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ZAB 101 - Agribusiness Management THE OPERATING ENVIRONMENT OF AGRICULTURE & business purpose and goals

For those of you with a background in agriculture or agribusiness it’s probably plainly obvious to you what the characteristics of an agribusiness are compared to any other business. For those of you who don’t have an agricultural background, I think it’s probably helpful to start by having a think about the broader business world.

Think about the mix of large and small businesses and the range of ‘business’ they carry out. From the extractive industries like mining, to manufacturing, to transport and logistics, to wholesale and retail trade. Then think about the service industries that support businesses of all shapes and sizes – legal and financial, human resource management, marketing, communications, IT, science and manufacturing, to name but a few.

Agribusiness is no different – it’s a slice of that broad pie.

Tasks

In our week 1 MyLO content, you were asked to read the article by Gunderson et al. (2014) on agribusiness management. Take a few minutes now to revisit that article and as you do so, have a think and note down in your Agribusiness Practice Journal a few dot-point answers to the following questions:

  1. What, do you think, are the main things that set agribusiness apart from other businesses?
  2. In what ways are agribusinesses the same as other businesses?

Further reading, if you’re keen? Have a look at this book, available online: Barnard, FL, Akridge, JT, Dooley, FT, Foltz, JS, & Yeager, EA 2016, Agribusiness Management, (5th edn.), New York, Routledge.

As you probably noted in your Agribusiness Practice Journal, the most obvious factor that distinguishes agribusinesses from other businesses is that they involve, either directly or indirectly, the primary production of food or fibre.

Let’s have a think about the broad types of agribusinesses:

  • Primary production (farming, cropping, etc.) of food and fibre
  • Agricultural suppliers (genetic material, seed, fertiliser, plant & equipment, etc.)
  • Agricultural services (contracting, agronomy, consulting, etc.)

Some agribusinesses move further up the value chain by adding value to their produce to varying degrees (packing, processing, wholesaling and retailing) and may diversify into related industries such as tourism. Remember that term ‘value chain’, because you will do a unit on value chains later in your studies, and in that unit, we will delve much more deeply into the different types of agribusinesses right across the value chain, including the transport and logistics, wholesale and retail trade and the science and technology sectors that feed into agribusinesses at various levels of the value chain. But for now we will keep our discussions to these three broad types.

As you would have read in Gunderson et al (2014), Agribusiness is defined as:

“The sector of the economy that is the sequence of interrelated activities made up of genetics and seed stock firms; agricultural input suppliers, agricultural producers, agricultural commodity merchandisers, food processors, food retails and food consumers.”

But the reference to food in Gunderson et al’s (2014) definition is a bit narrow – most definitions also include ‘fibre’, taking into account our wool, cotton and other fibres produced by agribusinesses either as their primary product or a by-product of their production system (e.g. sheep producers focusing on meat production also produce wool). And, in Tasmania especially, pharmaceuticals are a very significant part of our mix of agricultural businesses (e.g. poppies, pyrethrum, hemp, etc.). Later in that Gunderson et al (2014) article, they do discuss the importance of fibre production and pharmaceuticals as part of the agribusiness spectrum.

So I think a pretty good definition of agribusiness is something along the lines of:

"The business of agricultural production at all levels in the food and fibre value chain and those institutions that influence it as part of the agricultural system".

Now, to some more reflections in your Agribusiness Practice Journal:

  1. List the names of businesses you know about that are examples of each of the 3 types of agribusinesses (i.e. primary production; agricultural suppliers; agricultural services) referred to above.
  2. Can you name some businesses who operate across two or more of the agribusiness type spectrum (or value chain)? For example, who grows, processes and sells directly their own produce?

The following videos are intended to provide you with an insight into the contribution agribusinesses make to the national economy and, in particular, the second video, highlights the diversity of skills and knowlege an agribusiness manager needs to survive and thrive in these complex times.

After watching each video, reflect in your Agribusiness Practice Journal, your reactions. Were there some things you didn't know about agribusiness before that you know now? What are those things?

Agriculture in Australia and New Zealand | 3 mins

Australian Agriculture - The Greatest Story Never Told | 5 mins

The operating environment of agribusiness

We will now explore a bit more the question: “what are the peculiarities and challenges that shape the agribusiness sector?”

As you would have observed from the ‘Year of the farmer’ video in particular, probably the biggest factor that differentiates agribusinesses from other businesses is uncertainty – weather, biological processes, markets, consumer trends, exchange rates, to name a few.

Let’s have a closer look at the factors that ‘shape’ agribusinesses:

Geographic

Soils: what are the characteristics of the soil in terms of its ability to support plant growth - structure, drainage, fertility, salinity, alkalinity, trace elements, etc.

Topography: is it too steep to cultivate? Is it too flat and poorly drained to grow X, Y or Z? What does this mean for what you can do on the land - its capability?

