ABM: AGRICULTURAL BUSINESS MANAGEMENT

This unit is about Agribusiness which is a large and growing segment of any particular rural economy and Agribusiness Management and Organizations which is the success of any human endeavour depends greatly on the quality of decision making associated with the nature of complex process surrounding the activity.

AGRICULTURAL BUSINESS MANAGEMENT

Definition of Agribusiness

Agribusiness is a large and growing segment of any particular rural economy in Africa. Forexample In Nigeria, the agribusiness operations need adequate planning, production management, and marketing beyond those of conventional farming systems. Agribusiness describes all economic activities that involve the distribution and or transformation of the raw materials that are from agricultural sector and non-agricultural sector; whose final products could be used for agricultural purposes and agro-allied enterprises. Agricultural business refers to a set of farm business and management activities that involve the production of food, provision of agricultural products within and outside a country.

Agricultural business also embodies wood and plant production all other forestry activities including fisheries. David and Goldberg(1987) in his definition perceived agribusiness to mean the sum total of all operations involved in the production of enterprises on the farm, the manufacturing and distribution of farm supplies and the equalization as well as dispersion services(such as storage, processing, standardization, grading, pricking, transportation and distribution)of farm products.

Agribusiness can therefore operate as formal and non-formal levels depending on the desired goals of its originator.

The characteristics of this economic sector in Nigeria is fast changing especially with the current move towards more certification of some of the component fields of agriculture.

Scope of Agribusiness.

Agribusiness is a large and diverse sector that witness economics activities that ranges from culturing, processing, extracting and distribution. Ebong (2007) in his review of the scope of the agribusiness, perceived agricultural business in three independent sectors, which are the Input sector, the Farm Production, and the Output (product) sector .

Input Sector: this includes all resources that serve as building units that are required to service a transformation process in order to achieve one or more products. The input sector supplies agribusiness production with the needed inputs in the production process.

The cost of acquisition of inputs has influence on the financial health of the input sector which directly impact on the wellbeing of the production sector in general. As inputs prices increase and farm income remains relatively stable, producers will reduce their utilization of the more expensive inputs and substitute other resources inputs for them. This is termed production substitution effect, for instance, if the more expensive inputs is machinery, farm form will use less of it and substitute manual labour for it.

This explains the downward sloping nature of the demand curve for tractors of agricultural production. The farm firm business covers such areas as Agrochemical input supplies e.g fuel, fertilizer, pesticides, herbicides and veterinary, feed machinery and equipment supplies e.g tractor wheel barrow, spade, matches, tyres etc., agricultural Financing from formal and non-formal sources and labour supplies both skilled and unskilled.

Farm Production Sector: the farm production sector of agribusiness covers such areas as the aquaculture, forestry, crop production and livestock. As this sector grows in size, level of out and efficiency, the other sector of agribusiness are affected. The success of this sector has a vital and direct impact on the financial stand of the input supply and the product sectors of the agribusiness.

The increase in the scale of production leads to more of the output being made available to the product sector for onward processing and distribution. As farm prices remain fairly stable expenses increase, pressure is exerted on farm, firms and ranchers to improve efficiency. Today the cost price squeeze is so serious that products are unable to cut cost or improve production efficiency to the extent necessary to deal with the problem. This explains why small farms continue to cut down production while larger farms become larger.

Output Sector: accepts diverse economics activities that could be directly identified within the agriculture domain or from a related fields which otherwise called agro-allied sector. The output sector is also referred to as the product sector and is the final sector in agribusiness production and distribution system. The output sector is the largest of the agribusiness sectors as its functions range from product processing to marketing and distribution of these products to various consumers either as raw materials for further production or final consumption. Notable examples of the product processing include, Food processing into garri, bread, cornflakes, tomato, foofoo, beef, custard, semovita, cerelac etc Beverage manufacturing: cocoa drinks, softdrinks, beer and Nescafe. Confectional processing such as sugar, chocolate, cake, biscuits, sweets, etc. Food packaging and canning such as tomato can beef, can beans and other quality foods.

Tobacco processing into snuff and treated leafs, cigarettes etc., wood processing and furniture making, Cotton processing into textiles, hide and skin processing example smoked, canned and frozen fish. Another important function of the product sector is the marketing and distribution of the outputs from the production sector and the processed products to final consumers. This function is performed by the middlemen who include wholesalers, the producers/processors/manufacturers themselves, retailers and commodity board and co-operatives agents.

