The document introduces agribusiness, defined as the integration of agriculture and business involving production, processing, and marketing sectors. It outlines the interdependent nature of these sectors, emphasizing the importance of input supply, production efficiency, processing, and marketing in the agribusiness complex. Additionally, it discusses various legal forms of agribusiness ownership, including sole proprietorships, partnerships, corporations, cooperatives, limited liability companies, and strategic alliances.

1. Chapter one
• INTRODUCTION TO AGRIBUSINESS
By Zewditu B. (MSc)

2. 1.1 Concepts in Agribusiness
1.1.1.Definistion of Agribusiness
• Agribusiness is a combination of two words agriculture
and business.
• Literally speaking, business means the activity of
making, buying, selling, or supplying things for money
and it includes service-providing firms.
• “business means the state of being busy”. Broadly,
business involves activities connected with the
production of wealth.
• The word agriculture indicates plowing a field, planting
seed, harvesting a crop, milking cows, or feeding
livestock.

3. • Agribusiness includes not only those farms or the
land but also the people and firms that provide the
inputs(for example seed, chemicals, credit etc.)
• Davis and Goldberg first introduced the term agribusiness
in 1957. It represents three part systems made up of
1 the agricultural input sector
2 the production sector and
3 the processing-manufacturing sector.

4. •The following are very interesting definitions of agribusiness:
Agribusiness is a big business that is connected to agriculture,
either owning or operating large-scale farms, or catering to
those who do.
 Farming engaged in as a large-scale business operation
embracing the production, processing, and distribution of
agricultural products.
Agribusiness includes the agricultural input sector, the
production sector, and the processing-manufacturing sector:
 Farmers, providers of farm inputs, processors of farm outputs,
manufacturers of food products, and those who transport, sell,
and/or prepare food products.

5. 1.1.2 Agribusiness Complex
• Agribusiness is the whole complex of the input sector, the
farm or production sector, the output sector and the
marketing sector.
• The sectors are interrelated and interdependent.
• Agribusiness can be broken down into four economically
interdependent sectors. These sectors are
the agricultural input sector,
the production or the farm sector,
the processing or manufacturing sector and
the marketing (distribution) sector.

6. 1. Agricultural Input Supply Sub-system
• Agricultural inputs are the basic resources for agricultural
production.
• These resources are known by different names including factors of
production, productive resources or simply as inputs.
• The major inputs in agricultural production fall under the category
of land, labor, capital and management.
Agricultural inputs can be categorized into two:
•Consumable inputs include manures and fertilizers, seeds,
insecticides, diesel oil & electricity.
•Capital inputs include tractors, trailers, harvesters & threshers,
pump sets, & other implements.

7. 2. Production orFarm Sub-System
• This sector is responsible for the transformation of the raw farm
output into a final consumer product at the retail level. This sector is
the largest of the sectors in the food system.
• These firms employ large number workers. The production sector has
been the center of much of the change in agribusiness. The
production efficiency on the farm is growing.
 Two extreme positions which can be identified are
• The production orientated farmer regards the major parts of his
business are being concerned with the good, which he wishes to
produce.
• In contrast, the marketing oriented farmer will endeavor to produce
goods which can profitably be sold.

8. 3. The Processing/Manufacturing /Subsystem
• This is primarily responsible to transforming a given agricultural
product into some other valuable product.
• Put in other words, it adds value to agricultural or agribusiness
products.
• The processing-manufacturing sector includes all of the individuals
and firms which process the raw agricultural commodities produced
by the production sector.
• They will change one agricultural product into another. Examples
 turn wheat into flour and then flour to bread
 changing raw milk into pasteurized milk
 processing meat, poultry, eggs and other inputs

9. 4. Marketing – Distribution Sub-System
• This subsystem is accountable to the distribution of the processed or
raw agricultural products to the right customers at the right time and
place with the right price through the right channel of distribution.
• It is generally accepted that marketing is one of the most crucial
aspects of Agribusiness Management.
• Agribusinesses are known in using all of the 4 Ps in developing
agricultural product that will improve their competitive positions in
the market place by better satisfying consumers’ needs and wants.
These four P’s are product, price, place and promotion.
• On the other hand, this sector makes available processed products to
the final consumers. Packaging industries, transport companies,
warehouses, advertising companies, insurance companies, wholesale
firms, retail outlets, etc

10. 1.2 Scope and Nature of Agribusiness
1.2.1. scope of agribusiness
 It has 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, commerce and trade.
 Industry is concerned with the production of commodities and
materials while commerce and trade are concerned with their
distribution.
 Agribusiness may encompass the primary production activities, the
processing sectors and the tertiary activities too. It has a broader
scope.
 The modern definition of agribusiness calls for more of an industry.

11. A. 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.

12. Types of industries:-
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, and poultry farms.
 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.

13. • B. Commerce: Commerce is another major component of
agribusiness.
 It includes all those activities that are necessary to bring
goods and services from the place of their production to
the place of their consumption.
 Thus, it includes the buying, selling of goods and service
and all those activities that facilitate trade such as storing,
grading, packaging, financing, insurance, and
transportation.
 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 aids to trade like transportation,
insurance, banking, finance etc.

