AEC 4204- Agribusiness

Management
Lecture 2 - Agribusiness and commercialization of
agriculture

Paul Aseete, PhD

September 10th, 2021

Origin and definition of Agribusiness - 1
• John H. Davis of Harvard University first used the term agribusiness in
1955.

• In 1980’s three connotations were used: (1) Synonymous with

Agriculture, (2) synonymous with agricultural economics, and
Agriculture modified to include a modified concept of agriculture,
excluding farming, or the off-farm aspects of agriculture
 Origin and definition of Agribusiness - 2
• At Present: “agribusiness is defined as all business enterprises or sells
to farmers / traders / consumers”

• Agribusiness ordinarily refers to approaching agriculture as a business

and profitable enterprise right from production (supply side) up the
chain to final consumption of agricultural products (demand side).

• Agribusiness refers to the sum total of all activities and operations

involved in the production and distribution of all agricultural inputs and
products with the aim of making a profit.
 Origin and definition of Agribusiness - 3
• Agribusiness transactions may involve either
an input or a produce or service and
encompasses items such as:
1. Productive resources (feed, seed,
fertilizer, equipment, energy, pesticides,
machinery, etc.)
2. Agricultural commodities –(raw and
processed commodities of food and fiber)
3. Facilitative services (credit, insurance,
marketing, storage, processing,
transportation, packing, distribution,
consultancy, soil testing etc.)
So, what's the scope of agribusiness is
Uganda? -1
1. Agriculture accounts about 40 percent of GDP, 80% of export earnings, 80% of
employment, and provides most of the raw materials to the agro-based
industrial sector

2. Uganda is an agrarian economy and agriculture is largely for subsistence

3. Commercial farmers constitute only 5%, semi-commercial farmers 25%

4. Post-harvest losses are very high, estimated at 15% for grains, 20-35% for root
crops and 40% for perishables
 So, what's the scope of agribusiness is
Uganda? -2
5. Uganda is endowed with varied agro-climatic zones which favors production of diverse crops and
rearing of animals

6. Demand for agricultural inputs: feed and fodder, inorganic fertilizers, labor, biofertilizers etc., is
growing

7. Biotechnology applications in agriculture have vast scope: Seed production, bio-control agents,
microbes for industrial use etc.

8. Uganda has a comparative advantage in the region. This can be harness for economic growth.
Products lines include: cereals, pulses, oilseeds and oils, oil meal, spices and condiments, fruits and
vegetables, flowers, medicinal plants and essential oils, agricultural advisory services, agricultural tools
and implements, meat, milk and milk products, fish and fish products, ornamental fish, forest by
products etc.
So, what's the scope of agribusiness is
Uganda? -3
9. Processing is mostly at the primary level. However, rising standards of living have expanded
opportunities for secondary and tertiary processing of agricultural commodities

10. We are endowed with fresh water and opportunities to capture water. Thus opportunities for
marine/aquaculture farming

11. Uganda’s livestock wealth gives enormous scope for production of meat, milk and milk products,
poultry products etc.

12. The forest resources can be utilized for production of by products of forestry.
13. Beekeeping and apiary can be taken up on large scale

14. Mushroom production for domestic consumption and export can be enhanced with
improvement in the state of art of their production
 So, what's the scope of agribusiness is
Uganda? -4
15. Organic farming has highest potential and is still under utilized

16. There is wide scope for production and promotion of bio-pesticides and bio-control agents for protection of crops

17. Seed production for hybrid, OPVS, and other seed classes still has potential as several high yielding variaties are
being produced through R&D

18. Micro-irrigation systems and labor-saving farm equipment have good potential. Climate is changing and labor is
becoming scares

