consistent with
the operators objectives.

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 AGRIBUSINESS MANAGEMENT
• Encompasses many aspects of the economy:
 agricultural producers
 businesses that provide supplies and services to
the producers (including cooperatives)
 businesses that add value to agricultural
products
 those that facilitate the marketing of
agricultural products to an ever-growing
marketplace.
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 AGRIBUSINESS MANAGEMENT:
THE INTEGRATOR OF THE
DISCIPLINES
• “Science remains in the laboratory unless there is incentive to
adopt the knowledge. This is the difference between science
and technology. (Agribusiness Management) is the integrator.”

Source: Paarlberg and Paarlberg (2000). The Agricultural Revolution of the 20th
Century, p. 59.

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AGRIBUSINESS MANAGEMENT

• Management is the sole responsibility for

decision making.
• Relevant information, tools and methods will be
needed to help managers to make decisions.
• E.g.: Managers use analysis software, economic
principles, budgets, record summaries,
investment analyses, financial statements for
making decisions.

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SIMPLE EXAMPLE

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PRODUCT: PALM OIL

SECTOR: INPUT
EXAMPLE: ???
SECTOR: PRODUCTION
EXAMPLE: ???

SECTOR: PROCESSING
EXAMPLE: ???
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 WHAT AGRIBUSINESS DECISIONS
NEED TO BE MADE?
 What to produce?
 How much to produce?
 What kinds and amounts of resources to use?
 What technology to use?
 When to buy and sell?
 How to finance?
 Who are the customers?

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 WHO MAKES THE DECISIONS?
 Farm Operators
 Landlords
 Farm managers
 Farm Advisors
 Government
 Financers
 Agro Entrepreneurs
 Smallholders

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 Example: Farming Operations
• Low Volume, High Value Producers
- Cannot expand so they produce higher valued products.
- Promotion and marketing activities become critical.
• High Volume, Low Margin Producers
- Generic feed and food grain producers such as rice, wheat,
maize, tapioca (cassava) .
- Expand their production to increase farm profitability.
• Specialty Product and Service Providers
- Specialize in one or two skills and become the best at
performing those services.
- E.g.: GIS service providers
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 IN-CLASS EXERCISE
• What is the role of business management in the
success of the agri-food system?
• Identify the three major sectors of the agri-food
system and give examples for each sector.
• Explain why you are optimistic or pessimistic about
the agri-food system’s ability to produce enough
food to feed a hungry world. What are the biggest
challenges it will face in achieving this crucial goal?

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 PROBLEM SOLVING AND DECISION
MAKING
 When starting and organizing an agribusiness firm,
the owner will have a number of decisions to make
and problems to solve.
 Decision making is the term that describes the
process used to choose the new and different action.
 Decision making may involve setting new goals to
solve a problem.
 In extreme cases, when a problem cannot be readily
solved, the decision may actually be to do nothing at
all.

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 Various styles of decision making
 Individuals make decisions in a variety of different
ways.
 The criteria they use to make decisions may also
differ from person to person and even time to time.
 Three styles of decision making
 Reflexive
 Reflective
 Consistent

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 Styles of decision making
1. Reflexive decision making. People with this
style make decisions quickly.

2. Reflective decision making. People with this

style consider all the options and
consequences before making a decision.

3. Consistent decision making. People with this

style consider all the options and still make
decisions in a timely manner.

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Steps in Problem Solving and Decision
Making
1. Identifying the problem
2. Determining alternative
courses of action
3. Analyzing the alternatives
4. Selecting the best
alternatives
5. Implementing the
decision
6. Following up (Monitoring
the decision)

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 Good Manager vs. Bad Manager
• Takes Pride • Careless
• Neat • Unorganized
• Plans ahead • Fail to communicate
• Good record keeping • No records
• Has the expertise • Outdated methods
• Sense of responsibility • Fail to provide rewards
• Lack integrity
• Motivate people
• Delegate
• Treat people equally

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Styles of decision making
on forms of agribusiness
Structure

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Four Basic Agribusiness Structures
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperative

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 Sole Proprietorship
• Owner makes all decisions.
• Owner responsible for all liabilities.
• Can have multiple employees.

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 Partnership
• Owned by two or more people.
• Owners are responsible for their share of liabilities.
• Written agreements usually specify percent of
ownership, responsibilities, and decision making
process.
• In a limited partnership, there must be at least one
general partner.
• Limited partners are limited only to the extent of
their investment.

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 Corporation
• Owned by shareholders.
• Business is treated as a single entity.
• Shareholders not personally responsible for liabilities
of the business.
• Returns profits in the form of “dividends” to
shareholders.
• More difficult and expensive to organize.
• Subject to many rules and regulations.
• More taxing is applied.
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 Cooperative
• Owned by the users or customers of the
business.
• Elected board of directors.
• Profits are returned in the form of “patronage
refunds” to users of the coop.

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Vision, Mission, Goals
and Objectives

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 Vision Statement
Vision defines the desired or intended future
state of an organization or enterprise in terms
of its fundamental objective and/or strategic
direction.
Vision is a long term view, sometimes
describing how the organization would like
the world in which it operates to be.
A picture of a company. (E.g. Future green
company)
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 Mission Statement
Mission is a formal, short, written statement (a
concise statement - 25 words or less) of the
purpose (goals and objectives) of a company or
organization.
The mission statement should guide the actions
of the organization, spell out its overall goal,
provide a sense of direction, and guide decision-
making.
It provides "the framework or context within
which the company's strategies are formulated.
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 Example of Agribusiness Mission
Statement

Acceptable
“ To produce high quality tilapia filets at a profit
for retail food stores within a 60 km of our
production facility.”

Unacceptable
– “ To make a profit growing fish”
– “ To sell fish to area food stores”
– “ To sell everything we grow”
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 What is your mission statement?

“To graduate with CGPA 3.5 and above

and have high marketability”

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 Goal and Objective
A goal or objective is a projected state of
affairs that an organization or a company
plans or intends to achieve.
A goal is an observable and measurable end
result having one or more objectives to be
achieved within a more or less fixed
timeframe.
An objective is broader in scope than a goal,
and may comprise of several different goals.
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 Department of Agribusiness and
Bioresource Economics Objective
Statement

• To become a center of excellence in

agribusiness and agricultural economics
education and research through teaching,
research and advisory activities.

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AGRIBUSINESS ROLE

• Main roles:
development of different
value chain in a sub sector
add value in a product
through processing,
packaging and etc.
as advisers
as an innovative farmers
increase human capacity
improve capacity building
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