Definition of Agribusiness

• Agriculture: art and science of growing crops,

livestock
• Business: an economic activity aims to sell goods and
services at prices that will provide an adequate
returns, commercialisation of any enterprises.
• Management: set of activities (planning, decision
making, organizing, directing and controlling) with
the aim of achieving goals and objectives of the
organization or any firm. Management helps
coordinate both the human and material resources
towards objective accomplishment through collective
effect.
• Mary Parker defined management as “Management is
the art of getting things done through other people.
 Definition contd…
• The term agribusiness was coined by John H. Davis and Ray
A. Goldberg from Harvard University in 1957.
• John Davis and Ray A Goldsberg defined agribusiness as “The
Sum total of operation involved in the manufacture and
distribution of farm supplies, production activities on the
farms and the storage, processing and distribution of farm
commodities and items made from them.”
• Roy 1977 defined agribusiness as “Agribusiness is the
coordinating science of supplying agricultural production
input and subsequently producing, processing and distributing
food and fiber.”
• In essence, agribusiness consists of industry
surrounding food production, ultimate end-user is the
consumer, with marketing as the driving force behind
all profitable activities. With this in mind, there are
basically three “sectors” that comprise agribusiness,
as expressed in the following diagram:

• Importantly Agribusiness deals with the creation of

value of goods through creation of different utilities.
• Agribusiness is both an art and science of managing an
agricultural business enterprise.
• An art: Agribusiness puts together the various skills of an
individual or organization, in running a profitable venture.
• A science: gathering and analysis of data and
information.Current trends, production and marketing issues,
human resources management and financing and accounting
are logically converted into strategic business plans, scientific
knowledge of production is utmost important.
• Agribusiness, integrates business management principles with
the technical knowledge of the managerial challenges of the
agricultural sector from actual production to consumer
acceptances.
 IMPORTANCE OF AGRIBUSINESS
• Agribusiness covers the supply of agricultural inputs, production and
transformation of agricultural product and their distribution to final consumers.
Agribusiness is one of the main generators of employment and income
worldwide
• It suggests and directs the government and private sectors for developmet of sub
sector.
• Agibusiness creates utility of the product. Thus it add value and upgrade the
product.

• Firm Utility: It is created by processing. Process the product into desired form
needed by the consumer.
• Place Utility: It is created through transportation. Transporting the product to a
location desired by the consumer.
• Time Utility: It is created through storage function. Storing the product until the
time it is needed by the consumer.
• Possession utility: It is created by buying and selling function. allows consumers
to gain ownership the product legally.
• Utilization of niche based potentiality according to
comparative advantages of agricultural goods and
services
• It deals with industrial sectors which is the main
source of farm inputs like fertilizers, pesticides,
machines, processing and post harvesting
technologies.
• Optimization of resources and Output management
• Increase in farm income
• Widening of Market
• Increase in the National income
• Demand driven approach: This means that the
components must function in a way that will lead to
satisfaction of consumers need.
 Scope of Agribusiness
• Production Niche: Nepal’s climate and land topography
is suitable for the production of various types of
agricultural products. Terai is good for cereals; the hilly
region is good for livestock farming (goats, buffaloes,
cows), horticulture, apiculture, and cultivating flowers;
and mountain region is good for livestock farming
(yaks, sheep, chyangras and so on), horticulture
(apples).
• Increasing population, thus higher number of consumers
• High import as compared to the export. Great
opportunity to exploit the market.
• Agribusiness provides crucial forward and backward
linkages.
Government policies
Market
Vertical integration
Trade association
etc
• Our daily requirement of food and fibre products at desired
place at required form and time come from efficient and
hardworking of many business personnel in input, farm
and food production and marketing them. The entire
system in brief is called Agribusiness.
• Agribusiness establishment leads to expansion of credit,
raw materials supply agencies, adoption of modern
technology in production and marketing of agricultural
products.
• Agribusiness has a ‘vertical structure’ composed of input
suppliers, farmers, processors, transport operators,
financiers, wholesalers, retailers, and consumers. These
components participate in the movement of the commodity
from the procedure down to the final consumers.
 Myths of Agribusiness
• Agribusiness is agricultural production through farming. Agriculture is
considered as Traditional Farming. Till now, agriculture is considered as
means of livelihoods, way of life rather than business.
• Diversification: Allocation of available resources in different uses. Aims to
minimize Risk, Uncertainty.
• Commercialization: Allocation of available resources in single uses. Aims
to increase Profit, Incomes.
• Economies of Scale: Resources are utilized maximum in their earning
• capacity. Average Total Cost (y) = TC/q, where TC is Total Cost & q (=x)
isquantity. Now, y = a + bx (Regression function), dy/dx = b. When b=0, a
• Agribusiness is a big business
• It has a large number of components like, input
suppliers, producers, collectors,wholesalers, retailers
and consumers (technology, production and process)
• Agribusiness is purely a private sector undertaking
• It is perfectly private undertaking in ancient time, but
now it is not so. Since it (agribusiness activity) has
been changing according to the government activities
and policies, i.e. terms of taxation and subsidies.
Agribusiness also plays the roles an increasing ‘social
welfare (eg. social premium price for Fair Trade
Certified coffee international market). In ancient time
it is thought that agribusiness is profit saving
organization.
 Features of AgriBusiness
• Perishability of the product
• Seasonality of production
• Bulkiness of the products
• Agricultural products have relatively inelastic demand
than the industrial products.
• Agribusiness deal with vagaries of nature (drought, flood,
insects, pest, etc.)
• Price fluctuation
• There is direct impact of govt. programmes on the
production and performance of Agribusiness.
 Problems of Agribusiness in Nepal
➢ Government policy For example, fertilizer policy,
fiscal policy, infrastructure policy
➢ In Nepal, policy formulation only for periodic plan
and failure of policy due to change in
➢ government structure.
➢ Implementation rate of policy is very low due to
political instability.
➢ Policy follow top to bottom approach rather bottom
to top approach
➢ Government policies are very ambitious.
➢ lack of monitoring of the market prices by the
government.
➢ Existence of middle man:
➢ Lack of post harvest facilities
➢ Lack of information/awareness among producers and traders (less
research &extension)
➢ Lack of market information about price, quality produced, quantity
produced, etc. this is due to failure of the government information
sector.
➢ Lack of quality inputs
➢ QQT, Quality: fertilizer, seed imported from India, Quantity: fertilizer,
seed, irrigationare not in sufficient quantity and Time: whether in right
time or not? Poor distribution of fertilizer, seeds, etc.
➢ Traditional philosophy of farming (i.e. subsistence in nature)
➢ Uneconomic size of land holding
➢ Open border system.
➢ Lack of appropriate technology
➢ Lack of credit (quality, quantity and time)
➢ Processing plant, quality improvement
➢ Poor adoption of technology (late majority and laggards adopters)
➢ Topography (irrigation , transportation, landslides, flooding)
➢ Plant: A plant is a physical establishment engaged in
the production. It is used in both the manufacturing as
well as marketing activities.
* Specific facilty of production

➢ Farm: A piece of land where various enterprises are

produced generally, agricultural commodities are
produced. It is the function of labour, capital ,land
and organization.
• Commerical farm as a market oriented.
• Household farm for home consumption with number
of enterprises.Firm
• Firm
• A firm is a basic unit of production under a single management system. More
specifically it is a technical unit that aims producing the desired output at the least
cost.
• Objectives of firm
• Technical efficiency (TE) is the ability of a firm to produce maximum possible output
from a given sets of inputs and given technologies. It is the ratio of actual output to the
maximum attainable output.

• Allocative efficiency (price efficiency): Allocative efficiency is the condition for profit
maximastion.
• Allocative efficiency expressed as the ratio of the technically maximum possible output
at the farmers level of resurces to the output obtainabale at the optimum level of
resources.

• Allocative efficiency is achieved when the MVP=MFC

• MVP= MPP *Price, where MPP = Change in Qty of Y / change in Qty of X
• MFC= price of one additional unit of input = change in total cost/ change on Qty of X
• One should use the resources until the value of added product is greater than the cost of
input added.
• Economic efficiency = Allocative efficiency*Technical efficiency
• In a firm, there is management, someone makes
decision. There is some hierarchy and an
organizational used.
• Business enterprises are called firm. The
function of making fundamental policy
decisions in a firm is generally called
‘entrepreneurship’.
• Technical unit of production is a firm.
• Technology is used to produce certain output.
• Objective of industry:
• 1. To achieve/increase physical optima or
• 2. To achieve/increase economic optima

• Physical optima: Level of input used that gives

maximum output.
• Economic optima: level of input used that maximize the
‘Profit’
Marginal Revenue (MR) = Marginal Cost (MC)
• if MR>MC firm applies more inputs to maximize profit
while MR<MC firm/producer should apply less inputs.
• When all the firms are in equilibirium then the industry
is also in equilibirium . When exisiting firms have no
tendancy to leave it or new firms do not want to join it.
Interrelationship between firm, plant and industry with respect to
agricultural production:
Key Features:
1. Coordination /networking
2. Resources /fund flow
3. Management and decision-making
4. Value adding practices and upgrading
 supply chain management
• Supply chains are principally concerned with the flow
of products and information between supply chain
member organizations—procurement of materials,
transformation of materials into finished products,
and distribution of those products to end customers.