Climate: in particular, rainfall but also:

  • Solar access: latitude influences day length and hours of sunlight in the growing season and this is a large determinant of productivity.
  • Frost hazard: frost is a significant barrier to some crops.
  • Distance to market: where are your processors; transport and logistic support; customers, etc.
Economic
  • Exchange rates: even if you’re not directly trading internationally, exchange rates have a significant impact on cost of business inputs, like fuel and fertiliser and also on the price you can expect for your produce.
  • Interest rates: a significant influence on business cashflow and sustainability particularly if you are borrowing money for land, capital works, plant and equipment, etc.
  • Economic growth: can influence demand for produce.
  • Disposable income: a significant influence on customer demand for different qualities of product.
  • Unemployment: can impact on labour availability but also disposable income of current or potential consumers of your product.
  • Industry clustering: the extent to which there is a ‘clustering’ of complementary businesses in an area can influence your ability to share infrastructure.
Social, Political and Legislative

Social

  • Trends and tastes: social norms change over time and this influences things like the demand for organic, free-range, or other types of food and fibre.
  • Employment trends: trends in employment preferences and lifestyle choices can influence things like the attractiveness of blue-collar jobs vs white collar jobs or preferences for full- or part-time employment.

Political

  • Party politics: different flavours of political parties can influence the relative emphasis governments of the day place on agriculture and related issues (like natural resource management).
  • Industry support: the strength of industry lobby groups and their capacity to influence decision-makers can influence the amount of support an industry sector receives.

Legislative

  • Land use planning (local government land use planning controls)
  • Building code
  • Competition policy (e.g. power of supermarket duopoly)
  • Genetic modification bans/moratoria
  • Industry-specific legislative controls (e.g. meat hygiene; poppy production, etc)
  • Biosecurity and quarantine
  • Animal ethics and welfare
  • Food standards regulation
Technological
  • Water use efficiency through new irrigation technologies (e.g. variable rate application)
  • Precision agriculture (variable rate application etc.)
  • Drones
  • Sensor technology

These factors, and many others, shape our agricultural landscapes and the nature of our agribusinesses more broadly. But what also shapes agribusiness and agricultural landscapes is how we respond to these factors – that is, what our management response is to these forces.

For example, the dominance of the dairy industry in North West Tasmania is the result of that region’s high rainfall, fertile soils and undulating topography. The relative decline of the dairy industry in other states as a result of the deregulation of the milk price, climate change and other factors has seen a big emphasis on the dairy industry in Tasmania, largely because of our climatic advantages and our industry know-how.

New irrigation schemes in various parts of Tasmania will enable pasture-based dairy farming to be undertaken in areas previously unsuited, due to low rainfall. Similarly, high-value horticulture crops and more intensive fodder production will start occurring in areas of the midlands that were once dominated by dry land grazing enterprises.

By responding to one variable (rainfall) through technology and innovation, the agricultural landscapes of the midlands (and the agribusiness sector in Tasmania more broadly), has been changing. And this change is constant, so agribusiness managers need to always have an eye on the future. For example, climate trends, technological advances, changes in social and political contexts and expectations.

Watch the following videos that talk about the way our physical agricultural landscapes are shaped by the ‘forces’ we discussed and how agribusinesses have responded to these factors.

Farms have distinctive features | 5 mins

External Factors: New infrastructure in irrigation and the opportunities that brings| ABC Landline Story – September 2014 | 17:45 mins.

Task

In your Agribusiness Practice Journal, answer the following question:

How do geographic/climatic factors impact on the types of agricultural production possible in any given region, and how can we overcome or modify those conditions to develop different methods of farming?

So we’ve reflected on how climate and geography shape agricultural landscapes. Now, let’s look at some social and economic factors in more detail.

The economic and social impacts of market price changes on agribusinesses were clearly illustrated in recent years when the milk price took a significant hit as a result of global market forces and milk pricing decisions by some of the major processors.

One of the risks of being in a ‘commodity’ market (as most dairy farmers that supply the processing companies are), is that producers are often exposed to the vagaries of commodity prices.

In these next two videos, you can see how the dairy industry was being promoted as one of the shining lights of Tasmania’s economy. Talk of growing demand for milk and the successful growth trajectory of our production systems was resulting in a significant spike in confidence among dairy farmers, the processing sector, Dairy Australia - the industries research, development and marketing organisation – and by the Tasmanian Government.

But, by early 2016, it was evident that the global over-supply of milk was putting a dent in demand for processing milk (mainly powdered milk and derivatives therefrom). Dairy processors were playing silly buggers with prices paid to producers in the hope of continuing to attract milk to their factories, largely ignoring the international price trends. What followed was a price correction, which had significant short- to medium-term ramifications economically, politically and socially. This is an often-repeated cycle in agribusiness and one you, as agribusiness managers, need to be attuned to so that you can stay one-step ahead of the game and manage your way around, or through, them.

Task 1

Watch the ABC Landline segment on industry growth and development in the dairy industry (below). As you do so, particularly take now of how the industry was talking itself up and how high confidence was back in 2013 despite industry restructures in the preceding years.

Overview of the growth prospects for dairy in Australia and some of the issues ABC Landline | 21:30 mins

Task 2

Read the following media articles about the dairy price crisis of 2016 (below) and note down in your Agribusiness Practice Journal some dot points in response to this question: How do international markets impact on agribusiness locally?

