This book, Agribusiness Management, focuses on the management of food, fiber, and agribusiness firms. We will take a careful look at food and agricultural business management and our definition of food and agricultural businesses is quite broad. So, when we use the term agribusiness management in the text, remember that we are talking about the management of any firm involved in the food and fiber production and marketing system. Our discussion of agribusiness management in this book provides information, concepts, processes, ideas, and experiences that can contribute to your effectiveness in performing the functions and tasks of agribusiness management.

This chapter will first introduce you to the key functions of agribusiness management. Then, we will explore some of the characteristics that make the food and agribusiness markets unique places to practice the art and science of management. The ever-changing food and agribusiness industries are then discussed. We will look at firms that (1) move final products through the food and fiber system to the ultimate consumer; (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.

The key functions of management in agribusiness

As you can imagine, the responsibilities of managers in agribusiness are highly varied and can range from ordering inputs for the year ahead, to hiring and firing individuals, to making the decision to sell a multi-billion-dollar international subsidiary. A chief executive officer, for instance, is responsible for the overall activities of a large, diversified food or agribusiness firm. In such firms, teams of managers are likely responsible for specialized areas within the firm. On a smaller farm business, one individual may assume roles ranging from chief executive officer, to manager, to laborer, managing multiple projects at different levels simultaneously.

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

Ultimately, no matter how large or small the firm, managers have responsibilities in each of these areas. These four functions of management are explored in some detail in this book. However, it is important to have a basic understanding of each area as we develop our understanding of agribusiness management.

Marketing, in a broad sense, is focused on the process by which products flow through the U.S. food system from producer to final consumer. It involves the physical and economic activities performed in moving products from the initial producer through intermediaries to the final consumer. 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.

It is this function of management that is most closely focused on the end-user, or the consumer/customer of the product or service produced. It is often argued that without satisfied customers effectively reached through marketing and sales, no business could successfully operate. Thus, marketing management plays a fundamentally important role in most food and agribusiness firms. Marketing management is focused on careful and planned execution of how, why, where, when and who sells a product or service and to whom it is sold. Decisions here include what products to produce, what services to offer, what information to provide, what price to charge, how to promote the product, and how to distribute the product.

This management function is closely tied to the customer’s decision processes, and buyers differ widely in the food production marketing system. Customers range from teenagers purchasing snack foods from a food manufacturing firm, to a soybean processor purchasing soybeans from a farmer, to a large, integrated swine business purchasing vaccines from an animal health firm.

Financial management

Profit is the driver for agribusinesses as they work to generate the greatest possible returns from their resources. Successful achievement of this objective means making good decisions, and it means carefully managing the financial resources of the firm. 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.

Financial information allows managers to understand the current “health” of the firm as well as to determine what actions the business might take to improve or grow. Balance sheets and income statements can provide a wealth of information useful in making decisions. Financial analysis provides agribusiness managers with insights on which to better base decisions. The tools of finance such as budgeting, ratio analysis, financial forecasting, and breakeven analysis can be used by agribusiness managers to develop long-range plans and make short-run operating decisions.

The sheer amounts of funds needed to finance future operations of a company will continue to increase dramatically. So will the need for managers who understand the tools and techniques used to source and manage those funds. For most agribusinesses, financial management will be a critical component of agribusiness management.

Supply chain management

New technologies and concepts are rapidly hitting the workplace. This, in turn, changes the way agribusinesses do what they do. The push for quality, the drive for lower costs, changes in the supply chain, and general pressures to be more efficient in meeting consumer demands are swiftly altering the production and distribution activities of agribusiness. 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.

Logistics management involves the set of activities around storing and transporting goods and services. Shipping and inventory costs are huge costs of doing business for many food and agribusiness firms. The logistics management function is focused on new ways to lower these costs, by finding better ways to ship and store product. Given advances in information technology, the analytical tools of supply chain management, and improved shipping technologies, this has been a dynamic area for food and agribusiness firms. In addition, the growth of global markets depends upon the performance of well-managed supply chains.

