#10 Agribusiness Modalities

Agribusiness Modalities

• Various integrative arrangements among the different players in the agribusiness system

• business model describes how any given enterprise, large or small, informal or formal does a business, markets its products and sources inputs and finance (FAO, 2015)

Comprehensive Agrarian Reform Program

Agribusiness modalities are a response to the fragmentation caused by “ “ when farmers were given land (ARBs- Agrarian Reform Beneficiaries)

Producers, Buyers, Public institutions, Intermediaries

4 Drivers of Business Models:

Readiness

Consideration for agribusiness modalities to work: “ “ of both stakeholders to enter into a partnership – “value formation, business mindset on the part of the farmers

Mutual trust

Consideration for agribusiness modalities to work: “ “ between the stakeholders

and the time it may take to develop

Appropriateness

Consideration for agribusiness modalities to work: The “ “ of the commodity lines and extent of business system

Contract Growing

• A buyer-driven model

• An agricultural production carried out according to an agreement between farmers and buyers with established conditions for production and marketing of product

• A model that provides market access, financial support and technical and management assistance to farmers while ensuring raw material supplies and availability of products for sale to the processors or buyers

Production contract

The parties in contract growing are bound by a:

farmer and integrator

The common parties in contract growing are the “ “ and the “ “ or sponsor

Centralized model

Variant of contract growership:

• Involves a centralized processor and/or packer buying from a large number of small farmers

• Is used for tree crops, annual crops, poultry, dairy

• Is vertically coordinated with quota allocation and tight quality control

Nucleus estate model

• The central estate is usually used to guarantee throughput for the processing plant

• Involves a significant provision of material and management inputs.

• The processing plant is usually in the center (core or nucleus) of the contract grower farms owned by or managed by small farmers.

private corporate sector

The integrators of centralized models are usually “ “.

private corporations or government agencies

The integrator of nucleus estate model in most cases are “ “ or “ “.

Multipartite model

• May involve a variety of organizations frequently including government entities

• Can develop from the centralized nucleus estate models, e.g. through organization of farmers into cooperatives or the involvement of financial institutions

• Excellent coordination is needed; internal management difficult.

Informal model

• Usually adopted by individual entrepreneurs or small companies

• Involves production contracts usually on seasonal basis

• Involves greater risk of extra contractual marketing

• Common for short term crops such as fresh vegetables for supermarkets

• Contracts maybe verbal or informal registration

Intermerdiary model

• Integrators are serving as intermediaries between farmers and buyers

• Integrators are involved in subcontracting linkages with farmers to intermediaries

• There is a danger that the integrator loses control of production and quality as well as prices received by farmers

Contract marketing

• an agreement between two parties where one party agrees to sell to another party

• focus on the commodities’ quality levels, prices and how these will be delivered

Cooperative plantation

• Consolidation of farms owned by individual members

• Established to provide members with economic benefits in terms of access to dynamic markets

• Key decisions are made by the board of directors/general assembly

• Day to day supervision is made by the manager

• Members supply labor and other inputs

Leasing Arrangement

• Land owners may enter into a leasehold contract with a business firm or individual for an agreed period of time which may be extended upon mutual agreement

• Lessor/lessee share is agreed upon by the two parties

Lessee

Has the control over the farm within the bounds of the agreement

Joint venture

• Arrangement where a new business is organized with the farmers and a business firm as stockholders

• Equity contributions are either in cash or in kind

• Activities may cut across several commodities and functions

labor and land

In joint venture, farmers contribute “ “ and “ “ improvements

new technologies and assets

In joint venture, business firms provide “ “ and “ “

Build-Operate-Transfer

• An arrangement wherein the business firm undertake investments in infrastructure facility and operation and maintenance for a period, not to exceed 25 years, during which the firm is expected to recover its investment and earn a reasonable profit

• The infrastructure then is turned over to the farmers’ group

• In the Philippines, this model is usually initiated by concerned government agencies whose objective is to provide infrastructure facilities for the famers or MSMEs

Clustering

• For fast integration, economies of scale and competitiveness

• Coordination, cooperation, or even collaboration among related operations at pre-production, production, or post-production

• This could be done by commodities or by group of farmers

• Technical support and strengthening of forward linkages are important

• This maybe supported by different coordinating bodies such as the government, non-government organizations and private companies.

Community Supported Agriculture

• One of an array of alternative agricultural processes

• A localized food production and consumption system organized to share farming risks between producers and consumers, practice ecologically sensitive forms of food production and contribute to building community and educating the shareholders about agricultural processes and realities through their participation

Subscription or farmer-driven

The farmer organizes the Community Supported Agriculture and makes most of the management decisions.

Shareholder or consumer-driven

Consumers organize the Community Supported Agriculture and hire the farmer to grow what they want.