• The real measure of supply chain success is how well

activities coordinate across the supply chain to create
value for consumers, while increasing the profitability
of every link in the supply chain. In other words,
supply chain management is the integrated process of
producing value for the end user or ultimate
consumer.
 Supply chain management
• Supply Chain is a sequence of (decisionmaking and
execution) processes and (material, information and
money) flows that aim to meet final customer
requirements, that take place within and between different
stages along a continuum, from production to final
consumption. The Supply Chain not only includes the
producer and its suppliers, but also, depending on the
logistic flows, transporters, warehouses, retailers, and
consumers themselves

• Supply chain is a network of organizations contributing to

the design ,production and distribution of a product from
its consumption by the final consumer.
 Components of an organised agri-
supply chain:
1. Procurement or sourcing
2. Logistic management
• a. Transportation
• b. Material management
• c. On the premise of supplying mostly from
production not stock
• d.Warehousing
• e. Logistics Network modeling
• Organizational management
• a. Contracting
• b. Strategic alliances and partnerships
• c. Vertical integration
• i. Long term storage
• ii. Packaging technology
• iii. Cold chain management
• iv. Energy efficient transport
• v. Quality and safety
• Application of Efficient Consumer Response (ECR) System
• a. Electronic scanning of price and product at the point of sale
• b. Streamline the entire distribution chain
Indicators Supply chain Value chain
Objective Prices,costs and margins Improved quality and value
Coordination Uncoordinated High coordiantion
Relationships Independent competitive Highly interdependent
coordination
Types of products Homogenous Differentiated
Goal Maximize individual profit Maximize chain profit
• The supply chain includes includes all the functions
in fulfilling a customer needs (product developmet,
marketing, operations, distribution, finance and
customer service).
• Supply chain is not just a movement of product from
manufacturer, distributor, retailer to consumer. It
consists of four management activities
• Product distribution
• Manging and sharing information
• Funds
• Determining market requirements
• Esstablishing and managing supply chain
relationships
• SCM is the integrated planning, implementation, coordination and
control of all business processes and activities necessary to produce
and deliver, as efficiently as possible, products that satisfy market
requirements
• Vertical integration: Vertical integration is a strategy where a
company expands its business operations into different steps on
the same production path, such as when a manufacturer owns its
supplier and/or distributor. Vertical integration can help companies
reduce costs and improve efficiencies by decreasing transportation
expenses and reducing turnaround time, among other advantages.
• vertical integration is an arrangement in which the supply chain of a
company is owned by that company.
• If one firms assumes the function of other firms it is called vertically
integrated.
• Vertical integration is how many steps of the supply chain our company
does have?

• For example a bakery buys natural gas, flour ,inridients .This is less
vertically integrated.
• If a bakery grows wheat for production of bread and sell it. This is more
vertically integrated.
• Benefits of Vertical Integration
• One of the biggest benefits of vertical integration is that it often creates
economies of scale.
• Reduced transaction costs
• Strengthen supply chain co-ordination.
• Vertically integrated companies also gain cost efficiencies by managing quality at
every step.
• Strategic independence.
• Superior opportunities for investment growth as a result of decreased
uncertainty.
• Get access to downstream distribution channels which usually would be
unavailable.
• Demerits of Vertical integration
• 1.Greater coordination costs.
• 2. Higher monetary and business costs of moving over to other
suppliers/buyers.
• 3. Reduced flexibility as a result of previous upstream or
downstream investments.
• 4. Lower motivation for good performance.
• 5. Monopolization of markets
Functions of Supply chain managenet
• Supply chain management is a cross-
functional approach to managing the
movement of raw materials into an
organization and the movement of finished
goods out of the organization toward the end-
consumer. Supply chain activities can be
grouped into strategic, tactical and
operational levels of activities.
• Strategic level
• Strategic network including number, location ,size of
warehouse,distribution centres
• Strategic partnerships with suppliers,distributors, customers,
for information,
• Product development to integrate new and old product
• Supply strategy
• Buying and selling decisions
• Tactical level
• Sourcing contracts and Purchasing decisions
• Producton decisions
• Inventory decisions including quantity and quality
• Transportation strategy including frequency, location, routes
• Benchmarking of all the operations against the competitiors and implementation of
best practices throught the enterprise
• Payment
• Focus on customer demand and Habits

• Operational level
• Daily production and distribution planning
• Production scheduling for each manufacturing facility
• Demand planning and forecasting
• Production operations including the consumption of materials and flow of finished
goods
• Order promising
• Ensuring insurance to protect from the loss of company.
 Consumer Behaviour
• A consumer is an economic agent who consumes
goods to satisfy his wants and desires
• A consumer is an individual who purchases, has
the capacity to purchase, goods and services
offered for sale by marketing institutions in order
to satisfy personal or household needs, wants, or
desires.
• Walters (1974: defines consumer behaviour as:
the process whereby individuals decide whether,
what, when, where, how, and from whom to
purchase goods and services.
• Consumer behavior can be defined as act of individuals
or organization in obtaining, using and disposing of
economic goods and services including the decision
processes that precede and determine these acts.
Consumer behavior refers to the actions and decisions
process of the people in purchasing of goods.

• Consumer behavior is helpful in understanding the

purchase behavior and preferences of different
consumers. To successfully markets to different market
segments,the market needs appropriate marketing
strategies which can be design only when the factors
which accout for these differences in consumer
behavior can be understood.
• Cardinal Utility and Ordinal Utility
• Cardinal Utility: measures cardinally
• Ordinal Utility: measures ordinally with a
ranking and preferences
• Understanding consumer behavior is not only
important for the producer but for all other
actors in the chain.

• The value that the consumer puts on the

goods or services limits what everyone else
can get from the value chain mention that
consumer behavior is the study of what, why,
how, when, and where does the market buy,
and who themarket is constituted of.
Factors affecting consumer benaviour
• Culture
The study of culture encompasses all aspects of a society such as its religion,
knowledge, language, laws, customs, traditions, music, art, technology, work
patterns, products etc. All these factors makeup the unique distinctive
personality of each society.
• Social Class : homogeneous divisions in a society which individuals or
families sharing same values, life styles, interests and behavior can be
categorized.
• Sub Culture
• A sub culture is an identifiable distinct, cultural group which while
following the dominant cultural values of the overall society also has its
own beliefs, values and customs that set them apart from other members
of the same society
• Reference Groups
• Membership & Symbolic groups-
• Primary & Secondary groups
• Formal & Informal groups
• Membership & Symbolic groups-
• Family –
• Family of procreation consists of consumer’s spouse and
children
• Roles
• Status
• PERSONAL FACTORS
Age and Life cycle stage
Income
Personality
Lifestyle
 PSYCHOLOGICAL FACTORS
• Perception:
• intrinsic and extrinsic.
Appearance, color, shape, size, and structure are the intrinsic
charaters
• Extrinsic
Price, brand, advertisement,labeling
• experience quality attributes and credence quality attributes
Experience attributes: can be discerned after purchase or during
consumption on the basis of actual experience of the product.
• Credence attributes represent the characteristics that may be
impossible to evaluate even after purchase and consumption. In
many cases consumers need
• to have sufficient know-how and practice in order to evaluate the
credence quality of a specific product or service.
• Desirable product benefits like nutritional value, environmental
• friendliness, healthfulness, and way of production
Production Planning
• Production planning is deciding in advance
• What to produce?
determined by price level of the commodity in economy and number of potential buyers
which is depend on demand
• 2. How to produce?
-depend on type of technology
• 3. Where to produce?
-depend on comparative advantage (grow those where MR is higher. For examples,
• Fruits > Cereal in context to Nepal, Rice > Soybean in irrigated region).
• Agricultural export zone, Eg. Mustang for Grape, Jumla for Apple, Illam for Tea and
High-mid Himalaya for livestock.
• produced in those places where there is either low/no transportation cost and minimize
transportation cost.
• 4. How much to produce?
• -depend upon demand and supply scenario.

• 5. When to produce?
•
• 6. For whom to produce?
Functions of Production planning
• Production planning involves deciding the quantity of products
to be produced and cost involved in it on the basis of sales
forecast. It also estimates man power, machine capacity, and
materials required to meet the planned production targets.

• It also determines sequence of operations to be performed in

production process

• Involves fixing priorities for each job and determining the

starting time and finishing time for each operation
 Steps in production Planning
• Farm planning: Types of land use, amount of land, fertility balance
etc

• Members planning
Types of household,members to be involved

• Labour planning
• How many family labour, hired labour to be used?

