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HOW AGRIBUSINESS DIFFERS FROM THE CONVENTIONAL BUSINESS

Agribusiness is the business of agricultural production, an industry engaged in the producing operations of a farm, the manufacture and distribution of farm equipment and supplies, and the processing, storage, and distribution of farm commodities. The term was coined in 1957 by Goldberg and Davis. It includes agrichemicals, breeding , crop production ( farming and contract farming ), distribution, farm machinery ,processing, and seed supply, as well as marketing and retail sales. All agents of the food and fiber value chain and those institutions that influence it are part of the agribusiness system.


Examples of Agribusiness Companies
Deere & Company, which makes John Deere equipment, may be one of the best-known examples of a classic agribusiness company. The firm doesn't own farms or produce food products, but nearly every farmer owns a John Deere tractor, baler or some other piece of the quintessential green and gold farm equipment.
Monsanto Company, which manufactures the herbicide Roundup (glyphosate) plus various Roundup Ready genetically modified seeds, is another example of an agribusiness company, as is Dow AgroSciences LLC (a wholly owned subsidiary of the Dow Chemical Company).
Dow AgroSciences makes pesticides, herbicides and fungicides, and markets seeds.
Scope
The examples given above on "agribusiness" are to point out the fact that agribusiness generally isn't used and limited to refer to actual farms alone, but every other business that supports all chains of agricultural activities, ranging from supply of farm machinery, inputs, marketing, consultancy and extension services and many more.

Risks Inherent in Agribusinesses
Just like the conventional business agribusinesses face a wide range of its own risks and incur several expenses in managing profitable enterprises. Major risks include the following (with examples of typical expenses):
Financial (interest payments on agricultural loans)
Human (life insurance to cover impacts of death, injury, sickness, divorce, or dissolution of partnerships)
Institutional (changes in government regulations and federal, state, and local taxes)
Price or market (variations in crop prices and costs of inputs like fertilizer, fuel, seed, storage, transportation, labor, etc.)
Production (crop insurance for yield losses, pesticide purchases to control weeds and insects, and availability of water)

What is unique about agribusiness?
There is the common thinking in the business school that agribusiness should be run just the same way other conventional businesses are being operated. While there may be some converging point and general rule for all businesses, it must be pointed out however that agribusiness plays by its own complex set of biophysical rules, and beats to its own drum sometimes, therefore if an agricultural entrepreneur apply conventional business rules strictly to agribusiness all the time, he may be taking-off and landing at the same spot, for several years with a very slow or no growth rate. Agribusiness is unique and demands that you treat it uniquely, separate from the conventional business  most times.
Keith Woodford in his post “Why agribusiness is different” listed six defining reasons why agribusiness is different from most other types of business. He stated that  these differences are what makes agribusiness so complex, so fascinating, and at times so frustrating. It is these same differences that can also cause so-called business experts to struggle when they apply their textbook skills and business schools logic strictly to agribusiness. The six defining characteristics are ;
long investment cycles, long production cycles, production volatility, food safety issues, the politics of food security and environmental implications. The specific ways that these characteristics play out vary from situation to situations.

The long investment cycle and production cycle. 
The long investment cycles, which are driven by the biology of the specific enterprise, can typically mean that there can be lags of several years between planning and outcomes. Whereas a factory can typically be built in a year, a vineyard takes several years during which market conditions can change dramatically. Either herd set-up or cashew plantation, non may start bringing you immediate result as always expected in conventional business. Even the annual and perennial crops may struggle for 4 to 5 cycles/years of production before the market situation changes in favour of your newly established farm/agribusiness.
To produce a calf, the cow takes 9 months, for the annual and perennial crops, it takes 3 to 13 months for them to be ready, to produce its first set of fruits, tree crops may take 5,6 years.
Production volatility
Production volatility caused by climatic and related conditions can lead to major swings in agricultural output from year to year. The 2013 autumn drought in New Zealand caused sheep slaughtering to increase markedly. The American drought of 2012 led to global increases in grain prices.
In non-agribusiness industries, a firm typically produces output to meet expected market demand. In agribusiness, firms have to market whatever the weather and pest conditions may determine. Merino wool producers, for example, not only have to deal with changing fleece weights, but the diameter of the fibre, which is a key determinant of price, also changes with environmental conditions. Some of these risks can be managed through use of financial derivatives such as futures and options as in the conventional business, others have to be allowed to play out wherever the chips may fall.
Food safety issues
Risk management issues in food industries have implications far beyond those in most other industries. The implications of Fonterra’s botulism scare, including the inevitable time delays associated with biological tests, are the types of issue that most industries never have to think about. Also, the regulatory issues around food are so much more complex than for non-food items.
The politics of food security
The politics of food create unique issues. Essentially, the world has already moved to free trade for manufactured goods. However, trade in food items remains bedeviled by quotas, tariffs, and non-trade barriers, some of which mask as bio-security issues
Environmental implications
It is impossible to produce food without environmental implications. For example, in New Zealand, it is the dairy industry which typically hits the headlines. However, similar issues affect all livestock industries. The main cause of nitrogen leaching is the urine from grazing animals.  Attempt to sort that and bring in animal under roof leads to severe offensive odor, more complications!! nothing is ever easy and straight forward in agribusiness.


All of the above factors have implications for education for the agri-food industries. For example, farm management education have to be built on a knowledge of both biological and business principles. It is also about creating resilient systems within an uncertain and constantly changing environments.
Agribusiness are never as straightforward as a conventional business, In agriculture, production recipes may provide a pathway to failure if conventional business rules are strictly applaud.
Good managers need analytical skills that can address diverse and changing situations.
Ahmed Olanrewaju Aliyu
Researcher/Agric consultant.

Comments

  1. Fantastic article! Way to go bro.

    However, I was hoping to see something on public perception of agribusiness particularly when it pertains to big AGs like the ones you mentioned, Monsanto, Bayer, DuPont etc when it comes to novel crop improvement techniques like genetic engineering, genome editing and pesticides.

    What's your stake on this?

    ReplyDelete

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