AGRIBUSINESS

CONCEPT
DIANA O. LIM, M.Sc.
Instructor
Lecture Objective:
At the end of this lecture, you should be able to:
1. Discuss the concept of agribusiness;
2. Explain the key functions of management in agribusiness; and
3. Describe the agribusiness as an allied field of agriculture;
Lecture Outline:
1. Agribusiness management: scope, functions, and tasks
2. Agribusiness management: organization and context
3. Marketing management for agribusiness
4. Financial management for agribusiness
5. Operations management for agribusiness
6. Human resource management for argibusiness
Agribusiness management: scope,
functions, and tasks:
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Management drives and directs the firms, farms and food companies
that come together in the food production and marketing system.
Managers a person or a group of people responsible for making sure
that things get done. Titles may range from chief executive officer to
president to foreman to son to daughter to spouse. They assure
successful completion of the functions, tasks, and activities that will
determine an organization’s success.
Agribusiness management is the management of any firm involved in
the food and fiber production and marketing system.
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Agribusiness involves:
1. Moving the final products through the food and fiber system to
the ultimate consumers;
2. Transform raw agricultural products into the final products desired
by consumers;
3. Produce raw food and fiber products; and
4. Supply inputs to the farm or production sector.
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Four Key Functions of Agribusiness Management :
1. Marketing management
2. Financial management
3. Supply chain management
4. Human resource management
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Four Key Functions of Agribusiness Management :
1. Marketing management – involves understanding customer
needs and effectively positioning and selling products and services
in the marketplace.
2. Financial management
3. Supply chain management
4. Human resource management
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Four Key Functions of Agribusiness Management :
1. Marketing management
2. Financial management – refers to the generation of 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.
3. Supply chain management
4. Human resource management
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Four Key Functions of Agribusiness Management :
1. Marketing management
2. Financial management
3. Supply chain management – provides the tools managers need to
meet these operations and logistical challenges.
1. Operations management – focuses on the direction and the control of
processes used to produce goods and services that we buy and use each day.
2. Logistics management – involves the set of activities around storing and
transporting goods and services.
4. Human resource management
Agribusiness management: scope, functions, and tasks:
The Business of Agribusiness
Four Key Functions of Agribusiness Management :
1. Marketing management
2. Financial management
3. Supply chain management
4. Human resource 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.
Agribusiness management: scope, functions, and tasks:
Agribusiness as an allied field of agriculture
Food as a product
Biological nature of production agriculture
Seasonal nature of business
Uncertainty of the weather
Types of firms
Variety of market conditions
Rural ties
Government involvement
Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
Management in agribusiness means the art and science of successfully
pursuing desired results with the resources available to the
organization.
Manager can be defined as a person who provides the organization
with leadership and who acts as a catalyst for change.
 must efficiently combine available human, financial, and physical assets to
maximize the long-run profits of an operation by profitably satisfying its
customer’s demands.
Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
1. Planning
PLANNING
2. Organizing
3. Directing
4. controlling
DIRECTING COMMUNICATION CONTROLLING

ORGANIZING
 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Planning PLANNING

◦ Represents the preparation of the agribusiness firm for

future business conditions.
◦ Three types of planning:
DIRECTING COMMUNICATION CONTROLLING
1) Strategic planning – focused on developing courses of
action for the longer term.
2) Tactical planning – involves short-term plans consistent
with the strategic plan. ORGANIZING

3) Contingency planning – development of alternative

plans for various possible business conditions.
 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Planning PLANNING

◦ Levels and nature of planning in the agribusiness:

1) Strategic level– top management; very flexible, long-
term, written analyses, complex, detailed, broad
DIRECTING COMMUNICATION CONTROLLING
2) Tactical level– middle management; somewhat
flexible, intermediate-term, written reports, les detail,
outlined, general
3) Operational level– line employees; inflexible, ORGANIZING
immediate, unwritten, simple, very specific
 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Organizing PLANNING

◦ Represents the systematic classification and grouping of

human and other resources in a manner consistent with the
firm’s goals.
◦ Organizing involves: DIRECTING COMMUNICATION CONTROLLING

Setting up the organizational structure

Determining the jobs to be done
Defining lines of authority and responsibility ORGANIZING

Establishing relationships within the organization

 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Organizing
◦ Organizational structure – the framework of a company by PLANNING

which jobs are grouped, coordinated, and further defined.