19. Production of vegetables and flowers under green house conditions can be taken up to harness the export market.

20. Trained human resources in agriculture and other allied sciences are critical as private extension and advisory
agents as consultants. Government led extension systems are becoming overstretched.
So, what's the scope of agribusiness is
Uganda? -4
21. Enhanced agricultural production throws open opportunities for employment in
marketing, transport, cold storage and warehousing facilities, credit, insurance and
logistic support services etc.
Aims of agribusiness Farms/firms-1
• To combine the available resources (physical, financial and human resources)
efficiently to maximize profits of the firm by satisfying customer needs.
• Other objectives of the firm include:
1. Sales maximization
2. Increase market share- be a market leader
3. Building good image by providing the best products to build customer
confidence
4. Social responsibility- “Giving back to the community” by extending certain
services to the public e.g., availing basic infrastructure and social services,
avoiding pollution, etc.
Aims of agribusiness Farms/firms-2
• To achieve the above objectives the agribusiness manager needs to undertake
the following tasks:
a) Initiate, organize, supervise and manage farm production effectively and
efficiently.
b) Plan and manage agricultural enterprises from the entrepreneurial perspective.
c) Ensure a high level of good management and communication skills in his firm.
Aims of agribusiness Farms/firms-2
• To accomplish the above objectives, the agribusiness manager should also
possess the following skills:
1. Must be technically knowledgeable about their organizations, products and
services offered.
2. Must be good communicators in order to be able to market the organizations
goals and products or services.
3. Must be able to reward and motivate human resources (especially employees)
appropriately. Must be good leaders
4. Must be proficient in managerial skills such as forecasting, budgeting, finance
and accounting skills, etc.
5. Must be able to mix each of the above skills in the right proportion in order to
get the highest returns to the firm.
 Components of the Agribusiness Sector/System
-1
• The agribusiness system embraces three major subsectors:
a) Input (Factor) subsector
b) Production subsector
c) Processing

Agribusiness system

Product/Processing
Input/Factor Production
/Manufacturing
Subsector Subsector Subsector

Public subsector

Note: The success of each sector depends upon the proper

functioning of the other two
Components of the Agribusiness Sector/System
-2
Input subsector
1. This sector supplies inputs (factors of production) for farm processes.
2. It is the most important subsector of the agribusiness system – currently liberalized by
government.
3. It includes all firms that supply both processed and unprocessed inputs such as
machinery, seeds, agro chemicals, labor, fertilizers, etc.
Components of the Agribusiness
Sector/System -3
Farm production subsector
1. This involves the transformation of inputs into farm outputs –production function.
2. The sector mainly involves the production of crops and livestock.
3. In Uganda, this subsector is mainly dominated by the small holder farmers.
4. There are vast opportunities for growing the production sector as we have noted in
the scope
Components of the Agribusiness
Sector/System -4
Output/product subsector
1. This mainly handles Post harvest management, Agro processing and marketing
activities.
2. This sector processes and distributes farm products to the final consumer.
3. It mainly deals with the movement of farm products and services (after processing
them in combination with other factor services) to the final consumer both on the
local and international markets.
4. It also includes other services such as financing, transportation, warehousing,
standardization, etc, involved in the distribution and exchange of farm products.
 Components of the Agribusiness
Sector/System -5
Public sector
1. This sector establishes the necessary Policy and Regulatory framework required for
guiding, supporting and enabling the growth of the agribusiness sector. – Creates and
builds institutions
2. It establishes rules and regulations under which the three other subsectors operate such
as the enforcement of contracts, ownership and distribution of resources, ensuring of
property rights.
3. It also provides the basic infrastructure which the private agribusiness firms may not
afford such as roads and Communication Network, R&D, Extension, etc.
4. It also establishes standards (e.g., UNBS) and provides the enabling environment.
Relationship between Agribusiness, Economics and other
disciplines -1

• One of the major problems affecting agribusiness, just like other businesses, is economic
related- i.e., related to the fundamental economic questions.

• It is thus important to bear in mind how economic factors such as prices, taxes, inflation,
exchange rates, etc., affect the agribusiness firm.

• Decisions related to the agribusiness firm are often influenced by the interplay of these
economic factors e.g., how to make use of the scarce resources in order to maximize
profits.

