AREC306 Midterm 1

Agri Food Value Chain

Input, Production, Processing, Manufacturing, Distribution, Retail

Input

Things used by production sector; seeds, chemicals, fertilizer, equipment, they are the “raw ingredients to get started“

Input - Example

John Deere

Production

farms and ranches

Production - Example

wheat, corn, soybeans, dairy, cattle

Processing

transform raw commodities into ingredient products

Manufacturing

Ingredient product to consumable product

Manufacturing - Example

Cornmeal to corn tortillas; general mills, purdue, nestle

Distribution

transport to retail markers

Distribution - example

Cisco

Retail

selling commodities to consumers; where products are sold

Vertical Integration

Single business with multiple different roles

Why does vertical integration exist?

It can be cheaper for a business to keep an aspect in house

Vertical Integration - Example

Poultry Industry

Horizontal Integration

Similar firms combining to realize economies of scale

Horizontal Integration - example

Disney acquiring pixar

Economies of Scale

Cost advantages a firm or business obtains from increasing the size/scale of their operation

Where does economies of scale result from?

Specialization and/or indivisibility of inputs

How much of US GDP came from agribusiness in 2023?

5.5%

Gross Domestic Product

value of all the goods and services produced in the US

Inflation

Decrease in purchasing power ($) driven by increases in price levels over time → rate of increase in prices overtime

Nominal Prices

The actual price for something at a particular point in time

Real Prices

Prices adjusted to take our inflation

What do we want to happen in production?

We want to find more efficient ways to use our inputs to produce more outputs

1834

Cyrus McCormick

what did Cyrus McCormick do?

horse-drawn mechanical reaper

1950s

Introduction of combines

1960s

Introduction of tractors

What happened in from 1834 to 2026 (192 years)?

Sudden exponential boom in farming outputs due to new technologies

What is the work of management focused on?

Using inputs to produce outputs

the BLANK of management is measured two primary ways:

Technical and economic efficiency

Technical Efficiency

Output per unit of input

Economic efficiency

profit per unit of output

Profit

What’s left over after a good/service is sold and all relevant expenses are paid

Profit - equation

= Revenue - Expenses

What are the four functions of management?

Planning, organizing, controlling, Directing

Planning function

All activities that determine the future of a business

Objective - planning

Put firm in best possible position

Why does planning function exist; in terms of thinking about the future?

Put in best possible position for future business conditions and for customer demands

How does the planning function begin?

Developing organization and a marketing plan

Marking plan

1. Define firm’s purpose

2. Statement of firm’s objective

Developing organization

structure of firm

Organizing function

all the activities surrounding how a business is set up

Development of organizational scheme

accomplishes purpose and objective efficiently and effectively

Organizing function - selection of legal structure

Sole proprietorship - one man show

partnership

cooperative/corporation

Controlling function

Activities associated with giving management feedback on performance and progress toward goals set in planning

What does the controlling function include?

Individual progress & progress of department or business

Directing Function

Implementation of the previous three functions

How much time is spent in the directing function?

~90% of managers time spent here

Successful directing relies strongly on:

Good leadership skills to accomplish mission

Wise managers manage their technological, financial, and physical resources, but are careful to BLANK their people

lead

A business can never be BLANK than the people that work there

Better

Marketing

All business activity that helps satisfy consumer needs by coordinating the flow of goods and services from producers to consumers

Utility

Measure of satisfaction

For whom is the product to be produced? Who is the customer?

Demographics: age, income, location, education

What is to be produced?

One thing, options, sizes, bundles

How much is to be produced?

Forecast

Who produces it?

One firm or multiple

When should production start?

Seasonality

Subsistence

No marketing; produced what you consume, no more

Specialization and trade

Trading goods for goods; a barter economy

Central Markets

Barter system; increase in farmers markets, livestock markets, future markets

Money Exchange

Currency

When was the end of the barter system?

Money exchange

middlepersons

facility market operations

What are facility market operations?

The building of markets; both physical and online

Producers want…

to charge the highest prices

Consumers want…

to pay the lowest prices

What are the barriers to consumer satisfaction?

Ownership, time, space, form, information

ownership separation

inability to transfer ownership of produt

time separation

product not available when its desired (seasonaility)

space separation

not where it is needed

what does amazon help to reduce?

space separation

form separation

not in form desired

information separation

lack of information about the product

what are the exchange functions

buying and selling

buying and selling separation

transfer of ownership rights from seller to buyer

buying and selling separation ex of

ownership separation

Storage - time

maintain product in good condition between product to final sale

transportation - space

move product from where produced to where consumers desire it

processing - value

transforming commodity into form with greater value

grades and standards - information

classification system

financing - value, time, space

provides funds for production processing, storage, and transportation

risk taking - time

assumes physical price risks between purchase of sale

market information - info

discriminates info on price inventory levels, embargos

utilities

form, time, place, possession

relative to the barriers, what will satisfy the consumer?

consumer purchases satisfaction rather than the product itself

why does consumer purchases satisfaction rather than the product itself?

scarcity

efficiency

how easily goods flow from producers to consumers

fairness

how well the marketing system meets the needs of consumers

In a free market, BLANK responds to a market, they do not control it

firms

Who are the price makers in the market?

consumers

relationship between number of firms in an industry and the size and cost structure of individual firms

sufficient number of firms within industry large enough to keep cost down

concentration ratio

% of business (sales $) conducted by a given # of firms

CR4

% of sales by top four firms in a given industry

CR8

% of sales by top 8 firms in a given industry

BLANK want to eliminate competition

Producers/sellers

BLANK want more competition to reduce prices (lower ratios)

consumers/buyers

Who are the big 4 in food sales?

Tysons Food, Cargill, JBS USA, National Beef Packing Company

Barriers to entry/exit

things that prevent producers from entering markets