Agricultural Business

Unit 1:The Meaning and Importance of Agribusiness

What Does Agribusiness Mean To You? Write in your notebook your definition of

agribusiness. Turn to your neighbor and discuss

answers. (Write your neighbors name down in your book)

Write two things about your neighbor’s definition that you did not think about.

Agribusiness

“The sum total of all business activities involved in the production processing and distribution of agricultural products for the consumer”

What Agribusiness Is…

daily operation decision making planning evaluating must understand all aspects of the

business maximize profit

Agricultural Business

Unit1: Agribusiness Sectors

Agribusiness Sectors

Production Input Marketing

Agriculture Business 1.2.2

Agricultural Business

Unit1: Goal Setting, Decision Making and their Importance

Characteristics of Decisions

Importance: meet goals Frequency: daily, yearly Imminence: how soon Revocability: can it be reversed? Available Alternatives: choices

Strategies for Decision Making

reduce number of daily decisions collect data for alternatives establish priorities

What are the steps in the Decision Making Process?

1) define the problem (own or rent machinery or land)

2) gather information about alternative solutions

3) Evaluate alternative solutions

What are the steps in the Decision Making Process?4) make decisions consistent with goals

and objectives

5) take action

6) evaluate and accept consequences of your decision

What are Goals?

broad statements that show where you want to be after some period of time

make a profit every year increase grain sales by 12% over 5

years

What are Objectives?

the steps that must be taken in order to attain goals

Some examples:

- increase wheat production by 30% next year

- keep accurate records

What are the advantages of setting goals?

Provides “road map” Distinguishes between goals &

objectives Makes it easier to get where you are

going Prepares you to meet the future

What are the advantages of setting goals? You see the big picture & focus on

critical relationships Gives you purpose and direction Frees you from worries and

uncertainties about where you are headed

Guidelines for Setting Goals

Your own your goals Goals in writing Realistic and attainable Target dates, time limits Goals should be compatible

Remember SMART!

What are the types of Goals?

Short Term Goals:

attainable in less than 1 year Intermediate Term Goals:

1 to 10 years Long Term Goals:

more than 10 years

Priorities of Goals

Dollar Value Time Orderly Sequence

How Do you Reach your Goals?

Review goals Use time and effort wisely Organize Check for slow moving goals Modify goals

Agricultural Business

Unit 1: Economic Systems

Three Economic Questions What goods and

services will be produced?What do we have?

How will they be produced?Hand > machine >

elsewhere

Who gets the stuff?

3 Economic Systems

Economic system (economy) – an organized way of providing for the wants and needs of people.

1). Command

2). Market

3). Traditional

Command Economies

Economic activity is planned out by the government, with people having little influence.

Examples:CubaNorth KoreaFormer Soviet Union

Command Economies - Pros Allows an economy to

change direction very quickly.

•After Stalin’s first two Five Year Plans, Russia moved from a rural

agricultural economy to an industrial economy.

Command Economies - Pros Little uncertainty

as to who will do what.

No unemployment because the government gives everyone a job (whether it is needed or not).

Command Economies - Cons Not designed to meet the

wants of consumers. Stalin’s Five Year Plan

directed resources away from both agriculture and consumer goods.

Provides strange incentives Do just enough to meet

quotas.

Command Economies - Cons No rewards for individual

performance. No flexibility to handle

problems. Great Depression disrupted the

USSR’s First Five Year Plan

Requires a large decision making agency.Stalin’s Five Year Plans

governed all economic activity in Russia…that’s a lot of paperwork!

Market Economies People and businesses act in their own best

interests to answer the three basic economic questions.

Market Economies – How they work

Lure of personal and financial gain leads consumers and businesses to interact in various markets.

Each person acts as they see fit in order to advance their own interests.

The First Economist – Adam Smith

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

Market Economies - Pros

Economy can adjust to change over time Businesses can adapt to changing consumer tastes

by creating new/different products.