• The agribusiness firm should make important decisions that will ensure that it is run in a
profit minded manner.
 Relationship between
Agribusiness, Economics
and other disciplines -2

• At various levels of production

(subsectors), the agribusiness firm/
manager uses knowledge from other
disciplines to make optimal production,
allocation and efficiency decisions.

• E.g., while economics informs production

efficiency decisions, know of input
application rates, crop/animal potential
are equally important in economic
optimization problems.
Relationship between Agribusiness,
Economics and other disciplines -3
The agribusiness firm/ manager should look at decisions affecting the firm from the
following economic perspectives:
1. Agribusiness firm (Micro-firm) level
2. Market Level
3. National Level
4. International Level

• Being knowledgeable about dynamics at each level is critical for the success of an
agribusiness farm.
Relationship between Agribusiness,
Economics and other disciplines -4
A. Agribusiness firm (Micro-firm) level
i. The agribusiness firm at this level is mainly faced with the problem of making
important production decisions.
ii. The decisions here mainly relate to answering the fundamental economic
questions regarding what to produce? How to produce? For whom to produce?
When to produce and Where to produce?
iii. To answer these questions, the agribusiness manager should know the prices
for the inputs and outputs and how these are determined in the market. i.e.,
costs and revenue accruing to the agribusiness firm.
iv. Based on these then s(he) will be in position to maximize profits of the firm.
Relationship between Agribusiness,
Economics and other disciplines -5
B. Market Level
i. The knowledge and decisions here mainly focus on the structure of the market i.e.,
the number and size of firms in the market, expectations and limitations in the market,
the level of competition in the market, etc.
ii. These guide the agribusiness firm/manager in making important and rational
decisions in the chosen market.
Relationship between Agribusiness,
Economics and other disciplines -6
C. National Level
i. At this level important decisions relate to policy issues that are likely to impact on the
agribusiness firm.
ii. These policy issues relate to inflationary rates, Unemployment rates and policies,
taxation policy and rates, interest rates, etc.
Relationship between Agribusiness,
Economics and other disciplines -7
D. International Level
i. Here the agribusiness firm should be mainly interested in issues related to
international trade such as tariffs, exchange rates, quotas and other forms of trade
protectionism that will influence its access to and volume of trade on foreign markets.
ii. Other issues to be aware of include: comparative advantages,
 What is Commercial Agriculture and
Agribusiness Development? -1
• Commercial agriculture refers to profit motivated production embraced as a business and not just
a way of life.

• It is characterized by the upholding and application of agri-business principles at the production

level (the farm), processing and on to the market.

• It is productive, competitive, sustainable, dynamic, and market oriented.

• The commercialization of agriculture is bigger than just having a cash crop in a production system.

• Modernizing and commercializing agriculture refers to the transformation of agriculture from

subsistence to commercial agriculture
What is Commercial Agriculture and
Agribusiness Development? -2
• Commercialization is characterized: Increased specialization, Development of markets
and trade, increased market tractions.
• This explains the tendency to equate commercialization with large-scale plantation
agriculture
• Commercialization does take place even within the smallholder sector. Given its
dominance in the developing world, this course will focus on smallholder farms.
• Farmers/firms should ‘increasingly’ participate both in input and output markets
What is Commercial Agriculture and
Agribusiness Development? -3
•Measuring
  commercialization levels:
Commercialization could occur on the input side of production. This is shown by the
increased use of purchased inputs.

This results in increased in productivity.

What is Commercial Agriculture and
Agribusiness Development? -4
•Measuring
  commercialization levels:
Commercialization could occur on the output side of production. On the output side of
production, commercialization is manifested by the increased marketed surplus

Also, the commercialization index (CI) can be measured as:

What is Commercial Agriculture and
Agribusiness Development? -5
• In either case, it is expected that commercialization brings about increased factor
productivity (land, labor and capital) and ultimately, an increase in income.