• Input planning
Types of inputs, tools and equipments use

• Product planning: Variety to produce, crop type management,

• Delivery planning : Post harvest operations, contact maker, price
determination, price taking
 Risks and Uncetainty
• Biological nature of agri enterprises entails some uncertainties
in theor production and prices,coupled with risks and
uncertainties in the availability of inputs.
• Agriculture is often carried out in the open air, and entails the
management of inherently variable living plants and animals.
So, it is widely recognized that a high level of risk and
uncertainty typifies the lives of people in peasant economy.
Risks
Imperfect knowledge that may
result to adversity and loss
where the probabilities of the
possible outcomes are known
2. Probability can be estimated
3. Possible to guess
4. Can be insurable
For example: Fail/pass= ½=
0.5<1.
Uncertainty
1. Uncertainty refers to situations
where it is not possible to attach
probabilities to the occurrence of
events. The likelihood of their
occurrence is never known by the
decision maker or by anyone else
2. Probability cannot be estimated
3. Not possible to guess
4. Can’t insurable
For example: Bird flue
• Risk aversion : If you're risk-averse, it generally means you
don't like to take risks, or you're comfortable taking only small
risks

• Risk aversion is the behavior of humans (especially consumers

and investors), when exposed to risks, in attempting to lower
that risk It is the hesitation of a person to agree to a situation
with an unknown payoff rather than another situation with a
more predictable payoff but possibly lower expected payoff.
• How farmers manage these risks is greatly
influenced by their attitudes toward or
willingness
• to take risk. Knowledge of farmers’ attitude
towards risk is of great importance to farmers,
• educators, agriculture researchers, and policy
makers for the adoption of new farm
• technologies and the success of rural
development programs
• Risk Neutral: Who is indifferent between certain and risky
outcome. A risk neutral investor invest without the
prediction of risk.
• 3) Risk Seeking: Who prefers taking risk with the
expectation of greater outcome.
• Step of risk management
• a. Identification of risky events,
• b. Anticipation of the probable outcomes and their
consequences,
• c. Taking action to obtain a preferred combination of risk
and expected returns,
• d. Restoring the capacity of the producer to implement
future risk planning strategies.
 Types of Risks
• Production risk: Yield ,Quality, Weather ,Pests
• Marketing risks: Price, Demand,Inputs
• Financial risk: Bankruptcy, levaraging, Interest risk, liquidity
and cash flow
• Instituional risk: legal liability, income taxation, workers safety,
Employees
 Risk Management strategies
• Maintaining reserve of cash, inventories, credit, etc. to solve
unforeseenconsequences.
• Adoption of enterprises involving low risk
• Contract farming
• Share cropping
• Share cropping
• Diversification in production
• Flexible farm organization(Time, Cost and Product)
• Vertical integration of farm enterprises
• Resistant varieties
• Insurance of crops, livestock and farm assets:
• Subsidies and support prices/price stabilization:
• provision of institutional loan and marketing
facilities (Credit provision):
• Development of irrigation facilities:
• Agricultural research and extension/Information
• Business risk management is the systematic
application of management policies ,procedures and
practices to the tasks of identifying, analysing ,
assesing, treating and monitoring risks. It is an
integral part of good management in either of
organization is operating. It is a way for an
organisation to avoid losses and maximises
oppurutnities.
 Steps in Business risk management
➢ Establishing context:
• Performing the SWOT analysis of the Business firm,
• identify managerial structure of the organization,
• identification of the most important riskier event.
• Identify important risky decision problem:
• List of the events that may have important effect on the
performance of the organisation
• Structure problem
Who faces the risks? What is the cause of the risk?
What are the options available to manage the risks?
➢ Analysis option and consequences
• Assessment of the consequences of the risks and the
available options
➢ Evaluate and decide
• After the risk analysis, evaluation is done for what to do
the next, Either
➢ Implement and manage
• Implementation of the appropriate risk management
options.
➢ Monitor and Review
➢ Once the risk management program are implemented,
these should maintained, updated, reviewed and
monitored frequently.
• Financial statement shows the financial position and
performance of a business. Thoroughly understanding your
business’ financial performance is critical for success in
today’s increasingly competitive agricultural environment.
• Successful managers use financial statements in combination
with production records to identify strengths and weaknesses
in their operation.
• Financial statements include the balance sheet, income
statement, statement of owner equity, statement of cash
flows.
• Balance Sheet (Net worth Statement): Balance sheet is a
summary statement of assests and liabilities together with
owner equity at a particular point of time. It shows the
financial condition and stabilities of a business at a particular
point of time.
Assests Liabilities
Item value Item value
I.Currrent Assest I.Current liabilities
i)Cash in hands, banks
i) Account to be paid

ii)Account receivables ii)operating loans plus

interest(short term loan
iii)Crops to be sold on feeds and fertilizers)
Rice
Total (current liabilities
Wheat,
Grain II. Medium term loan
Fertilizers
i)Livestock loan and
Total (current assests)
drought animal
II. Medium term assests
ii) minor irrigation loan
i)Machinery and Equipments
ii)Livestock Total (medium tern loan)
Total Medium term assest
III.Long term liabilities
III. Fixed Assests
i)Tractor and its
i)Land
accessories loan
ii)Buildings
ii) Debentures
iii) Tractor
iii) Real estate

Owner Equity (share

capital )

Total assest = Total liabilities+ Equity

• Assests: Any tangible or intangible item legally owned by the
business that has monetary value.
• Current assests: They are the most liquid assests and are
consumable in a year. Eg seeds, fertilizers, cash on hand
• Medium term assests: These are more liquid than fixed assests
such as farm machinery equipment
• Fixed assests: They are difficult to convert them into cash. Eg Land,
Buildings etc.
• Liabilites: A liability is defined as a claim by others against the
business like mortages and accout payabale.
• Current liabilities: Liabilities which call for immediate payment
generally within one year
• Intemediate liabilities: They are to be paid between one to five
years
• Long term liabilities: These liabilities are those which do not
require repayment during the current accouting period
• Shareholder’s equity (or net worth, or capital)
• The shareholder‟s equity is money or other forms of assets
invested into the business by theowner, or owners, to acquire
assets and to start the business.
Income statement (Profit loss statement): Income statement
provides the list of all the farm expenses or business debt on
one hand and farm income receipts in the other hand.

The main objective for preparing the income statement is to

summarize the data on income and expenses to present a
faithful picture of the years performance. It shows
• Net cash incomes: cash receipts –cash expenses
• Net operating income= Gross income –operating expenses
• Net farm income = Net operating income –fixed cost
 Income statement
I Sales 90
II Cost of goods sold 40
III Gross margin(Gross profit) 50
IV Operating expenses
Salaries and wages 5
Local taxes,license 3
Insurance 1
Depriciation 7
Rent and lease 2
Advertising 3
Office expenses 1
Maintenance and repairs 0.5
Total ooperating expenses 22.5
VNet operating profit(III-IV) 27.5
VI Interest expenses 2.75
VIIOther non operating income 5
VIIINet profit before tax 29.75
IXProfit taxes @30% 8.93
Net profit after tax VIII-IX 20.82
• Operating expenses : Costs that contribute directly to the
manufacture and distribution of goods
• General expenses are indirect costs incurred in operating the
business
• Total revenue – total cost gives the net income
• Ratio analysis: Ratios are yardsticks when measuring a
small/medium firms performance and can point out potential
problems before they develop into serious crises. These ratios
enables business owner monitor their companies financial
position. Ratio has no unit.
• Liquidity ratio: It tells whether a small business will be able to
meet short term financial obligations as they come due.
(current ratio, Debt structure ratio, Acid test ratio)
• Laverage ratio (Solvency ratio)= It measures the financing
supplied by the firms owners against that supplied by
creditors. They are the guage of the companys debt.( Debt
ratio and Debt to networth ratio, Debt structure ratio)
• Business ability to repay all financial obligations if all assets
were sold.
 6-
• Operating ratios: It helps entrepreneur evaluate a small
companys overall performance and indicates how effectively
the business employs its resources. The more effectively its
resources used the less capital a small business will requires.
(Average inventory turn over ratio,Receivables turnover ratio)
• Current ratio = (current assests/current liabilities)
• It indicates the ability of a farm to generate
sufficient cash inorder to meet the debt obligations.
Higher value indicates more liquidity exists in the
business.
• Working ratio =(sum of current+working
assests)/(sum of current +working liabilities)
Higher ratio being more than 1 indicates that the risk
bearing ability if the borrower is adequate.
Working Capital = Current assests – current liabilities
+ve sign indicates a company is able to pay off its
short term liabilitiesalmost immediately
• Net Capital ratio =(Total assests/ Total liabilities)
Higher is the ratio, safer is the business
• Acid test ratio = (current assest- inventories)/
current liabilities
• This ratio reflects the adequacy of cash, account
receivables etc
• It expresses the capacity to pay current debt if
all sales income ceased immediately.
Ratio greater than 1 indicates more financial
security
• Debt ratio= (Total liabilities)/Total assests . This
reflects the percentages of the total assest
financed by the its creditors
Debt ratio 0.68: 1 means Rs 0.68 is claimed by
the creditors.
• Debt to net worth ratio= (Total
liabilities)/Tangible net worth : It expresses the
relationship between the capital contributions
from the creditors. If laverage ratio is higher the
business operator has larger claims to pay in
return to his equity
• Equity to asset ratio = Total Equity/total asset
• (what percent of asset of the firm is contributed by the equity)
• >70% Strong, 30-70% Stable & <30% Weak

• Debt to Equity ratio=

• (How much of the debt is covered by the shareholders wquity)
• Total debt(liabilities)/Total shareholders equity
• Strong <42%, stable 42-230% and Weak >230%
• Profitablity ratio: best indicators of overall efficiency of the
agribusiness. It compares return of value over and above the
value put into a business with sale of service carried on by
enterprise with the help of assests applied. It indicate how
effectively a small company is being managed.
• Gross profit margin= (Sales-cost of goods sold)/Sales *100%
35-50% gross margin is satisfactory
• Assest turn over = (sales/Total assests)
• (How efficiently a firm uses its asset to generate sales)
• Higher the assest turn over ratio indicates the greater
opportunity to produce positive profit margin

• Rate of return on total investment = (Profit+ Interest)/ Average

total investment
• (measure the amount of return on a particular investment)

• Rate of return on equity= (profit/ Average networth)

(how efficiently the money contributed by shareholder is
converted to profit)

Higher the business the better the business

• Gross ratio= (Total operating expenses /Gross Revenue)
• Fixed ratio= (Total Fixed Expenditure/Gross profit)
Gross profit means profit before paying tax.
Inflow Amount(Rs) Outflow Amount(Rs)

Cash received from Cash paid for farm

production enterprises expenses

Govt payments with Income taxes

cash generated by
Family living
operating activities
withdraws
Capital sales
Deposits on saving
Withdraw of saving accounts
deposits
Purchases of personal
Sales of personal assests
assests
Payment of debt
Loans/cash received capital leagues
from capital
Dividends
distributors
• Agribusiness enabling environment

• Environment is the situation in which agribusiness firm is operated.

