UNIT 1

INTRODUCTION TO THE BUSINESS

OF AGRICULTURE

What is Agribusiness?
Why is the Food and Agribusiness Industry
important?
Why Study Agribusiness?
The Global Agri-Food System
The Agribusiness Manager
 What is Agribusiness?
 Agribusiness is the term given to systems associated
with agricultural production, processing, marketing and
distribution of food and fibre products.
 It is a comprehensive understanding of agriculture and
its operation within a business or commercial
environment.
 The Agribusiness Manager integrates knowledge of
production technology with business management
skills (marketing, HR, finance and economics) to
profitably produce food and fibre.
 Why is the Food and Agribusiness
Industry Important?
 Food is the basic necessity of life.
 Most countries are concerned about food
security (adequate quantities of safe foods).
 In developed countries food and agribusiness
fulfill other roles; it provides basic nutrition,
pleasure, convenience, health, status, etc.
 Why Study Agribusiness?
 The industry continues to grow and provide career
opportunities across the supply chain, from financial
services, to agronomy and technology, to marketing
and international trade.
 The industry has increasing requirements for skills in
business planning and management, marketing and
the use of modern technology, both on farms and in
the service industries.
 A university degree in Agribusiness provides
graduates with all the essential business skills
required to run a successful company or work within a
business environment,
 CHAPTER 1
The Global Agri-Food System
 U.S. Agribusiness
Leading the World
• Largest Agribusiness Sector in the World
• Largest Part of U.S. Economy
• One of the Best Integrators of Technology
• Biggest User of Biotechnology
• Safest Food
• Lowest Cost Food
• Largest Assortment of Food
• 11,000+ New Food Products per Year
 U.S. Agribusiness
With less than 7% of the world’s land
and 5% of the world’s population

US Produce 12% of World Agricultural Output

• 47% of the world’s soybeans
• 42% of the world’s corn
• 28% of the world’s cheese
• 19% of the world’s milk
• 16% of the world’s cotton
• 12% of the world’s wheat
Export 27% of U.S. Production
 The Business of Food (US)

• Americans consume 350 million tons of food each year – about 6 pounds per
person per day
• Farmers get 20 cents of each food dollar
• Consumers spend 10.4% disposable income on food
~ 6.2% for food at home
~ 4.2% for food away from home
• Each farm worker produces enough food for 103 people – 75 in U.S. and 28
abroad
• Number of farm workers is greater than the combined total of workers in the
auto, steel, and transportation industries
U.S. Agri-Food Employment

Food
Restaurants Wholesaling
47% 6%

Farming
16%

Food
Processing
10%

Food Stores
21%
 Farm Productivity and
People Fed/Farm Worker
People Fed/Farm Worker Productivity of Farming Index 1992 = 100
120 109
103
100 93
86.4
80 68
58 61.6
60 52
41 45.3
40
25.6
20 15.3

0
1950 1960 1970 1980 1990 1998
 Percent of Disposable Income
Spent on Food over Time
30
26 25
25 23
20 20 19
20 18
15 15 14
15
11 10
10

0
 Percent of Income Spent on Food
by Country
60
52
50
Percent of Income

39 40
40

30 26

20 17 17
10 11 12
10

0
U.S. Canada United France Japan Hungary Kenya Ivory India
Kingdom Coast
 People Buy Food for
a Hierarchy of Reasons

Status and Causes

Living Well
Promoting Health
Convenience

Tastes Good and Variety

Nutritious, Safe, and Affordable
 The
The The
Processing-
Input Production
Manufacturing
Sector Sector
Sector
 Food
Product Flow Consumers
in the Global c ts
d u
Agri-Food System ro Food Retailers
d P
o
Fo Food
Manufacturers
s
tor
Commodity b u
es r i
it i st t
m od Processors Di an
m o d W
C o Fo s
Ag er
um
Farms and Ranches
o ns
t C
h a
Input Suppliers W
 US Farm Productivity

140

120
Index 1992 = 100

100

80
Input
60
Output
Productivity
40

20
 Changes in Farm Inputs

350
Labor Mechanical Taxes/Interest Chemicals
300
Index 1992 = 100

250

200

150

100

50

95 0 5 5 96 0 96 5 97 0 97 5 98 0 98 5 99 0 99 5 99 8
1 1 9 1 1 1 1 1 1 1 1 1
 Crop and Animal Yields