High degree of individual freedom Businesses and individuals are free to do what they

want.

Market Economies – More Pros Small degree of

government interference (Mixed Economy)

Economic decisions are made by all, not limited to government officials.

Seemingly unlimited variety of goods and services available to consumers

Market Economies - Cons Does not provide for

the basic needs of everyone. Elderly, disabled and

other groups would be unable to survive in a market economy without governmental assistance.

Market Economies – More Cons Does not provide

certain services that people value. National Defense &

Education.

High degree of uncertainty Jobs going overseas Market Failures

Traditional Economies

Economic activity is based on tradition with roles determined by previous generations.

Examples: Medieval Europe Various hunting tribes in

Africa and northern Canada

Traditional Economies – Pros Everyone knows

what their role is.

Life is generally predictable and stable.

Traditional Economies - Cons Discourages new ideas and new ways of doing

things.

Lack of progress leads to a lower standard of living.

The US Economic System Mixed Economy

Capitalism

Based on 4 important principlesPrivate PropertyFreedom of choiceProfitCompetition

Economic Goals

Economic Freedom Economic Equity Economic Security Price Stability

Economic Freedom Individuals have freedom to choose their

own occupations, employers, and spending habits.

Businesses have freedom to choose how and where to produce goods/services.

Are we meeting this goal?

Economic Equity People should receive equal pay for equal work.

People should receive adequate pay for the work they perform.

People should all have the same opportunities to get ahead.

Are we meeting this goal?

Economic Security We should have protection from

negative economic events such as layoffs and injuries.Social Security – federal program that

provides disability and retirement benefits.

Everyone should have their basic needs met.

Are we meeting this goal?

Price Stability

We should have stable prices that protect against inflation.Inflation – a rise in the general level of

prices.

Are we meeting this goal?

When economic goals are not met… …People get

mad!!!!!!!

Agricultural Business

Unit1: Free Enterprise

Free Enterprise System

Freedom is the principle on which the United States was founded.

Freedom is also the cornerstone of the American economic system.

It is often called the free enterprise system because of the freedoms of the marketplace.

Free Enterprise System Features Owning private property is one of the

most basic freedoms of the free enterprise system.

Individuals and businesses in the United States (US) are free to enter into contracts.

Free Enterprise System Features Individuals in the US are free to make

personal choices and communicate those choices through the price system.

Individuals in the US are free to engage in free enterprise and competition.

The American economic system is relatively free from government interference.

Goals for Free Enterprise

A major goal of the American economic system is to maintain economic freedom.

Another goal of the free enterprise system is efficiency.

Goals for Free Enterprise

A sense of justice for all is part of America's heritage, and in economic terms this goal is known as economic equity.

Economic security is another goal the government works toward.

The last aim of the free enterprise system is economic growth.

Agricultural Business

Unit1: Sole Proprietorships, Partnerships, Corporations, LLCs, and Cooperatives

A Business Organization Should:

Be simple

Provide access to sufficient resources such as capital, land, labor

Encourage planning ahead for as many years as possible

A Business Organization Should: Increase efficiency

- land

- labor

- capital

- machinery

Distribute benefits fairly on the basis of contributions to the business

Factors to Consider

Who owns the business organization Ability to acquire resources Life of organization What is the Liability of the owners

Factors to Consider

Who makes Management Decisions? How to transfer ownership Problems for tax planning? Problems for estate planning?