Successful agribusinesses are those who consistently produce faster, better, and cheaper. The management of logistics in food and agricultural supply chains will become increasingly focused on building such time-based advantage. Quicker response to consumer needs, faster delivery times, shorter product development cycles, and more rapid recovery after service problems are all components of time-based advantage in supply chain management. At the same time, there is an incredible push for quality, safety, and integrity in food system production processes. Effective supply chain management will continue to be crucial in the successful execution of any strategic plan for agribusiness firms.

Human resources management

Agribusiness managers who can manage people well can significantly impact both productivity and financial success. 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.

Today’s lean agribusiness firms continue to demand more performance from their managers, sales force, and service and support personnel. For instance, in addition to superb selling skills, sales representatives will be expected to have intimate knowledge of technology and a fundamental understanding of the general management problems of their producer customers. Service personnel must be able to maintain increasingly complex equipment. Technical support staff will need to be experts at assimilating and using the massive amount of production data that a large dairy farm or crop farm using site-specific management practices will generate.

These types of demands will require agribusinesses to hire individuals with greater initial skills and with the ability to grow into different jobs throughout the course of their careers. Agribusinesses will need to be flexible while providing continuing education and development of key skills. Some examples of such skills are general business, negotiation, problem-solving, technical, information management, and communication. Recognition of raw ability and the development and fine-tuning of these skills and abilities will be the human resource challenge. Managed well, that challenge will profitably produce for the company. And this is the role of human resource management in the food and agribusiness firm.

Unique dimensions of the food and agribusiness
markets

It may be easy to argue that management theory and principles are the same for any type of business enterprise. The largest businesses in the country, such as General Electric and Walmart, and the smallest one-person agribusiness are guided by many of the same general principles. In many cases, good management is good management, regardless of the type of firm, or the market it is operating in.

Yet key differences between large and small businesses or between agribusinesses and other types of firms arise in the specific business environment facing the organization. While there are similarities, the markets facing General Electric’s wide range of businesses differ substantially. The automotive industry is different from the retail industry. Likewise, the unique characteristics of the food production and marketing system cause management practices to differ for agribusiness firms. Our job is to better understand the similarities and differences in the functions and tasks of a food and agribusiness manager compared to other managers.

Food and agribusiness markets differ from other markets in at least eight key ways, influencing the business situation that food and agribusiness managers must practice. While one can find examples of other industries in which each point is important (for example, seasonality is important to toy companies), in combination these factors form the distinguishing features of the food and agribusiness marketplace.

Food as a product. Food is vital to the survival and health of every individual. Food is one of the most fundamental needs of humans, and provides the foundation for economic development—nations first worry about feeding their people before turning their attention to higher order needs. For these reasons, food is considered a critical component of national security. As a result, the food system attracts attention from governments in ways other industries do not.

Biological nature of production agriculture. Both crops and livestock are biological organisms—living things. The biological nature of crops and livestock makes them particularly susceptible to forces beyond human control. The variances and extremes of weather, pests, disease, and weeds exemplify factors that greatly impact production. These factors affecting crop and livestock production require careful management. Yet, in many cases, little can be done to affect them outright. The gestation cycle of a sow or the climate requirements of wine grapes provide examples.

Seasonal nature of business. Partly as a result of the biological nature of food production, firms in the food and agribusiness markets can face highly seasonal business situations. Sometimes this seasonality is supply driven—massive amounts of corn and soybeans are harvested in the fall. Sometimes this seasonality is demand driven—the market for ice cream has a series of seasonal peaks and valleys, as do the markets for turkey and cranberries. Such ebbs and flows in supply and demand create special problems for food and agribusiness managers.

Uncertainty of the weather. Food and agribusiness firms must deal with the vagaries of nature. Drought, flood, insects, and disease are a constant threat for most agribusinesses. All market participants, from the banker to the crop production chemical manufacturer are concerned with the weather. A late spring can create massive logistical problems for firms supplying inputs to the crop sector. Bad weather around a key holiday period can ruin a food retailer’s well-planned promotional event.