180
Milk Corn Soybeans Wheat
150
Bushels/Acre; Milk CWT/cow

120

90

60

30

0
The Production Sector
 Net Farm Income
100%
10.8 17.7 17.7
24.4 25.4 22.6 18.9 19
33.8 29.1 27.7
80% 41.2

60%

89.2 81.3 82.3

40% 72.3 75.6 74.6 77.3 81.1 80
66.2 70.9
58.8
20%

0%
0 0 0 0 0 8
195 196 197 198 199 199

Total Production Expenses Net Farm Income

 The Production Sector
• The number of farms in the US has shrunk by
nearly two-thirds (5.6 m to 2 m)
• The average farm size has more than doubled (213
to 471 acres)
• Net farm income as a percent of farm receipts has
been halved (from 41 to 19 percent)
• The distribution of farm numbers and annual sales
have been skewed to where seven percent of the
farms produce approximately 60 percent of the
output
• Despite all changes, more than 99 percent of all
farms and acreage are still family owned
 Number of Farms and Dollar Sales
by Annual Sales
80 74.4

70
Percent of Farms Percent of $ Sales
60

50 44.9
Percent

40

30
19.1
20 15.9
11 10.1
9.1 9.1
10 4 2.6
0
<$50,000 $50,000-99,999 $100-249,999 $250-499,999 $500,000 and
over

Annual Sales
 U.S. Agriculture in World Trade
% Exported % World Trade

75 70
60
60
44.0
45 40.0
30 30.0
30
20.0 20
15

0
Wheat Corn Soybeans Cotton
 The Changing Composition of What
is Traded
• In 1975,
– 83% of agricultural trade from the US was comprised of raw
agricultural commodities (wheat, corn, soybeans) and
– 17% came from high-value canned and processed products;
• By 1999,
– High-value products accounted for 64% of exports (fruits and
vegetables and processed foods)
– 36% came from commodities
– Decline in grain exports

•The US advantage in the market is the ability to utilize cost-saving

technology to ship abroad value-added products rather than
raw commodities
 The Production Sector (Agriculture
and the Environment)
• The production sector has made tremendous
progress in improving its environmental record
– Better production practices
• Minimum tillage, IPM, conservation reserve program,
bio-technology)
– Soil erosion
• Reduce erosion by 38% in the last decade
– Land use
• Less acres being used because of increased
productivity per acre
The Commodity Processing-
Food Manufacturing Sector

Transforming Agricultural Commodities

into Food Products
What a Dollar Spent on Food Pays For
Energy
Labor
4%
49%
Transportation
5%

Packaging
11%

Profits
5%

Farmers' Share
22%

Other
4%
 Food Retailing
• Consumer’s food dollars are now nearly evenly
split between food eaten at home and food
eaten away from home
• Restaurants and supermarkets are always
striving to keep up with changing consumer
preferences
• As consumers move higher up the food-buying
hierarchy (Kinsey’s), food retailers are under
pressure to come up with new and improved
food products and services
 Food Retailing

• A typical US supermarket stocks nearly

50,000 food items from around the world (in
an acre of space)
• These 127,000 supermarkets employ 21% of
the people in the agri-food system
• Shoppers visit these stores 2.3 times/week
• Supermarkets earn a profit of 1% of sales;
they survive by generating high sales volume
 Food Retailing

• Restaurants, like supermarkets, also need to keep

breast of changing consumers’ preferences.
• Restaurants are the most popular type of business
to open; it is also the most likely type of business to
fail.
• Restaurants are the largest private employer in the
US agri-food system (11.3 million)
– Nonetheless, most restaurants are single-operations that
employ less than 20 persons and whose customer’s bill is
less than $5/person
 The Trends
- Farming to Food Factories

• Fewer but larger facilities

• Fewer but better educated agricultural
producers (farmers and employees)
• A high tech business
 Emerging Trends and Challenges
• Globalization – Country borders are becoming less
important as the industry becomes more globalized.
• Biotechnology – Holds promise of improvements in
health, nutrition, and productivity but threats of food
allergies and environmental harm.
• Information Technology – Will transform the industry
as firms take advantage of the efficiency gains
technology affords.
• Food Safety – Consumers demand increasing levels
of safety in their foods.
 Discussion Questions
1. List and briefly describe the six parts of the global agri-food
system.
2. Define and describe each word in the term agri-food system.
3. Why was agriculture a prime market for the adoption of
production-enhancing and labor-saving devices during the
industrial revolution?
4. How have Americans’ perceptions of food changed in recent
years? What does this mean for firms in the agri-food
system?
5. What is the difference between science and technology?
6. What is the role of business management in the success of
the agri-food system?
 Discussion Questions
7. Identify the three major sectors of the agri-food system.
Describe the evolution of agriculture into the agri-food
system.
8. Describe the role of export markets and how they have
changed in the past 25 years.
9. Describe the production sector’s environmental record.
10. Describe what you see as the future of the agri-food system
in meeting the food needs of the world’s population and as a
place to work.
11. 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?