◦ Organizational chart – shows the formal organizational
structure of a company; it captures ideas including division of
labor, chain of command, bureaucracy, and organizational
design. DIRECTING COMMUNICATION CONTROLLING

◦ Division of labor – the manner in which jobs are broken into

components and then are assigned to members or groups.
◦ Chain of command – illustrated in organizational structure by
the authority – responsibility relationships or links between
managers and those they supervise. ORGANIZING

◦ Bureaucracy – highly specialized organization in which work is

divided into specific categories and carried out by special
departments.
 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Directing
PLANNING
◦ Is guiding the efforts of others toward achieving a common goal.
◦ Involves leading, supervising, motivating, delegating, and
evaluating those whom you manage.
◦ Accomplished by:
DIRECTING COMMUNICATION CONTROLLING
◦ Selecting, allocating, and training personnel
◦ Staffing positions
◦ Assigning duties and responsibilities
◦ Establishing the results to be achieved
ORGANIZING
◦ Creating the desire for success
◦ Seeing that the job is done and done properly
 Agribusiness management: scope, functions, and tasks:
Managing the agribusiness
 Four key tasks of agribusiness managers
Controlling PLANNING

◦ Represents the monitoring and evaluation of activities.

◦ Assesses whether the goals and performance objectives
developed within the planning task are achieved.
DIRECTING COMMUNICATION CONTROLLING
◦ Includes an information system that monitors plans and
processes to ensure that they are meeting predetermined
goals and sounds a warning when necessary so that
remedial action can be taken.
ORGANIZING
Agribusiness management: scope, functions, and tasks:
Economics for agribusiness managers
Agribusiness operates within a broader economic environment
 Macroeconomics focuses on the “big picture” view of the economic
system
 Anticipating and interpreting the macroeconomic environment is
critical to the success of any agribusiness manager (ex. Monetary
policy to raise interest rates to fight inflation has an impact on
purchases of farm machineries)
 Microeconomics is the application of basic economic principles to
decisions within the firm. (ex. Analyzing supple and demand
situations)
Agribusiness management: scope, functions, and tasks:
Economics for agribusiness managers
Economics studies how individuals, firms, and society choose to
combine scarce resources to satisfy unlimited wants and best meet
customer needs.
Scarce resources are often referred to as the factors of production
namely:
 Land
 Labor
 Capital
 Management (entrepreneur)
 Agribusiness management: scope, functions, and tasks:
Economics for agribusiness managers
profit motive is used a an incentive that guides business in fulfilling
consumer wants as consumers express these wants in the marketplace with
their peso
Several economic concepts provide insights for agribusiness managers like:
 Opportunity cost – the income given up by not choosing the next best alternative for the use of
scare resources
 Economic profit – accounting profit less opportunity cost
 Supply – captures the relationship between price and quantity supplied; directly proportional
 Demand – indicating that larger quantities are only purchased at lower prices; inversely
proportional
◦ Applying supply and demand principles is important in understanding how markets work and how
prices move.
◦ Elasticity estimates for demand help agribusiness managers examine the potential impact of
changes in price, income, or other prices on quantity demanded.
Agribusiness management:
organization and context
 Agribusiness management: organization and context
The organization of an agribusiness
Factors influencing choice of business form:

1. What type of business is it, where will it be conducted, and what are the owner’s objectives and philosophies
for the agribusiness?

