MODULE 1

The Fundamentals of Agribusiness Management

Lesson 1 Agribusiness Concepts, Structure and

Features

Lesson 2 Agribusiness as an Open System

Lesson 3 Going Into Agribusiness and

Entrepreneurship

Lesson 4 Challenges in Agribusiness

 INTRODUCTION

This module presents the fundamentals of agribusiness management . It

is hoped that you will learn, comprehend and appreciate the concept of
agribusiness management. You will also learn in this module the different
challenges in the management and operations of an agribusiness enterprise.

OBJECTIVES

After studying the module, you should be able to:

1. Discuss the agribusiness concepts, structure and features.
2. Explain agribusiness as an open system.
3. Discus the concept of going into agribusiness entrepreneurship.
4. Explain the challenges in agribusiness.

DIRECTIONS/ MODULE ORGANIZER

There are four lessons in the module. Read each lesson carefully then answer
the exercises, activities and case studies to find out how much you have benefited
from it. Work on these exercises carefully and submit your output to your subject
Professor .
In case you encounter difficulty, discuss this with your subject Professor during
the class meeting. If not contact your Professor at the Institute of Agribusiness
Management.

Good luck and happy reading!!!

Lesson 1

Agribusiness Concepts, Structure and Features

What is Agribusiness?
The word agriculture indicate plowing a field, planting seed, harvesting
a crop, milking cows, or feeding livestock. Until recently, this was a fairly
accurate picture. But todays’ agriculture has evolved into agribusiness and has
become a vast and complex system that reaches for beyond the farm to include
all those who are involved in bringing food and fiber to consumers. Agribusiness
include not only those that farm the land but also the people and firms that
provide the inputs (for ex. seed, chemicals, credit etc.), process the output
(for ex. milk, grain, meat etc.), manufacture the food products (for ex. ice
cream, bread, breakfast cereals etc.), and transport and sell the food products
to consumers (for ex. restaurants, supermarkets).
Agribusiness system has undergone a rapid transformation as new
industries have evolve and traditional farming operations have grown larger
and more specialized. The transformation did not happen over night , but came
slowly as a response to a variety of forces. Knowing something about how
agribusiness came about makes it easier to understand how this system
operates today and how it is likely to change in the future.
Initially agriculture being the major venture it was easy to become a
farmer, but productivity was low. Average farmer produced enough food to
feed just four people. As a consequence most farmers were nearly totally self-
sufficient. They produced most of the inputs they needed for production, such
as seed, draft animals, feed and simple farm equipment. Farm families
processed the commodities they grew to make their own food and clothing.
They consumed or used just about everything they produced. The small amount
of output not consumed on the farm was sold for cash. These items were used
to feed and cloth the minor portion of the country’s population that lived in
villages and cities. A few agricultural products made their way into the export
market and were sold to buyers is other countries.
Farmers found it increasingly profitable to concentrate on production
and began to purchase inputs they formerly made themselves. This trend
enabled others to build business that focused on meeting the need for inputs
used in production agriculture such as seed, fencing, machinery and so on.
These farms involved into the industries that make up the “agricultural inputs
sector”. Input farms are major part of agribusiness and produce variety of
technologically based products that account for approximately 75 percent of all
the inputs used in production agriculture.
At the same time the agriculture input sector was evolving, a similar
evaluation was taking place a commodity processing and food manufacturing
moved off the farm. The form of most commodities (wheat, rice, milk,
livestock and so on) must be changed to make them more useful and
convenient for consumers. For ex. consumers would rather buy flour than grind
the wheat themselves before backing a cake. They are willing to pay extra for
the convenience of buying the processed commodity (flour) instead of the raw
agriculture commodity (wheat).
During the same period technological advance were being made in food
preservation method. Up until this time the perishable nature of most
agriculture commodities meant that they were available only at harvest.
Advance in food processing have made it possible to get those commodities all
throughout the year. Today even most farm families use purchased food and
fiber products rather than doing the processing themselves. The farms that
meet the consumers demand for greater processing and convenience also
constitute a major part of agribusiness and are referred to as the processing
manufacturing sector. It is apparent that the definition of agriculture had to
be expanded to include more than production. Farmers rely on the input
industries to provide the 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”. The term agribusiness was first introduced by Davis and
Goldberg in 1957. it represents three part system made up of

(1) the agricultural input sector

(2) the production sector and
(3) the processing-manufacturing sector
Agribusiness is seen today as more than a commodity industry; it is seen
as a driver of societal and economic health. Food system players are starting to
address not only the needs of their partners and stakeholders but the needs of
society- the ultimate stakeholder.
 To capture the full meaning of the term “agribusiness” it is important to
visualizes that there sectors as interrelated parts of a system in which the
success of each part depends heavily on the proper functioning of the other
two.
There are many different definitions of agribusiness which include:
 According to Merriam-Webster’s Collegiate Dictionary, agribusiness is
“an industry engaged in the producing operations of a farm, the
manufacture and distribution of farm equipment and supplies, and the
processing, storage, and distribution of farm commodities.”

 John Davis and Ray Goldberg defined agribusiness as “all operations

involved in the manufacture and distribution of farm supplies;
production operations on the farm; and the storage, processing, and
distribution of the resulting commodities and items.”

 Ewell Roy defined agribusiness as the “coordinating science of supplying

agricultural production inputs and subsequently producing, processing,
and distributing food and fiber.”

