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AAE 421 AGRICULTURAL MARKETS


Professor Jeremy Foltz

Introduction to your professor: Jeremy Foltz, PhD


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MA & PhD in Agricultural and Applied Economics from University of WisconsinMadison BA in Economics and Political Science from Yale University Specialist in the economics of technology, from cradle to grave: R&D, adoption & diffusion, consumer acceptance. Special interest in GM crops Specialist in development in Sub-Saharan Africa and North Africa.

Overview of the course: 1


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This course will be both


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2)

A managerial economics course in how to manage an agri-business A technical course in how to use Excel and statistics to understand information about an agri-business.

Lectures from Keats Managerial Economics text Homework from Keat and from Hill et al. Econometrics and Ogunc and Hill Using Excel Copyright 2009 Pearson Education, Inc. Publishing as Chapter One for Econometrics Prentice Hall.

Overview of the course: 2


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Lectures:
1 8am 9:30 Break 9:30 10am Lecture 2 10am 11:30
Lecture
Afternoons

office hours and homework in the computer lab.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.

Chapter One

Overview of the lecture


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Economics and managerial decision making Economics of an agribusiness Review of economic terms

This lectures learning objectives


define managerial economics cite important types of resource allocation decisions illustrate how economic changes affect a firms ability to earn an acceptable return

Economics and managerial decision making


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Economics

The study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources

Economics and managerial decision making


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Management

The science of organizing and allocating a firms scarce resources to achieve its desired objectives

Economics and managerial decision making


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Managerial economics

The use of economic analysis to make business decisions involving the best use (allocation) of an organizations scarce resources

Economics and managerial decision making


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Relationship to other business disciplines


Marketing: demand, price elasticity Finance: capital budgeting, breakeven analysis, opportunity cost, value added Management science: linear programming, regression analysis, forecasting

Economics and managerial decision making


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Relationship to other business disciplines


Strategy: types of competition, structure-conduct-performance analysis Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost

Economics and managerial decision making


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Questions that agri-business managers must answer:


What

are the economic conditions in our particular market? market structure? supply and demand? technology?

Economics and managerial decision making


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Questions that agri-business managers must answer:


What

are the economic conditions in our particular market? government regulations? international dimensions? future conditions? macroeconomic factors?

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What is happening? Would you want to invest in this industry?


Total Production
12000

10000 "Total Production" 8000

6000

4000

2000

0 Years

Would you invest now?


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Vietnam Coffee Production

12000

10000 Coffee Production 8000

6000

4000

2000

Years

What changed?
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Coffee Production in Vietnam

1400000

1200000

Coffee Production
1000000

800000

600000

400000

200000

Economics and managerial decision making


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Questions that agri-business managers must answer:


Should

our firm be in this business? if so, what products should we be selling? at what price should we be selling our product? and at what output level?

Economics and managerial decision making


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Questions that agri-business managers must answer:


How

can we maintain a competitive advantage over other firms? as a low cost-leader? by product differentiation? by finding a market niche? by outsourcing, alliances, mergers? through an internationalization of our product or process?

Economics and managerial decision making


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Questions that agri-business managers must answer: What are the risks involved in this business? They could be due to shifts in demand and/or supply conditions? technological changes in the industry?
Ours

and that of others

the effect of competition? changing interest rates and/or inflation rates?

Economics and managerial decision making


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Questions that agri-business managers must answer:


What

are the risks involved? exchange rates (for companies in international trade)? political risk (for firms with foreign operations)?

Risk is the chance that actual future outcomes will differ from those expected

Economics of an agri-business
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The economics of an agri-business refers to the key factors that affect the firms ability to earn an acceptable rate of return on its owners investment The most important of these factors are competition technology customers

Economics of a business
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Example: Kodak
struggled to transition from chemical-based film to digital imaging responded by developing strong cash flows in new product range: printers now back to struggling because the product range was not enough

Global application
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Example: Western Union


began over 100 years ago huge changes in technology to survive in the new market place the company branched out now a global company with global reach and an internet presence

Review of economic terms


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Microeconomics is the study of individual consumers and producers in specific markets, especially: supply and demand pricing of output production process cost structure distribution of income

Review of economic terms


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Macroeconomics is the study of the aggregate economy, especially: national output (GDP) unemployment inflation fiscal and monetary policies trade and finance among nations

Review of economic terms


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Resources are inputs (factors) of production, notably: land labor capital entrepreneurship

Review of economic terms


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Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people

Opportunity cost is the amount (or subjective value) that must be sacrificed in choosing one activity over the next best alternative

Review of economic terms


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Allocation decisions must be made because of scarcity. Three choices: What should be produced? How should it be produced? For whom should be produced?

Review of economic terms


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Economic decisions of the Firm

What - begin or stop providing goods/services (production) How - hiring, staffing, capital budgeting (resourcing) For whom target the customers most likely to purchase (marketing)

Review of economic terms


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Entrepreneurship is the willingness to take certain risks in the pursuit of goals


Management is the ability to organize resources and administer tasks to achieve objectives