Social Impact: http://www.abc.net.au/news/2016-05-16/selling-the-family-dairy-farm/7412828

Political Response: https://www.theguardian.com/australia-news/2016/may/18/dairy-price-drop-nationals-and-labor-grapple-with-farmer-crisis

Legislative response: https://www.theguardian.com/australia-news/2016/aug/18/dairy-crisis-law-could-force-milk-processors-to-change-contracts-with-farmers

Industry response: http://www.theage.com.au/victoria/dairy-processor-fonterra-lifts-milk-payments-to-farmers-less-than-two-weeks-after-cutting-them-20160516-gowe5l.html

What we have covered in our look at the operating environment of agribusinesses are a range of forces that may impact, and need to be considered by agribusiness managers when they are developing, reviewing or changing their business plans and goals. Some of these forces include: - political, economic, socio-cultural, technological, legal and environmental factors. There may also be factors within the agribusiness that may also impact on business plans and goals, for example succession planning, finances and assets/ liabilities, the skills and knowledge of the people working in the business, and so on, although we have not focused specifically on these in this module.

Business Purpose and Goals

So, why do people own and operate agribusinesses? What motivates them? Why do you want to work in agribusiness?

We will start unpacking why people choose to work in agribusiness. We will explore the linkages between ‘why’ we are in agribusiness and how that translates to the purpose and goals of the business.

In our week 1 MyLO module, I emphasised the importance of ‘why’ – when I showed you our ‘why, who, what, where, how’ target. Why are we interested in a career in agribusiness? Why are others motivated to own and manage agribusinesses? Is it for the long, hard hours and the many disappointments along the way when things go wrong sometimes? Probably not! Is it for the money? Probably not, because most of the time you’re profits are poured straight back into the business. Is it for the lifestyle? Possibly – although it can be a hard life at times too. Is it because you can be self-directed and autonomous? Possibly, although sometimes the weather, the markets and pests and diseases can make you feel like you have no control. Is it because you have a connection to a place? Quite probably. Is it because you love it and you’re interested in extending yourself? Definitely!

But what’s your passion and why do you want to be in agribusiness? I’m hoping that by seeing how others have come to survive and thrive in their agribusiness world, that I can inspire you to think about your ‘why’.

The following videos will help you to see how the passions and values of the business owner/manager translate into how their agribusiness is run; what it produces and how it produces it. In other words, the ‘who’, ‘what’, ‘where’ and ‘how’ of the agribusiness, is underpinned by the ‘why’.

Business goals and purpose is just a long-winded way of saying ‘why’. Once we understand the ‘why’, then we can articulate the goals and purpose of an agribusiness, even our own.

The following video is a story of an old, established Tasmanian farming family down south, called the Dunbabin’s. Their farm Bangor has been in the same family since it was surveyed. This is a story about diversity, intensification and survival in changing economic, social and climatic conditions. It takes on some of the themes of ourearlier discussion about the operating environment for agribusinesses (how ‘place’ influences the agribusiness) but adds that sense of ‘why’ – why has this family persisted for so many generations? What drives them now?

Dunbabin’s (Bangor) farm story on ABC Landline – diversification, intensification, family history | 17 mins:

The second video is an international example. This is the story of Polyface Farms in Virginia, USA. Joel Salatin, who’s described – by others and himself – as ‘the lunatic farmer’, has such strong values about sustainability of land and communities that he’s innovated and driven some of the most radical and successful ‘restorative agriculture’ systems of the modern era. His ‘why’ is very strong, and after watching this and the Dunbabin’s story, I’d like you to write some notes about what you think each family’s ‘whys’ are.

Polyface Farm | Joel Salatin | 9:50 mins

The final video is a TED talk by Simon Sinek on the importance of ‘why’. This is a really clear talk that explains why some businesses (and indeed some people) thrive and others do not, principally because they have clarity about their ‘why’.

The ‘why’ of any business is the key to understanding motivations, goals and intents. It is only from these things that we can make decisions about how we design our businesses; decide its scope and scale, where it fits within the value chain and what targets we want to set in terms of the business’s outcomes. So I can’t stress enough how important that you understand your ‘why’, but also later in the term, that you start to understand the ‘why’ of the people running the agribusinesses you’ll be visiting and studying. By practicing this skill – of trying to see people’s ‘why’ – you will get better at understanding the basis of people’s decisions and also get to understand your own motives and the bases of your decisions.

Simon Sinek | How great leaders inspire action | 17.5 mins

TASK

Reflect back on these last 3 videos and jot down your responses to te following questions: - What are the commonalities between the Salatin’s ‘Polyface Farm’ and the Dunbabins ‘Bangor’ businesses? What are their business purposes? What are their goals? Is their ‘why’ clear? What is it? How do business purposes and goals change over time?

Later in this unit, we will be discussing ‘Agribusiness Planning’ in more detail, using some industry tools as examples. For this fortnight though, we are just asking that you start thinking about how critical it is to define an agribusiness's business purpose and goals, because that forms the foundation for everything else.

Credits:

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