Agribusiness environment is related to the overall economic, social
and political atmosphere of the firm or country.
• The environment factors or forces which affect the success of
agribusiness are into:
• 1. Economic environment,
• 2. Demographic environment,
• 3. Socio-cultural environment,
• 4. Technological environment,
• 5. Political environment, and
• 6. Legal environment
• 7. Good infrastructure: storage facilities, market centre roads,
telecommunication, and irrigation networks
• Business policy
• Business governance
List of indicators for analyzing agribusiness
environment
• Basic infrastructures: road electricity,
communication,transport
• Labour survey and labour regulations: wage rate,
availability of need, skill capacity, labor, child
labour, labour union
• Location advantage and disadvantage: calculate
focus point for input marketing and output
supplying, foresee local climate
• Policy : milk policy 2008, APP, ADS, WTO,tax policy
• Input and Output access: Input side, survey of
potential inputs, equipments, machines, Input
and output availability (QQT)
• Social infrastructure: local social status,community
reaction on your business
• Current industries: number, supply side of agri
industries, source of raw materials, investments
• Competition : product differentiation, end product
users, brand quality, prices,perfect and imperfect
competition, demerit of competition, age of the
business
• Credit availability : credit need, formal loan
providers, interest rate, installments, security
management
• Profitability : B/C ratio, NPV,IRR, payback period,
breakeven analysis, returns on investment
• Management System & Managerial Decisions
• The decision-making process at the level of top management:
• Determine the internal allocation of most of the resources.
Two crude are set: The first
• is a budgetary (financial) criterion, i.e. are there fund
available for the realization of the proposed agribusiness
project?.
• The second is an improvement criterion, i.e. does the
agribusiness project being proposed improve the existing
situation beyond doubt?.
• 2. Decision at lower levels of management (Administration):
• Adoptively rational system, i.e. on the floor, day-to-day
activities, “blue print” and rule-of-thumb.
• Managerial Decisions:
• 1. Based on efficiency, i.e. technical and
economic efficiencies
• 2. Based on optima
• Physical optima, i.e. output maximization
(MP=0)
• Economic optima, i.e. profit maximization
(MR=MC or TR-TC=Max.) and/or factors
combinations, i.e. least cost combination5
 Investment Appraisal

• Investment appraisal are the techniques for determining

whether an investment is likely to be profitable or not.
• An evaluation of the attractiveness of an investment proposal
using different methods.
• Discounted and Undiscounted measure
• Time value of Money :
➢ It refers to the purchasing power of money associated with time factor
➢ Increase in the purchasing power of money as compared to future period of time in
current scenario.

• (1) Compounding/ Future value of present money

❑ Finding future value of present money

A= P [1 +r]t

• 2) Discounting/ Present value of future money

❑ Finding the present value of future money

R
PV = ------------------
[1 +r] t
where, A is the future value of the present sum invested in the project
P is the principal amount invested in the project
r is the interest rate in percentage
t is the number of years or project life in years
PV is the present value/worth of future money
R is money value (Returns) in future
• Undiscounted Measures: These are the
methods in which the data are used as these
are some with some simple manipulations,
without making explicit allowances for taking
into consideration the time element involved
rigorously.
• i Ranking by inspection .
• ii Proceeds per unit of outlay.
• iii Payback period (PBP)
 Undiscouted measures
• i) Ranking by inspection
• Proceeds per rupee of outlay
• This is worked out by dividing the total returns with the total
amount of investment, and a given project is ranked based on the
highest magnitude of the parameter.
• Payback period = Total project investment/Annual net cash flow.
Time required to recover initial investment after recovering all the
operation and maintenace cost.
• Lower PBP is preferable
 Dicounted measures

• It is the ration of discounted benefit ot discounted cost

• While ranking the projects depending upon the B-C ratio, the
most common procedure of selecting project is to choose the
projects having B- C ratio of more than one
• i) Net present worth (NPW)
• The present worth of the benefit less the present worth of the
costs of a project is called NPV.
• Discounted benefits – Discounted costs

• Decision making rule

• (a) If NPW > 0; accept investment, (b) If NPW < 0; reject
investment, ( c) If NPW = 0; be indifferent
• i For single project, the NPW should be positive
• ii For multiple projects rank the project in descending order
according to the values of NPW and implement accordingly
depending upon availability of funds
• The internal rate of return of a project if the discount rate
which makes its net present value 0.
• It is the maximum interest that a project can pay.

Choose a project with IRR greater than the opporunity cost of

capital
• The word market comes from the latin word
“marcatus” which means merchandise or trade
or a place where business is conducted.
• A market is that mechanism by which buyers
and sellers are brought together.
• It may not be necessarily a fixed place. Current
era of E-market does not require buyers and
sellers in a place but interact.
• Markets may be classified on the basis of each of the
twelve dimensions mentioned below.
• 1. On the basis of Location:
• a) Village Markets: b) Primary wholesale Markets: c)
Secondary wholesale Markets:
• d) Terminal Markets e) Seaboard Markets:
• 2. On the Basis of Area/Coverage:
• a) Local or Village Markets: b) Regional Markets: c)
National Markets: d) World Market:
• 3. On the Basis of Volume of Transactions:
• a) Wholesale Markets: b) Retail Markets:
• 4. On the Basis of Nature of Commodities:
• a) Commodity Markets b) Capital Markets:
 Definiton of Agricultural Marketing
• Agricultural marketing can best be defined as series of
services involved in moving a product from the point of
production to the point of consumption.
• Thus agricultural marketing is a series of interconnected
ctivities involving:
• -planning production,
• -growing and harvesting,
• -grading,
• -packing,
• -transport,
• -storage,
• -agro- and food processing,
• -distribution and sale.
• Pure oligopoly – have a homogenous product. Pure because the only source of
market power is lack of competition.
• An example of a pure oligopoly would be the steel industry, which has only a
few producers but who produce exactly the same product.
• Impure oligopoly – have a differentiated product. Impure because have both
lack of competition and product differentiation as sources of market power.
An example of an impure oligopoly is the automobile industry, which has only
a few producers who produce a differentiated product.
• Monopolistic competition: When a large number of sellers deal in
heterogeneous and differentiated form of a commodity, the situation is called
monopolistic competition. Different prices
• prevail for the same basic product. Examples of monopolistic competition
faced by farmers may be drawn from the input markets. For example,
they have to choose between various makes of insecticides,
pumpsets, fertilizers and equipments.
• The marketing channel generally focuses on how to
increase value to the customer by having the right
product in the right place at the right price at the
moment the customer wants to buy. The emphasis is on
the providing value to the customer, and the marketing
objectives usually focus on what is needed to delivery
that value.