 The Australian Department of Agriculture, Fisheries and Forestry (DAFF)

defined agribusiness inclusively as a “chain” of industries directly or
indirectly involved in the production, transformation, or provision of
food, fiber, and chemical and pharmaceutical substrates. “links” in the
agribusiness include:

 primary production of raw materials (Commodities”), such as

unprocessed food, fiber, and substrates
 tertiary transformation of commodities into value-added products
where the value is derived from the process of transformation
 supply of inputs to the primary and tertiary sectors
 wholesale and retail provision of processed or unprocessed foods,
fibers, and related products to consumers
 provision of educational, financial, and technical services to all
sectors

Therefore, agribusiness encompasses all activities “from the paddock to the

consumer” that contribute to the eventual production, processing (value
addition), distribution, and retailing of food, fiber, and products based on food
or fiber.
A more concise definition calls agribusiness “a generic term that refers to the
various businesses involved in food and fiber production, including farming,
seed supply, agrichemicals, farm machinery, wholesale and distribution,
processing, marketing, and retail sales”.
All these definitions agree that AGRIBUSINESS includes all the activities
that take place in the production, manufacturing, distribution, and
wholesale and retail sales of agricultural commodities.

Objectives of Agribusiness
General Objective:
The main objective is to develop and build-up manpower with practical
knowledge and problem solving skills to expand small and medium agribusiness
enterprises and improve the productivity of agribusiness value chains in
agricultural industry.

Specific Objectives:
Demonstrate the importance of agribusiness in the national economy with
particular importance to its contribution to agricultural enterprise
development among rural communities .
Apply the acquired knowledge and practical skills to up-scale agribusiness
management, farmer producer organizations and groups, agribusiness supply
chain management and improve agribusiness marketing of processed
commodities and small business enterprise development.
Make use of the problem solving skills acquired to participate in creating a
policy environment to sustain an integrated continuum of our agribusiness
systems from agricultural input suppliers, agricultural production, commodity
processing, agribusiness marketing and consumption of food products.
Be involved in international research, outreach programs and teaching in
various aspects of agribusiness management and Enterprise Development.
These activities inform our domestic efforts and enable us to address important
problems and opportunities in Kenya’s agribusiness supply chain and Enterprise
Development.
Agriculture, being a sector of economy, supports more than three-fourth of
the total population and contributes nearly one-fourth to the total Gross
Domestic Product of the Country. During last five decades, even through
agriculture sector has grown substantially, it has not been able to sustain its
growth mainly due to lack of proper management of resources like land, water
and manpower.
Is Agribusiness the Same as Agricultural Economics?
Agricultural economics refers to the monetary and physical factors that affect
the profitability of the agribusiness. Agricultural economics is the study of the
economic forces that affect the food and fiber industry. Specific areas of study
in agricultural economics include:
 community and rural development
 food safety and nutrition
 international trade
 production economics
 risk and uncertainty
 consumer behavior and household economics
 analysis of markets and competition
 agribusiness economics and management

Agribusiness Chain
The term agribusiness is a generic one that refers to various agricultural
business involving food production. Businesses do not exist in isolation- every
business has its own suppliers of goods and buyers of the goods it makes/sells-
each having the same driving forces and critical responses. The grouping of
these businesses is called a chain of companies and tends to reflect the
industry in which the business is involved in. The agricultural industry sector is
a large multifaceted industry sector that exists worldwide and involves a range
of businesses that create industry (e.g. grains, sugar cane, timber, dairy, meat,
fruits, vegetables, cotton, wool etc). Agri- industry chain that often exist
across international boundaries. Supply and Value chain analysis of agri-
industry chains has become a valuable tool in determining where added
competitive advantage can be generated for these industries . In addition , such
analysis are important in understanding the challenges which continue to
mount and include:
1. Recognizing that only demand driven businesses will survive.
2. Adapting to the constant change in the market- which will be
imperative.
3. Integrating growing environmental and social issues of changing
agribusiness sector with prevailing economic imperatives which will
become more difficult.
4. Creating innovative solutions to address the growing challenges.
The implications of agribusiness at all levels in their respective agri- industry
chains from the point of view of human resource management, knowledge
creation, capacity and skills development as well as business strategy
development are immense.

Chains in agribusiness
Global Agricultural Buyer driven chain or -Large retailers are
Value Chain 1 network dominant
(Main) -Conventional
Plantations by brands
(Del Monte, Dole etc)
Producer driven chain or -Traditional wholesale
network (exception) channels
Contracting farms etc.
-Farmer’s
markets(supply directly
from farmer to
consumer)
Farmer cooperatives
Global Agricultural Retailers Requirements -Reliability &
Value Chain 2 or Standards Consistency
- Price
-Quality
-Variety
- Packaging
- Delivery &
Procurement
-Safety etc.

Global Agricultural Major Obstacles for -Volatility In

Value Chain 3 Small & Medium International markets
Farmers -Lack of Knowledge, or
market information of
or Know how
- no or few motivations
to produce high quality
or high value added
products (capital
needed to meet
expected household and
farm expenses)

Global Agricultural Features of Agriculture -Individual to the areas

Value Chain 4 or regions in terms of
 crops or products
(coffee, tropical fruits,
etc.
-Closely related to
community, culture and
environment ( ways or
methods of cultivation,
etc)
Global Agricultural A step towards
Value Chain 5 International and
Regional Markets

Despite continued growth in Agriculture and agriculture related activities, the

agricultural economy continues to face challenges that seeks to wipe out gains
that have been made over time Agribusiness today find themselves operating
in the new economy. The new economy is the networked environment where
all informed consumers demand products from a world organizations and are
linked together in a web of interrelated supply chains that seeks to meet the
consumers expectations.