14. 1.2.2 The 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
and introduction of substitutes and cheaper and better competitive
goods.
•The important requisites for success in a modern business are:
 Clear objectives
 Planning
 Sound organization
 Research
 Finance
 Efficient management
 Harmonious relations with the workers

15. 1.3 Agribusiness Formation: Legal Forms of Agribusiness
 Every agribusiness is owned by someone, and it is the circumstances
of ownership that give an organization its specific legal form.
 There are five basic business forms: the sole proprietorship, the
partnership, the corporation, the limited liability company (LLC), and
the cooperative.
 The form of organization is not necessarily dictated by the size or type
of agribusiness: nearly every conceivable size and kind of
agribusiness may use any of these five business organization forms.
 In addition to these five forms, strategic alliances are also used by
agribusinesses as a form of business organization.

16. 1.The sole proprietorship:-The oldest and simplest form of business
organization is the sole or individual proprietorship, an organization
owned and controlled by one person or family.
Advantages of proprietorships
 The legal requirements necessary to organize as a sole
proprietorship are minimal.
 The proprietorship gives the individual owner complete control over
the business.
 A sole proprietor pays no income tax as a separate business entity.
 The proprietorship can conduct business in any of the country states
without special permission other than whatever licenses are required
for that particular kind of business

17. Disadvantages of proprietorships
 The owner’s personal liability for all debts and liabilities of the
business, which can extend even to the owner’s personal estate.
 limited amount of capital funds that one person can contribute.
Lenders are also somewhat reluctant to lend to an individual owner
unless the owner’s personal equity can guarantee the loan.
 Freedom from business taxes is generally an advantage, it may also
be a disadvantage. Since business profit in a proprietorship is
considered personal income to the owner.
 The proprietorship lacks stability and continuity because it depends
so heavily on one person. The death or disability of that one person,
in effect, ends the business.

18. 2. Partnerships
 A partnership is the association of two or more people as owners of
a business. There is no limit to the number of people who may join
a partnership.
 Apart from the fact that a partnership involves more than one
person, it is similar to the proprietorship. Partnerships can be based
upon written or oral agreements, or on formal contracts between the
parties involved.
 There are basically two kinds of partnership:
1. General Partnerships: In a general partnership, each individual
partner regardless of the percentage of capital contributed has
equal rights and liabilities, unless stated otherwise in a partnership
agreement.
 A general partner has the authority to act as an agent for the
partnership, and normally participates in the management and
operation of the business.

19. B. Limited partnership:
 All partnerships are required by law to have at least one general
partner who is responsible for the operation and activities of the
business, but it is possible for other partners to be involved in the
business on a limited basis.
 A limited partnership permits individuals to contribute money or
other ownership capital without incurring the full legal liability of a
general partner.
 A limited partner’s liability is generally limited to the amount that
the individual has personally invested in the business.

20. Advantages of partnerships
Partnerships are just about as easy to start as
proprietorships.
Partners, as individuals, pay taxes only on the income
generated from their share of the profits.
There is no business tax purse, and this can be a
considerable advantage, depending on the income of the
partners.

21. Disadvantages of partnerships
 By far the biggest disadvantage of the partnership is the unlimited
liability of each general partner.
 partnerships usually have only a limited number of members.
Imagine a partnership with 100 members, each able to bind the
partnership legally to contracts and to other obligations.
 A limited partnership often suffers from a lack of available funds and
talented people when compared to a corporation.
 Another disadvantage is the lack of continuity and stability of a
partnership. When a partner leaves the partnership as a result of
withdrawal, death, or incapacity, a new partnership must be formed.

22. 3. The corporation
 A corporation is a special legal entity endowed by law with
the powers, rights, liabilities, and duties of a person (in fact a
corporation is sometimes referred to as an “artificial” person).
 The corporate form of business organization typically
facilitates the accumulation of greater amounts of capital
when compared to proprietorships and partnerships.
 Without the corporate form of organization it is impossible to
imagine the creation of today’s large business entities, which
employ hundreds of thousands of people and are worth
billions of dollars.

23. Advantages of corporations
 The primary advantage of the corporate form of business
organization is that the stockholders (owners) are not personally
liable for the debts of the organization and in most cases are not
responsible for the liability that occurs through the corporation’s
business activities.
 Transfer of ownership is also easier in a corporation than in other
business forms. Usually, a stockholder can sell shares of stock to
anyone for any price that the buyer is willing to pay.
 Because corporations’ ownership rights are traded freely, it is
relatively easy for them to raise large amounts of equity capital.
 Finally, the corporation is perpetual in nature. Death, withdrawal, or
retirement of its shareholders has little effect on the life of the
corporation.

