Exercise 1 Introduction to Agricultural Business Management
The term agri-business was first introduced by John Davis and Gold Berg in 1957 and their definition is as follows, “Agri-business is the sum total of all operations involved in the manufacture and distribution of farm supplies, production activities on the farm, storage, processing and distribution of farm commodities and items made from them” (John David and A. Gold Berg).
In 1980s it was given three connotations: (1) synonymous with term agriculture, (2) synonymous with agricultural economics and (3) a modified concept of agriculture, excluding farming, or the off-farm aspects of agriculture.
At present, agribusiness is defined as all business enterprises that cater farmers / traders / consumers. Such transactions may involve either an input or a produce or service and encompasses items such as:
1) Productive resources (feed, seed, fertilizer, equipment, energy, pesticides, machinery)
2) Agricultural commodities – (raw and processed or manufactured commodities of food and fiber)
3) Facilitative services (credit, insurance, marketing, storage, processing, transportation, packing, distribution, consultancy, soil testing).
In other words, agri-business is that sector of the economy which is concerned with the production, processing and distribution of agricultural products, including supplies (human labour, bullock labour, fertilizers, pesticides) essential for farm production, various agricultural services (processing, storage etc.) and also the economic agencies (financial institutions, warehouses, marketing agencies etc.) that serve agricultural producers.
Agricultural Economics Vs Agribusiness
Agribusiness is different from the study of agricultural economics as agricultural economics emphasizes on the economics of farm production alone whereas agribusiness in addition to that, also takes in to account non-farm agricultural enterprises (e.g. processing). Besides, in case of agribusiness thrust is given more on the business outside the scope of the farm (e.g.) the pricing objective of a firm includes not only profit maximization (of that of a farm) but also image building of a farm firm as well as to insulate from competitors.
Scope for Agribusiness in India
1. India is endowed with varied ago-climate, which facilitates production of temperate, sub-tropical and tropical agricultural commodities.
2. There is growing demand for agricultural inputs like feed and fodder, inorganic fertilizers, bio-fertilizers.
3. Biotechnology applications in agriculture have vast scope in production of seed, bio-control agents, industrial harnessing of microbes for bakery products.
4. Export can be harnessed as a source of economic growth.
5. The size of Indian food market is at least Rs. 450,000 crores (2014-15), which needs to be exploited well before exploring the opportunities abroad. An average Indian spends 53 per cent of his income on food.
6. As a signatory of World Trade Organization (WTO), India has vast potential to improve its present position in the World trade of agricultural commodities in both raw and processed form.
7. At present processing is done at primary level only and the rising standard of living expands opportunities for secondary and tertiary processing of agricultural commodities.
8. The enhanced agricultural production throws open opportunities for employment in marketing, transport, cold storage and warehousing facilities, credit, insurance and logistic support services.
9. Production of vegetables and flowers under green house conditions can be taken up to harness the export market.
10. There is wide scope for production and promotion of bio-pesticides and bio-control agents for crop protection
11. The vast coastal line and internal water courses provides enormous opportunity for production of marine and inland fish and ornamental fish culture gaining popularity with increase in aesthetic value among the citizens of India.
12. The livestock wealth gives enormous scope for production of meat, milk and milk products, poultry products etc.
13. The forest resources can be utilized for production of byproducts of forestry.
14. Beekeeping and apiary can be taken up on large scale in India.
Management is the unifying and coordinating action, which combines different activities of individuals or an organization through establishing an environment favourable of performance thereby leading to the accomplishment of desired objectives.
Important requisites/ tasks for success in business are:
Today, the business has become very competitive and complex. This is mainly due to changing taste and fashion of the consumers on the one hand, and introduction of substitute and cheaper and better competitive goods, on the other. Production has become customer-oriented catering their demands and wants. A farmer / business firm owner has to give proper thought to this consideration in order to make his business a successful one. The important requisites for success in business are:
1) Clean objectives
3) Sound organization
6) Proper plant location, layout, and size
7) Efficient management
8) Harmonious relationship with workers
Agricultural market and marketing management
Market: The word market comes from the latin word “markatus” which means merchandise or trade or a place where business is conducted. Various terms used for describing markets in India are hats, painths, shandies, santhais and bazzars.
The term markets means not a particular market place in which things are bought and sold but the whole of any region in which buyers and sellers are in such a free communicate with, one another the price of the same goods tend to equality, easily and quickly.
Marketing: Connects a series of activities involved in moving the goods from the point of production to the point of consumption. It is that part of economics which deal with the creation of time, place and possession utilities.
Agricultural marketing: It is the study of all the activities, agencies and policy involved in the procurement of farm inputs by the farmers and movement of agricultural products from the farms to the consumers.
Marketing activities: They are traditionally divided on the basis of operational activities, such as sales and distribution, and marketing service activities which include advertising, promotion and market research.
4 P’s in marketing: In considering the needs of their customers, companies must think in terms of the product itself, the price of the product and the place where the farmer needs it, while making sure that the existence of the product is known through effective promotion. These various components are described in more detail below,
Product: The product is the focus of marketing. Although many aspects of the product are not marketing responsibilities (such as plant breeding, seed production and processing), marketing is concerned with the product's attributes and what these mean to the farmer. Such factors include quality, appearance and performance.
Price: Price creates sales revenue and is therefore important in determining the total value of the sales made. Price is really determined by what farmers perceive as the value of seed of a particular variety. It is important to understand how farmers value seed as well as how much they are prepared to pay in relation to the benefit they expect to earn.
Place: The place factor deals with the various methods of transporting and storing seeds and then making them available to the farmer. Getting the product to the right place at the right time depends on the distribution system. The choice of distribution method will depend on market circumstances and the nature of both the seed and the farmer.
Promotion: Promotion is the business of communicating with and influencing the customer. Although the cost associated with promotion can be a significant element in the overall cost of a product, successful seed promotion increases sales so that costs are spread over a larger output. While increased promotional activity may be a response to competitor activity or a new product launch, it is important to maintain a constant flow of messages to the consumer as well as visibility in the market place.
Characteristics of a developed market:
(1) A good market should provide commodities which the consumers want and are ready to pay for.
(2) It should provide wide variety of product but not so wide that create confusion for consumers.
(3) No harmful products should be offered for sale in the market. Precautions should be taken into protect consumers.
(4) The information on the presence of goods in the market and their relative merits should be available to the entire prospective consumer.
(5) There should not be any sort of pressure on the consumers to buy products from a particular trader.
(6) The retailing servants should be available in the market for small consumer.
(7) Price should be fair and uniform for the products for all categories of consumers.
(8) There should not be any inefficiency or waste in the market.
Characteristics of good marketing system:
(1) There should not be any government interference in free market transactions.
(2) Market should operate independently but systematic and orderly
(3) The marketing system should bring demand & supply to gather and should establish an equilibrium between the this two forces
(4) The marketing system should be able to generate employment.
A payoff matrix depicts the probable value / expected value of each of the decision alternatives, by displaying the various outcomes and the probabilities of their occurrence.
A probability is the degree of likelihood that a particular event will occur. It ranges in value from 0 (no chance of occurring) to 1 (certain chance of occurring).
The expected value of an alternative course of action is the sum of values of all the predicted outcomes for the alternative multiplied by their respective probabilities.