The Big Picture of Agribusiness

Agribusiness companies provide input supplies to the producers (i.e., farmers).
The producer produces food and fiber, and outputs is taken by agribusiness
companies that process, market, and distribute the agricultural products.
Many services are needed in agriculture, such as transportation, storage,
refrigeration, credit, finance, and insurance. Agribusiness manufacturers
furnish producers with the supplies and equipment needed to produce, store,
and transport their crops. Government agencies inspect and grade agricultural
products for quality and safety. Several agribusiness trade organizations,
commodity organizations, committees, and conferences educate, promote,
advertise, coordinate, and lobby for their agricultural products. Science,
research, engineering, and education help improve agribusiness. Millions of
people are employed in agribusiness throughout the world, and people
throughout the world also depend on agribusiness for their food, clothing, and
shelter. Figure 1 presents the big picture of agribusiness.

Essentials of Agribusiness
Today the business has become very competitive and complex. This is
mainly due to changing taste and fashion of the consumers on the one hand,
and introduction of substitute and cheaper and better competitive goods, on
the other. The old dictum “produce and sells has changed overtime into
“produce only what customers want”. In fact, knowing what customers want in
never simple. Nevertheless, a farmer operator/farmer manager has to give
proper thought to this consideration in order to make his business a successful
one. The important requisites for success in a modern business are :
1. Clean objectives : Determination of objectives is one of the most essential
pre requisite 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. As a traveler must know here
he/she has to reach, i.e. destination similarly business also must know
what objectives.
2. Planning : In simple words, planning is a pre-determined line of action. The
accomplishment of objectives set, to a great extent, depends upon
planning itself. It is said that it does not take time to do thing but it
takes time to decide what and how to do. Planning is a proposal based
on part experience and present trends for future actions. In other words,
it is an analysis of a problem and finding out the solutions to solve them
with reference to the objective of the farm.
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 build up by various parts like heart, lever, 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” “the agribusiness”. Organization is,
thus such a systematic combination of various related parts for achieving
a defined objective in an effective manner.
4. Research : As indicated earlier, today the agricultural production philosophy
“produce what the consumer want”. “Consumers” behavior is influenced
by variety of factors like cultural, social, personal and psychological
factors. The business needs to know and appreciate these factors and
then function accordingly. The knowledge of these factors is acquired
through market research. Research is a systematic search for new
knowledge. Market research enable 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
to a great extent 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 business
men must take sufficient care in the initial stages to selected suitable
location for his business.
The site of the business is also important because the requirement for
infrastructural facilities and inputs varies as per the size of the business.
The requirement for raw materials, for example, will be les in a smaller
sized firm than a larger size firm.
7. Efficient management : One of the reasons for failure of business often
attributed to as their poor management or inefficient management. The
one man, i.e. the proprietor may not be equally good in all areas of the
business. Efficient businessman 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/labors to get their full cooperation in achieving business
activities.

Farming and Agriculture before Agribusiness

People have searched for ways to feed themselves since prehistoric times. If
people did not eat one day, they would hardly have enough energy to find food
the next day. Thus, nearly all their waking time was spent searching for food
by hunting or gathering nuts and other naturally grown foods. As farming
developed, it gave people time to develop other things, such as language, art,
and religion. Today, if you want to eat, you need only go to the nearest
restaurant to get food (of course, with payment).

Life before Agriculture. Several thousand years ago, early humans roamed
great distances to gather plants and hunt animals for food. Nutrition and health
were so poor that people seldom lived past 25 years of age. They hunted large
game, but they were not very successful. They had more luck gathering
vegetables and insects. Insects were a favorite. Early humans considered them
so tasty that some species were almost exterminated. Common wild vegetables
included turnips, onions, radishes, squash, cabbage, and mushrooms. However,
two important developments took place before human discovered agriculture.
People learned to fish, and they learned to use fire for cooking. Civilization,
however, evolved very slowly until people learned to farm.
Early Agricultural Development. To many people, the idea of farming seems
simple. All one does is plant some seed, wait a while, and then harvest the
food. But prehistoric humans had a problem with growing food. There was no
one around to teach them that seed would grow into plants. Eventually,
however, the puzzle to farming was solved and people began to raise crops
and domesticate animals.
The Bronze Age. During the Bronze Age (around 3, 000 B.C.), wooden
implements were made sharper and more durable by using metal. This allowed
people to cultivate larger areas of land faster. Agriculture spread throughout
the world and became a way of life for most people. Some of the developments
during the Bronze Age included:
 Bronze tools and plows made for easier and faster farming
 The Nile River was used by Egyptians to irrigate crops
 World population rose from 3 million before the invention of agriculture
to nearly 100 million
The Iron Ages (A.D. 400 – 1500). The Middle Ages ranges from A.D. 400 to
A.D. 1500. The fall of the Roman Empire slowed the growth of agriculture.
Farming was still a way of life, but only a few important developments
occurred. These included crop rotation, a new harness for plowing, and
selective breeding of livestock.
Farmers in the Middle Ages began to understand the importance of conserving
soil moisture and nutrients. They accomplished this by dividing their fields and
leaving parts bare during certain years. This innovation led to the development
of fences to mark separate fields.
Before the Middle Ages, oxen were the main draft animals. A new harness was
developed so that farmers could use horses to work their fields faster. Also,
during the late Middle Ages, livestock producers began to select certain
animals fro breeding based on desirable characteristics. Before the
development of this practice, there were few different breeds of domestic
animals. Using selective breeding, livestock producers developed many of the
breeds we now have.
Near the end of the Middle Ages, Columbus discovered America, and people
began to travel to the “New World”.