2. How much capital is available for the firm’s start-up?

3. How much capital is needed to support the agribusiness?

4. How easy is it to secure additional capital for the agribusiness?

5. What tax liabilities will be incurred and what tax options are available?

6. How much personal involvement in the management and control of the agribusiness do the owners desire?

7. How important are the factors of stability, continuity, and transfer of ownership to the firm’s owners?

8. How desirable is it to keep the affairs of the agribusiness private, and carefully guide any public disclosure?

9. How much risk and liability are the owners willing to assume?

10. How much will this form of organization cost and how easy is this form of agribusiness to organize?
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
1. Sole or Individual Proprietorship
2. Partnership
3. Corporation
4. Cooperatives
5. Limited Liability Companies (LLC)
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
1. Sole or Individual Proprietorship
 organization owned and controlled by one person or family;
 oldest and simplest form of organization;
 Give the individual owner complete control over the business
 Owner exerts complete control over plans, programs, policies, and other
management decisions
 The proprietor bears all profits and losses
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
2. Partnership
 the association of two or more people as owners of a business.
 Can be based upon written or oral agreements or on formal contracts
between parties involved
 Can be general or limited
 General partnership – each individual partner – regardless of the
percentage of capital contributed – has equal rights and liabilities, unless stated
otherwise in a partnership agreement.
 Limited partnership – permits individuals to contribute money or other
ownership capital without incurring the full legal liability of a general partner
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
2. Partnership
 Types of partners:
1. General partner – one who is active in the management of partnership,
typically has an investment in the business, and is subject to unlimited
liability.
2. Limited partner – may not take an active role in managing the partnership.
3. Senior partner – an individual who helped form the partnership or one who
has seniority in the business; run the business, have an investment in the
firm, and receives the major portion of partnership profits.
4. Junior partner – younger and has bit been in the business as ling as senior
partner; receives smaller portion of the business and rarely take active role in
managing the business affairs of the partnership.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
2. Partnership
 Types of partners:
5. Secret partner – desires to take an active role in managing the partnership
but is not known to be a partner by the general public; has unlimited liability;
if business fails, general public will not know of his/her involvement and
other businesses affiliated to him would not be negatively affected.
6. Silent partner – known by the public and not active in managing the
partnership; seek to be a silent partner to add name recognition to a firm
and to continue having the advantage of limiting liability in the enterprise.
7. Dormant partner – not active in managing the partnership and is not known
by the general public; retains limited liability; dormant partners are
beneficial to businesses to obtain additional investment capital for the
business.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
2. Partnership
 Types of partners:
8. Nominal partner – means “in name only”; not active in the business and
have no investment. Ex. If Berto Sinad owned a horse ranch and named it
Berto and Sons, assuming they have no investment in the business, Berto’s
sons would be nominal partners.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
3. Corporation
 a special legal entity endowed by law with the powers, rights, liabilities,
and duties of a person
 Sometimes referred to as “artificial” person
 Typically facilitates accumulation of greater amounts of capital when
compared to proprietorships and partnerships
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
3. Corporation
 Almost all are formed for profit-making purposes, however, non-profit
corporations also exists.
 Non-profit corporations embrace many areas of activity, including those
of religious, governmental, labor, and charitable organizations and these
are usually exempted from certain forms of taxation and does not enrich
members financially. Hence, securing a formal exemption from paying
corporate income taxes is necessary.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
3. Corporation
 Articles of incorporation – are the legal documents which are filed with the sate
and which set forth the basic purpose of the corporation and the means of
financing it.
 Bylaws – specifies rules of operation as election of directors, duties of officers
and directors, voting procedures, and dissolution procedures.
 Stock certificates – shares detailing amounts of the owners’ investments.
 Stock – a piece of paper, in prescribed legal form, which represents each
person’s amount of ownership in the corporation
 Blue-sky laws – regulates the way in which corporate stock may be sold and
which protect the rights of investors.
 Board of directors – elected; responsible to supervise the affairs of the
corporation.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
3. Corporation
 Stock of the corporation
 Common stock – normally carries the privilege of voting for the board
of directors that oversees the activities of the corporation.
 Preferred stock – differs from the common stock in that it is usually
non-voting, and has a preferred position in receiving dividends and in
redemption in the case of liquidation. Voting rights are exchanged for
lower risk on the investment of capital in the corporation.
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
4. Cooperative
 A distinct of the corporate form of business
 Committed to help members improve the prices they receive for the
products they produce and/or reduce the prices paid for the inputs