• The supply chain is a system of organizations, people,

activities, information, and resources involved in
moving a product or service from supplier to customer.
Supply chain activities involve the transformation of
natural resources, raw materials, and components into
a finished product that is delivered to the end customer.
• The component of market are as:
• For a market to exist, certain conditions must be satisfied. These
conditions should be both necessary and sufficient. They may also
be termed as the components of a market.
• 1. The existence of a good or commodity for transactions(physical
existence is, however, not necessary)
• 2. The existence of buyers and sellers;
• 3. Business relationship or intercourse between buyers and sellers;
and
• 4. Demarcation of area such as place, region, country or the whole
world.
• Marketing System in Nepal: Interaction among several
components, buyers/sellers etc.
• 1. Selling at Hat: It is very mobile, transportation cost and
storage loss increase. Products may unhygienic.
Infrastructure plus quality improvement is necessary in hat
(legal body must control quality). Popular in Eastern Terai.
• 2. Selling to village traders, eg. Orange, guava etc. Distress
price/Thrown away price: Due to low bargaining power of
producers (individual producers).
• Farming cooperative and selling by producers own self.
• 3. Selling to primary markets: eg. Kalimati (Mandi), lack
regulation
• 4. Door-to-door market.
• Kohls and Uhl have classified marketing functions as follows:
• 1. Physical Functions :
• Storage and Warehousing b) Grading c) Processing
d)Transportation
• 2. Exchange Functions :
• a)Buying b)Selling
• 3. Facilitative Functions : Financing b)Risk Taking c)
Dissemination of Market d) Information
 Marketing and Selling

i)Marketing is wider and dynamic

ii) Marketing resolves in and around the need and interest of the
buyer and selling is fulfilling the interest of sellers
iii) Marketing makes profit with the customer satisfaction and
selling seeks profits by pushing products on the buyer.
Coordiantion in marketing is high as compared to selling .
• Five concepts of Marekting:
• Exchange concept: Exchange between buyers and sellers
• Production concept: produce at low cost and larger volume
• Product concept: superior products and improving them
overtime
• Seeling Concept: selling and promotion concept
• Markeing concept: market oriented meaning produce what the
customer wants
• Marketing costs: sum of transport (load unload), storage,
taxes or losses
• Price spread = Price paid by the consumer – farm gate price
Marketing systems in nepal
Haat bazar,
Collection centre
Retail markets
Vendors
Supermarkets
Departmental store

Marketing channel of fruits and vegetables? Home

assignement?
 Some marketing channels

• Farmers.>>>>>>Consumer
• Farmers>> Retailer>> Consumer
• Farmers>> Wholesaler>>Retailer>> Consumer
• Farmers>>collectors>>wholesaler>> Retailer>> consumer
• Farmers>> Cooperatives>> Wholesaler>> Retailer>> consumer
Marketable surplus Marketed Surplus

Surplus left with the farmers for Part of farmers production

market disposal actually sold in the market

Gross surplus from agriculture Net surplus from agriculture

It is also considered as stock It is also considered as supply

 Producer share
•
• Producer’s share in consumer’s rupee
Pf
• Ps = ---- x 100
Pr

Where,
• Ps = Producer’s share
• PF = Price received by the farmer
• Pr = Retail price paid by the consumer
•
• Marketing Efficiency:
• Marketing efficiency is essentially the degree of market
performance. It is a broad and dynamic concept.
• Productive efficiency: A firm is productively efficient if it is
operating at the minimum average cost.
• Marketing efficiency is the ratio of market output (satisfaction) to marketing
input (cost of resources). An increased in this ratio represents improved
efficiency and a decrease denotesreduced efficiency. A reduction in the cost
for the same level of satisfaction results in the improvement in efficiency.

• Marketing Ef iciency (E) =(Market Output/Market input)*100

•
• Marketing Efficiency By Shepherd's Method
• The marketing efficiency is measured with the help of the following
formula given by Shepherd.
• ME = (V-I)/I
• Where,
• ME = Index of Market Efficiency
• V = value of goods sold or consumed
• I= Total marketing cost and marketing margins
• Acharya and Aggarwal’s method:
• Marketing efficiency is the ratio of price received by the
farmer to the sum of total marketing costs, marketing
margins and marketing loss/value of physic cal quantity loss.
The higher the ratio, the higher is the efficiency. It is
expressed as :

ME= FNP/(MM+MC+ML) where,

• ME = Marketing Efficiency
• FNP = Farmer’s net price (Rs.)
• MC = Total marketing cost
• MM = Total marketing margin
• MC = Total marketing loss
• Strategic market plan:
• A strategic marketing plan is a blue print that elaborates
a systematic,interconnected,logical step by step for
achieving marketing goals.

• It is marketing road map to achieve the marketing goals

• It focus on the customer by asking questions that have a
long time horizon.
• The strategic market plan process has following six
stages
• Environment Analysis(SWOT)
• An analysis of both the internal and external
environment
• Internal: machinery, policies, culture and structure
in an organization
• Exernal: Poilitics, social, economic, technological
• Identifying Customer
• It is necessary to identify your customer and the
needs and desires of your customer.
• Market segmentation is the process by which
market can be classified in various categories and
classes that have same desires.
• Value creation analysis
• A company should analyse it stands in
comparison to its competitors. Thus targeting
and positioning are two components of
competitor analysis. Single strategy will not be
applicable to all the consumer group..
• Developing specific strategy for specific
consumer group is called targeting. For no
segmentation of the market single strategy
work very good.
• Positioning: Position is your identity in the
marketplace; how you want the market and your
competitors to view your product or service. Your
positioning will have an impact on every segment
of your marketing. Positioning is developing a
brand and image of your product in the minds of
consumers. It explains the consumer perception
and experience if they choose the product.
Marketing mix
• 1. Product
• Develop new products, repositioning or relaunching existing ones
and scrapping old
• ones
• Improve quality or features (adding benefits)
• Standardize design
• Branding
• Balancing product portfolios
• Changing the design or packaging
• 2. Price
• Setting the price to skim or to penetrate (skimming)
• Price for different market segment (change price)
• Deciding how to meet competitive pricing
• Change term and condition, penetration policy

3. Promotion
• change advertising
• change promotion (organizing the sales force to cover new products and services and
• markets)
• Change selling
• Change communication mix (deciding the public relations brief)

4. Place
• Choosing the channels (change channels)
• Change delivery or distribution
• Change service levels (deciding levels of customer services)
• Forward or backward integration

• Implementation and control plan

• Implement what we plan, regular monitoring of the activities which might later create a problem.
 Ansoff matrix

• An analytical tool that helps managers to devise their product

and market growth strategies. It shows the various strategies
that a business can take depending on whether it wants to
market new or existing products or enter new or existing
markets
When considering products and markets the Ansoff Matrix
provides a logical framework for the development of marketing
strategies.
 Product

Existing New

Market
Existing Market Penetration Product Development

New Market Development Diversification

Market Penetration:
• Enterprises employing this strategy plan for growth in
the current market with the current products. They
count on the believe, that their products are
competitive enough to increase the market share by
converting nonusers to users and getting users of the
products of competitors to become frequent users of
the own products.
• Low risk growth strategy
• Focus on selling existing goods in existing markets
• Business focuses on products and markets it is familiar
with
• Market research is therefore minimized
• Product development
• This strategy will develop new products and
services for the current markets. The management
will investigate how improved products will sell
and how fast the competitors can react.
• Selling new products in existing market
• Product extension strategies and new product
development
• Products may have reached the end of their useful
life
Market development
• If the business takes the option of market development ,the
objectives will be to find out new markets for the firms
exisiting products. There are several market development
strategies.
• Identify users in different markets with similar needs to
existing customers.
• Identify new customers who would use a product in a
different way
• Selling existing products in new markets
• Using new distribution channels; changing the price;
appealing packaging
• The success of a product in one country does not necessarily
guarantee success in another
• Diversification

• High risk growth strategy that involves marketing new products

in new markets
• Risk is spread over several products
• Marketing Research
American Marketing Association has defined as systematic
gathering ,recording and analyzing of Data about
problems relating to market of Goods and services.
• Market Research: Researching the immediate
competitive environment of the marketplace, including
customers, competitors, suppliers, distributors and
retailers.
Marketing Research includes all the above plus:
• - companies and their strategies for products and
markets
• - the wider environment within which the firm
operates (e.g. political, social, etc)
• Nature of marketing research.
i) Problem identification research
• Market potential research
• Market share research
• Market characteristics research
• Sales analysis research
• Forecasting research
• Business trends research
ii) problem solving research
• Marketing research is a systematic and objective search for
and analysis of information
• Segmentation Research
• Determine the basis of segmentation
• Establish market potential and responsiveness for various
segments
• Select target markets
• Create lifestyle profiles: demography, media, and product
image characteristics
• Distribution Research
• Types of distribution
• Attitudes of Channel members
• Intensity of wholesale & resale coverage
• Channel margins
• Location of retail and wholesale outlets
Product Research
• Determine optimal product design
• Product modification
• Brand positioning and repositioning
• Test marketing
Promotion Research
• Optimal promotional budget
• --Sales promotion relationship
• --Optimal promotional mix
• --Copy decisions
• --Media decisions
• --Creative advertising testing
• --Claim substantiation
• --Evaluation of advertising effectiveness
• Distribution Research
• Types of distribution
• Attitudes of Channel members
• Intensity of wholesale & resale coverage
• Channel margins
• Location of retail and wholesale outlets
• Types of marketing research: (based on degree
of coverage)
• 1. External marketing research: It is conducted
within the market and competitive
environment in which the company exists..

• 2. Internal marketing research: It is based on

the analysis of company data gained from
information such as sales trend, changes in
elements of marketing and advertising level.
• Methods of marketing research:
• (Based on participation of respondents and
researcher)
1. Reactive marketing research is information
about the market place and the customers who
inhabit it. It can involve us in asking questions, such
as in a survey or during an interview. Equally it can
involve experiments. Eg. Questionnaires, group
discussion, in-depth interview, test marketing, field
experiments, laboratory research.
• Non reactive marketing research methods are based upon
interpretation of observed phenomenon. They do not rely on
data derived directly from respondents. Eg. Non participative,
consumer panel, retail audit, desk research, syndicated
research, internal research
Research Process
 Marketing planning

• To avoid failure in marketing process it is necessary to prepare

in advance which is called market planning.
• Market planning not only includes input marketing but also
includes output marketing.
 Why there is a need of marketing?

