Chapter One

Introduction to Agribusiness Management

Agribusiness is a combination of two words agriculture and business. Literally speaking,

business means the activity of making, buying, selling, or supplying things for money and it
includes service-providing firms like consulting firms. In simple words, “business means the
state of being busy”. Broadly, business involves activities connected with the production of
wealth. It is an organized and systematized human activity involving buying and selling goods,
manufacturing goods or providing services in order to earn profit.

The word agriculture indicates plowing a field, planting seed, harvesting a crop, milking cows, or
feeding livestock. Until recently, this was a accurate picture. Nevertheless, today’s’ agriculture is
radically different. Agriculture has evolved into agribusiness and has become a vast and complex
system that reaches far beyond the farm to include all those who are involved in providing food
and fiber to consumers. Agribusiness includes not only those farms or the land but also the
people and firms that provide the inputs (for example seed, chemicals, credit etc.), process the
output (e.g. milk, grain, meat etc.), manufacture the food products (for example: ice cream,
bread, breakfast cereals etc.), and transport and sell the food products to consumers (for ex.
restaurants, supermarkets). Literally, Agribusiness refers to the industry concerned with the
production, processing, and distribution of agricultural products or with farm machinery and
services.

It is apparent that the definition of agriculture has to be expanded to include concepts more than
production. Farmers rely on the input industries to provide products and service; they need to
produce agricultural commodities. They also rely on commodity processors, food manufactures,
and ultimately food distributors and retailers to purchase their raw agricultural commodities and
to process and deliver them to the consumer for final sale. The result is the food and fiber
system. The food and fiber system is increasingly being referred to as “agribusiness”.

Davis and Goldberg first introduced the term agribusiness in 1957. It represents three part
systems made up of (1) the agricultural input sector (2) the production sector and (3) the
processing-manufacturing sector. To capture the full meaning of the term “agribusiness” it is
important to visualize these three sectors as interrelated parts of a system in which the success of
each part depends heavily on the proper functioning of the other two.

Agribusiness includes the production, processing, and supply of agricultural goods that range
from lettuce to corn syrup. Companies may focus on things like cut flowers, fresh vegetables, or
byproducts of farming such as fuels derived from farm waste. Agribusiness also encompasses
farming equipment, machinery, chemicals, suppliers, and personnel.
The following are very interesting definitions of agribusiness:

 Agribusiness is a big business that is connected to agriculture, either owning or operating

large-scale farms, or catering to those who do. Farming engaged in as a large-scale
business operation embracing the production, processing, and distribution of agricultural
products.
 Agribusiness includes the agricultural input sector, the production sector, and the
processing-manufacturing sector: Farmers, providers of farm inputs, processors of farm
outputs, manufacturers of food products, and those who transport, sell, and/or prepare
food products.
 Agribusiness is everything from farm to fork. It represents all business-related activities
involved in the production, finance, marketing and distribution of food and fiber. The
academic discipline of agribusiness combines theory and method in finance, marketing
and management to address global agricultural issues.
 Agribusiness Skills and Careers
Today, a broader view of agribusiness is generally accepted as more appropriate. Here,
agribusiness includes the total input-farm-product sectors that supply farm inputs, involved in
production and finally, handle the processing, distributing, wholesaling and retailing of the
product to the final consumer.

Items listed below are break down of the types of skills and knowledge utilized by those
employed in agribusiness.

1. Agricultural production and propagation of animals, animal products, plants, plant

products, forest products;
2. The provision of services associated with agricultural production and the manufacture
and distribution of supplies used in agricultural production;
3. The design, installation, repair, operation, servicing of machinery, equipment, and power
sources, and construction of structures used in agricultural production;
4. Any activities related to the inspection, processing, and marketing of agricultural
products and primary by-products;
5. Any aspects of green house, nursery, landscaping, and other ornamental horticultural
operations;
6. The conservation, propagation, improvement, and utilization of renewable natural
resources; and
7. The multiple uses of forest land and resources.
  Scope of Agribusiness

It has already indicated that agribusiness is a complex system of input sector, production sector,
processing manufacturing sector and transport and marketing sector. Therefore, it is directly
related to industry, commerce and trade. Industry is concerned with the production of
commodities and materials while commerce and trade are concerned with their distribution.

