Introd AGR MGT Notice - Lecture notes 1-10 PDF

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INTRODUCTION TO AGRIBUSINESS MANAGEMENT COURSE DESCRIPTION Students undertaking this course will be introduced to concepts and applications in Agribusiness management. Areas to be covered include: Introduction: Definition and scope of Agribusiness, Role and Objectives of Agribusiness the agribusiness sector, Components of the agribusiness sector, Relationship between agribusiness with economics and other disciplines, Challenges facing the agribusiness sector, Agribusiness Decision making process, Input –output decisions, Revenue and Cost decisions, Break –even Analysis decisions,

Agribusiness Financial

Management, Need for financial records, Financial analysis an reporting -Balance sheet, Profit and Loss Account, Ratio Analysis, Agribusiness Strategic Management, Agribusiness budgeting and Budgetary Control, Agribusiness Administration General objective 

To equip students with theoretical and technical aspects of agribusiness management

 Specific objectives To equip students with knowledge and skills to: (i)

Initiate, organize and manage agribusiness projects efficiently

Effectively communicate and administer agribusiness unit RECOMMENDED REFERENCES



Johnson D.T, 1990, The business of Farming, 2nd Edition,, London.



Aaker D.A , Michael Porter, Strategic Management,



Wisniewski M., 1997,

Quantitative methods for Decision makers, Second Edition,

Pitman Publishing, London. 

Pandey, J. M, 1998, Financial Management, Prentice- Hall International



Castle E. N, Becker M. H, Nelson E.G., 1987, Farm Business Management, Macmillan Publishing Co.



Beierlein J.G, Schneeberger K.C., Osburn D.D., 1995, Principles of Agribusiness Mangement, Second Edition, Waveland, Press Inc, USA.

Week

Topics

1

Agribusiness Management

Sub-topics -

Hours

-

Definition Objectives Components of the Agribusiness Sector Relationship with Economics Challenges Decision making process Input – output decision Revenue and cost decisions Break-even analysis decisions

-

Need for financial records Balance sheet Profit and loss Account

3

-

Business strategy Customer analysis Competitor analysis Market analysis

3

10

-

Importance of budgeting and 3 budgeting control

11

-

12

-

Types of Budgets – Total Budgets, Partial budgets Characteristics of a good budget

13

-

Problems faced when budgeting

-

The role of Agribusiness manager 3 Management by objectives(MBO) Functions of Agribusiness 3 managers

2 3

Agribusiness Decision Management

4

3

3 3 3

Course work I 5

Agribusiness Financial Management

6 7

Agribusiness strategic management

8

3

Course work II 9

14

Budgeting and Budgeting control

Agribusiness Administration

15

MEANING OF AGRIBUSINESS

3

What is agribusiness? The word agriculture indicates plowing a field, planting seed, harvesting a crop, milking cows, or feeding livestock. But to days’ agriculture is radically different. Agriculture has evolved in to agribusiness and has become a vast and complex system that reaches far 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).

What is management? There is no single definition of management. Henry Fayol who is considered as the father of principles of management, - “To manage is to forecast, to plan, to organize, to command coordinate and to control”. According to Mary parker, - “Management is the art of getting things done through people”. George Terry, - “Management is a distinct process consisting of planning, organizing actuating and controlling performance to determine and accomplish the objectives by the use of people and resources”. 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 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 is 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 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, labour, 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 labour, nearer to the market etc. Hence the business men must take sufficient care in the initial stages to selected suitable location for his business. 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 that makes the use of other nonhuman factors like land, machine, money etc. Therefore, for successful operation of business, there should be cordial and harmonious relations maintained with the workers/labours to get their full cooperation in achieving business activities.

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.

Objectives of agribusiness management

The main objective of this program 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.

Role of agribusiness management

1. A student in agribusiness will learn to manage companies which process, market, and merchandise agricultural products to consumers. 2. Explore the business concepts, economic principles, and management tools necessary to operate these companies successfully.

3. Acquire knowledge and skills in management, marketing, and finance are developed with emphasis on the specialized requirements of the agribusiness sector.