• Systemic futuristic thinking by management

• Better coordiantion
• Development of better performance
• Sharpening of objectives and policies
 Objectives of market planning
• It acts as a roadmap
• Assist in management
• Control and monitoring the implementation of strategy
• To obtain resources for implementation
• For better use of resources
• Assignment of responsibilities
• Awarness of problems
 Steps involved in planning process
• Scanning the marketing environment
• Internal scanning (Strength and Weakness)
• Setting the market objectives
• Formulating the market strategies
• Formulating the detail plans and programmes
• Market myopia: A business suffers from marketing myopia
when a company views marketing strictly from the standpoint
of selling a specific product rather than from the standpoint of
fulfilling customer needs.
• Operational efficiency of Market: A lower cost of handling
the produces or goods brought to the market means higher
operational efficiency of market.
 Market information System
A marketing information system is a continuing and
interacting structure of people, equipment and
procedures to gather, sort, analyse, evaluate, and
distribute pertinent, timely and accurate
information for use by marketing decision makers
to improve their marketing planning,
implementation, and control".
• MIS centre: an entity that collects,processess and
disseminates the information
• Information provider: An organisation or individual
who provides the marketing information to MIS
centre,the buyer are the important information
provider
• Benificiaries: individuals or institutions who
receives MIS services,
traders,producers,expoertrs,government and non
government organisations.
• Good features of MIS
• Completeness, relaibility, accuracy, timeliness,
economy, precision
 Organisation
Organisation is a collection of people who work
together to achieve individual and organizational
goal.
• dividing the entire work into manageable units,
• departmentation,
• Authority ,
• Responsibility,
• span of control.
Purpose of Organisation:
• Classification and grouping up of required activities
• Grouping of activities in light of resources and
situations
• Assigning these activities to positions
• Delegation of the authority to different persons and
• Horizontal and vertical co-ordination of the authority.
• Organization brings co-operation, harmony and
integrity among the people.
 Principles of organization

• 1. Align departmental objectives to corporate goals: -

• 2. Cost- effective operations: -
• 3. Optimum number of subordinates:
• 4. Specialization: -
• 5. Define authority: -
• 6. Flow of authority: -
• 7. Manage via exceptional cases: -
• 8. Ensure one employee, one superior: -
• 9. One head and one plan: -.
• Define responsibility:
• Attain balance:
• Organizational Behavior
• The study and application of knowledge about how
people as individuals and as groups act and behave
within the organization.
• It strives to identify ways in which people act more
effectively.
• Provides a useful set of tools at many levels of
analysis to help managers look at the behavior of
individuals within the environment.
• It also aids them in their understanding of the
complexities which affect the interpersonal
relations of the people as they interact.
• Organizational Behavior is the study of human
behavior in the workplace, the interaction between
people and the organization with the intent to
understand and predict human behavior.

➢investigates the impact that individuals, groups, and

structure have on behavior within organization, for
the purpose of applying such knowledge toward
improving an organizations effectiveness.
Organizational behavior:
• The behaviour of people
• The process of management
• Organizational processes and the execution of
work
• Interactions with the external environment of
which the organization is a part
• Organizational implications in terms of
performance and effectiveness
• Human Behavior
Any act of an individual person which is considered
human behavior is a reflection of his thoughts,
feelings, emotions, sentiments whether conscious or
not. It mirrors his needs, values, motivation,
aspirations, conflicts and state of life.
• Individual differences
• Perception
• Whole person
• Motivated person
• Value of persons
Reasons for studying Human Behavior
• In order to have an understanding of the actions of
people, the need to understand the behavior of others,
especially those we come in contact with,
• It provide data and information which may be needed for
improved productivity, for rational decision and policy
making, for better planning and organizing personnel and
human resources recruitment, screening, selection,
promotion and development.
• We look not only into the personality of others but into
our own personalities as well. To know the reason why we
think, feel, act, speak and talk in certain ways.
 WHY SHOULD YOU DEVELOP A STRUCTURE FOR YOUR
ORGANIZATION?
• Structure gives members clear guidelines for how to
proceed. A clearly-established structure gives the group
a means to maintain order and resolve disagreements.

• Structure binds members together. It gives meaning and

identity to the people who join the group, as well as to
the group itself.

• It might as well be the structure which best matches up

with what kind of organization you have, what kind of
people are in it, and what you see yourself doing.
• Divisional structure: A structure in which positions are grouped
according to similarity of products, services or markets.
Divisions can be defined based on the geographical basis,
product/services basis.
• Functional structure : A structure in which
positions are grouped according to their main
functional (or specialised) area. Each portion
of the organization is grouped according to its
purpose. In this type of organization for
example there may be marketing department,
a sales department and production
department.
• Matrix structure: Matrix structure is a hybrid of
divisional and functional structure. The matrix
structure allows for the benefits of functional
and divisional structures to exist in one
organization. It results in strong product
coordination. It allows flexible use of human
resources. But it requires high administrative
cost. Confusion over authority and
responsibility.
• Product Structures
Small companies with diverse product lines may consider a
product structure. This type of organizational structure is
common when product expertise is the top priority.
Departments may be grouped this way because of the
vastly different technical aspects of the products.
2. Organization by products
3. Organization by customers
4. Organization by division
5. Matrix Organization: In the matrix organization each position is
supervised by two managers, the manager in –charge of the product and the
manager in-charge of the function.
 Management
• Collection of physical equipments, 4 M’s in
Organisation – Men, Machine, Materials,
Money leads to nothing. For efficient and
profitable functioning it is necessary that all
these factors are put to work in a coordinated
manner.

• Hence, management in brief is the efficient

use of men, material and resources towards
achieving specific objectives.
• Management formulate effective (right)
organizational strategies and to achieve them
efficiently (productively) based on the missions
objectives and goals.
 Features of Management
• Management deals with both internal and external
environment.
• Management is concerned with all kinds of resources viz.,
human, financial, material machines, technology and
technical know- how.
• Management functions include: planning, organizing,
directing and controlling.
• Managers should possess varied skills in order to play a
variety of roles.
• It applies to managers at all levels in an organization.
• Management is applicable to all kind of organizations i.e.,
both profit and non- profit oriented organizations.
• Management is an art and a science .
• Management need to be a profession to achieve goals
continuously with an incremental efficiency.
Management roles:
• A. Interpersonal roles
• 1. Leadership: hiring, training, motivating, disciplining.
• 2. Figurehead: ceremonial and symbolic duties.
• 3. Liaison: contacting people for information.
• B. Informational roles
• 1. Monitor: collecting information from environment.
• 2. Disseminator: transmitting information within organization.
• 3. Spokesperson: representing organization to outsiders.
• C. Decisional roles
• 1. Entrepreneur: initiating new projects to improve performance.
• 2. Disturbance handler: correcting and solving problems.
• 3. Resource allocation: human, physical and monetary.
• 4. Negotiator: bargaining to goal advantages.
Need for Management
1. To increase efficiency
2. To refine the nature of Mgt job
3. To improve research in Mgt
4. To attain social goals and objectives

Management Skills
1. Technical skills: - The ability to apply specialized or expertise.
2. Human skills: - The ability to work with, understands, and
motivates other people, both individually and in groups.
3. Conceptual skills: - The mental ability to analyze and diagnose
complex situations. This includes looking at relationships,
attempting to attribute causes looking at relationships,
conclusions on scientific evidence.
 Levels of Management
• 1. Top Level Mgt –
• Board of Directors, MD, Owners, Chief Executives
• To analyse, evaluate and deal with th
environmental forces
• To establish overall long term goals and broad
policies of the company including the master
budget
• To appoint departmental and other key executives
• To represent the company to the outside world
• To coordinate the activities and efforts of different
department
• 2. Middle Level Mgt –
• Sales Executives, Production Executives, Production
executives etc.
• To interpret and explain the policies framed by top
management
• To compile and issue detailed instruction regarding
operations
• To Cooperate among themselves so as to integrate
various parts of the division or a department
• To motivate supervisory personnel to work for Orgn
goals
• To develop and train supervisory and operative
personnel.
3. Supervisory / Operating / Lower Level Mgt –
Superintendents, Branch managers, General Foremen
· To plan day to day production within the goals lay
down by higher authority
· To assign jobs to workers and to make arrangement for
their training and development
· To supervise and control workers and to maintain
personal contact with them.
 Functions in Agribusiness Management
• Planning:
• Planning consists of the activities involved in choosing courses
of action to achieve organizational objectives.
• It is deciding in advance what to do, when to do, how to do
and who will do it, in order to achieve these objectives.
• Both long- term and short- term plans are necessary to
achieve goals
Six steps involved in the planning process:
• 1. Gathering the facts and information that have a bearing on
the situation. (Assessment of resources available with business
firm)
• 2. Analyzing what the situation is and what problems are
involved? (Analyzing the existing operations in business firm)
• 3. Forecasting the future developments (Identification of defects
in existing plan of business firm)
• 4. Setting goals, the benchmark for achieving the objectives.
(Discussions with specialists to examine possible improvements
in existing plan)
• 5. Preparation of various alternative plans with in the existing
level of resources under the guidance of specialists or scientists
and selecting the most suitable one.
• 6. Developing a means of evaluating progress and readjusting
one’s sights as the planning process moves along.
 Organising
Organizing involves the grouping of jobs into framework for
coordination and direction.
Formal organizations may be portrayed by use of an organisation
chart.
• 1. Organizational hierarchy: - The hierarchy in a business
refers to the layers of management from the top management
down to managers or supervisors of the lowest rank. In small
business, usually, there are few layers of hierarchy.
• 2. Authority and responsibility: - Authority is the power to
give command and to use discretion vested in that particular
position or job. If the person is removed from the job he or
she loses the authority. Responsibility is the obligation on the
part of the subordinate to complete the given job.
• 3. Delegation of authority: - The process of transferring
authority from the top to the lower levels in the organization
is called delegation
 Functions of organizer:

• To determine the jobs to be done by the staff (job description,

selecting, allocating &training personnel)
. Defining the line of activities of the staff.
• Establishment of relationship among the staff.
• Selecting and training of personnel in organization.
 Staffing:
• It is defined as the process of filling the positions in an
organization identifying work-force requirements,
inventorying the people available, recruitment, selection,
placement, promotion, appraisal, compensation and
training of needed people to carry out the business
activities very effectively.