necessary to grow those products
 Exists to help the members find markets, and/or improve the negotiating
position of members
 Provides economic and/or operational benefits to member-owners, and
then return the profit for the owners of the firm is the purpose of the
non-cooperative business enterprise
 The user-member is the total emphasis for the cooperative
Agribusiness management: organization and context
The organization of an agribusiness
Forms of Business Organizations
5. Limited Liability Companies (LLC)
 A type of business organization form that closely resembles a
partnership, but provides its members with limited liability.
 Creditors or others who have a claim against an LLC can pursue the assets
of the LLC to satisfy debt and other obligations, but they cannot pursue
personal or business assets owned by the individual members of the LLC.
 Can include any number of members and ownership is distributed in
accordance to the fair market value of the assets contributed
 Net income generated by an LLC is passed on to its members in
proportion to their shares of ownership
 Tax is paid by the members and not by the LLC
 Not required to file an articles of incorporation
Agribusiness management: organization and context
International agribusiness
Benefits from doing business internationally:
1. Exports and sales
2. Take advantage of scale of economies
3. Capture benefits of a global brand
4. Reduce risk by diversifying across markets
5. Lower costs of production
6. Access lower-cost raw materials though international sourcing
7. Broaden access to credit
8. Leverage experiences from operating in international markets into
domestic markets
Agribusiness management: organization and context
International agribusiness
Challenges from doing business internationally:
1. Exchange rate fluctuations
2. Cultural differences
3. Accounting differences
4. Regulatory issues
Agribusiness management: organization and context
International agribusiness
Modes of entry used by agribusinesses to enter the international market:
1. Exporting
◦ Can be indirect or direct exporting
◦ Indirect exporting uses a trading company or an export management
company to handle the logistics of exporting.
◦ Direct exporting is where the agribusiness itself handles the details of
exporting their product.
2. Licensing
◦ Involves contracting with a firm (licensee) in the target market to
produce and distribute the firm’s (licensor) product.
Agribusiness management: organization and context
International agribusiness
Investment means to enter and serve a foreign market:
1. Greenfield investments
◦ Are direct investments by a firm into a particular country
2. Join ventures
◦ A form of a strategic alliance that involves two or more firms that share
resources in research, production, marketing, or, financing, as well as
costs and risks
3. Acquisitions
◦ Purchasing a firm or a controlling interest in the firm
◦ May result in a lower investment to gain control of a production facility
Marketing Management for
Agribusiness
Marketing management for agribusiness
Strategic market planning
Components of a strategic marketing plan
1. Conduct a SWOT analysis
2. Choose a target market
3. Choose a position
4. Develop the appropriate marketing mix
5. Evaluate and refine the marketing plan
Marketing management for agribusiness
Strategic market planning
In conducting a market SWOT analysis, it involves:
1. General trends in the market (firm and: market conditions, competitors,
customers)
2. Assessment of competitor strengths and weaknesses
3. Understanding customer needs and wants
4. Assessing the firm’s strengths and weaknesses
Marketing management for agribusiness
Strategic market planning
Market Segmentation
groups customers into segments or categories according to some set of
characteristics
Agribusiness manager is interested in developing groups of customers that
respond in a similar fashion to a given offer
these groups are called market segments, target markets, or market niches
Marketing management for agribusiness
Strategic market planning
Mass Market Strategy vs. Market Segmentation Strategy
MASS MARKET STRATEGY MARKET SEGMENTATION STRATEGY
Shows the “market” for a particular farm Identified four distinct groups or
inputs segments in the market which the
agribusiness wants to focus on
Marketing management for agribusiness
Strategic market planning
Ways to Segment the Market
1. Geographic Segmentation (location)
2. Demographic Segmentation (age, income, household size etc.)
3. Operating Characteristics (type and size of operations, production
technology used, form or ownership)
4. Psychographic or Behavioural Market Segments (focus is on more than
physical characteristics)
Marketing management for agribusiness
Strategic market planning
Positioning
The process of creating the desired image in the customer’s mind
Starts with a product, a piece of merchandize, a service, a company, an
institution or even a person
Positioning is what you do to the mind of the prospect
Emphasis is on the customer perception not on the product itself
Marketing management for agribusiness
Strategic market planning
Positioning
Competitive advantage – the set of competencies where the firm has a clear
and distinct advantage over the competition; the firm’s edge in the
marketplace.
Differential advantage – the firm can attempt to provide customers with
unique products and services unavailable from other firms.
Cost-leadership – involves meeting the market’s product offering with an
offering of comparable quality and features, but beating the market on price.
Marketing management for agribusiness
The marketing mix
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
1. Marketing Audit
2. Sales Forecasting
3. Competitor Analysis
4. Customer Need Analysis
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
1. Marketing Audit
An objective examination of a company’s entire marketing program
Examines the firm’s marketing objectives and its plan for accomplishing these
objectives in light of its resources, the market conditions, and its distinctive strengths
and weaknesses.
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
1. Marketing Audit
Marketing Audit Process

