Agribusiness Unit 1 Introduction to Agribusiness Chapter 3

Agribusiness Unit 1. Introduction to Agribusiness Chapter 3. The Size and Importance of Agribusiness 1

Objectives • Discuss the size and importance of production • • • agriculture Analyze the efficiency of production agriculture Discuss the agribusiness economy Describe the agriservice sector of agricultural industry Explain the importance of agribusiness and foreign trade Describe the relationship between agribusiness and energy Describe the relationship between agribusiness and the environment 2

Size and importance of production agriculture Land Usage of land in the United States nonagricultral pourposes 24% Crops 21% Forest products 30% Livestock 25% 3

Size and importance of production agriculture Land • The number of acres of farmland is decreasing • But, the productivity of land is increasing • • faster than the acres are decreasing Currently, about 2. 1 million farms are producing the total food supply for Americans and numerous foreign countries Although farm numbers are decreasing, the average size of farms is increasing • Today, the average American farm is 469 acres 4

Size and importance of production agriculture Products • The agricultural industry accounts for 17% of the GDP • And provides more than 20% of all the jobs in the country • 2% of GDP comes from firms or people that sell goods and services to production agriculturalists • However, 13% of the GDP comes from related industries • Value-added products 5

Size and importance of production agriculture Percent of food dollar to the production agriculturalist • The production agriculturalist’s share of each dollar spent for food by the consumer is about 30 cents • Approximately 70 cents of every dollar the consumer spends for food products go to pay others • Transportation, processing, and other marketing services 6

Efficiency of Production Agriculture With less than 0. 3% of the world’s production agriculturalists, the United States produces a major percentage of the world’s total food supply 7

Efficiency and Effectiveness Source : Gareth Jones & Jennifer George, contemporary management (6 th ed. ) 8

Efficiency of Production Agriculture Increasing efficiency of production agriculture • Presently, the average farmworker supplies • more than 150 persons with food and fiber, compared with only 20 in 1955 This efficient productivity frees others to pursue careers in other areas not related to agriculture 9

Efficiency of Production Agriculture Increasing efficiency of production agriculture • In the past 20 years, agricultural productivity • has increased more than three times faster than industrial productivity per hour worked Today, Americans spend less than 9% of family income on food • Whereas as much as 60 to 70% of income goes for food in some countries 10

Efficiency of Production Agriculture 11

U. S. Agriculture and the Global Economy Issues • Agriculture in the United States is now a large part of a complex global food system • Other factors as well as production agriculture will affect the food system in the world • International business climate, worldwide consumer needs, application of technology • An increase in the number of cultivated acres is not likely; rather, rising yields will create this growth • Due to Biotechnology, plant-breeding innovations, and better pest resistance 12

U. S. Agriculture and the Global Economy Magnitude • 50 years ago, the United States was the largest • agricultural exporter in the world, with about $3 billion in sales per year Today, U. S. agriculture exports exceed $50 billion annually • 6 of its 10 best customers are developing countries, and ¾ of U. S. agricultural exports go to Asia and the Americas 13

U. S. Agriculture and the Global Economy Three events shaping the global agricultural market (1) The formation of the European Community and its Common Agricultural Policy(CAP) • The CAP’s farm supports changed the EC from a 20 million tons per year net grain importer in the 1960 s to a 20 million tons per year net grain exporter by the 1980 s 14

U. S. Agriculture and the Global Economy Three events shaping the global agricultural market (2) Collapse of many of the socialist economies • At one time, the Soviet Union and China were importing 40 to 50 million tons of grain annually • Now, Russia and China are net grain exporters 15

U. S. Agriculture and the Global Economy Three events shaping the global agricultural market (3) Emerging developing countries • They hugely expanded their commercial grain imports • Their takeover of the 80 -plus million tons of grain imports no longer needed in traditional markets • It appears that the future of world grain trade depends on increasing food demand in the developing world 16

U. S. Agriculture and the Global Economy World Trade • The General Agreement on Tariffs and Trade (GATT) • world trade agreement established baseline trade positions and protectionism levels for each signatory country • Regional trade agreements enhance trade • North American Free Trade Agreement • Free Trade Agreement 17

The Agribusiness Economy The agribusiness input sector • Input suppliers play a major role in the production of food and fiber • In 2002, more than $200 billion was spent on agribusiness inputs by American production agriculturalists • Agricultural input provides production agriculturalists with the feed, seed, fertilizer, credit, machinery, fuel, chemicals • Improvements in the quality of agricultural inputs have been the major reason for the outstanding efficiency of production agriculturalists 18

The Agribusiness Economy The agribusiness output sector • It includes all agribusiness and individuals that handle agricultural products from the farm to the final consumer • Buying, transporting, storing, warehousing, grading, inspecting, processing, merchandising… • Restaurants, fast-food chains, and grocery stores are also a part of the agribusiness output sector 19

The Agribusiness Economy 20

The Agribusiness Economy Processing and Manufacturing sector • Approximately 22, 000 companies are active in the commodity processing and food manufacturing sector • they add more than $202 billion of value to the items thy handle • The 100 largest firms account for about half of the output of this sector 21

Source: Fortune, April 29, 1996 22

Agriservices Public Agriservices • The public agriservices group provides special services at the federal, state, and local levels • Research, education, communication, regulation • Other public agriservices include the Food and Drug Administration and a small portion of the Department of Commerce 23

Agriservices Three Major Private Agriservices (1) Financial services • The fund that production agriculturalists need are provided by commercial bands, the Farm Credit System, the Farm Service agency, individual businesses and cooperatives • Many of these agencies also provide financial services to agribusiness input suppliers and companies 24

Agriservices Three Major Private Agriservices (2) Trade Association • They serve agribusiness and promote certain agricultural products • and perform many and varied services for their members, especially in the areas of public relations, communication, legislative lobbying • All these activities are more effectively carried out by groups than by individuals 25

Agriservices Three Major Private Agriservices (3) Agricultural Cooperatives • It provide services essential to the agriculture industry and serve a variety of purposes • The annual business volume of cooperatives is more than $53 billion • More than ¼ of all agricultural products are marketed by cooperatives • They provide ¼ of all production supplies for farmers 26

Agribusiness and Foreign Trade Agribusiness and foreign trade • Currently, the United States is the leading participant in international trade of agricultural products • More than $50 billion of five major farm commodities(wheat, soybeans, vegetables, meat, feed grains) was sold in world market in 1994 • Over a 10 -year period, annual farm imports increased from $4. 45 billion to $10. 50 billion, a 136% increase 27

Agriservices Agribusiness and foreign trade • In addition to providing markets for American farmers, foreign exports have additional advantages • Between 25, 000 and 30, 000 jobs are created in the United States for each billion dollars of agricultural exports • Exports account for approximately 1/3 of U. S. agricultural production 28

Agribusiness and Energy Agriculture as a user of energy • The agricultural industry as a whole consumes 10 to 20% of the nation’s energy Energy produced from renewable agricultural products • • Direct burning, Ethanol production Biodiesel Methane gas production 29

Agribusiness and the Environmentalist in agribusiness • The environment is becoming more important to the business of agriculture • In 20 th century, our resources and environment took a back seat to production and profit in American industries • Today, many jobs have developed that have environmental agriculture implications • High schools have courses and colleges have environmental agriculture majors and produce graduates ready to enter the workforce 30

Discussion 31

Daily Quiz Do you think big farms are always more competitive than small farms? Provide your reasoning why you think like that? 32