DISTINCT FEATURES OF AGRIBUSINESS

To have a better understanding of agribusiness, we need to consider what
differentiates it from other business sectors. In their book entitled
Agribusiness Management, W. David Downey and John K Trocke listed the
distinctive features of agribusiness management as follows:
1. Tremendous variety in the kinds of businesses in the agribusiness
sector; that is, from basic producers to shippers, brokers, wholesalers,
processors, packages, manufacturers, storage firms,, transporters,
financing institutions, retailers, food chains, and restaurants are among
others. The list is nearly endless.

2. Sheer number of agribusinesses. Literally millions of different businesses

have evolved to handle the route from producers to the retail marketer.

3. The way in which basic agribusiness is built around several million farm
producers. These farm produce hundreds of different food and fiber
products. Most agribusiness deal with farmers either directly or
indirectly. No other industry is built principally around the basic
producer of its raw product.

4. Infinite variety in size of agribusiness, from corporate giants to the one

person or one family organizations. Most agribusiness tend to be small
when compared with other business and industrial segments.

5. Agribusiness are small and compete in relatively free market in which

there are many sellers and fewer buyers. Product differentiation is also
difficult in most agribusiness for example a ton of 20-20-20 fertilizer or
sack of corn will vary little from producer to producer.
 6. Many agribusiness workers exhibit a traditional philosophy of life, which
tend to make agribusiness more conservative than some other
businesses.

7. Agribusiness firms tend to be family oriented. Many agribusiness firms

are run by families or deal with businesses than are run by families.

8. Agribusiness tend to be community oriented. Many of them are located

in small towns and rural areas where interpersonal relationships are
important and associations are long term.

9. Agribusinesses even those that are industrial giants are likely to be

highly seasonal in nature. Because of the intimate relationship and
interdependence of agribusiness and farm producers and because of the
nature of planting and harvesting seasons, special problems often rise.

10.Agribusiness deals with the vagaries of nature. Drought, flood, insects,

and diseases are a constant threat for most agribusiness. Everyone, from
the banker to the chemical manufacturer is concerned with weather.

11.Government programs and policies have direct impact on agribusiness.

Many agricultural products are heavily influenced by government
regulations.

Scope of Agribusiness
It was 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, commence and
trade, Industry is concerned with the production of commodities and materials
while commerce and trade are concerned with their distribution.

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 :
According to nature, the 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, 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.
Commerce :
Commerce is the another major component of agribusiness. It includes
all those activities which are necessary to bring goods and services from the
place of their production to the place of their consumption. Thus, sit includes
the buying and selling of goods and service and all those activities which
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) are 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 and to trade like transportation, insurance, banking, finance
etc. On the basis of its coverage and volume, trade is normally classified into
the following types :
1. On the basis of volume :

(i) Wholesale trade

(ii) Retail trade

2. On the basis of coverage :

(i) Regional trade

(ii) National trade

Management – Nature, types, tasks and responsibilities :

Traditional concept of management restricted management to getting
things done by others. According to modern view, management covers wide
range of business related activities. It is considered as a process, an activity, a
discipline and effort to coordinate control and direct individual and group
effort towards attaining the cherished goal of the business. Management may
also play the role as science, as an art, as a profession and as a social process.
As a participant in any management program, one may either be a
practicing manager or aspiring to be one. Responsibility and performance are
really the key words in defining a manager’s role. Performance implies action,
and action necessitates taking specific steps and doing the following tasks to
produce desired results.
1. Providing purposeful direction to the firm.
2. Managing survival and growth.
3. Maintaining farm’s efficiency.
4. Meeting the challenge of increasing competition.
5. Managing for innovation
6. Coping with growing technological sophistication.
7. Maintaining relation with various society segments etc.
An agribusiness is a social institution. Its very existence is dependent
upon its harmonious relationship with various segments of the society. This
harmonies relationship originates from the farm’s positive responsiveness to
the various segments and is closely associated with the tasks a manager is
expected to perform. The process of evolving this mutual relationship between
agribusiness farms and various interest groups begins by acknowledging the
existence of the responsibilities of manager. These responsibilities are towards
consumers, suppliers, distributors, workers, financiers, government and the
society.
STRUCTURE OF AGRIBUSINESS

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 commodity from
the producer down to the final consumer or the end user.

Consumer

Retailers

Consumer
Wholesalers Managers
Government
Officers
Processors
Educators

Researchers
Farmers

Farm Suppliers

The agribusiness concept is market oriented. This means that the component
must function in a way that will lead to satisfaction of consumer needs. Market
orientation advocates that markets must developed for the product that the
industry produces or that no product should be produced unless it is
marketable

How do the components of agribusiness operate? The entire system is made to

work by coordinators which include the managers who are administrators of the
firms, government officer whose functions are related to government
businesses, educators who train the manpower needed to lead and operate
this firms and researchers who provide the technical know how that is
important in the coordination between components of the vertical structure.
Regulatory agencies may help along this line but at the end of the day it’s the
ability and willingness of the key player in the structure that will spell the
difference.

As mentioned earlier agri-business sector provides crucial backward and

forward linkages. It involves two important sectors.

 Farm input sector: It deals with agro-based industries providing seeds,

fertilizers, feed, chemicals etc. The industries supplying machinery or
equipment, implements and petroleum etc are also important in this
regard.
 Farm product sector: It deals with production and distribution of farm
commodities. Large cooperative 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 common in poultry,
fruit and vegetable farms.