The importance of this sector can be further highlighted by showing that even when food is abundant, faulty handling and distribution can make it unavailable to the consumers and therefore result in food and nutritional insecurity.

BELOW IS A VIDEO ABOUT THE AGRIBUSINESS MANAGEMENT

 Agribusiness Management and Organizations

What is Agribusiness Management?

The success of any human endeavour depends greatly on the quality of decision making associated with the nature of complex process surrounding the activity.

Thus, individuals are always confronted with sensitive and non-sensitive decisions making on human and material resources towards achieving its overall interests or goals. Therefore, the efforts of ensuring that instructional objectives are set up, executed and evaluated describe what is called management process. Different definitions and explanations of management abound, Kay(1986), Adegeye andDito(1981), Reddy, Ram, Sastry and Devi(2006) and Dessler(2008) but Ebong (2007) asserted that management of agribusiness could be defined as the active process of decision making to ensure planned and controlled use of available human and material resources to achieve the profit motive of the practitioners. For instance, the decision on how to produce, what to produce, where to produce, quantity of input to employ in production, whether these inputs should be owned or rented and the level of output to produce are decisions that affect the agribusiness profit. A key to successful management of agribusiness is accepting responsibility for leadership and making business decisions through the skillful application of management principles. Klonsky (2011) and Ebong (2007) admitted that management of agribusiness is extremely seasonal, it is products are perishable commodities and it goals in local commodities where long term interpersonal relationships coexist.

The art of management has several elements, which include:

. Stating the goals or objectives

. Deciding on how to achieve the objective and the general procedure included planning and testing of plan.

. Evaluation of the plan: organizing, supervising and control. Evaluation of the whole process: in evaluating the entire process we try to spot out the mistake. The result or the performance must be compared with the set standard and reasons for failure or differences must be identified.

To ensure harmony and effective managements of any agribusiness, top managers should be able to meet to review their achievement against the set objectives. This will in away minimize chances of failure.

A manager can be defined as that person who provides the agribusiness with leadership and who must be a change agent.

A good manager must therefore possess the following characteristics: Leadership and who must be a change agent.

A good manager must therefore possess the following characteristics:

Should be a goal oriented individual

Should have analytical ability

Should not be afraid of taking risk

Must have a good initiative

Must be highly intelligent and with enough to turn joke into naira and kobo

Have ability to coordinate and motivate others for a greater productivity.

Should be technically competent.

Be one with an enquiring mind.

Should be flexible, that is, know that today’s decision may be wrong tomorrow.

Should be ready to learn even from his subordinates.

Functions of Agribusiness Management

Dessler (2008) and Ebong (2007) view management of agribusiness as having a series of functions to perform. These functions include planning, organizing, directing, coordination and control.

Planning Function: this involves the establishment of the organizational goals and the strategies for accomplishing them. The planning function in agribusiness contains a number of steps. These steps include the identification and definition of a problem, acquiring initial information, identifying alternative courses of action and analyzing each alternative. It is the most basic management function as it means deciding on a course of action, procedure and policy. Nothing can happen in any agribusiness set-up until a course of action is selected.

Organizing Function: Organizing is an operational function of the agribusiness management, which depends heavily on the co-ordination of the entire system. Organizing function involves arranging people and other resources together in the most effective way.

This include:

Setting up the structure

Determining the job to be done.

Selecting, allocating and training of personnel

Establishing relationship with the business set-up and staffing them.

Organizing remains an action step in agribusiness management. Until the employees understand themselves and the agribusiness, cooperation and co-ordinated action become impossible to achieve.

Directing Function: It is the responsibility of the agribusiness management to direct resources. Directing implies routing resources to where they are mostly needed to ensure proper implementation of the plan. It involves such actions as assigning duties and responsibilities establishing the result to be achieved, delegating authorities where necessary, creating conducive working environment and carrying out the assigned duties effectively.

For a maximum result to be achieved, the agribusiness managers must take the interest of his staff into consideration and the need to re-evaluate every step in the directing function in order to achieve the desired goals. Coordinating Function: The coordinating function of agribusiness management involves the pulling together of the actions of different group of people in such a way that the action of one group provides and aid to the working of the other. Coordinating function can be effective only if conducive working environment is provided for success. It provides for free flow of information and the growth and development of the workers.

