The Agribusiness System

The Agribusiness System

•TEACHING OBJECIVES

•1. Overview of 3 part agribusiness system

•2. Evolution of the Agribusiness System.

•3. Discuss role of the agric input , pdn processing/manufacturing sectors.

•4. Discuss challenges facing the managers of the Agribusiness System.

•11. Historical Perspective

•A. American agriculture has undergone a rapid transformation since the late 1940's.

–1.Farms grew larger & more specialized

–2. Began to purchase inputs (fertilizer feed,) they formerly made themselves.

–3. Soon evolved a separate sector called the agricultural input sector.

–4. Processing & marketing firms also grew during the period.

•Ill. The Size and Scope of Agribusiness

•A. Largest industry in U.S. in terms of output & employment - Agric pdn uses 1/2 of all US land (bil acres).

•Value of farmland, buildings eqpmt = ½ of all the assets of the top 500 manf firms.

•Thus US agbus system is largest in world, & is leader in new technologies adoption.

•1 out of every 6 jobs US is in the agri bus

•B. Farmers are one of the most productive workers in the world. With -7% of world land, US produces over 12% of world agric pdts, 15% of livestock, 11% crops.

•C. Largest growth from use productive purchased inputs. Agribus is foundation of economic growth of any country – i.e. before a country develops economically it must raise its agric productivity, leading to formation of agric input & processing sector.

•IV. Modern agric now needs a broader definition & is called the Agribusiness System and includes:

•1. the agricultural input sector

•2. the production sector

•3. the processing & manufacturing sector

•IV. The Agricultural Input Sector

•A. Input Suppliers: Ag firms supplying feed, seed, fertilizers & credit to farms

•B.Total level inputs same since WWII, but composition of inputs has changed. Total level of inputs devoted to ag pdn has changed little since World WarIl. But makeup of inputs has changed with shift to a greater use of purchased inputs (75% of pdn expenses).

•C. Less labor but more purchased inputs. Rising labor cost has caused a shift away from the use of labor to greater use of other inputs ( fertilizer, chemicals, & machinery)

•D. 75% of prdn inputs are purchased.

•E. Sector still controlled largely by small, independent, locally owned businesses at the distribution end.

•F. A small number of fiercely competitive firms make up part of the industry at the pdn end.

•Since 1980, farmers have become more efficient in input use & better mgmt & these have enabled them to produce more output, for less cost, than ever before.

•V. The Production Sector

•A. Producers: About 2 mil farmers & ranchers producing agric commodities –wheat, cattle, fruits.

•B. A trend toward larger specialized farms—avg. farm is more than 400 acres & over $450,000 in assets.But individuals & partnership still control US farmland & many farm corpns still owned by families.

•C.Large increase in farm productivity: Due to greater specialization & larger sizes

Growing gross farm income but volatile net farm income due to rising costof inputs.Unstable net farm income due to

–Variation in the selling prices of output

–Input prices vary little from yr to yr.

•D. Exports major outlet for ag pdn. 20-30% of farm receipts from exports.

•VI. Processing& Manufacturing Sector

•Largest part of Agbus System. Has +14 mil workers employed in outlets from grain elevators, processing plants, supermarkets to fast-food restaurants.

•Major components include:

•a. Commodity Processors:Firms buying raw agric commodities (raw milk, live cattle, wheat)from farms & process into a form more acceptable to consumers & food manufactures (pasteurized milk, flour, boxed beef etc).

•b. Food Manufacturers: Firms that mix raw ag commodities & processed pdts to make a manufactured food pdts – bakery turning flour cheese, tomato sauce, into bread or pizza.

•c. Food Distribution: Firms transporting commodities, processed & manufactured food pdts in the agric-food system.

•d. Marketing bill 75 % of each food dollar. The sector processing & manufacturing acquires raw agric pdts & then process them into food pdts sold to consumers in the time, place, & form they desire. Cost of performing these activities is calledmarketing bill –& is about 75% of consumer $ spend on food but labor accounts for 50% of $$ spent on food.

• e. Small number of large firms.- competing fiercely. Firms in the sector operate large & volume facilities that permit lowest cost per unit of pdt produced.