It’s Your Turn

Answer the following:

1.Explain the following
a. General Concept of Agribusiness
b. Structure of Agribusiness
c. Features of Agribusiness
2. What is the significance of having farm inputs in the field of
agribusiness?
3. Explain the contribution of agribusiness in the economy of a certain
community.
4.Why do we need to consider the essentials of agribusiness? How does it
affect the total operation of the enterprise?
 5.What is the picture of agribusiness in your locality? What is the impact
to
the owner of the enterprise.
6.Identify and briefly explain at least fifteen agribusiness activities in
your community.

REFERENCE

https://en.wikipedia.org/wiki/Agribusiness
https://www.thebalancesmb.com/what-is-agribusiness-2538209
https://www.slideshare.net/MrinalKantiRoy3/agribusiness-82212264
https://www.carlisle.k12.ky.us/userfiles/937/Classes/26128/Scope%20and
%20Importance%20EUnit.pdf
https://blogs.worldbank.org/developmenttalk/agribusiness-trade-pillar-
development-measurement-and-patterns
http://web.missouri.edu/cookml/CV/AJAE2010.pdf
https://www.slideshare.net/satyamachiraju/features-of-agribusiness
https://www.coursehero.com/file/p6ovfke/Distinctive-Features-of-Agri-
business-Management-The-important-distinctive/
Lesson 2

Agribusiness as an Open System

Agribusiness is described as an open system. To understand why agribusiness

is characterized as such, let us define what is a system is. System is defined as
a “set or assemblage of things connected, or interdependent, so as to form a
complex unit; a whole composed of parts in orderly arrangement according to
some scheme or plan.”
In addition to this definition, system could be described in terms of the
following concepts:
 A system is more than the sum of its parts. It has to be viewed as a
whole.
 Systems can either be open or closed. When the system has no
interaction with its environment, it is closed. When the system receives
information, energy, or material from outside environment in order to
function more effectively, it is open.
 In order for a system to exist, it must have boundaries that separate it
from the outside environment.
 Closed systems are subject to entropy, a process of increasing energy
loss that eventually leads to the system’s death. Open systems are able
to overcome the effect of entropy because they are influenced by the
external environment.
 In responding to the external environment, the organization must
contend with two kinds of forces. One force encourages the organization
to continue doing what it is doing and not to take in new information or
material from the outside. The other kind of force encourages the
organization to change. Effective organizations try to balance the two in
 order to make the necessary changes without creating or uncertainty by
changing too rapidly.
 By using feedback from the external environment, a system is able to
achieve dynamic equilibrium. Equilibrium occurs when the organization
achieves a steady state and is not in danger of breaking down.
 Every system is also a subsystem. An organization is a subsystem of the
entire industry. Meanwhile, an organization is made up of subsystems
such as departments, divisions, groups, and individuals.
 Open systems tend to become more specialized as they grow larger. For
example, as an organization increases in size, specialized departments
will spring up and new offices will be created.
 Open systems may grow in different ways.

From here, it can be seen that a system needs to have interrelated parts
that function together towards a common goal. Just as a digestive system is
composed of organs with specific but interrelated functions, the agribusiness
system is composed of the following interdependent subsystems:

 Input subsystem. This is composed of firms that provide the farm

production sector with feeds, seeds, fertilizers, machinery, chemicals,
and other inputs needed for operation. It also includes human and
animal resources.
 Farm production subsystem. This consists of all individuals and
enterprises engaged in the production and propagation of animals and
animal products, plant products, forest and forest products, even
aquatic products for direct consumption and/or as intermediate product
for processing.
 Processing subsystem. This covers all firms engaged in the primary and
final transformation of the raw material output. Considering the
perishable nature of agricultural products, the role of storage and
processing in agribusiness could not be overemphasized.
 Marketing subsystem. This is composed of all individuals and firms
(e.g., assemblers, wholesalers, retailers, exporters, importers) involved
in the distribution of agro-based products. Marketers usually have direct
links with the end-consumers.
 Support subsystem. This encompasses all government and
nongovernment agencies, education/research institutions, industry
associations, financing institutions, international organizations, and
other entities that directly or indirectly affect the agribusiness system
through the [provision of the necessary logistics, coordination,
financing, human resources, technology, information, policies,
programs, incentives, and other services to the system.
 Using the key elements of the systems concept, we can conclude that
agribusiness is an open system because of the following reasons:
 It is composed of distinct but interdependent parts that function towards
a common goal
 It is affected by the developments in its external environment
 The viability of the whole agribusiness system depends on the vitality of
each subsystem, the synchronized operation of the subsystems, and its
ability to adapt to the changes in the environment.

Agribusiness as a Field of Study

As a field of study, agribusiness is founded on management. Although it has

been practiced for thousands of years, management as a formal discipline is
still relatively young. It did not become an object of rigorous study until the
late eighteen century when the factory system came into prominence as a
result of the industrial revolution that swept Europe at that time.
Management is an integrative field of study that draws concepts from
different disciplines like economics, psychology, sociology, statistics,
mathematics, political science, and engineering, among others. In addition to
said fields, agribusiness management also integrates the relevant aspects of
agricultural disciplines such as horticulture, agronomy, animal science, plant
protection, aquaculture, and forest science.
There have also been debates as to whether management is an art or a
science. It is actually both. When confronted with problems dealing with
material things (e.g., crop production failure, machine replacement), the
agribusiness manager usually approaches it as a science. Such situations would
allow him or her to use systematic methods in analyzing the problems to come
up with a rational solution or use a generally acceptable technique to address
the problem. On the other hand, there are situations wherein the factors
affecting the problem are beyond the manipulation of the manager. Problems
dealing with people (e.g., motivation, interpersonal conflicts) are one
example. In such situations, the manager may be required to address the issue
as an art by using more of his qualitative judgment, intuition, or gut feeling.
 It’s Your Turn

Answer the following:

1. Why do we consider Agribusiness as an Open System? Justify your
answer.
2. Do we need agribusiness today? Why? Why not? Cite some examples.