Variety of market conditions. The wide range of firm types and the risk characteristics of the food and agribusiness markets have led to an equally wide range of market structures. Cotton farmers find themselves in an almost textbook case of the perfectly competitive market where individual sellers have almost no influence over price. At the same time, Coca-Cola and PepsiCo have a literal duopoly in the soft drink market. Some markets are global, others local. Some markets are characterized by near equal bargaining power between buyer and seller, while others may be dramatically out of balance in one direction or the other.

Rural ties. Many agribusiness firms are located in small towns and rural areas. As such, food and agribusiness are likely the backbone of the rural economy and have a very important role in rural economic development.

Government involvement. Due to almost every other factor raised above, the government has a fundamental role in food and agribusiness. Some government programs influence commodity prices and farm income. Others are intended to protect the health of the consumer through safe food and better nutrition information. Still other policies regulate the use of crop protection chemicals, and affect how livestock producers handle animal waste. Tariffs and quotas impact international trade. School lunch programs and the supplemental nutrition assistance program (SNAP) help shape food demand. The government, through policies and regulations, has a pervasive impact on the job of the food and agribusiness manager.

Each of these special features of the food production and marketing system affects the environment where agribusiness managers practice their craft. Agribusiness is unique and thus requires unique abilities and skills from those involved with this sector of the U.S. economy.

The food production and marketing system

The highly efficient and effective food production and marketing system in the U.S. is a result of a favorable climate and geography; abundant and specialized production and logistics capabilities; intense use of mechanical, chemical, biological and information technologies; and the creative and productive individuals who lead and manage the firms which make up the food and agribusiness industries. This U.S. food production and marketing system produces enormous supplies of food and fiber products. These products not only feed and clothe U.S. consumers, but are also exported to the international marketplace to fulfill the needs of consumers around the world.

The food production and marketing system encompasses all the economic activities that support farm production and the conversion of raw farm products to consumable goods. This broad definition includes farm machinery manufacturers, fertilizer mines, baby food factories, the paper firms that supply cardboard boxes, rail and trucking firms, wholesalers, distributors, and retailers of food, restaurateurs, and many, many others.

The grocery category includes traditional supermarkets, as well as convenience stores, superettes and small grocery stores, and specialty food stores (such as meat markets, fish markets, or bakeries). The category of warehouse clubs and supercenters was first dominated by warehouse stores such as BJ’s Wholesale Club or Costco. More recently, growth in this sector has been driven primarily by Walmart and Target. Other food stores include food retailed via mass merchandisers, drug store/combination stores, mail order, home-delivered food, and farmers’ markets. Key attributes for some of the most common store formats are briefly described (Elitzak, 2015):

• Supermarket: the conventional prototype typically carries about 15,000 items in a 10,000 to 25,000 square foot store.

• Superstore: has at least 40,000 square feet, which leads to a greater variety (25,000 items) of products, especially non-food items. The strategy is to promote the convenience of one-stop shopping, by providing additional service and selection.

• Convenience store (without gasoline): a small grocery store, selling a limited variety of basic foods, snack foods, and non-food products, typically with extended hours. Grocery products account for 45 percent of sales. Ready-to-eat and fountain beverages represent about 10 percent of sales. Packaged liquor, beer, and wine, and tobacco products account for another 35 percent of sales.

• Warehouse Club Stores: no-frills, membership-based, wholesale-retail hybrid outlets. These “box stores” serve both small businesses and individual consumers in a large warehouse-style environment. Grocery products (in large and multi-pack sizes) account for about 30 percent of sales. General merchandise (clothing, electronics, small appliances, and automotive products) accounts for 70 percent of sales. Following a low-price strategy, these stores typically stock fast-moving, non-perishable products, carrying 6,000 to 12,000 items in stores from 10,000 to 15,000 square feet.

