how does agribusiness work? what are the different parts of agribusiness?

agribusiness handshake

Good or bad, agribusiness is an undeniable part of the agricultural landscape. We often associate the concept with (bad) industry practices and giant corporations. These associations aren’t wrong, but there is so much more to agribusiness than widely- known cultural giants with poor social and environmental track records.

So, what does agribusiness really mean?

The original definition put forward by Davis and Goldberg (the fathers of agribusiness, 1957) is

“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. Thus, agribusiness essentially encompasses today the functions which the term agriculture denoted 150 years ago. “

This means that agribusiness encompasses all the activities that enable the production and utilization of the output of agricultural systems. In other words, the concept of agribusiness asserts that there is a network of actions in addition to ‘just’ farming that brings food and fibers in their various forms to markets and end users.

The range of stakeholders and actors who contribute to this process are varied and the number of participants in the system has rapidly grown throughout the past century as agricultural production has evolved into a complex and multifaceted sector. Such an evolution follows the advent of industrialization and the adoption of Green Revolution practices.

These stakeholders, e.g. producers of farm inputs like seeds and machinery or salesmen, are the primary drivers of the growth of agribusiness because they both develop and compete for ‘their’ part in agricultural industries. That is, they are the middlemen between the producer and the consumer who aim to benefit from so-called value-added services and activities.

These intermediaries are diverse but interconnected as they open up new channels for capital exchange. In most cases, these individuals or groups can be sorted into three groups: 1) service, 2) research & development (R&D), and 3) finance.

In this respect, service can refer either to activities such as consultation, brokering and sales, or activities that directly facilitate farming activities. In the case of the former, the actors are often the connections between other actors in an agribusiness environment. They do not necessarily produce a tangible end-product, but they support and facilitate other agribusiness interactions. In the case, of the latter, service can refer to actions such as spraying pesticides, installing irrigation systems, renting farm equipment, or slaughtering animals. These activities enable the growing, harvesting, and processing of agricultural commodities. Retailers, wholesalers, and distributors are also part of the service field. They contribute to the sector by bringing agricultural outputs to markets.

Research and development is less abstract because it relates to actions taken to expand knowledge, create new products or services, and overcome existing barriers to production. Both private and public entities engage in research and development, often with similar goals but divergent benefits. For example, for private entities, the historic objective is improved profits. On the other hand, public entities, e.g. land grant universities, aim to share knowledge and enable farmers to be more effective in their practices.

Finance in agribusiness is the variable that provides capital to farms and agricultural businesses to expand and grow. In most instances, financing comes from banks but there are alternative options such as cooperatives. When financing is employed, there are outside forces that impact business practices. This can, in turn, drive farms and farm-related businesses to engage in financial profit maximizing activities. That is not to say that not all farms or farm businesses want to earn profits, but the morality of some profit maximizing practices, e.g. factory farming or labor exploitation, comes into question because social or environmental impacts are not taken into consideration.

The interactions between research and development, service, and finance in combination with the act of farming, demonstrate the concept of agribusiness. This concept does not apply exclusively to agriculture at a large scale since very few farms are completely self-sustaining. However, when engaging with larger network and larger industry players, the drive towards and dependency on an agribusiness management approach becomes entrenched.

The effects of such practices is highly dependent on governance because adopted norms and industry standards drive the culture of the industry. At present, the accepted practices of the industry have several functional benefits but (a lack of) regulations have enabled an increasingly small number of actors to enjoy said benefits. However, that is not to say that agribusiness principles couldn’t be applied differently to produce a more equitable and sustainable form of agribusiness (think Agribusiness 2.0).

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image credit

Decio Zylbersztajn

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