REFERENCE
https://www.s-cool.co.uk/forums/gcse/what-definition-open-system-farming
https://www.scielo.br/pdf/rausp/v52n1/0080-2107-rausp-52-01-0114.pdf
https://www.slideshare.net/teshale/distinctive-features-of-agribusiness-
management-and-the-importance-of-good-management-29481118
Lesson 3

Going into Agribusiness Entrepreneurship

General Characteristics of Entrepreneur

Entrepreneurs are people who have the initial vision, diligence, and persistence
to follow through. An entrepreneur is a person who accepts all the risks
pertaining to forming and operating a small business. This also entails
performing all business functions associated with a product or service, fulfilling
social responsibilities, and meeting legal requirements. There are many reasons
why people are willing to take the risks of starting a business:
 Entrepreneurs work for themselves, are independent, and make their
own business decisions.
 Whatever income they earn above their financial obligations is theirs to
keep.
 They can test their own working hours.
 They themselves set prices, determine production levels, and control
inventory according to the market.
 They determine the product or service offered and controls its quality as
well as the overall reputation of the business.
 They perform all the human resource functions, such as hiring, training,
and firing.
 They set the enterprise/company policy.

Personal Characteristics of Entrepreneurs

Every person is different and unique. This includes entrepreneurs. However,
entrepreneurs generally have common qualities that set them apart. The skills
needed by entrepreneurs vary widely depending on the type and nature of the
business. One person may possess technical knowledge about an agribusiness
but lack leadership and management skills. A good guideline is that an
entrepreneur should have the following qualities, as well as knowledge of or
expertise in the agri-business that he or she is pursuing. The characteristics
listed here are found most often in successful entrepreneurs.
 Independent. Entrepreneurs believe that they can do the job better
than anyone. They prefer to control their own destiny.
 Self-Confident. People who believe in themselves and what they can do
have a definite edge in self-employment.
 Energetic. Entrepreneurs usually are sick less often than other people.
They enjoy good health and use it to improve their business.
 Organized. These people are able to organize their work according to
their own unique system.
 Visionary. Entrepreneurs can keep tabs on the whole business and see
how the different parts of the business fit together. They are in
command of the entire business operation.
 Persistent. They are able to keep the business moving forward even
during tough times. If they do encounter a roadblock, they will find
another way.
 Optimistic. No matter what the situation, the outlook is always good to
the entrepreneur. Such people are natural optimists.
 Committed. They accomplish what is necessary to carry out their ideas.
 Problem Solver. Entrepreneurs willingly take on new challenges. They
capitalize on opportunities to make use of their time, talents, and ideas.
 Self-Nurturing. They little concern for what others think about them.
Entrepreneurs have a conviction that they are on the right track
regardless of what others may think.
 Risk Taker. They are willing to give up things (such as the security of a
steady job) to achieve their personal and business goals. They are not
gamblers; rather, they take risks based on their confidence in their own
abilities.
 Action-Oriented. Great business ideas are not enough. They truly
important thing is a strong desire to turn dreams into reality.
 Has a Sense of Urgency. Entrepreneurs are restless unless they are
working, and they may often seem to want challenges if everything is
going too smoothly.
 Flexible. If one option falls through, they will find another way to do
the job or finance the change.
 Emotionally Stable. Entrepreneurs do not give in to emotional highs and
lows.
Types of entrepreneurs:
According to Clarence Danhof entrepreneurs are classified in to four
types namely:
1. Innovating entrepreneurs: In this category entrepreneur introduces new
goods/service, invent new method of production, discovers new market
and reorganizes the enterprises. This kind of entrepreneur can be
comfortable with certain level of development is already achieved and
people look forward to change and improvement.

2. Imitative entrepreneurs: These people are characterized by readiness to

adopt successful innovation, but do not innovate characterized by great
caution and skepticism in experimenting any change in their enterprises.

3. Drone entrepreneurs: Entrepreneurs of this category exhibited the

characteristics of refusal to adopt opportunities to make changes in
production method, despite of reduced returns compared to similar
producers. Even they may suffer from the loss, but they do not ready to
make changes in their existing production methods. Apart from this
classification, some more categories of entrepreneurs are listed by
behavioral scientists. They are

a. Solo operators: Essentially work alone and if needed only take few
employees
b. Agripreneurs: Here people of these kinds venture in to agriculture
and allied sectors
c. Women entrepreneurs: Those women who think of business
enterprise, initiate it, organize and combine the factors of
production, operate the enterprise and under take risks and handle
economic uncertainty involved in running a business enterprise.
d. Inventors: Characterized by competence and inventiveness to invent
new product and show interest in research and innovative activities.
Example : Scientist, who contributed for innovation.
e. Challengers: Entrepreneurs who plunge into industry because of the
challenges it presents. Even after met the challenge, they look for
the new one.
f. Life timers: These Entrepreneurs take business as an integral part to
their life. Usually the family enterprises and business run with their
personal skill belongs to this category.
g. Social entrepreneurs: These Entrepreneurs involved in social
activities. People who engaged their service in NGOs, voluntary
organizations etc are noted in this category. Even if they run
business, certain portion of the profit will be utilized for the social
activities. Mostly shows high social responsibility.
Aspects in Entrepreneurship
1. The identification/ recognition of market opportunity and the
generation of a business idea ( product/ service) to address the
opportunity
2. The marshalling and commitment of resources in the face of risk to
pursue the opportunity.
3. The creation of an operating business organization to implement the
opportunity motivated business idea.
Areas of Innovations
 New Products
 New Services
 New Product Techniques
 New way of Delivering the Product or Service to the Customer
 New operating practices
 New Means of Informing Customer about the Product or Service
 New means of managing relationship within the organization
 New means of managing relationship between the organization
Role of Entrepreneurs/Agripreneurs within the Economy
1. Capital Formulation
2. Improvement in per capita income
3. Generation of employment
4. Improvement of the living standard
5. Economic independence
6. Balances regional development
7. Innovation
8. Imitating Role

Who is the Agribusiness Manager?