Controlling Function: Controlling in management describes an information system that monitors plans and process to ensure that they are meeting the established goals. A warning note is necessary to effect any remedial action. Prices and other changes, which occur after the plan had been implemented, can cause the result to deviate from the expected. Controlling function therefore monitors and makes adjustment for the managers to stay on business.

Environmental Factors Affecting Managerial Functions

The management process of agribusiness is seriously affected by number of environmental factors according to Ebong (2007), which include:

Formal Education

Socio-cultural factors

Lego-political aspects

Economic variables

Formal Education: Formal education of the manager is an essential aid to effective management in any agribusiness enterprise. The more educated the manager is, the better his managerial ability.

The person becomes more perceptive, thinks faster and more able to perform through a tailor made education or with a high formal educational attainment.

Socio-Cultural Factors: Socio-cultural factor play a significant role in shaping the effectiveness of the managerial process. They represent the most powerful factors and one that the manager has the least control on. For instance, a manager has to mix freely with different groups of people with diverse cultural background. The knowledge, belief, art, morals, customs and habits acquired by the employees as members of a given society affect their productivity. Lego-Political Factors: This reflects various salient variables and usually they include such factors as government regulations on duties, labour, laws, salary increases through collective bargaining, fringe benefits, bye-laws and statutes that affect the operation of an organization. Inconsistency in public policies on agribusiness development and political instability in a given economy have important bearing on the functioning of management process of agribusiness organization.

Economic Variable: The effect of this on management depends on the economics system the country operates. For instance, in a socialist system, the effectiveness of a manager is definitely going to be hampered by unrealistic demands by the central authority. In a free market economy or capitalist economy where prices are not stable, the supply and acquisition of agribusiness inputs will be greatly affected adversely. Under such system other factors as political instability, foreign exchange problems rapid economic expansion, industrial unrest and entrenched government bureaucracies are likely to set in.

Farm Management Decision

The quality of decisions taken on our various farms determines to a large extent the outcome and productivity of our agricultural economy or the agribusiness sector. Efficiency in management can lead to an increase in our agricultural output, which will directly affect our national income self-sufficiency in food production, saving of our foreign exchange earnings and eventually meeting the demands of our agro-allied industries. Since the goal of the farm management is that of profit making, appropriate and sound management decisions must bemade towards allocating limited resources to a number of production alternatives to organize and operate the business in a way to attend this noble objective.

There are many decisions that affect the profitability of any farming business.

For instance,  the decision on what to produce, how to produce, when to produce, whom to produce for, quantity of output to produce, combination of input to employ and how to distribute the output.

The farm manager decides what to produce a list of possible alternatives within his reach. The choice of what to produce depends on the demand of the consumers and the manpowerobjective. The farmer or manager must, as a matter of choice, produce what is in great demands by the consumers if he must dispose of his output for profit.

But if the manager’s objective is to produce for home consumption (subsistence), then he will produce to meet his family taste and preference. It is important to note that the objective for which the farmer produces a product affects the quality of the product. The agribusiness manager must also consider how to produce his particular products.

This involves the technology to employ such as mechanization in case of facing high demand; the input to use and in what proportion, over which enterprise are they to be allocated. The type of production method selected determines the total cost of production since there are different methods and techniques available for producing a particular crop. The farm manager usually uses the method of production that has the least cost. It is the responsibility of the manager to also decide on the level of output to produce.

There are many possible levels of output for any particular commodity given the available inputs. It is always advisable for managers to produce us much as he can sell. The manager must always choose the most profitable level of output to produce his given limitations. Decisions taken on our various farms have attendance implications. Certain characteristics must therefore be observed before taking these decisions, kay (1986) and Ebong (2008), some of which are discussed below:

Importance:

Generally, decisions vary according to their importance which is measured by the potential gains or loses associated with taking such decision. If the size of the potential loss is greater than the potential gain, it is better to wait until more relevant information (data) is obtained before making such decisions. For instance, the decision to crop more farmland may be more importance than decision to fence a farm area.

Frequency: There are some decisions that vary with respect to the frequency with which they are made. For example, the decision on feeding a broiler is done frequently. This kind of decisions are routine kind¸ which means that a feeding regime or schedule can be developed at the beginning of the feeding period and continues with it until condition of the bird demands for a change.