Agribusiness may encompass the primary production activities, the processing sectors and the
tertiary activities too. It has a broader scope. The modern definition of agribusiness calls for
more of an industry. Let us explain what an industry is then.

A. Industry: Industry refers to the processes of extraction and production of goods meant for
final consumption or use buy individual or buy another industry for its production. Thus, goods
used by the final or ultimate consumers are called “consumer goods” such as edible oils, fruit
jams, papaya, pickles etc.
Types of industries: Based on their nature, industries are broadly classified into following types:

1) Extractive industries: These industries are concerned with the extraction; and utilization of
natural resources. Example: fishing, fruit gathering, agro-based industries, forestation.

2) Genetic industries: These industries include breeding of plants, seeds, cattle breeding farm,
fish hatcheries, and poultry farms. Of course, factors like nature, climate and environment play a
dominant role in these industries, yet human skill involved in their production cannot be ignored.
For example, intensive agriculture is possible with greater amount of capital and larger number
of workers.

3) Manufacturing industries: These industries are engaged in the conversion of raw material or
semi finished goods produced in the extractive industries. Some prominent examples are: cotton
textile industry, spinning and weaving mills etc. Manufacturing industries can further be
classified into five types: (i) Analytical industry (ii) Processing industry (iii) Synthetic industry,
(iv) Service industry (v) Assembly industry.

B. Commerce: Commerce is another major component of agribusiness. It includes all those

activities that are necessary to bring goods and services from the place of their production to the
place of their consumption. Thus, it includes the buying, selling of goods and service and all
those activities that facilitate trade such as storing, grading, packaging, financing, insurance, and
transportation. In simple words, commerce includes trade and aid to trade. The principal function
of trade (commerce) is to remove the hindrance of person, place, time exchange, knowledge etc.
and ensure a free and smooth flow of goods from the producers to the consumers. Trade in fact is
a branch of commerce itself. In a way, it is the final state of business activity involving sale and
purchase of commodities or goods. It does not include aids to trade like transportation, insurance,
banking, finance etc. Based on its coverage and volume, trade is normally classified into the
following types: On the basis of volume as wholesale trade and retail trade wholesale trade
involves exchange of large volume of goods whereas retail trade involves exchange of smaller
volume of goods. And on the basis of coverage as regional trade and national trade.

 The Nature of Successful Agribusiness

Today, the business has become very competitive and complex. This is mainly due to changing
taste and fashion of the consumers on one hand, and introduction of substitutes and cheaper and
better competitive goods, on the other hand. The old dictum “produce and sells has changed
overtime into produce only what customers want”. In fact, knowing what customers want is
never simple. Nevertheless, a farmer operator or farmer manager has to give proper thought to
this consideration in order to make his/her business a successful one.
The important requisites for success in a modern business are:
1. Clear objectives: Determining objectives is one of the most essential prerequisite for the
success of business. The objectives set forth should be realistic and clearly defined. Then, all the
business efforts should be geared to achieve the set objectives. In a way, objectives are
destination points for an agribusiness.
2. Planning: In simple words, planning is a pre-determined line of action. The accomplishment
of objectives set, largely, depends upon planning itself. Planning is a proposal based on part of
experience and present trends for future actions.
3. Sound organization: An organization is the art or science of building up systematical whole
by a number of but related parts. Just as human frame is built up of various parts like heart, liver,
brain, legs etc. similarly, organization of business is a harmonies combination of men, machine
material, money management etc. so that all these could work jointly as one unit, i.e.
“business”or “the agribusiness”.
4. Research: As indicated earlier, today the agricultural production philosophy “produces what
the consumer wants”. “Consumers” behavior is influenced by variety of factors like cultural,
social, personal and psychological factors. The knowledge of these factors is acquired through
market research. Research is a systematic search for new knowledge. Market research enables a
business in finding out new methods of production, improving the quality of product and
developing new products as per the changing tastes and wants if the consumers.
5. Finance: Finance is said to be the life-blood of business enterprise. It brings together the land,
labor, machine and raw materials into production. Agribusiness should estimate its financial
requirements adequately so that it may keep the business wheel on moving. Therefore, proper
arrangements should be made for securing the required finance for the enterprise.