There are numerous kinds of agribusiness managers as there are several
ways of describing management. Depending on the scope of one’s
responsibility, type of business engaged in, size of firm affiliated with, or even
culture, one can attach different meanings to an agribusiness manager. To
most people, agribusiness managers are only those who head large agribusiness
companies and work in large offices. In some societies, farmers may not regard
themselves as agribusiness men even if they are part of the agricultural
commodity system. From our previous discussions, however, we have learned
that the agribusiness system covers all those working in the input, farming,
processing, and distribution sectors. Anybody who manages the production,
marketing, financial, and human resource aspects of the agribusiness system
can be considered as an agribusiness manager. Falling under this definition are
managers of input supply enterprises; individual farmers; leaders of farmers’
cooperatives; all line and staff (e.g., marketing, production, finance,
personnel, research and development) managers and supervisors in both on-
farm (e.g., plantation, nurseries, fish ponds) and off-farm agro-based
companies (e.g., trading and shipping) either publicly or privately owned;
entrepreneurs; managers of agricultural banks; and even coordinators of agro-
based livelihood projects implemented by the public sector for the
development of rural communities.

The Role of the Agribusiness Manager

We have learned so far that agribusiness covers a relatively large scope.
It can be viewed as a system, a vertical structure, or a sector in the economy.
As a field of study, it is anchored on m the essence of management. Doing
things through other people. Which is considered as one simplest definition of
management, it also encapsulates the being of an agribusiness manager. Just
like his or her counterparts in other types of business organizations, the work
of an agribusiness manager is a profession. As such the gauge of the success
would rest in the performance. He or she is an action person.

A manager’s role can also be described in different ways. A general

picture of a manager’s job has been described as “creating an environment
wherein groups of people can work effectively and efficiently for the
attainment of the organization’s goal’s”. The managerial functions of planning,
organizing, staffing, directing and controlling is another way. Some authors
have described it in terms of the hats worn by a manager- leader,
administrator, figurehead, decision maker, entrepreneur, and information
disseminator are among other.

What makes the role of an agribusiness manager different from their

counterparts in other sectors? The nature of the business itself is one different
factor. For one heavy reliance of agribusiness on farming for its raw materials
exposes it to inherent risks. Planting season, natural calamities or pest and
disease infestation can immensely affect the volume of production. The
industry is built with around million of farmers who are located in community
oriented rural areas. All these have effect not only on how the business is
organized but also on the leadership style of the agribusiness manager.
 Another factor is the nature of the product manufactured and sold by
the industry. Most agricultural products are staples that people buy in a wide
range of retail outlets such as grocery stores and wet markets. While such
products satisfy basic needs, which don’t change much over time, their
stability invites competition, which often leads to low profit margin. Since
demand assessment is not as difficult as those in innovative products (e.g.
computers, electronics), companies that makes such products can focus on
reducing physical and operating costs. The goal can be achieved through
better inventory management and elimination of unnecessary tasks and
procedures across the participants in the commodity system.

This brings us to the issue of the systems approach. Due to sheer scope
and number of forms and persons involved in agribusiness, the coordination
work among agribusiness managers is more complicated. The product flows to
ensure customer satisfactions, quality and time by which agricultural products
are moved should all be in synchrony to meet the market demands. Effective
vertical coordination is achieved by sharing of information on what the end
users requires. Appropriate information can act as linkage within a the vertical
chain, identifying product needs and locations, and directing process requires
the management of stock and flows within the business ( and from suppliers
and to customers). Consequently, there must relevant flow of information from
the activities that are responsible for the effective planning and control
functions of the physical distribution.

It’s Your Turn

A. Case Analysis
Kigayaza Youth Cooperative
Agricultural Sector
Uganda

The Kigayaza Youth Cooperative was established in 2004 and is based in Kigayaza Village in
Kayunga District, in the Central Region Of Uganda. It has over 100 members who are all farmers
mainly aged between 25 and 30. Their main activities include selling agricultural produce
together, such as maize, which enables them to get a better price. They also have shared
projects including pig farming and growing trees. They concentrate on sharing information with
each other through training & meetings, which they see as a way to build each other’s
knowledge.
When asked about the benefits of being a member of the cooperative, several were cited.
They said that being in a cooperative has enabled them to access opportunities such as building
network with other organizations that then provide them with training or seeds or information
on farming. They also talk about the skills and knowledge they have acquired, including new
information on farming methods in particular which crops to grow and when.
Kigayaza Youth Cooperative faces challenges, for example it is difficult to recruit female
members, to mobilize and motivate some members and to find resources. In particular it needs
money to build a store which will better equip it to combine (bulk) crops & while waiting for a
better price and also buy a mill for its maize by milling & packaging it. They also lack a central
office and do not have staff. It is the responsibility of the Board to coordinate & conduct
business.