• Supercenter: a large combination supermarket and discount general merchandise store, averaging 170,000 square feet of floor space. Grocery products account for up to 40 percent of floor space.

Most wholesale operations focus on sales to retailers, other wholesalers, industrial users, and, in some cases, the final consumer. A wholesaler may buy directly from the producer and sell to another wholesaler or food processor. More typically, however, the wholesaler buys from the food processor or manufacturer and sells to a retailer. The make-up of the wholesale trade sector involves a large group of varied organizations—some quite small and some very large. Chain stores own their warehousing facilities, but typically break this out into a separate operating unit with the objective of generating a profit.

Wholesalers perform a variety of functions for their retail customers. It is important to note that wholesalers are facilitators and that they may take market risk if they take title to the goods they handle. These firms are responsible for distributing the product in appropriate quantities across a geographic region. Often wholesalers will finance inventory purchases for the retailer. In this case, the retailer does not have to borrow money from the bank, but uses the wholesaler as a source of operating funds. Many wholesalers offer services like automatic ordering, customer traffic surveys, and a suggested shelf-stocking arrangement, among others. The idea is for the wholesaler to forge a profitable working relationship with its retail clients.

Merchant grocery wholesalers are classified into three groups by the types of products they distribute: (1) general line distributors; (2) specialty distributors; and (3) miscellaneous distributors. First, general line distributors operate 9 percent of the total number of food wholesalers, but employ 18 percent of the wholesaler workforce (Wholesale Trade, 2015). Also known as broad line or full line distributors, these companies handle a complete line of groceries, health and beauty products, and household products. Supervalu and Sysco are examples of general line distributors. Second, specialty distributors are typically smaller than general line distributors, and focus on specific items such as packaged frozen food, dairy products, meat or fish products, confectionery, or fresh fruit and vegetables. Specialty wholesalers account for 50 percent of the food wholesaling establishments, employing 46 percent of the workforce. Finally, miscellaneous distributors carry narrow lines of dry groceries (coffee, snack foods, bread, or soft drinks), which are distributed directly to retail food stores. Accounting for 13,763 food wholesalers, miscellaneous food wholesalers employ 36 percent of the wholesale industries’ workers.

Food processing and manufacturing

In 2011, U.S. food processors accounted for 14.7 percent of the value of shipments from all U.S. manufacturing plants (Martinez, 2014). Meat processing is the largest component of food manufacturing and accounted for 24 percent of food and beverage manufacturing shipments in 2011. The Annual Survey of Manufacturers from the U.S. Census Bureau counted almost 30,000 food-processing plants across the nation. An additional $153 billion of processing was performed by 4,347 beverage manufacturers, 92 tobacco manufacturers, 250 fiber, yarn, and thread mills, and 191 tanneries (2012 Economic Census, 2015).

The food processing and manufacturing industry turns raw agricultural commodities either into ingredients for further processing or final consumer products. Meat packers, bakers, flour millers, wet corn mills, breakfast cereal companies, brewers, snack firms, and tanneries are examples of food and fiber processors and manufacturers. These complex firms serve highly varied markets. For example, soybean processors in central Illinois break down soybeans into two major components—soybean oil and soybean meal—each with its own unique market conditions. Literally hundreds of products utilize soybean oil as an ingredient, ranging from margarine to cosmetics. The primary market for soybean meal is as a high-protein livestock feed supplement.

Our final group of food sector firms includes those that acquire or assemble commodities from agricultural producers, and store and transport these products for food manufacturing and processing firms. Transportation and logistics firms facilitate the marketing and processing phases of the food sector. Firms ranging in size from the grain handling giant Cargill to local cooperatives that handle grain are involved in the collection, storage, and transportation of agricultural commodities. A similar process then ensues as products are shipped to food retailers.