•There are over 112 agbus firms listed among 500 largest US industrial firms

•Agribusinesses in US's 500 Largest Industrial Corps - 1994

•NAMESALES RANK

•Beverages&10 Companies

Pepsico 15

Coca&Cola 32

Anheuser&Busch 43

Coca&Cola Enterprises 97

•Food&49 Companies(industry with the Largest # of Firms on List)

Philip Morris 7

Conagra16

Sara Lee27

IBP39

Archer Daniels Midland48

•General Mills63

H.J. Heinz78

Campbell Soup83

Forest & Paper Products&34 Companies(industry with 4th Largest Number of Firms on the List)

International Paper33

Georgia&Pacific36

Weyerhaeuser50

Kimberly&Clark79

•Textiles&13 Companies

Shaw Industries200

Collins & Aikman Group207

Burlington Industries Equity214

•Tobacco&6 Companies

RJR Nabisco Holdings25

American Brands61

•VIII. Summary

•A. Agribusiness System has undergone a transformation

–1. Now more specialized & formalized

–2. Greater use of more productive purchased inputs.

•B. Caused devpmt of 3 main part system

–1. the farm input sector

–2. the production sector

–3. the processing&manufacturing sector

•C. The result is a more efficient food system but one more affected by other parts of the economy.

Chapter 2

The Agribusiness Manager

TEACHING OBJECTIVE

1 . Background on the need for managers & how to determine good managers.

2. Will show how one practices mgmt & how it is both an art & a science.

3. Illustrate the special challenges facing a manager of an agribusiness.

4. Discuss the role of decision-making in business mgmt & how to accomplish it.

5. Introduce the 4 functions of mgmt (e.g., planning, organizing, controlling and directing) & explain how they will be used in the text to examine the principles of agribusiness management.

11. Role & History of Management

Managers see that things get done in orgzn -e.g. president to foreman & are responsible for successful completion of the work

A. Growth of mgmt came in the late 19th century.

Until C19th firms were owner-operated with few employees & thus no need for mgmt. Expansion of sales over large areas due to transptn separated owners from mgmt functions & called for good magmt.

B. In 1930s it became something learned at college level

Mgmt became a separate discipline like medicine studied at colleges in the 1930s.

Mgmt utilizes skills found in statistics, psychology, etc. in accomplishing its tasks thro people.

C. The manager's objective: efficiently combine resources to maximize long run profits by profitably satisfying customer needs.

D. Successful manager must be:

1. technically knowledgeable about the orgzn’s pdt/service.

2. a good communicator

3. a good motivator

4. proficient in technical skills of mgmt (forecasting , mktg, finance, personnel etc).

5. able to mix these skills to get the highest long-run net benefit to the orgn.

E. Managers practice mgmt. Applying techniques makes one a technician, not a manager

1. Mngers practice mgmt as doctors practices medicine by combining just the right amounts of technical know-how, economic logic, etc. to get results.

Characteristics of an Effective Manager

1. Technically knowledgeable about firm's pdt or service

2. A good communicator

3. An effective motivator

4. Proficient in the technical skills of management -Mktg; Forecasting; Budgeting; Acctg; Finance; Personnel

5. Able to mix the right combination to get the highest long-run profit

F. The Agribusiness Challenge.

Thus, agbus mager needs all mgmt skills plus a strong understanding of biological & institutional factors about pdn of food & fiber, and ability to adapt changing mkt conditions resulting from gv’t policies, weather, &technology.

What Management Is

Part art

Supported by science

Accomplishing tasks through people

The practice of mgmt: combining the right amounts of technical know-how, economic logic, & judgment to fit the situation

Obtaining results that exceed the sum of the parts; the size of this difference is the measure of the manager's contribution

Business Decision Making

A. At the very heart of mgmt – is good decision mkg

B.The 6 steps in decision-making: There are basic principles in decision-making & the goal is identify these principles & develop a sound decision-making procedure that will:

a. make decision making easier,

b. improve the quality of those decisions,

c. reduce the time necessary to make good decisions, &

d. improve the frequency of good decisions.

Basic principles of decision making involve getting a clear

1 . problem identification

2. determining alternative courses of action

3.analysis of course of action

4. selection of best alternatives

5. implementation

6. follow-up

1. Identifying the Problem.

1. Is most important & difficult step cos what is seen as problem usually determine type of action to be taken.
2. 1st task in finding out the exact problem requires a great deal of investigation & info sources are the people affected by the problem & may have insights solution for the problem

2. Determining Alternative Courses of Action.

1. Once the problem is clearly identified all courses of action from closing the plant, to reprimanding a staff or doing nothing must be developed to solve it.

