CHAPTER 1

AGRICULTURE AND AGRIBUSINESS

Intended Learning Outcomes

By the end of this chapter, you must be able to:
1. Define what agribusiness is;
2. Discuss the different misconceptions of agribusiness;
3. Explain Agribusiness as a system.
4. Give examples of participants in each subsystem.

Classification of Agriculture as a technology oriented-industry

1. Production Agriculture - the activities related to the production of plants,

animals and related processes ( farming)
2. Agribusiness - refers to commercial firms that have developed out of agriculture
3. Agriscience - the application of scientific principles to agriculture
e.g. Agronomy, Entomology, Agricultural Engineering, Biotechnology

Definition of Agribusiness

What is Agribusiness?
 The sum total of all operations involve in the manufacture and distribution
of farm, equipment and supplies, and the processing, storage and
distribution of farm commodities and items made from them (Merriam-
Webster’s Collegiate Dictionary)
 All operations involved in the manufacture and distribution of farm
supplies; production operations on the farm, and the storage, processing,
and distribution of the resulting commodities and items (John Davis & Ray
Goldberg).
 Any profit-motivated enterprise that involves providing agricultural supplies
and/or the processing, marketing, transporting, and distributing of
agricultural materials and consumer products
 Coordinating science of supplying agricultural production inputs and
subsequently producing, processing, and distributing food and fiber (Ewell
Roy).
History of Agribusiness

The Agribusiness as a concept was born in Harvard University in 1957 with a

publication of a book “A Concept of Agribusiness” by John David and A. Gold Berg. It
was introduced in the Philippines in 1966 when UP offered Agribusiness Management
(ABM) program in undergrad level.

The Agribusiness as a System

AGRIBUSINESS SYSTEM

Input Production Processing/

sector Manufacturing
sector Sector

The Agribusiness as a system is broad and encompassing. The success of each part
depends upon the proper functioning of the other two.
Agribusiness sector = all of the Agriculture sector + portion of industrial sector + portion
of commercial sector

Subsystems of Agribusiness

1. Input subsystem – producers, importers, distributors of inputs to other

subsystem
2. Production subsystem – all farmers who produce products for direct
consumption or intermediate products for processing
3. Processing subsytem – both primary and final processors who transforms and
store products of the production system
4. Marketing subsystem – marketers, assemblers, wholesalers, retailers,
exporters, importers of both raw and processed products directly linked to
final consumers
5. Support subsystem – government agencies, private institutions, industry
associations, financing, educational and research institutions
Misconception of Agribusiness

a. Is Farming an Agribusiness?
A production agriculturalist (farmer) make decisions, develop plans, and solve
problems which requires business-related skills. He manages interest, taxes, repair and
replacement of equipment, fertilizers, wages, fuel, electricity and many other items.
Production Agriculture is indeed a business.

b. Is Agribusiness the same as Agricultural Economics?

Agricultural economics refers to the monetary and physical factors that affect the
profitability of agribusiness. It includes community development, food safety and
nutrition, international trade, consumer behavior and household economics,
agribusiness economics and management.
It can be found at every level of business, government, and education.

Fragmented Views of Agribusiness

1. Agricultural Production/Farming
2. Big Business
3. Purely private undertaking
4. Marketing
5. Preparation of Feasibiliy Study

The Agribusiness Economy

 Agribusiness accounts for approximately 17% of the nation’s economic

output
 It represents approximately one-fourth (1/4) of the total world economic
production
 Provides employment for nearly half the population on earth

Importance of Agribusiness

 It deals with agricultural sector and also with the portion of industrial
sector, which is the major source of farm inputs like fertilizers, pesticides,
machines, processing and post-harvest technologies.
 It suggests and directs the government and private sectors for
development of sub sectors.
 It contributes a good part of the national economy.
 Millions of people are employed in agribusiness throughout the world
 People depend on agribusiness for food, clothing and shelter
Sectors of Agribusiness