24. Disadvantages of corporations
The corporate form of organization are taxation and
regulation. The corporation is taxed on funds it earns as
profit; then, after it has paid dividends to its stockholders.
The corporation must accept a lack of privacy because
reports must be made to stockholders and states and
because the federal government may require disclosure
whenever a stock offering is made to prospective
purchasers.
Finally, individual owners (stockholders) of larger
corporations have little, if any, control over management
and policies of the corporation.

25. 4. Cooperatives
 Cooperative is a distinct form of the corporate form of
business.
 Cooperatives are committed to helping members improve
the prices they receive for the products they produce and/or
reduce the prices paid for the inputs necessary to grow
those products.
 Cooperatives also exist to help members’ find markets,
and/or improve the negotiating position of members.
 Cooperatives are a very important part of the agribusiness
industry.

26. Characteristics of food and agricultural cooperatives
 Cooperatives resemble other forms of business in some ways.
 Cooperatives have facilities to maintain, employees to hire,
advertising to develop, and so forth. There are bylaws, policies,
and activities that must be performed to carry out the business at
hand.
 Ultimately, cooperatives must generate a return (member benefits
plus direct financial returns) on the investment of their members,
which justifies continued membership in the cooperative.
 Three specific features delineate cooperatives from non-
cooperative businesses:
 Member owned, member controlled
 Operation at cost
 Limited returns on capital

27. Advantages of agricultural cooperatives: For the farmer-
member, a cooperative provides a number of advantages.
One of the reasons cooperatives came about was to allow
agricultural producers to “level the playing field” when
they deal with suppliers of inputs, or with those who
purchase their farm products.

28. •Disadvantages of agricultural cooperatives
Those who are critical of cooperatives say that many of
them even the local ones have gotten so large that the
farmer member is far removed from having any significant
voice in the business.
Another possible disadvantage of the cooperative form of
business arises from the requirement in many states that
each member of a cooperative only be allowed one vote on
issues for consideration, regardless of how many shares of
cooperative stock the individual may own.

29. 5. Limited liability companies
 A limited liability company (LLC) is a type of business
organization form that closely resembles a partnership, but
provides its members with limited liability.
 Thus, creditors or others who have a claim against an LLC
can pursue the assets of the LLC to satisfy debt and other
obligations, but they cannot pursue personal or business
assets owned by the individual members of the LLC.

30. Advantages of LLCs:
 Limited liability companies can include any number of members
and ownership is distributed in accordance to the fair market value
of the assets contributed.
 Also, net income generated by an LLC is passed on to its members
in proportion to their shares of ownership. The net income is then
reported on the members’ individual tax returns and taxes are paid
by the members and not by the LLC.
 An LLC is not required to file articles of incorporation as would be
true of a corporation.
 However, it is still a good idea to record contributions and
distributions of assets, revenue, and expenses, as well as agreements
as to how the LLC will operate.

31. Disadvantages of LLCs:
The LLC cannot deduct the cost of employee benefits,
such as insurance costs and the use of vehicles by
members.
Also, it does not automatically continue in the event of the
death of a member.
 Instead, it may be perpetual, end on a set date, or upon an
event such as a death of a member, as outlined in the
articles of organization or operating agreement.
LLC are an attractive organizational form for those
individuals who desire the simplicity and flexibility
provided by a partnership combined with the limited
liability offered by a corporation.

32. 6. Strategic alliances
 Many agribusinesses have formed strategic alliances and
related cooperative relationships with other firms.
 Strategic alliances are cooperative agreements between
firms that go beyond normal firm-to-firm dealings, but fall
short of being a merger or full partnership and ownership.
 Such alliances can include joint research efforts,
technology-sharing agreements, joint use of production
facilities, agreements to market each other’s products and
the like.

33. Advantages of strategic alliances
 First, firms can collaborate on technology or the development of new
products. The areas of computer hardware and software and biotechnology
are examples.
 Second, firms can improve supply chain efficiency by working together. An
alliance between a feed firm and a large integrated swine business would
provide an example.
 Third, firms can gain economies of scale in production and/or marketing. A
food firm might enter into a strategic alliance with a broker to distribute its
products into a new region of the country.
 Fourth, firms, particularly small firms, can fill voids in their technical and
manufacturing expertise.
 Fifth, firms can acquire or improve market access. A firm selling animal
health products and an e-business firm might enter into a strategic alliance.
The e-business firm provides the information technology infrastructure and
access to customers.

34. Disadvantages of strategic alliances
 First, establishing effective coordination between independent companies is
both challenging and time consuming. How are responsibilities divided?
 Second, there may be language and cultural barriers to overcome, as well as
attitudes of suspicion and mistrust. This issue includes the need for mutually
shared goals.
 Third, the relationship may cool at some point in the future and the desired
benefits may never be realized, but information may have already been
shared. This commonly occurs when there is management turnover among
the alliance partners.
 Finally, a firm may become too dependent on another firm’s expertise and
capabilities and fail to develop its own internal capabilities. Firms must be
careful with respect to what they do themselves and what they depend on
from a partner.

35. • Your reading assignment scaling agribusiness

36. END OF CHAPTER ONE
•THANKS