Ponder on this:

1. What are the characteristics of the Cooperative members obtained by the

Kigayaza Youth Cooperative?
2. What are the best practices performed by the members of the Kigayaza Youth
Cooperative?
3. If you are a member of this cooperative what other values would you instill to
further motivate and enhance the performance of your fellow members?

B. Answer the following Questions:

1.Discuss the aspects of entrepreneurship as a role of the agribusiness manager. Site

some specific examples.

2.Briefly discuss the role of the agripreneur in the Philippine economy.

REFERENCE

http://www.fao.org/uploads/media/5-EntrepreneurshipInternLores.pdf
file:///C:/ GFRAS_NELK_M11-Agricultural_Entrepreneurship-Manual.pdf
https://www.slideshare.net/SudhansuSethi/agri-entrepreneurship
https://shodhganga.inflibnet.ac.in/bitstream/10603/76352/7/07_chapter
%203.pdf
https://www.researchgate.net/publication/
326190494_Entrepreneurship_lecture_note

Lesson 4

Challenges in Agribusiness

Every business organization has challenges along the way, in Agribusiness we

have enumerated the following:
1. Total Responsibility
A beginning entrepreneur is in - charge of everything. The success or
failure of the agribusiness depends on just one person: the owner.
Entrepreneurs must manage workers, manufacturing/production process,
and other functions of the business. They have to find customers, sell the
product, and be certain that orders are met. No matter what size the
business is, the owner always has total responsibility.
2. Long, Irregular Hours
Being your own boss requires much work. People who start their own
business work more hours than those who work for someone else. It is not
 uncommon for an entrepreneur to work more than 60 hours per week.
Weekends are often spent working in the business as well.
3. Financial Risks
The most serious disadvantage of a small business is the need for money.
Obviously, it takes money to get a business going. While the business is
getting started, the entrepreneur has to pay bills and wages, which will
likely exceed income. The owner will probably try to borrow money, but
lending institutions are often reluctant to lend to a new business of the high
risk.

Why Agribusinesses Fail

1. Management
People do not plan to fail, they only fail to plan. If income and expenses have
been projected in the planning process and a profit is not foreseen, there will
probably be no profit. Therefore, stop the plans for your business. However,
even if the projections show a profit, many factors can still cause a business to
fail. The point is that if the business does not work “on paper”, it will not work
in the real world; even if the business works on paper, there is still no
guarantee that it will succeed Avoid the following pitfalls as you plan and
manage your business:
 Jumping in without first testing the waters on a small scale
 Buying too much on credit
 Underestimating how much time it will take to build a market
 Going into business with little or no experience and without first
learning something about it
 Attempting to do too much business with too little capital
 Not allowing for setbacks and unexpected expenses
 Not understanding the business cycle
 Failing to develop an effective marketing program
 Spending too much time and/or money on nonproductive and profitable
activities
 Making unnecessary capital investments to minimize income taxes
 Under pricing or overpricing goods or services
 Extending credit too freely
 Extending credit too rapidly

2. Labor
The strength of a business is in its people. Hiring undependable and unqualified
employees can quickly destroy the business. Failure can also result if the
business attempts to support too many people from the business.
3. Financial Resources
Management of financial resources is not merely an exercise to be carried out
at the beginning and end of every year. It is an ongoing activity, which involves
comparing plans to actual performance and taking appropriate action. Avoid
the following as you manage your financial resources:
 Starting with too little capital
 Starting with too much capital and being careless about how it is used
 Borrowing money without planning how and when to pay it back
 Failing to keep complete, accurate records, so that you drift into trouble
without realizing it
 Extending habits of personal extravagance into the business
 Depending too much on collateral
 Structuring loans improperly and/or improperly matching loan
repayment period with loan repayment ability
 Failing to control living expenses and withdrawing more from the
business than the business actually earns

Failure is always a possibility. However, if we become afraid to fail, we will not

even try. Plan, study, and research every possible angle – then give it your
best.

4. Undercapitalization
Undercapitalization is an important factor in small business failure. Many small
businesses do not have adequate startup capital to survive one – to two – year
period of business establishment. This is analogous to building a car without
the wheels. It may run, but it will not move forward.

Analyzing Your Agribusiness Venture

Most people would like to become wealthy by staring a business that proves to
be successful. However, it is one thing to dream; it is another to make that
dream become reality. Careful planning from the beginning is one way to
ensure the success of your agribusiness. Planning includes recognizing a need,
considering startup factors, applying business fundamentals, and conducting a
business survey.

Recognizing a Need
A business succeeds only when it fills an economic need, and it is the
responsibility of the prospective business organizer to determine what types of
businesses are needed. A free enterprise system does not, however, guarantee
anyone a successful business just because the business is of desired type. It is
up to the individual to select the right type of business and to make it work.
Many business firms go bankrupt each year because they provided the wrong
type of product or service or were unable to make a potentially good business
work. Many new businesses succeed because they provide a product or service
that others need and for which they are willing to pay

It’s Your Turn

Work on this:

Document or search for at least three success stories of an agripreneur in the

Philippines and identify the challenges along their business endeavor including their
coping mechanisms and your recommendations if you are wearing their slippers.

REFERENCE
https://labexkorea.wordpress.com/2012/01/30/the-seven-challenges-of-
agribusiness-the-journey-of-the-next-10-years/
https://www.dawn.com/news/968261/challenges-in-agribusiness
http://www.mcc.cmu.ac.th/agbus/isam/slide/Philippines.PDF
https://www.oecd.org/agriculture/key-challenges-agriculture-how-solve/
https://www.oecd.org/agriculture/key-challenges-agriculture-how-solve/