• The manager of the firm should develop a strategic staffing

plan in such a way that the working by all in a collective
way without the feeling of overwork. The staffing plan with
specification of the positions / jobs should always thrive to
fulfill the set objectives of the firm.
• This process requires the performance of the functions like job
analysis, human resources planning, recruitment, selection,
placement, training, execute development, wage and salary
administration, leadership, teamwork, motivation,
disciplinary procedure ect.
 Directing
• The important function of management at any
level is directing the people by motivating,
commanding, leading and activating them.
• The willing and effective cooperation of
employees for the attainment of
organizational goals is possible through
direction.
• Tapping the maximum potentialities of the
people is possible through and command.
• It is also true that all employers can not be happy all the time.
The good manager would always have good qualities of
directing and building leadership that could help his staff to
succeed in their work and derive job satisfaction in their work.
Good directors always change their styles to bring about the
desired changes.
 Controlling:

• Controlling is one of the managerial functions like planning,

organizing, staffing and directing. It is an important function
because it helps to check the errors and to take the corrective
action so that deviation from standards are minimized and
stated goals of the organization are achieved in a desired
manner.
Controlling also involves checking, verifying
and comparing of actual performance with
the plans, identification of deviations, if any
and correcting of identified deviations.

Controlling technique:
• Direct Supervision and Observation
• Financial Statements
• Budgetary Control
• Break Even Analysis
• Return on Investment (ROI)
• Management Information System (MIS)
• Self-Control
•
 Role of Agibusiness Manager
• Agribusiness manager job is creating an environment
wherein groups of people can work effectively and
efficiently for the attainment of organization goals.
• The management fuctions like planning ,organisisng,
staffing ,directing and controlling are the basic roles
• Support middle manager and staffs in official activities
• Lead for inventory management and elimination of
unnecessary tasks and procedures
• Flow of informantion,logical support, in the business
system and subsystems
• Maintained ethical and moral behavior in the
organization
 Best Management practices
• Best management practices Include technically
innovative business, market proactive and
customer oriented, adopting new skills,
benchmarking key indicators
• Nine top Best management practices are i)
visioning, leadership developmet, risk
management, human resource management,
relationship and alliances, production, innovation
and environmental management, financial
management, marketing management and
confidence and motivation
 Motivation:
• The word motivation is derived from motive, which
is defined as an active form of a desire, craving or
need, which must be satisfied. All motives are
directed towards goals and the needs and desires
affect or change your behaviour. It is the process of
stimulating individual to achieve the organisational
goals.

• Certain motivational devices are usually followed to

make the direction effective such as rewards for
better work, time bound promotions and better
working conditions.
• Positive Motivation: Positive motivation involves proper
recognition of employee, efforts and appreciation of employee
contribution towards the organizational goal-achievement.

• Negative or Fear Motivation: This motivation is based upon the

use of force, power, fear and threats. The fear of punishment or
unfavourable consequences affects the behavioural changes. Some
examples of negative motivation include the fear of failing in the
examination, and fear of being fired or demoted.
• Extrinsic Motivation: financial incentives and rewards
have been a subject of debate whether they really
motivate the employees or simply move them to
work and perform.

• Intrinsic Motivation:
This motivation is self generated and is independent of
financial rewards. For example, there are many retired
doctors who -work free in the hospital because it gives
them a sense of accomplishment and satisfaction.
 Theory of Motivation
Maslow theory of hierarchical needs
 PSYCHOLOGICAL FACTORS

• Perception:
• Beliefs and attitudes:
• Motivation
Lower Needs Take Priority Until Met
• Physiological Needs: Physiological needs are basic: The body craves food,
liquid, sleep, oxygen, freedom of movement, and a moderate temperature.
• Safety Needs: Safety needs include physical, environmental and emotional
safety and protection. For instance- Job security, financial security,
protection from animals, family security, health security, etc.
• Social needs (Love or belongingness): The love or belongingness needs
come into play after the physiological and security drives are satisfied. Need
to love and be loved, Need to feel a sense of belonging and acceptance
Small groups – clubs, office teams, school/college houses
Large groups – political parties, Sports teams, facebook
• Esteem Needs: Esteem needs are of two types: internal esteem needs (self-
respect, confidence, competence, achievement and freedom) and external
esteem needs (recognition, power, status, attention and admiration).
• Self Actualization: the desire to become more and more what one is, to
become everything that one is capable of becoming” Growth-motivated
rather than deficiency motivated, Intrinsic growth of what is already in a
person
 Douglas McGregor Theory X and Theory Y
Theory X
• The typical person dislikes work and will avoid it, if possible
• The typical person are inherently lazy and would like to avoid
work
• The typical person can be described as the pessimistic
employee
• Most people must be coerced, controlled and threatened with
punishment to get them to work.
Theory Y
• This theory assumes employees to be self
motivated, anxious to accept greater responsibility
• People view work as being as natural as rest or play
• People will exercise self- direction and self- control,
if they are committed the organizational objectives
• The typical person in this type is optimisitic.
• The average person can learn to accept and/ or
seek responsibility
• They have become that way as a consequence of
their experience and
• People have potential. Under proper conditions,
they learn to accept and seek responsibility
 Govt intervention
• Government policies on agribusiness enterprises is the goals and
methods used to bring desirable change in socio-economic
variables.
Objectives of the government intervention:
• 1) To reduce price and income instability
• 2) To improve resource allocation pattern
• 3) To make the nation self sufficient in food and fibers and
ultimately in export of goods
• 4) To raise the general economic standard of people
• 5) To provide guide for the producers of goods and services
 Govt intervention

• The control of prices: Fixing prices, either above or below

the free-market equilibrium,
• Taxation: Taxing of production or sale of various goods.
• Subsidies: Subsidizing the production or sale of various
goods
• Buffer Stock: Taking over production
• The consumer surplus is the difference between the highest
price a consumer is willing to pay and the actual market price
of the good.
• The producer surplus is the difference between the market
price and the lowest price a producer would be willing to
accept.
• Maximum price (Ceiling price): Maximum prices set by
government for a particular good/service. Reducing the price
of the good below its free market equilibrium to benefit
consumers.
• In wartime, or times of famine, the government may set
maximum price (ceiling price) for basic goods do that poor
people can afford to buy them.
• Ceiling prices are as a means of keeping prices down for the
consumers.
• Alternatively, the government could introduce a system of
rationing. If it does, then black markets are likely to arise. This
is where goods are sold illegally above the ceiling prices.
 Floor Price (Minimum support price)
• The government sets minimum prices (floor prices) to prevent
them from falling below a certain level. It may do this for
various reasons:
• To protect producers’ income (producers’ welfare).
• To create a ‘surplus’ (e.g. grains)- particularly in period of glut-
which can be stored in preparation for possible future
shortages.
• Cost of production from all sports (eastern, western, etc.) are
collected and mean cost of production are used to determine
the minimum price (floor price) by collecting the data from all
farmers of small, medium, large types. If no government
intervention, then equilibrium as influencing at this situation
Cost > Revenue (at Pe). Government intervention and fixes
floor price then Cost = Revenue (at Pf ).
• Buffer Stock: The government can buy food and place it in
store when harvests are good, and then release the food back
on the market when harvests are bad.
• These buffer stocks are suitable only for stabilizing prices or
farm incomes, not for providing long-term support to farmers.
 Co-operatives
• The word “Cooperation” is often used in a
general sense to mean collaboration between any
group of persons for almost any purpose.

• A cooperative is a group of people acting

together to meet the common needs and
aspirations of the members, sharing ownership
and making decisions democratically.
 History of Cooperative in Nepal
• Different primitive forms of cooperatives such as Dharma Bhakari,
prama, and Guthi have been known to be since in operation since
antiquity.

• Right at the beginning of planned development in Nepal 2013 B.S.

Cooperative loan committees were formed to provide the loan to
farmers as a part of the multipurpose projects implemented to
develop the Rapti Valley. First cooperative society established in
Chitwan shardanagar “ Bakhan sahakari sanstha”

• In 2016, the cooperative organization act and in 2018 B.S. the

cooperative organization regulations were promulgated.