1. Agribusiness Input Supplies - provides farmers with the feed, seed, fertilizer,
credit, machinery, fuel, chemicals and etc.
e.g. Monsanto (chemical), Purina (feed), Bioseed (seed), John Deere (farm
equipment)
2. Production sector – responsible in producing crops, livestock, and other
products
3. Agribusiness Output Companies – all businesses and individuals that handle
agricultural products from the farm to the final consumers.
e.g. buying, transporting, storing, warehousing, grading, sorting, merchandising,
processing, marketing and etc.
4. Agriservices sector– concerned with researching new and better ways to
produce and market food, and to protect food producers and consumers
a. Public/Government services - inspect and grade agricultural products for
quality and safety
b. such as research & extension services, agricultural education, DA, BFAD
c. Private services – such as veterinary care, contract labor, spraying, feed
grinding and mixing, machine harvesting
d. Financial Services – commercial banks, insurance companies, lending
institutions
e. Trade Associations
f. Agricultural Cooperatives

Why Agribusiness Fails?

1. Many people go into business or expand without adequate planning, and without
analyzing the added costs associated with the additional returns or the potential
risk
2. Have poor recordkeeping and inadequate management information systems
(MIS)
3. Hiring unqualified and undependable employees
4. Spending too much money and time on nonproductive and unprofitable activities
5. Buying too much on credit
6. Failing to control living expenses and withdrawing more from the business than
the business actually earns
7. Very low prices during harvest/selling time
8. Untimely release of loan
9. No buyers for the produce
Considerations in Agribusiness Decisions
The following are the considerations in Agribusiness decisions:
1. What business should the enterprise engage in?
2. How should it be formed? Should it be a corporation, partnership, or single
proprietorship?
3. Where should it be location?
4. How large should the land be?
5. Should the land be rented or owned?
6. How much starting capital should be raised?
7. How about the other factors of production such as labor and entrepreneurship?
Should the labor be contractual or regularly hired?
8. What and how big is the market for the produce and how are the products to be
marketed and where?
9. What is the recovery period of the capital?
10. What government regulations and policies govern the enterprise and the individual
venturing in this field?

Marketing Channels for most Food Products

The marketing channel for most products was illustrated below;

Producers Procurer/Assembler Processor/manufacturer

wholesaler/Food Broker Food Retailer/Food Service Consumer

Procurers/Assemblers – assemble many small size amounts or lots of commodities

produced by individual farmers into large size amounts needed by processors

Processors – first one to alter the raw agricultural commodity

Food Manufacturers – Continue the job started by processor by further processing

crop and livestock products . It raise the level of preservation, convenience and quality

Food Broker – used as link between manufacturer and processor and retailers of some
products
 Paid on commission, no title to the products they sell
 Performs activities such as helping in promotional campaigns, introducing the
new products and collecting out of date or damaged products

Food Retailers/Food Service Operators – include grocery stores as well as hotels,

restaurants and institution trade
Key Functions of Management in Agribusiness

To better understand the form and process by which managers perform the tasks
that are required to create and sustain a viable business, the practice of management
can be broken down into four key functions:
• Marketing management
• Financial management
• Supply chain management
• Human resource management
Marketing management involves understanding customer needs and effectively
positioning and selling products and services in the marketplace. In agribusiness,
marketing management is a key function within each of the sectors of agribusiness: the
food sector, the production agriculture sector, and the input supply sector. Marketing
management represents an integration of several different activities: selling, advertising,
web page design, promotions, marketing research, new-product development, customer
service, and pricing — all focused on customer needs, wants, and, ultimately, the quest
for customer satisfaction.

Financial management is involved in these areas and includes generating the

data needed to make good decisions, using the tools of finance to make effective
decisions, and managing the assets, liabilities, and owner’s investment in the firm.

Supply chain management focuses on these areas and provides the tools
managers need to meet these operations and logistical challenges. As a result, supply
chain management has come to the forefront as a key management function for the
agribusiness manager. Operations management focuses on the direction and the
control of the processes used to produce the goods and services that we buy and use
each day. It involves several interrelated, interacting systems. Operations management
involves the strategic use and movement of resources. For instance, a snack food
factory begins its process with corn from a food grade corn producer and ends with
tortilla chips, corn chips, crackers, etc. Managers must worry about issues of
scheduling, controlling, storing, and shipping as the corn moves from the producer’s
truck to the supermarket.

Human resources management encompasses managing two areas: the

mechanics of the personnel administration, and the finer points of motivating people to
offer and contribute their maximum potential. Decisions here include how to organize
the firm, where to find people, how to hire them, how to compensate them and how to
evaluate them.