Transportation output is measured in ton-miles, a metric which tracks the interrelationship between weight and distance. For example, if a 25-ton truckload of wheat moves 200 miles to market, that trip generates 5,000 ton-miles. Agricultural and food products are important users of the U.S. transportation system. Agricultural commodities shipped from growers to processors accounted for 11.8 percent of the ton-miles in 2012 (United States Department of Transportation, 2015). Shipments from food processors to retailers account for another 10.1 percent of the total ton-miles.

One example is the way that grain moves from farm to processor. Grain typically moves from the farm either to local elevators or to sub-terminal elevators located near transportation centers. These firms make money on grain movement, not on speculating that the grain they hold will go up in price. Small local grain elevators may sell to a larger sub-terminal or terminal elevator, or directly to a processor. Terminal elevators assemble grain from smaller country elevators to amass a quantity of grain that will fill unit trains or barges. Unit trains might move corn to the southeast to feed poultry. Or a group of barges might be transported down the Mississippi River and the delivered grain shipped to the international market.

Managing transportation and storage firms brings a unique set of challenges. A grain buyer for a terminal elevator located close to rail lines and a navigable river must be knowledgeable of rail rates, the availability of rail cars, and barge rates. Often these rates can change significantly overnight. Risk management is paramount, as commodity prices change quickly. Margins for these firms are typically razor-thin; hence, cost management is a priority.

Linkages in the food sector

Many of the organizations involved in the food sector have successfully integrated forward or backward in the food system. Goals for such a strategy include increased operating efficiency and reduced market risk. For example, many firms are involved in both processing and marketing activities and have at least partially integrated back to the production sector by entering partnering or contracting arrangements with producers. Smithfield Foods is one example of a firm with such a position in the market. The link helps reduce market risk by reducing material quality and supply problems.

Kroger, one of the top food retailers, owns 37 food processing plants that are used to manufacture store label products, including dairy, snack foods, and bakery items. Anheuser-Busch owns malting plants and can-manufacturing operations. Firms like ConAgra have a presence at almost every level of the food system. As mentioned earlier, such linkages are common and make the lines between industries very blurry, and the resulting firms quite complex.

The production agriculture sector

At the hub of our food-production and marketing system is the production agriculture sector. Production agriculture includes the farms and ranches that produce the crop and livestock products that provide inputs to the food and fiber sector. These farms and ranches are the customers of the firms that make up the input supply sector. As mentioned earlier, relatively few individuals are responsible for a staggering quantity of output in the U.S. production agriculture sector. Today’s U.S. farmer produces enough food and fiber in a year to feed and clothe 155 people. More than 40 percent of the corn grown in the world is produced in the U.S.

Every industry in the food system is impacted in some way by production agriculture. And like the food and input supply sectors, the production agriculture sector has been undergoing profound change in response to a variety of market forces. In this section, we will explore the dynamic production agriculture sector of our food production and marketing system.

Farm demographics

So what is a farm? The United States Department of Agriculture (USDA) defines a farm as “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during a given year” (2012 Census of Agriculture, 2014). This definition includes many part-time farmers with limited acreage and very modest production. The USDA definition of a farm includes the small hobby farmer that sells one horse or ten lambs per year as well as the commercial operator that farms 8,000 acres or produces 700,000 head of hogs annually. The definition includes those who farm part-time and those who have farmed full-time for generations. The Economic Research Service (ERS) of the USDA classifies farms into four groups: small family farms, midsize family farms, large-scale family farms, and nonfamily farms. Small family farms include retirement farms, off-farm occupation farms, and farm-occupation farms with both low sales (gross cash farm income less than $150,000) and moderate sales (gross cash farm income between $150,000 and $349,000). Midsize family farms include operators reporting farming as their primary occupation and gross sales between $350,000 and $999,999. Large-scale family farms are family farms with gross cash farm income over $1 million and are further broken down to large family farms and very large family farms who report gross cash farm income of $5 million or more. Nonfamily farms are any farm where the primary operator and his or her relatives do not own a majority of the business (2012 Census of Agriculture, 2014).