Analyze
• Market success of each product
Review
• Market conditions
Identify
• Distinctive competencies
Evaluate
• Marketing plan and objectives
Study
• Human resources and organization
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
2. Sales Forecasting
Involves predicting sales in peso and physical units as accurately as possible for a
specific period of time.
Short-term and long-term forecasts are useful
Short-term forecasts is usually one season or shorter for agribusiness firms and
useful in formulating current operating plans
Long-term forecasts is useful for capacity and research and development decisions
but the longer the time period forecasted, the less accurate the forecast is likely to
be.
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
2. Sales Forecasting
Three types of forecasts are:
1) General economic forecasts – consider broad factors that affect the total economy
(government farm programs, inflation, the money supply, international policy and
trade agreements, exchange rates, interest rates, population demographics, etc.)
2) Market forecasts – forecasts for a specific industries or types of products; based on
general economic forecasts and a great deal of information about the specific industry
involved.
3) Specific product forecasts – can be in the form of trend forecast, build-up forecast,
delphi approach—consensus forecast, or test market.
a) Trend forecast – involves projecting sales objectively based on past trends and then adjusting
these projections subjectively to take into account the expected economic, market, and
competitive pressures.
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
2. Sales Forecasting
a) Trend forecast – involves projecting sales objectively based on past trends and then
adjusting these projections subjectively to take into account the expected economic,
market, and competitive pressures.
b) Build-up forecast – constructed by asking sales people to develop detailed sales
forecasts for each of their major accounts; the accumulated sales estimates from all
field sales people then offer a grass-roots estimate of sales expectations.
c) Delphi approach – a panel of experts is asked to develop a forecast doe the area of
interest. These estimates are then pooled, reviewed, and any differences across the
experts studied. The estimation process is repeated until a consensus forecast is
achieved.
d) Test market – an experiment is set up by selecting a test city or area with
characteristics similar to the target market.
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
3. Competitor Analysis
Involves listing the key strengths and weakness analysis of a
competitor in the same way the firm’s strengths and weaknesses were
analyzed earlier.
Marketing management for agribusiness
Tools for marketing decisions in agribusiness
4. Customer Need Analysis
Can be in the form of:
1) Customer survey – can be in the form of personal interview, telephone interview,
written survey
2) Focus group techniques – allows companies to gain solid purchase decision
information or other insights from a group of customers
3) Internal data analysis – can be in the form of analyzing transaction data and
market mapping.
TO BE CONTINUED…..