• In 2018, Sajha Publications, Sajha Travels, Sajha Health Service

were formed under the Central Cooperative Sajha Organization.
• According to the king's Address of Baishakh 1, 2031, which
envisioned the implementation of effective cooperative programs
throughout the country in the form of a campaign, such programs
were started in 27 districts in the Baishakh of that year.

• After the restoration of democracy, Sajha Organization Act 2041

was dissolved and Cooperative Act 2048 and Cooperative
Regulations 2048 were passed by the parliament. These two laws
are still in effect.
• International Cooperative Alliance definition
• A co-operative is an autonomous association
of persons united voluntarily to meet their
common economic, social, and cultural needs
and aspirations through a jointly-owned and
democratically-controlled enterprise.
Principle of Cooperatives
• Voluntary and Open Membership
able to use their services and willing to accept the responsibilities of
membership, without gender, social, racial, political or religious
discrimination.
• Democratic Member Control
• participate in setting their policies and making decisions.
• In primary co-operatives members have equal voting rights (one
member, one vote) and co-operatives at other levels are also
organized in a democratic manner.
• Autonomy and Independence
• Co-operatives are autonomous, self-help organizations
controlled by their members. If they enter to
agreements with other organizations, including
governments, or raise capital from external sources,
they maintain their co-operative autonomy.
• Education, Training and Information
• Co-operatives provide education and training for their
members, elected representatives, managers, and
employees so they can contribute effectively to the
development of their co-operatives. They inform the
general public - particularly young people and opinion
leaders - about the nature and benefits of co-operation.
• Co-operation among Co-operatives
• Co-operatives serve their members most effectively and
strengthen the co-operative movement by working
together through local, national, regional and
international structures.

• Concern for Community

• Co-operatives work for the sustainable development of
their communities through policies approved by their
members.

• Member Economic Participation

• Members contribute equitably to, and democratically
control, the capital of their co-operative. At least part of
that capital is usually the common property of the co-
operative.
 Objectives of Co-operatives
• To control small passive and scattered savings
from the members to create economic forces
and invest those resources for their owned
socio- economic cultural environment.
• To promote cooperative enterprises among the
marginalised people as a means of economic
and cultural development.
• To create conducive environment to organise
membership based cooperative societies.
• To transform the subsistence and traditional mode of
production into commercial and market oriented production
through the cooperative system
• To motivate the stakeholders to operate cooperative
environment based on the state rules, regulations and
principles
• To achieve national goals of poverty reduction through the
cooperative system
Satus of Agriculture related cooperatives
in Nepal
• Of the total, 33% cooperatives are formed as
agricultural purpose
• Majority of the agricultural cooperatives are
dairy,tea, coffee, vegetable, fruit, orange, fishery,
poultry, seed producer, zinger ,herbal, bee keeping
• Other cooperatives related are savings and
credit(43%), service related(11%),
multipurpose(13%), mushroom, microenterprise
promotion, labour cooperative, micro hydro
• As of 2070 BS (Mid July 2013), there are 29,526 cooperatives
registered in department of cooperatives. Nearly 4 million
people have become members of cooperative.
 Types of Cooperative society in Nepal

• Producer's Co-operative Society:

• Industrial Co-operative Society:
• Consumer's Co-operative Society:
• Co-operative Credit Society:
• Co-operative Marketing Society:
• Farming Co-operative Society:
• Housing Co-operative Society:
• Miscellaneous co-operative Society:
 Types of farmer cooperative

• Marketing Cooperatives
• Farm Supply Cooperatives
• Service Cooperatives
• Production Cooperatives
• Processing Cooperatives
• Marketing: Members should be able to market
their products to their cooperative and the
cooperative should be able to purchase the
product;

• Supply: the members should be able to obtain their

household and professional requirements from the
cooperative, and the cooperative should be able to
provide this service. The cooperative can
undertake a joint indenting on behalf of the
members and negotiate favourable prices with the
supplies;
• Credit: Members should be able to obtain the required credit from
their cooperative, and the cooperative should be able to deliver the
required credit and accept deposits from its members in order to
build some capital for itself;

• Guidance [which includes education, training and extension

services]:
• The members should be able to receive spontaneous guidance and
advice from their cooperative, and the cooperative should be able
to deliver expert advice to the members
 Co-operative Farming
• It is a voluntary organisations in which small
farmers and landless labourers increase their
income by pooling land resources and
management .
• The major objective is involving shareholders in
bulk production for selling in commercial volume.
• They offer not only production related supports
(credit support, joint equipments) but also
institutionally bargain for selling into higher prices.
• The objectives would be replacing collectors and
increasing farm gate prices to the shareholder’s
produce
• Cooperative marketing is an organized sale of farm products
on a non profit basis in the interest of the individual producers.
• The main objective of cooperative marketing is not to
eliminate the middleman but to perform their service at
lower cost.
• Also its objective is to reduce marketing margin and thereby
ensures the farmer a better price
• It helps the farmer to get the maximum returns for the farm
product.
 Advantages of cooperative marketing

• Reduce cost and improved services based on the economies

of scale
• Improve marketability of products through easy market
research and understanding demand and supply strategy
• Market development by means of advertisement
• Cheaper finance to individual member to invest in production
• Training in business methods
• Increase the bargaining strength of the farmers
• Direct dealing with final buyers
• Provision of credit
• Easier and cheaper transport
• Storage facilties
• Grading and Standardaization
• Market intelligence
• Provision of inputs and consumer goods
• Processing of agricultural produce
• Cooperative better farming:
Farmers who have small holdings and limited
resources join to form a society for some
specific purpose. Use of machinery. They are
organized with a view to introduce improved
methods of agriculture. Each farmer pays for the
services which he receives from the society.
• Cooperative joint farming
• The small owners pool their land for the
purpose of joint cultivation. The ownership is
individual but the operations are collective.
The management is democratic and is elected
by the members of the society.
• Cooperative tenant farming:
• Such socities are usually organsied by landless farmers. In this
system usually land belongs to the society.
• The land is divided into plot which are leased out for cultivation
to individual members. The society arrange for agricultural
requirements eg crdit, seeds, manures, marketing of the produce.
• Each member is responsible to the society for the payments of
rent on his plot.
• He is at liberty to dispose of his produce in such a manner as he
likes.
• Cooperative collective farming:
• Both ownerships and operations under this system are
collective. Members do not have any right on land and they
cannot take farming decisions independently but are guided
by supreme general body. It undertakes joint cultivation for
which all members pool their resources. Profit is distributed
according to the labour and capital invested by the farmers.
 Problems/Limitations related to cooperative
institutionalization and marketing
• Dissolution ,dissolve cases are increasing in
number because of poor regulations from the
apex body as well as department of
cooperative functionaries
• Family based or relative based board members
committee could not maintain democracy
based memberships
• Staff turn over is high because of poor paying
capacity of the cooperatives
• Cooperative policies are not sound at implementation level
• Majority of the primary cooperatives and unions have small
financial turn over, so financial sustainability is a major issue.
A high-level probe committee was formed by government
after rising malpractices in cooperative.
• It received complaints of misappropriation of NPR 7 billion
from 13,000 people.
• It shows that there is serious problem in number of
cooperatives.
• Good governance and transparency are major challenges of
cooperatives operating in Nepal. Though Democratic
Control by Members one of the important principles of
cooperatives, some of the cooperatives are controlled by
few people in management/board.
• Some of the cooperatives have also invested in risky sectors
and crashed in Nepal. As a result, perception on
cooperatives in general is not that good
 Principles in agribusiness management
• Principle of least combination
• Law of diminishing returns
• Principle of combining enterprises
• Principle of equimrginal returns
• Cost Principle
• Time comparison principle
• Cost Principle
• TC = VC+ FC
• Net Revenue = TR –TC
• (A) In the short run: Gross revenue (GR) must cover the VC.
Maximum net revenue is obtained when MC = MR. If GR < TC
but > VC, guiding principle should be to keepincreasing
production as long as MR > MC.
In the long Run: GR should be > VC + FC=TC.
For taking production decision in such a
situation, one should go on using resources as
long as added returns remain greater than
added total costs. Here, the object is to maximize
profits instead of minimizing the losses.
 Principle of Equimarginal returns
• But resources are limited, expansion of one
enterprise requires contraction of other. The big
question is which enterprise combination will give
the greatest income? Such an optimum choice of
enterprises is made based on the principle of equi-
marginal return or the opportunity cost principle.
• Profit will be the greatest if each unit of labour,
capital and land is used where it adds the most to
the returns
• the resources should be used where they give not
the highest average returns but the greatest marginal
returns
Year Cost Benefit
1 100000 0
2 100000 0
3 250000 0
4 800000 51125
5 30000 100000
6 30000 150000
7 30000 350000
8 30000 350000
9 30000 350000
10 30000 350000
Year Ct Bt
1 25
2 23
3 20
4 7 15
5 7 16
 Visit to the Co-opertives
• Objective for establishing the cooperatives
• Structure of the cooperatives
• No of the members in cooperatives
• Cooperatives cost, expenditure, Benifit
• Problems in operation of cooperative
• Benefit of engaging in cooperatives
• Suggestions and way forward