The input supply sector of the food production and marketing system is comprised of the firms that manufacture and distribute the myriad of inputs used by the production agriculture sector. The agricultural input industry umbrella is a broad one and includes a wide range of firms that provide products and services to agricultural producers. Animal nutrition, seed, machinery and equipment, fertilizer, crop protection, and credit and banking firms would be among the enterprises which fall under the general category of input suppliers.

A description of just what these industries look like today only vaguely resembles their appearance just a few years ago. During the last 40 years, these industries, like the food and production agriculture sectors, have experienced vast and dynamic change. Taking a quick look at the history book helps define today’s agricultural input business. A rapidly growing agriculture fueled a prosperous input supply sector in the 1970s. The massive adjustments of the production sector in the 1980s brought an equally huge reorganization of the input supply industries. Since the 1990s, continued consolidation in the livestock sector has reshaped the input supply industries serving animal agriculture. Consolidation in the agronomic industries via mergers and acquisitions has led to fewer, larger players at both the manufacturing and the distribution levels.

The productivity of the agricultural production sector continues to increase, in no small part due to the products and services provided by the input supply sector. Improved varieties of seed may be attributed to advances in biotechnology among other more conventional developments, which allow improved and lower-cost production methods. Animal nutrition, farm machinery and equipment, agricultural pesticides and herbicides, and the many facilitating services offered to producers help increase the productivity of the production agriculture sector. Information technologies such as global positioning and monitoring systems have seen widespread adoption. For the purpose of this text, we have categorized the farm input supply sector into three areas:

• Distribution

• Services

We will explore each of these three areas in the remainder of this section.

Manufacturing

Farm production inputs move from the manufacturer to the farm through a very wide variety of sales, marketing, and distribution channels. Using the technology developed by manufacturers also requires accurate and timely technical information, as well as timely access to the products. This is the job of input distributors—individuals, companies, outlets of national organizations, cooperatives, e-businesses, etc.—responsible for getting the products from the manufacturer to the farm, and providing a set of services that insure productive use of the inputs.

These distribution firms represent a very wide range of organizations. Sometimes, a major national manufacturer owns the distribution firm. Memphis-based Helena Chemical Company is an international company producing fertilizers, spray adjuvants, and specialty products. Helena reaches farmers through its retail and wholesale locations throughout the U.S. In other cases, the distributor is a franchise of a manufacturer. The local dealer network of John Deere provides a good example. In still other cases, the distribution network is independent of the manufacturing sector.

Local agricultural cooperatives are heavily involved in the distribution of inputs. A cooperative is a member-owned, democratically controlled business from which the benefits are received in proportion to use. Local farmers who are cooperative members buy and sell products through the cooperative and thus the cooperative is a distributor of agricultural products and/or services.

Stores or chains that offer everything from pet food to tractor parts operate as a retail business from which producers make purchases. Tractor Supply provides a good example. Given the very wide range of inputs that farmers use in their businesses, and given the equally wide range of farmers involved in production agriculture, it comes as little surprise that the distribution system involves such a wide range of organizations.

Services and financing

The agricultural services and financing area includes farm management services, veterinary care, consulting businesses, and farm lending, just to name a few of the types of businesses involved in this area. Larger farms and fewer farmers, combined with increases in absentee land ownership, have greatly contributed to an increase in the number of farm management firms and services offered in the last decade. Frequently, farm management services are hired to oversee land rental, crop production, and financial and tax management for the absentee landlord.

Financing the production agriculture sector is big business. In 2013, the farm production sector controlled about $2.9 trillion of total assets—all those resources of value involved in farming. At the same time, total farm debt amounted to $308.2 billion (Morehart, 2015). This debt includes debt on farmland and machinery, equipment, buildings, as well as production loans. Countless banks offer agricultural loans and related services to farmers.