6. Proper plant location, layout and size: The success of agribusiness depends largely on the
location where it is set up. Location of the business should be convenient from various points of
view such as availability of required infrastructure facilities, availability of inputs like raw
materials, skill labor, nearer to the market etc. Hence, the businessmen must take sufficient care
in the initial stages to selected suitable location for his/her business.
7. Efficient management: One of the reasons for failure of business often attributed to the poor
management or inefficient management. The one man, i.e. the proprietor may not be equally
good in all areas of the business. Efficient businessperson can make proper use of available
resources for achieving the objectives set for the business.

8. Harmonious relations with the workers: In an agribusiness organization, the farmer

operator occupies a distinct place because he/she is the main living factor among all factors of
production. In fact, it is the human factor who makes the use of other non-human factors like
land, machine, money etc. Therefore, for successful operation of business, there should be
cordial and harmonious relations maintained with the workers or labors to get their full
cooperation in achieving business activities.

Structure of Agri-business:
Agri-business sector provides crucial backward and forward linkages. It involves two important
sectors.

1. Farm input sector: It deals with agro-based industries providing seeds, fertilizers, feed, chem-
icals etc., The industries supplying machinery or equipment, implements and petroleum etc
are also important in this regard.

2. Farm product sector: It deals with production and distribution of farm commodities. Large
co-operative bodies also exist in Agri-business, but they are few in number, whereas small
scaled agro-industries are large in number. The vertical integration of a farm is very com-
mon in poultry, fruit and vegetable farms.

Structure of Agri-business is generally vertical and it comprises the following

a. Govt. policies and programmes regarding raising of crops or taking enterprises etc.,
b. Research and extension programmes of the Govt.
c. Farm supplies or inputs
d. Agricultural production
e. Processing
f. Marketing of agricultural products
 Distinguishing Features of Agribusiness
 (i) Agribusiness and Family Farm Business

In the early 19th century, agriculture was a self-contained industry. The typical farm family
produced its own food, fuel, shelter, draft animals, feed, tools, implements, and even clothing.
Only a few necessities had to be bartered for or purchased off the farm. The farm family
performed virtually all operations pertaining to the production, processing, storage, and
distribution of farm commodities. In the ensuing years, however, agriculture evolved from self-
sufficiency to intricate interdependence with other segments of the economy, particularly those
relating to the manufacture of production supplies and the processing and distribution of food
and fiber products.

The agribusiness approach is a method of examining farming problems in a new and more
comprehensive setting. One benefit from this approach has been the release of workers-farm
manpower-from agriculture for employment in new non farm occupations-including the armed
forces during wars. This has resulted in tremendous economic growth and development and an
improved standard of living.

Agribusiness consists of several million farm units and several thousand business units, each an
independent entity, free to make its own decisions. Agribusiness is the sum total of hundreds of
trade associations, commodity organizations, farm organizations, quasi-research bodies,
conference bodies, and committees, each concentrating on its own interests. The Ethiopian
government also is a part of agribusiness to the degree that it is involved in research, the
regulation of food and fiber operations, and the ownership and trading of farm commodities.
Land-grant colleges, with their teaching, experiment stations, and extension functions, form
another sector of agribusiness. In summary, agribusiness exists in a vast mosaic of decentralized
entities, functions, and operations relating to food and fiber.

The evolution from agriculture to agribusiness has brought with it numerous benefits. These
include reduced drudgery for laborers; the release of workers for nonagricultural endeavors; a
better quality of food and fibers; a greater variety of products; improved nutrition; and increased
mobility of people. The release of farm manpower and the creation of new, off-the-farm jobs
have been the basis for the country's economic growth and development. The key to this growth
and development has been increased worker productivity, which in turn spurs creativity, new
products and wealth. This translates into risk capital, new factories, new jobs, and increased
consumer purchasing power.

Several things characterize agribusiness, differentiating it very distinctively from family farming.
The first is the scale, which is typically quite large. The second is considerable vertical and
horizontal integration. For example, a company might own a facility which processes frozen
vegetables, along with a controlling share in farms which produce these vegetables and
companies which provide personnel to harvest and transport them. Agribusiness is also
distinguished by being run like a true business, with administrators rather than farmers at the
helm of companies in the agriculture business.

This highly efficient and streamlined organization allows agribusiness to keep food costs low.
This is an important priority for many consumers and governments, who also appreciate the
standardization of agribusiness, which is in theory supposed to limit the possibility of food borne
contamination and other issues with the food supply.