4. It is easy to make one be self employed.

COMPONENTS OF AGRIBUSINESS SECTOR The food and fiber system is increasingly being referred to as “agribusiness”. The term agribusiness was first introduced by Davis and Goldberg in 1957. Agribusiness represents three part system made up of majorly; (1) The agricultural input sector (2) The production sector (3) The processing-manufacturing sector The capture the full meaning of the term “agribusiness” it is important to visualizes 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. 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.

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 is 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 “produces what the consumer want”. “Consumers” behavuiour 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, labour, 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.

Relationship with economic challenges The main economic challenges facing the agribusiness sector at the moment include:Challenges can be divided into international and domestic. Internationally, the challenges we are seeing across the sector as a whole include: 

Sluggish economic and real wage growth in many markets outside the US, dampening demand. The retail channel’s constant conditioning of consumers for “specials” is also proving hard to shake in many markets.



Greater uncertainty over the economic and demand trajectory of some key emerging market economies, including China.



The downstream implications of falls in other commodity prices such as oil, with oil exporting nation’s key buyers of the likes of dairy.



Geopolitical ructions disrupting trade flows and import demand in some key import regions (mainly Europe and the Middle East). Russian sanctions and the dramatic fall in the ruble continue to reverberate through many soft commodity sectors and key markets.



Conflicting views on what the impact of European quota removal and other policy changes will mean for global dairy supply.



Lower feed costs for the Northern Hemisphere boosting the competitiveness of key competing exporters and products.



Generally lower commodity prices for key inputs, such as oil and fertilizer, weighing on both the cost curve and sentiment.



Competitors opening up market access into China and other emerging markets.



Foreign exchange movements altering competitiveness. The rise of the USD makes imported food products more expensive in some key emerging import markets. The flipside is a weaker NZD/USD and reduced US export competitiveness. While the USD is up, the euro is down. Euro weakness boosts the exporter competitiveness for the likes of dairying, but reduces local earnings for those products such as venison, sheep meat, pipfruit and kiwifruit that derive a large proportion of earnings from Europe.



Non-tariff trade barriers.

On the domestic front, and in addition to the high, the broad challenges that we are seeing include: 

Environmental regulation and compliance.



Attracting skilled labour.



Changing health and safety regulation.



Increasing R&D investment.



Regional development and infrastructure.



Stretched asset valuations.



Bio-security.

Decision Making Process Decision making is a multi-step process. As stated previously, management is decision making, or more precisely, it is determining which alternative will most likely allow the decision makers to achieve their goals. Decision making is more complex than that simple description. Decision making Process Decision making is a process; it involves steps. For example: 

Identify and define the problem or opportunity;



Identify alternative solutions;



Collect data and information;



Analyze the alternatives and make a decision;



Implement the decision;



Monitor and evaluate the results;



Accept responsibility

NOTE: A long-time employee of a major agribusiness firm recently stated that "despite what we want, in many situations decisions need to be made with incomplete information; managers

need to learn how to recognize what is the most important information for a decision and focus on that."

Input-output decision Invariably, the presentation of the firm’s calculation of the profit maximizing output level is covered in a different chapter than the firm’s optimal input decision, even though these two decisions are actually the same problem in two different ways. It is important to make the right input decision in order to make maximum profit.

It is important to note that MC = MR (marginal cost equals marginal revenue). Before any analysis

of the firm’s profit maximization is attempted, it is important to recognize intuitively that three types of information are required, namely; 

Information about how to obtain the inputs



Information about the demand for the output



Information about how to turn the inputs into the output



The relevant information about the demand

The information is put diagrammatically in Figure 1 below.

INPUT SUPPLY MARGINAL FACTOR COST ( MFC)

PRODUCTION FUNCTION MARGINAL PRODUCT (MP)

OUTPUT DEMAND MARGINAL REVENUE (MR)

The marginal revenue (MR); is there extra revenue earned when one more unit is sold. The center rectangle represents the relevant information about the production conditions, that is, the extra output associated with increasing the inputs. This is called the marginal product of the input (MP). Information about obtaining the inputs consists of the extra costs incurred as more inputs are used. This is called the marginal factor cost (MFC).

If any of these types of information are missing, this firm’s problem simply cannot be solved. The marketing and sales departments specialize in knowing everything there is need to know about the demand for the product, but they cannot possibly develop a pricing structure without knowledge of the cost of production. Similarly, production engineers know how to turn inputs into outputs, but cannot possibly decide the optimal level of either without also considering the cos...