Agricultural business

1. Agribusiness: A Perspective
Wilfred E. Jamandre
Department of Agribusiness Management
Central Luzon State University
Science City of Muñoz, Nueva Ecija
Agribusiness: A Definition
In 1957, John Davis and Ray Goldberg, two Harvard Economists, coined
the term "Agribusiness"1. They believed that the concept of agriculture as
industry had, in 1957, already existed for over 150 years --when a typical
family would not only grow and raise food but also produce and use the means
necessary for this production i.e., draft animals, tools, fertilizers, processing
and retailing. In other words, agribusiness encompasses all enterprises that
take place inside and outside the farm gate, bringing products from the field to
the consumers. Agribusiness consisted not only of food production by itself,
but included other processes such as generation or acquisition of production
inputs, use of farm produce in different forms through processing and trading
of farm products. Hence, there begun a “specialization” into different aspects
of the agricultural industry process. However, each of these parts relies on the
entire process, such that, one can not function without the rest.
And thus in 1957 Goldberg and Davis defined agribusiness as "the sum
total of all operations involved in the manufacture and distribution of farm
supplies; production operations on the farm; and the storage, processing and
distribution of farm commodities and items made from them."
Agribusiness, therefore, literally includes all enterprises derived FROM
and AROUND agricultural production2. The emphasis on the phrase “from and
1 Heather Ruhsam & Jason Hutchins. Definition of Agribusiness.
www.ils.unc.edu/~hutcr/definition.html
2 In this sense, agriculture includes crop production, livestock production, forestry and
fisheries.
Page 1 of 12

2. around” connotes a whole range of possibilities from the production of farm
inputs (including farm equipment and machineries) until commodities, in their
various forms, reach the end consumers. Agribusiness encompasses many
aspects of the economy, including agricultural producers (farmers and livestock
raisers); businesses that provide supplies and services to the producers,
businesses that add value to agricultural products (processors), and those that
facilitate the marketing of agricultural products.
Agribusiness: The Concept
In essence, agribusiness consists of all industries surrounding food
production, ultimate end-user is the consumer, with marketing as the driving
force behind all profitable activities. With this in mind, there are basically
three “sectors” that comprise agribusiness, as expressed in the following
diagram:
Agribusiness deals with commodities that are of short shelf-life; hence,
marketing plays a vital part in moving the inputs, products, and by-products to
the different sectors and the consumers.
Page 2 of 12
C O N S U M E R S
Food Production
Sector
Agricultural
Input Sector
Manufacturing
and Processing
MARKETING Sector

3. Agribusiness: A System of systems
Agribusiness is a system of interrelated and closely knit stages in the life
cycle of an agricultural consumer product. As stated by Custodio3 agribusiness
encompasses all operations involved in the production of farm inputs, the use
of these farm inputs in the cultivation of crops or raising of livestock, the
various handling and processing of agricultural commodities, and the transfer
of these commodities to the end-users. Interspersed among these operations
are the various support services that provide “logistics, coordination, financing,
manpower, technology, information, policies and programs, incentives and
other services” that lead to the achievement of a successful agricultural
business enterprise.
Cited earlier are the five major areas that are also subsystems making
up the whole agribusiness System.
The input subsystem: This is the first subsystem from which all other
agribusiness subsystems emanate. Here, all inputs (e.g.
fertilizers, seeds, machineries, etc) are manufactured,
imported or distributed.
The production subsystem: Inputs are directly used for the production of an
agricultural commodity as end-product in itself or as a
raw material for the production of other products.
The processing subsystem: The commodities from the production subsystem
are transformed into various products. The levels of
transformation depend upon the level of processing4,
3 Custodio, HC Jr. Agribusiness Concepts and Dimension: Some Applications.
4 Dy, Rolando T. A Concept of Agribusiness
Page 3 of 12

4. which can be as simple as washing and grading to as
complex as chemical alteration.
The marketing subsystem: This subsystem is concerned with the transfer of
goods from source to end-user. It includes all handling
procedures and infrastructures that move the
commodities from one point to another. The marketing
subsystem may take the following routes:
1. Transfer of agricultural inputs from manufacturers to
farm input users.
2. Transfer of commodities from production site to
processing site
3. Transfer of commodities from processing site to end-consumers
The following diagram shows a graphical presentation of the major
routes taken by the agribusiness marketing subsystem:
Page 4 of 12
MARKETING
SUBSYSTEM MARKETING
SUBSYSTEM
MARKETING
SUBSYSTEM
Inputs
(feeds, seeds,
machineries and
equipment)
Farmers /
Livestock
Raisers
(users of
inputs)
Consumers or
End-Users
MARKETING
SUBSYSTEM
Processors /
Handlers