Imminence: Imminence by word means the penalty of waiting in order to make decision. Virtually all decisions a farm have expiring time (useful life). After the life of a decision, a penalty will surely be paid if time is wasted in implementing such decision. If the penalty is low, it is better to wait for more information whereas in a high penalty,, it is better to take a decision fast.

Availability of Alternate: Some situation present a multiple of possible alternatives for decision making while others present only two alternatives. For those that present multiple choices, the farm manager must be careful to delete a number of alternatives based on certain criteria and make decisions only on those alternatives that are relevant to impending circumstance.

Revocability: Decision made and revolved have attendance cost. If the cost of changing the decision will be enormous the farmer may not change the decision. For instance, if you decide to go into cocoa production, the cost of destroying the trees is far higher than the decision to grow yam.

Types of Agricultural Business Organization

Klonsky (2011) observed that the development of agribusiness from a laissez faire operation calls for its organization for efficient operation in a growing economy like ours. An agribusiness venture could be privately or publicly owned. Private ownership exists when individuals exercise the right and responsibilities of ownership. Public ownership also exists when government (Federal, State or Local) creates exercises and enjoys the ownership rights. Instance also exists where both the government and private individuals jointly own agribusiness enterprise.

In deciding whether to organize an individual proprietorship, a partnership, or a corporation, the following basic factors should be taken into consideration:

The owner(s) objectives and philosophies of the agribusiness.

The size of the agribusiness being started.

The organizing cost and the nature of work associated with the task of organizing it.

The amount of capital required.

The initial capital outlay available for the business.

The ease of obtaining additional capital

The tax liabilities and options available

The involvement of the owner(s) in the management and control of the agribusiness.

The desired method of distributing earnings and risk

The factors of stability or continuation and transfer of ownership available.

It is therefore the careful evaluation of these factors decisions that can help in theselection of most appropriate form of agribusiness organization namely: The sole proprietorship, partnership, agribusiness limited company, agribusiness cooperative and state farming.

The Sole Proprietorship

This is considered the oldest simplest and the most popular form of agribusiness organization. In most developed nations of the world, the agribusiness sole proprietorship is a very popular form of organization but the organization structure of the business tends to be affected seriously by inadequate finance. Agricultural sole proprietorship has only one owner who takes all the risks, enjoys all the profit and makes all the managerial decisions. He therefore takes the responsibilities (risks) of all that results from these decisions. In Nigeria, about 80% of the people are engaged as sole proprietors in agribusiness enterprise with more than 50% engaging in the production field of agriculture, forestry and fishery.

It should be noted that this form of agribusiness does not need any formal application to be approved by the government before starting operation. Because they are not registered legally, they do not pay taxes except they are recognize by tax collectors.

Advantages

The owner exerts complete control over plans, programmes, capital, policies and other management decisions.

Legal formalities are not necessary and license fees are low.

Termination or modification of the agribusiness is easy.

Under good financial standing of the proprietor, leaders would be most wiling to extend lending

(funds) to the proprietorship.

Disadvantages

Possession of limited amount of capital for the funding process thereby limited the size of the agribusiness and thus reducing the production scale.

Risk is great sine the owner is personally and unlimitedly liable for all debts to creditors. Lender are always reluctant to lend money to private owners of agribusiness except where collaterals are provided as security for such loans.

Sole proprietorship lacks stability and continuity as it depends solely on person. The dead of that person in effect ends the business.

The burden of overall direction and coordination may be beyond the proprietor’s capacity when the business becomes large.

Partnership in Agribusiness

This is a business that is owned by an association of two or more people (usually not exceeding) who share in both risk and profit. It constitutes about 10% agribusiness enterprises operating in Nigeria. Partnership Act of 1990 defines partnership as the relationship that subsists between two or more people carrying out lawful business with a view to making profit.

Due to limited and insufficient funds available to the sole proprietor, it is often necessary for individual to full their resources (capital, labour, management, expertise, etc.) together in order to reap income of scale. Partnership agreement can either be written or oral or on contract between parties involved. Nevertheless, it is strongly advisable that partnership agreement be written to avoid any misunderstanding among member and for ease or reference. This agreement may set forth respective rights and obligations, determine the share of ownership for each opartner and state how profits or losses will be appropriated.

Advantages of Partnership

Partnership brings together more resources (human, capital etc.) than the sole proprietorship.

It benefits from the enormous talented individuals involved in the business.

They are very much motivated in nature than proprietorship in terms of good welfare scheme for the workers.