• Further multiplier effects of the commercialization of the agricultural sector accrues from
the integration of the larger proportion of the population into the cash economy,
generating effective demand for goods and services in the wider economy.
What is Commercial Agriculture and
Agribusiness Development? -5
Why Commercialize Agriculture through Agribusiness Development?
 The Ugandan Economy is agro-based, in 2020 about 75.05% of the population lived in
rural areas and many of them engaged in agriculture (more than 60%).
 Poverty is mainly a rural phenomenon, about 15-over 60% of the rural population is
below the absolute poverty line, compared to 9 to 16% of the urban dwellers.
 The agriculture sector must thus be the center of any realistic programme for poverty
reduction.
 The transformation, commercialization and modernization of agriculture is one of the
main starting points for achieving significant reductions in poverty and making rural
economic growth real.
 Increased agricultural productivity (increased output and/or increased value) and
marketed output/exports, should result in increased incomes of the rural people.
Challenges faced by the Agribusiness sector-1
What do you think are the major challenges of agribusiness
development in Uganda? Suggest practical remedial actions
Production constraints:
1. Pests and diseases – loss of 35 – 40% of crop to pests and diseases
2. Poor soil climate and management
3. Weather and climatic conditions – Rain.
4. Research and technology development for quality planting and stocking materials
5. Farmer attitudes – fishing farming still not regarded as a major economic activity, etc
6. Inadequate extension system
7. Land tenure systems, land issues, land fragmentation
8. Lack of sufficient food – low labor productivity
9. Inadequate skills and knowledge
10.Inputs supply, availability and affordability
11.Capital and access to credit
 Challenges faced by the Agribusiness sector-2
Product constraints – Marketing challenges
1. Marketing and market infrastructure – roads, railways,
air transport, etc
2. A dearth of market information – on inputs, outputs,
markets, etc
3. Limited value addition and Agro-processing facilities
4. Post harvest handling, storage and management
5. Lack of capital and access to credit
6. Inadequate standards, rules and effective regulatory
framework
7. Unfair global trading arrangement – subsides, tariffs,
tariff escalation, strict phytosanitary requirements and
other trade and nontrade barriers
8. Product form, product quantity and quality, place of
production, promotion activities, etc
Challenges faced by the Agribusiness
sector-3
Other economic constraints
1. Price fluctuations e.g., for maize
2. Unstable foreign exchange rates
3. Changes in consumer behavior – pests, fashion, preferences, etc.
4. Liberalization/Privatization – buffer stocks, cooperatives, stiff competition, etc.
Challenges faced by the Agribusiness
sector-4
Cross cutting constraints
1. Ill health e.g., HIV/Aids, malaria
2. Insecurity
3. Weak private sector
4. Uganda being landlocked
5. High population growth (e.g., 3.6% Vs 2.8% of agriculture)
6. Policy framework – decentralization, fiscal policy, etc.
7. Promotion of agriculture investments
8. Inadequate funding and resource envelope
9. Environmental concerns
10. Gender main streaming
 Strategic Actions for Commercializing
Agriculture and Agribusiness Development
These may not appear new but need emphasis:
1. Agro-processing and Marketing of Agricultural Products
2. Increase in Farm Productivity – Improve access to information, specialization, better farm
management etc.
3. Post-Harvest Handling and Management
4. Effective Extension Service
5. Food Security Concerns – Balance food security issues and commercialization
6. Access to Credit and Finance
7. Agriculture insurance
8. Institutional and policy reforms – Taxes, funding, standards and regulatory frameworks
9. Strengthening the Private Sector
10. Attracting investments in the Agriculture Sector
11. Governance - High level interventions and advocacy should continue, capacity building
 Take-home message
A modernized and commercialized agriculture will lead to:
1. Increased incomes by raising farm productivity.
2. A raise in the share of agriculture that is marketed.
3. Create on farm and off-farm employment.
4. Multiplier effects in the wider economy arising from integration of a larger proportion
of the population into the cash economy.
5. Better health and food security, thus decent living

We should harness the potential of agriculture to foster poverty reduction and national
development. This is through agribusiness Development and Commercializing agriculture
while adequately servicing the needs of industry players.