Looking ahead

Managing in this diverse, multi-faceted field of agribusiness requires a wide range of skills and talents. In addition to a strong background in management, agribusiness managers need a deep understanding of the biological and institutional factors surrounding the production of food and fiber. In the first section of this book, we will look more closely at the tasks of management and some key economic concepts that are important to managers. Then we will turn our attention to the types of organizations we find in the food and agribusiness markets, and explore some elements of the context within which agribusiness managers make decisions.

With this broader perspective in hand, we turn our attention to a deeper look at the four functional areas of management. First, we explore the area of marketing and sales. Subsequently, we will consider the management of the financial resources of the agribusiness. The final two sections deal with the important areas of supply chain management and human resource management. It is our goal that this book will provide you with a solid foundation for your further study—and practice—of agribusiness management.

Summary

The food production and marketing system is a complex, dynamic, and extremely productive part of the total U.S. economy. The study of agribusiness includes understanding basic management principles and practices. Four key functions of management are marketing, finance, supply chain management, and human resources management. An understanding of these functional areas is critical to the successful agribusiness manager.

There are a number of factors that combine to create a unique business environment for firms and managers in the food production and marketing system. This system is a highly efficient one. Over time, consumers have demanded more and more services with their food products. As a result, the proportion of the food dollar that goes to production agriculture has declined, and the marketing bill has expanded.

The definition of agribusiness used in this book includes three important sectors: the food sector, the production agriculture sector, and the input supply sector. In their combined activities, these three areas provide a tremendous variety of food and fiber products to consumers both in the U.S. and around the world. In this food system, each sector is tied to the next in the task of developing, producing, and delivering food products to the consumer. The food sector includes a wide range of firms including processors, manufacturers, wholesalers, and retailers. Many of these firms are global firms offering brands we are all familiar with. Others are focused on manufacturing ingredients that are inputs for other food companies. The production agriculture sector is undergoing dramatic change as the number of farms declines, and their size increases. Finally, the input supply sector provides the product and service inputs required by the farm production sector. Tractors, seed, crop protection products, capital, and advice are examples of products/services provided by input supply firms.

1. List and define the four functions of agribusiness management.

2. What are five reasons the agribusiness sector may be considered unique? How or why could agribusinesses and firms outside the agribusiness sectors make different decisions in similar situations?

3. In 2013, American consumers spent over $1 trillion on food for at-home and away-from-home consumption. While the marketing share percentage of the farm-food marketing bill has stayed relatively the same over the years, the dollar amount has increased from $441 billion to $852 billion from 1993 to 2013. What is included in the marketing share of the farm-food marketing bill? How does the marketing bill affect consumers? How does the marketing bill affect farmers?

4. One significant trend facing food retailers is the growing interest in local foods. Interpret this trend. Do you expect this trend to continue? Why or why not?

5. Larger and more specialized farming operations have evolved. What are the positive dimensions of this trend? What are the negative dimensions of this trend? How does this trend impact the food sector and the input supply sector?

6. The U.S. agriculture sector is incredibly efficient. What are some of the reasons for this efficient and effective food production and marketing system? What social issues and implications of the issues do you see for firms working in this sector?

Case study

In this chapter, we look at three key sectors of the food production and marketing system—the food sector, the production agriculture sector, and the input supply sector. For this case study, pick a specific food or fiber product you have an interest in. Then, using the library or the Internet, locate the name of one firm for each of the three sectors of agribusiness that is involved in some way in the production and distribution of your product. For example, if you choose burritos, this might be Chipotle (food sector), a family-owned pepper grower (production agriculture), and Farm Credit System (input supply sector). After you have identified your three companies, answer each of the questions below:

1. Briefly describe each of your firms. What markets do they serve? How large are the firms? What products do they produce?

2. How are these firms linked to the product you chose to research?

3. What is similar about the firms you chose? What is different about the firms you chose?

4. How are these firms related in the production and distribution of your product? Is this an explicit link (do they share the same parent company, for instance), or are they loosely related through open markets?

References and additional readings