Credit is more easily available, because all partners are personally liable for the debts of the partnership.

Partnership; he partnership only pay tax on the allocated shares and no tax is paid in the business as a whole.

Disadvantages of Partnership

In a general partnership each partner is personally and unlimitedly liable for all the debts of the agribusiness firm.

A limited partnership suffers the lack of both ready funds for business and talented people as compared tot eh corporation.

There is lack of stability and continuity of the partnership in a limited partnership.

The size of the agribusiness firm is limited to the patters resources, since the scale of securities in the markets is not possible as it would be with a corporate ownership. Limited Company (Company Farming)

Most Nigerian farmers are either operating as soil proprietorships or in partnership. Company status has not been used to a large extent in farming as in other business due to a natural reluctance of farmers and other agribusiness operators to load themselves with extra administrative burden. However, company farming is growing in popularity for large farms.

Here a few or many individuals may group themselves to carry out farming with the same rights and duties as an individual person.

The form of organization that embodies these attributes is the corporation which is limited by shares that individuals contribute and hence the name limited liability company. A limited company (corporation) is therefore a “body authorized by law as a private person…and legally endowed with various rights and duties”, among them to receiving own and transfer property to make contracts, and to sue and be sued. (Webster Dictionary, 1970). A limited company can raise large amount of capital outlay for the faming business bys selling stocks or shares of ownership to public livestock.

The accumulation of these capital resources provides opportunities for the shareholders

(owners of the company) to make profit (dividends) if it succeeds.

Advantages of Corporate Farming

The main advantage of a corporate farm is its limited liability. This feature guarantees that shareholders are liable for damages only on the extent of their shareholders.

Limited liability company have unlimited lifespan. This allows farm firms to make long range plans and thus can recruit, trait and motivate the best talent.

An investment in a publicly held company is liquid that is, can easily be converted to cash , be being bought and sold on stock exchange. This liquidity ensures them to raise far larger sums than other form of agribusiness organization.

Disadvantages

The most serious disadvantages lies on the tangle permit regulation requiring limited company to publicly disclosed its finances and certain corporate operations. Disclosing the company’s profits margin increase its vulnerability to an unpleasant competition. Agribusiness Cooperatives associations are non-profit organizations formed to provide goods and services to members at cost (Shubin, 1957) . the Nigeria small-scale farmers (agribusiness men) like their counter parts in other developing countries of the world, face a number of problems.

These range form the use of crude and outdated tools and techniques of production top lack of access to markets. Others include problems of fragmented and small size of holdings, low income, low yielding crop varieties and livestock, breeds, lack of production and consumption credit and fund mobilization.

Cooperation developed as a useful instrument for promoting the interest of those who voluntarily come together to solve most of the problems outlined above and enhance their own individual welfare.

The societies educational programmes be used as means of extending and introducing improved technologies to member. Cooperatives can also serve as important channels for marketing the produce of member and for such input seeds, fertilizers and farming equipment at reduced cost (Osuntogan, 1980). Farmers may receive lower credit cost through their cooperative societies as well as drive other benefit of large scale operation in production, marketing, credit and input purchases.

Depending on the type of agribusiness venture being carried out, co-operatives can be classified as “Producer”, “Consumer” or “Credit Cooperation”. Producer Cooperatives are organized by fishers, e.g. gain cooperatives, livestock cooperatives and fisheries cooperatives spread in the riverrine areas of Cross River, Akwa Ibom, Delta, Rivers, Bayelsa and Lagos states. Consumer cooperatives take care of the processing, marketing and distribution of agricultural products produced by member. They also grant loans to member to facilitate their processing and co-operative vary among the states of the Federation-Cocoa in the Western states, palm produced and rubber in the Eastern states and grains in the Northern states of Nigeria. Agricultural credit cooperatives are associations that are made up of thrift and credit societies.

They borrow funds from other financial institutions for on-lending to member and also provide saving facilities. Farmer multipurpose cooperatives also exist. As the name implies they offer two or more services to those involved in it. Most multipurpose cooperatives farmers to obtain improved inputs and serve also as village banks while others combine production with marketing and processing of agricultural produce.

The growth of cooperatives in Nigerian agriculture have been encourage by favourable government policies that are designed to help individual farmers help themselves. Therefore government rarely interferes in their activities but rather provide the new ones with subsidies, tax exemption and matching grants for infrastructural development as well as for legislation that gives them their legal status.

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