3. Analyzing the Alternatives.

1. 1st step is selection of an appropriate, measurable criterion (e.g. sales, costs, profits) for evaluation.
2. 2nd step is select a method of analysis.
3. 3rd step is to carry out the analysis.

4. Selecting the Best Alternative.

1. Shld be done in light of orgzn’s long/short-run objectives

5. Implementing the Decision.

a. Requires transforming the decision into reality quickly & efficiently. Inadequate implementation can turn even a good decision into a disaster.

6. Following Up. – Involves reviewing the results of the decision & the decision-making process. Its important cos

1. 1st it provides mgers with a way to assess their decision-making skills.
2. 2nd if its a recurring problem, the follow-up may help mgers better rely on the decision to make it possible to handle the problem better & quickly in the future.
3. 3rd it can also help the decision makers identify the good mgers working for them – i.e. are those that can accurately assess situation, weigh alternatives, & effectively implement the solution The Six Steps in Decision Making - Summary

1 . Identifying the problem:

a. Carefully investigate the problem.

1. Separate the symptoms from the problem.

1. Define the problem in clear, concise terms.

2. Determining alternative courses of action:

1. List all possible solutions.
2. Remember that doing nothing may be the best solution.

3. Analyzing the alternatives:

1. Select appropriate, measurable criteria (e.g., sales, units, profits).
2. Find an objective means of measurement.

4. Selecting the best alternative:

1. Using measurable criteria, choose the best alternative.
2. Consider both long- and short-run objectives.

5. Implementing the decision:

1. Be quick and efficient.
2. Remember that poor implementation can lead to poor decision.

6. Following up:

1. Measure your success.
2. Assess your decision-making skills.
3. Identify the good decision makers working for you

The Four Functions of Management

Managers perform many tasks & to accomplish all, its important to separate them into larger functions. There are 4 main mgmt functions : planning, organizing, controlling, & directing.

1. Planning: Its performed at all levels of mgmt & deals with activities that determine the future direction for an orgzn & thus involves forecasting. Forecasting is using past & current situation to predict future mkt conditions.

Planning starts with a firm’s purpose & objectives.

Purpose:Gives firm’s identity – i.e. it tells mgmt, employees, & public in clear terms what the firm intends to do – e.g. sell cattle feeding eqpt to all farmers in Craighead county.

Objectives: Tell how the firm will accomplish its purpose – e.g. a firm's objective cld be to have the largest selection, lowest price, or best service of cattle feeding eqpt in Craighead county.

2. Organizing: Involves developing ways or scheme to transform plans into reality. Orgzn affects the flow of work thro the system & interrelationships of people involved. However, orgzn is done to serve needs of customers

The orgznal structure of firms affects how employees perform their work & make decisions in various situations. Firms usually organize according to:

a. Business Function: Here firms tend to have large, separate dpts–e.g. sales, pdn, & purchasing dpts,

b. Product Lines: Others organize along pdt lines – e.g. feed, seed, fertilizer, etc. Here all activities associated with the pdt are done by a separate mgmt team.

c. Geographic Location: Organizing by geographic location allow all activities of a firm in northeastern Arkansas to be handled by the Jonesboro office.

3. Controlling: Measuring orgzn's progress toward goals set in planning stage

Found at all levels & include measuring progress of work in entire dept, or orgzn. Progress levels is measured against stds set in planning & the stds must not be set too high/low

The situation determines type & amount of corrective action to be taken. In some situation only minor adjustments is taken, in others more drastic action is required. Rule is to properly identify the problem & seek ways to correct it.

4. Directing : This implements planning, organizing, & controlling to transform the plan into a reality – i.e. mager meshes the plan, organization, & controls with human, physical resources, to accomplish the objectives quickly & efficiently. It consumes about 90% of mnger’s time.

The success of directing process is rest on workers who do the work. If employees are involved in planning they are willing to work toward its success. Properly managed employees can make poor plan succeed

Summary

By using the functional approach to mgmt, one can examine the many tasks performed by the mger.

The functions are separate but interrelated & are part of a dynamic mgmt system which flows from planning to organizing to controlling to directing, with constant feedback being given from each function to all others.