5. The Support Subsystem: consists of all the key players that provide services,
however, optional, but crucial to the success of an
agribusiness venture. These services are provided by
institutions such as government agencies, commercial
associations, credit and financing, research organizations
and cooperatives.
The government plays an important role in providing a policy
environment that is favorable to agribusiness enterprises such as policies on
prices, imports, exports and general trading.
As cited by Gallegos5, these subsystems are very much interrelated in
such a way that one subsystem can not be taken independently from the other.
The success of any agribusiness venture depends on how well coordinated and
complementary these are.
For example, an individual contemplating on establishing an agribusiness
venture such as the establishment of a wholesale and retail distribution of
agricultural supplies should consider the existing agricultural production
enterprises in the area. This implies a careful consideration of the users of
farm inputs (the farmers), the extent of farming activities (agricultural
production), existing marketing services and practices (cooperatives, credit
and financing) and the movement of inputs from sources to users.
5 Gallegos, Jesus G. The Concept of Agribusiness.
Page 5 of 12

6. Agriculture vs Agribusiness: As fields of study
Agriculture
Agriculture is essentially concerned with food production.
As broad a field as it is, agriculture is split up in to diverse interests such
as study on the life processes of plants, animals and microorganisms in order
produce food for humans and animals. It includes specific studies and
specializations on soil science (including soil nutrients and conservation), plant
and animal protection from diseases, irrigation and water management, dairy
and meat production, and related fields of study such as horticulture,
agronomy and farming systems. However, not everything is biology.
Agriculture includes an understanding of interrelationships of infrastructures,
machines, new technology and systems that facilitate food production.
At present, there is great emphasis placed on sustainable agriculture and
environment friendly methods of production. This is due to the realization that
natural resources are limited and finite. A great concern is being placed on
conservation and wise utilization of resources so that human needs could be
supported for all future generations, without sacrificing quality and food
safety.
Agribusiness
As a field of study, agribusiness is both an art and a science of managing
an agricultural business enterprise. The programs for the study of agribusiness
provide an in-depth understanding of the industries that produce, process, and
distribute agricultural products. It studies the different sectors starting from
the production unit (e.g. farms) to the ultimate consumer. Interrelationships
Page 6 of 12

7. of the different sectors involved in the production of agricultural commodities
are studied; including regional, national, and international interdependencies
of the agricultural sector.
Agribusiness, integrates business management principles with the
technical knowledge of the managerial challenges of the agricultural sector
from actual production to consumer acceptances.
An art: . Agribusiness puts together the various skills of an individual or
organization, in running a profitable venture. It is a creative
undertaking that plays along with the rapid changing economic
environment putting to test the risk-taking ability of an
individual or an organization that engages in an agribusiness
enterprise
A science: Risk-taking is backed up by an objective gathering and
analysis of data and information. Current trends, production
and marketing issues, human resources management and
financing and accounting are logically converted into strategic
business plans.
Students in the field of agribusiness are exposed to various situations
(both real and hypothetical), through “case studies”, which allow them to gain
knowledge and skills that set them apart from the basic sciences of agriculture
and the broad scope of management.
At the Central Luzon State University, the Agribusiness Program includes
coursework on different fields, that sufficiently prepare students for an
agribusiness undertaking. The following are the major areas of emphasis in the
Agribusiness field of study:
Page 7 of 12

8. a. agricultural economics and marketing
b. analysis of agribusiness enterprises/agribusiness management/project
development and management
c. agricultural finance and quantitative methods in business
d. agribusiness laws and policies
e. agricultural business organizations (e.g. cooperatives)
Management aspect of Agribusiness
Agribusiness is a commercial activity engaged in as a means of livelihood
or profit. As such, like any commercial enterprise, agribusiness is expected to
make money, or create desired impact; otherwise, there is no sense in getting
into the business.
Management is a built-in function of agribusiness. Management is
essentially a decision-making process based on information and experience, in
order to achieve desired goals and objectives. Agribusiness management
therefore is a dynamic decision-making process revolving around an agricultural
business enterprise.
Whether the business is a farm family operation or an enterprise with
hundreds of employees, agribusiness takes into consideration an individual’s or
organization’s ability to receive and process information in order to devise
competitive strategies that lead to a profitable and sustainable undertaking,
amidst the rapid changes in the economic environment.
The many considerations of agribusiness management includes
technology know-how, sources of inputs and raw materials, financing, local and
international awareness of trends in agricultural market and marketing,
Page 8 of 12