Types of Farm Business Organizations Sole Proprietorship Partnership Corporation LLC Cooperatives

Sole Proprietorship Most business use this 85.7% of US farms Easiest to form Few government restrictions

Sole Proprietorship

Sole management decisions May quickly expand or contract bus. Receive all the profit, thus more work

incentive No disagreements with partners

Sole Proprietorship

Raising capital may be difficult May not have time to make careful

management decisions Must like to make decisions Responsible for all debts May be physically unable to continue an

enterprise

Raising Capital under Sole Proprietorship Lease rather than own Owner/Manager does all the work Parents may cosign loans Rent parents equipment Off-farm income

Partnership

An association of two or more co-owners

Death dissolves the partnership unless other arrangements made

Each member liable for all debts Property may be owned by partnership

or individual owners Profit/loss divided according to specific

agreements

Partnership

Goals of all partners should be same Must respect opinion of partners Business large enough to support all

partners Complete records, sound management,

common sense with $ Written agreement Pooling of capital and knowledge

Partnership

Share management and labor Each partner is liable for the other’s

wrong doings Unlimited liability of each partner may

restrict credit use

Partnership Agreement

Written document Transfer of ownership at the termination

of the partnership Machinery lease Life insurance to help buy out partner

upon death

Partnership Agreement

Purchase Liability Insurance Who makes management decisions Who does records How are partners paid

based on contributions to partnership

Partnerships fail because of misunderstandings

Limited Partnership One or more partners liable for debts and

obligations Limited partner can not participate in the

management of business Limited partners name can not appear in the

partnership name In writing Specifically indicate share of profit Consult an attorney “Silent Partner”

Farm Corporation Advantages Possible access to more capital Pool money together

Farm Corporation Advantages Separation of ownership and

management Ex: One or two children can manage

the farm, while all the siblings share in the ownership

Farm Corporation Advantages Ease of continuing in business Upon death of a stock owner, only the

stock is subject to probate, not the assets

Farm Corporation Advantages Easily transferred ownership Sell or give away stock in the bus. Gifts of stock do not have to be recorded

with the county clerk (more private)

Farm Corporation Advantages Opportunity for tax savings Some benefits (insurance, profit sharing

plans) are tax deductible

Farm Corporation Advantages Limited Liability Shareholder’s liability limited to the

amount of their contribution

Farm Corporation Disadvantages Complicated and costly to organize

Filing feesArticles of incorporationInitial legal and accounting expenses

Farm Corporation Disadvantages Continuing costs to maintain a

corporation

Farm Corporation Disadvantages May be difficulty in obtaining credit

lenders may be unfamiliar with the corporation

more complicated borrowing procedures

Farm Corporation Disadvantages May be no freedom of action Corporation money can not be spent on

personal things Management decisions must be made in

accordance with corporation policies, bylaws

Farm Corporation Disadvantages Lawsuits If personal items are transferred to the

corporation, they may be taken as assets of the corporation if sued

Farm Corporation Disadvantages Minority stockholder problems Second generation stockholders may

not be satisfied with dividends and rights

Farm Corporation Disadvantages Income tax laws are unique

Farm Corporation Disadvantages Corporations may cause complicated

and expensive termination Only incorporate if you intend the

business to continue indefinitely

S-Corporation

Mostly the same as a regular corporation

Is not taxed as a separate entity All the tax items are passed on to the

stockholders much like a partnership

Cooperatives

Not intended to make a profit Owned and controlled by the member-

patrons Profits are returned to the members

based on patronage

Kinds of Cooperatives Marketing Coops

grain elevators, dairy products, orange juice

Purchasing Coopsfeed, fuel, fertilizer, supplies

Service Coopsfood buying, feeder pigs, electricity

Processing Coops Credit Coops

PCA, Federal Land Bank, Bank of Cooperatives

Purposes of Cooperatives

Improve economic well-being of farmers Securing higher market prices Securing more favorable input prices Provide new or improved services Provide credit Become involved in processing

Characteristics of Co-op

Owned by members who use them Member control

each member has voice in business affairseach member helps select board of directors

Non-profit basis Mutual interest and needs of members

Characteristics of Co-op

Members share risk in proportion to amount of business they do

Members select board of directorsresponsible for management, policy,

insuring that coop is managed according to the wishes of the majority of members

Financing a Cooperative

Sell stock in the Co-Opstock can not appreciate in value

Use Co-Op funds to finance and invest in long-term assets