9. agricultural products and by-products trends and innovations, and a degree of
knowledge of policy climate that affect the agricultural sector.
With the current developments and trends in agribusiness (please refer
to the next section), agribusiness employs sophisticated management
techniques to survive a tightly competitive business world. These techniques
includes, but not limited to, the following:
1. Off-shore sourcing of raw materials, products, and by-products
2. Improvements in packaging, postharvest handling and distribution
systems
3. Horizontal and vertical market integration6
4. Tightly integrated agribusiness sub-systems, where agribusiness
enterprises are consumer-driven; strategic involvement of customers
from the initial steps of product development to the final utilization of
the consumer product.
5. Use of E-commerce format (e.g. use of the world wide web in input
procurement, establishment of supply chains, commodity marketing,
communication, and information gathering )
Agribusiness: New Developments and Trends
The new millennium can be described as a communications technology
age. As such, agriculture is faced with a climate of unprecedented change,
both in communication needs and in the technology within which this
communication takes place (hardware and applications, biotechnology, global
information and business network).
6 Items 3 and 4 from Jamandre, W.E lectures. AB 740 – Advanced Marketing. SY 2003-2004.
Page 9 of 12

10. Each sector in agriculture (producers, agribusiness, environmental
organizations/public institutions), is a developer, a communicator and a user of
information, which creates a new, open, multi-directional information
environment.7
As such, agribusiness keeps abreast with the new modalities in carrying
out a business venture. An example is a computer-based agribusiness, where
products and ideas are exchanged through interactive electronic transactions.
One innovative agribusiness company has come up with a trendy name,
patterned after e-commerce. This is known as “e-Agribiz” (short for e-
Agribusiness), where transactions can be undertaken through its word wide web
at http://www.agribusiness.org/eagribiz.htm.8
With these developments in the communications technology, the world
is fast becoming a one big marketplace where agribusiness plays a major role in
the economies of third world agricultural countries.
The important developments in agribusiness include the following9:
1. trade barriers
2. food safety specifications
3. good agricultural practices (social and environmental sustainability)
4. Genetically Modified Organisms (biotechnology)
5. organic products
6. evolution of imports and exports for agricultural and food products
7. productivity evolution
8. comparative costs
7 Francis, Charles, James King, Jerry DeWitt, James Bushnell, and Leo Lucas. "Participatory
Strategies for Information Exchange" American Journal of Alternative Agriculture Vol. 5, No.
4, 1990: 153-160.
8 -Agribusiness. 5700 Ralston, Suite 310, Ventura, CA 93003. webmaster@agribusiness.org
9 Farina, Elizabeth and de Azebedo, PauloF. Competitiveness and Coordination Under
Institutional Change Environment: Public and Private Implications. Congress Forum Posters
and Proposals. http://www.ifama.org/conferences/9/1999/1999.
Page 10 of 12

11. 9. changing demographics and population growth10
10.changing demands in diet, wardrobes, etc.
11.changing technological and regulatory settings
12.increasing international competition
13.trade barriers
10 Items 7 to 10 are taken from: Peterson, Christopher and Scott Swinton. "Agribusiness
Opportunities in the 21st Century" Choices , 1992, Third Quarter: 38-41.
Page 11 of 12

12. References:
Heather Ruhsam & Jason Hutchins. Definition of Agribusiness.
www.ils.unc.edu/~hutcr/definition.html
Custodio, HC Jr. Agribusiness Concepts and Dimension: Some Applications.
From C.V.Velasco. 2003. Agribusiness Management Course Module.
AB 710. Central Luzon State University.
Dy, Rolando T. A Concept of Agribusiness. From C.V.Velasco. 2003.
Agribusiness Management Course Module. AB 710. Central Luzon
State University.
e-Agribusiness. 5700 Ralston, Suite 310, Ventura, CA 93003.
http://www.agribusiness.org/eagribiz.htm,
webmaster@agribusiness.org
Gallegos, Jesus G. The Concept of Agribusiness. From C.V.Velasco. 2003.
Agribusiness Management Course Module. AB 710. Central Luzon
State University.
Francis, Charles, James King, Jerry DeWitt, James Bushnell, and Leo Lucas.
"Participatory Strategies for Information Exchange" American Journal
of Alternative Agriculture Vol. 5, No. 4, 1990: 153-160
Farina, Elizabeth and de Azebedo, Paulo F. Competitiveness and Coordination
Under Institutional Change Environment: Public and Private Implications.
Congress Forum Posters and Proposals.
http://www.ifama.org/conferences/9/1999/1999.
Page 12 of 12